The Halo Effect: How Managers Let Themselves Be Deceived Paperback – 6 Oct 2008
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Why do some companies prosper while others fail? Despite great amounts of research, many of the studies that claim to pin down the secret of success are based in pseudoscience. THE HALO EFFECT is the outcome of that pseudoscience, a myth that Philip Rosenzweig masterfully debunks in THE HALO EFFECT. THE HALO EFFECT highlights the tendency of experts to point to the high financial performance of a successful company and then spread its golden glow to all of the company's attributes - clear strategy, strong values, and brilliant leadership. But in fact, as Rosenzweig clearly illustrates, the experts are not just wrong, but deluded. Rosenzweig suggests a more accurate way to think about leading a company, a robust and clearheaded approach that can save any business from ultimate failure.
About the Author
Phil Rosenzweig is a professor at the International Institute for Management Development (IMD) in Lausanne, Switzerland. Formerly at Harvard Business School, he has published numerous articles on business policy and management. He lives in Sedbergh, Cumbria and Lausanne.
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This book provides a major warning that recipes for success in these books are often misleading. It's particularly critical of best sellers like "In Search Of Excellence", "Built To Last" and "Good To Great" for their research methods and extravagant claims.
The problem is the title of the book - the halo effect. It seems that generally people assess successful, growing, profitable companies as having a wide range of virtues while struggling companies must be weak at many things. It sounds sensible but problems occur when a good company becomes bad, despite carrying on with all the virtues.
The book correctly identifies as a big issue that companies don't operate in a vacuum. A company can improve in many different ways but still fall behind an existing competitor or new entrant to the market. It then goes on to talk about the importance of both strategy and execution. Getting one right isn't enough and strategic choices are inevitably uncertain. I welcome this focus on strategy although the development of that body of knowledge isn't without its difficulties.
The book also briefly looks at something that is the focus of Goldrat's Theory Of Constraints. At any time, there is one big leverage point - the constraint - and improvements away from that area will have a disappointing impact.
The author then goes on to look at three successful executive who do things the right way because of their process of recognising opportunities and the associated risks.
I can understand why people give the book a five star rating. I haven't because I'd have liked to have seen more discussion on doing the right things in the right way. Much more time is spent knocking down than building up. I feel this might give people the wrong impression. There is plenty to learn from reading business books and they can inspire people to question what they are doing and what they need to be doing in the future. Many books are bought and not even started, probably more are started and not finished.
I believe you can learn from what people have done to create business success and what others have done or not done that leads to failure. You don't have to keep reinventing the wheel. However the right things to do are dependent on your own situation. Just like in medicine, applying the right cure to the right situation is likely to work, the wrong prescription to a problem won't solve it and may make things worse.
Paul Simister, a business coach who helps business owners who are stuck, get unstuck.
So Rosenzweig's scepticism of the established approach, of describing the attributes of successful companies as a primary means of answering the question why some companies prosper while others fail, is convincing. He argues the case well for scepticism of a number of common delusions, the most basic of them all being the Halo Effect - a natural human tendency to make attributions based on cues we think are reliable. But beauty is in the eye of the beholder. When times were good ABB was a New Age wonder with a great corporate culture, a futuristic organisation and a hero at the helm. When it collapsed ABB was remembered as having a complacent culture, a chaotic organisation and an arrogant leader. ABB had not changed much but the conventional wisdom changed rapidly.
With a wide assortment of specific references to individual companies and people, which maintains the interest in the book, he takes us through the delusions of correlations and causality, single explanations, connecting winning dots, rigorous research and lasting success.
He credits many of the classic business books and deluge of autobiographies of iconic business leaders as being good stories but claims as science they are deeply flawed. They focus attention on the wrong priorities and lead managers in dangerous directions.
Rosenzweig is strong on sceptiscm. But that is the easy bit. What does lead to high performance?
His answers are firstly the risky business of strategic choice - fundamental decisions that set a company apart from its rivals. Strategic decisions are inherently risky - the risk of customer appeal and acceptance, of competitor reaction, of technological change. And it is the assessment and acceptance of this risk with the consequent possibility of failure which sets companies apart. Many fail and the fear of failure is one of the strongest motivators.
And secondly the uncertainties of execution. Flawless execution is, of course, applauded in many books. But Rosenzweig argues it is not the importance of flawless execution across the board, it is the identification of the few elements of execution that are most important to deliver a chosen strategy.
The thrust of the book certainly resonates with my business experience, if underestimating the importance of time, effort and imagination in formulating and constantly revisiting strategic choices. But it is an engrossing read. If it helps you think for yourself then it must be a worthwhile read.
Whether it is "In search of excellence", "Built to Last" or "Good to great", by the end of this book you will I reckon have a more questioning attitude to such works (if not 100% cycnical) because this book challenges many preconceptions and makes you think and look afresh at how one will ever achieve success in business management.
The theme is not just "cutting tall poppies" down to size, but more basically that nothing is as simple or easy as many have claimed in writing such books. His chapter on why "strategy" and "execution" are actually so hard to do well, is alone worth the price of the book for me.
The core argument of the "delusions" being based on too much retropsective story telling is bought full circle by the three examples at the end of companies and business leaders who have in the authors opinion sought to face reality and do not underestimate the uncertainty that faces everyone.
A highly recommended book since it makes its points thoroughly and cogently and as such comes over as thoughtful and provoking of fresh views - as such it is a welcome change from too many of the best selling tirade type books that have come to represent both business but also political and history bestsellers recently. Definitely a book that is long overdue and one hopes will be succesful plus lead to more realism in such future writing.