[.ca] The Halo Effect: ... and the Eight Other Business ... (ISBN 0743291255)

Excellent. Asks probing questions and makes you THINK.:
I read "Good to Great" and "Built to Last" some years ago because they were bestsellers and had good reviews. Although I did enjoy reading them, a voice in my head kept asking questions regarding the reliability of the research and findings. After reading "The Halo Effect", I was relieved and happy to learn that I am not the only person asking these questions. The world of business is complicated, uncertain and unpredictable. A company's performance depends upon a variety of factors beyond the actions of its managers. These include currency shifts, competitors' actions, shifts in consumer preferences, technological advances, etc. The first delusion is the Halo Effect, the tendency to look at a company's overall performance and make attributions about its culture, leadership, values, and more. Our thinking is prejudiced by financial performance. In good times, companies are praised and their success is attributed to a variety of internal factors. In bad times, companies are criticized and these factors, which may not have changed, are attributed for the failures. The reality is more complicated and dependent upon uncertain and unpredictable factors. An interesting section of this book is the one on the delusion of absolute performance. Company performance is relative, not absolute. A company can improve and fall further behind its rivals at the same time. For instance, GM today produces cars with better quality and more features than in the past. But its loss in market share is owed to a myriad of factors, including Asian competitors. This is an excellent book because it will make you THINK. Is an oil company great if its profits soared when oil prices went up? Can the formulas used by successful companies in the 80s or 90s be applied to guarantee success today? A professor once told me that to predict future performance by analyzing past data is like driving a car forward while looking at the rear view mirror. In the appendix of this book there are tables showing the performance of the companies studied in "In Search of Excellence" and "Built to Last". It is interesting to note the difference in performance in the years before and after these studies. The author, Phil Rosenzweig, is a professor at IMD in Switzerland and former Harvard Business School professor. He wrote this book to stimulate discussion and help managers become wiser - "more discerning, more appropriately skeptical, and less vulnerable to simplistic formulas and quick fix remedies." In my case, this book has given me a new perspective on business books. The following is a brief summary of the nine delusions: 1. Halo Effect: Tendency to look at a company's overall performance and make attributions about its culture, leadership, values, and more. 2. Correlation and Causality: Two things may be correlated, but we may not know which one causes which. 3. Single Explanations: Many studies show that a particular factor leads to improved performance. But since many of these factors are highly correlated, the effect of each one is usually less than suggested. 4. Connecting the Winning Dots: If we pick a number of successful companies and search for what they have in common, we'll never isolate the reasons for their success, because we have no way of comparing them with less successful companies. 5. Rigorous Research: If the data aren't of good quality, the data size and research methodology don't matter. 6. Lasting Success: Almost all high-performing companies regress over time. The promise of a blueprint for lasting success is attractive but unrealistic. 7. Absolute Performance: Company performance is relative, not absolute. A company can improve and fall further behind its rivals at the same time. 8. The Wrong End of the Stick: It may be true that successful companies often pursued highly focused strategies, but highly focused strategies do not necessarily lead to success. 9. Organizational Physics: Company performance doesn't obey immutable laws of nature and can't be predicted with the accuracy of science - despite our desire for certainty and order. Overall, I found this to be an excellent book and recommend it to all managers.

How to separate the "nuggets" from the "nonsense":
According to Phil Rosenzweig, "The central idea in this book is that our thinking about business is shaped by a number of delusions...the ones that distort our understanding of company performance, that make it difficult to know why one company succeeds and another fails. These errors of thinking pervade much that we read about business, whether in leading magazines or scholarly journals or management bestsellers. They cloud our ability to think clearly and critically about the nature of business." When our minds play tricks on is, the result is an illusion. "But if you think you can lace up a pair of Nikes, grab a basketball, and be like Mike \oi.e. Michael Jordan\c, that's a delusion. You're kidding yourself." Rosenzweig identifies nine separate but somewhat related delusions, the first being the Halo Effect: "The tendency to look at a company's performance and make attributions about its culture, leadership, values, and more. In fact, many things we commonly claim drive company performance are simply attributions based on prior performance. For example, he calls into question the validity research conducted for several of the most successful business books of recent years, notably In Search of Excellence co-authored by Tom Peters and Robert Waterman (1982) and Jim Collins' Good to Great (2001). "According to Peters and Waterman, America's best companies do not only a few of the eight exemplary practices, they do them all together. "In Search of Excellence was nothing less than an affirmation of basic principles of good management...How good was their research? Peters admitted in 2001 that the quantitative data analysis came after they had reached their findings...'I confess, we faked the data.'....Peters and Waterman went searching for excellence, but they found a handful of Halos." "Collins claimed to explain why some companies made the leap \ofrom good to great\c while others didn't, but in fact he did nothing of the kind. Good to Great documented what was written and said about the companies that had made the leap versus those that had not - which is completely different." More specifically, Rosenzweig explains, "If you start by selecting companies based on outcome, and then gather data by conducting retrospective interviews and collecting articles from the business press, you're not likely to discover what led some companies to become Great. You'll mainly catch the glow from the Halo Effect." Rosenzweig seems to have no quarrel whatsoever with any of the basic principles of good management that Peters and Waterman, Collins, and other prominent business book authors affirm. If I understand his ultimate objective (and I may not), it is to eliminate any delusions his reader may have about what leads to high performance in business. What then really works? "Nothing! At least not all the time." Rosenzweig concludes his book with observations that include these: "Success rarely lasts as long as we like - for the most part, long-term success is a delusion based on selection after the fact." "Company performance is relative, not absolute. A company can get better and fall further behind at the same time." "Execution, too, is uncertain - what works in one company with one workforce may have different results elsewhere." "Chance often plays a greater role than we think, or than successful managers usually think." "The link between inputs and outcomes is tenuous. Bad outcomes don't always mean that managers made mistakes; and good outcomes don't always mean they acted brilliantly." Rosenzweig's rigorous analysis of the nine delusions will help a reflective manager to challenge the assumptions and premises of conventional wisdom and thereby "separate the nuggets from the nonsense." That is precisely what Phil Rosenzweig did and then he wrote this book to share what he learned. Those who share my high regard for this book are urged to check out Hard Facts, Dangerous Half-Truths and Total Nonsense: Profiting From Evidence-Based Management co-authored by Jeffrey Pfeffer and Robert Sutton as well as Pfeffer's more recently published What Were They Thinking?: Unconventional Wisdom About Management and Roger Martin's The Opposable Mind. Also Gary Hamel's The Future of Management with Bill Breen, Jim Champy's Outsmart!: How to Do What Your Competitors Can't, and Edward Lawler's Talent: Making People Your Competitive Advantage.