The Halo Effect and Efficiency in Business

Regular reader Susan Webber writes a review of The Halo Effect. . . and the Eight Other Business Delusions That Deceive Managers by Phil Rosenzweig in the Conference Board Review.

An exerpt:

Rosenzweig tells us that our beliefs about business success are largely, perhaps entirely, wrong, distorted by the halo effect — in this case, the idea that once we consider a company successful, we tend to see it as doing everything right. Business gurus, he charges, chart a flat, comfortable world in which a handful of top firms are to be emulated, no questions asked.

Among the follow-the-leaders classics that the author condemns as fatally flawed: Tom Peters and Robert Waterman’s In Search of Excellence, John Kotter and James Heskett’s Corporate Culture and Performance, Bruce Robertson’s What Really Works, and Jim Collins’ and Good to Great. Their glib assurances about the path to corporate success are satisfying, but the stories are not necessarily helpful or accurate. We have no way of knowing whether to believe their analyses of why their case-study champions achieved success: Rather than factual, objective metrics, the gurus rely on anecdotes, retrospective impressions, and press reports.

That irresponsible but supremely confident analysis — boiled down to a magic three (or is it eight? or fifteen?) secrets to making your company a winner — is what all too many people are looking for. By contrast, Rosenzweig leaves readers with little solace: The world is full of uncertainty, and the wise understand the limits of their knowledge.

three dots

Rosenzweig focuses on what he feels is the fundamental question in business: What leads to high performance? And he finds a disturbing pattern. Most research on both individuals and organizations has been hopelessly tainted by the halo effect.

As a consultant myself, and having spent some time in middle management in a Fortune 500 company, I’ve long had the impression that companies don’t know what they’re doing, even if they’re succeeding. When a company succeeds or fails, often nobody knows why. And nobody wants to measure anything.

I remember once, in my corporate life, running some numbers and pointing out that while Marketing was the most powerful organization in the company, its activities didn’t contribute to revenues at all, and thus, marketing only contributed to profits by adding (a lot) to costs. This should not have been a surprise to anyone – as a phone company, we were a regulated monopoly. If you wanted phone service, and you lived in our area, you came to us. You didn’t have a choice between us and the bakery a few blocks down.

Which led to a second lesson for me. Pointing out something like that, especially when you can back it up, gets you in a heap of trouble. I’ve seen this kind of thing time many times since. Nobody realizes they’re wasting resources, and when its pointed out, vested interests prevent anyone from acting on it.