Synopses & Reviews
Much of our business thinking is shaped by delusions -- errors of logic and flawed judgments that distort our understanding of the real reasons for a company's performance. In a brilliant and unconventional book, Phil Rosenzweig unmasks the delusions that are commonly found in the corporate world. These delusions affect the business press and academic research, as well as many bestselling books that promise to reveal the secrets of success or the path to greatness. Such books claim to be based on rigorous thinking, but operate mainly at the level of storytelling. They provide comfort and inspiration, but deceive managers about the true nature of business success.
The most pervasive delusion is the Halo Effect. When a company's sales and profits are up, people often conclude that it has a brilliant strategy, a visionary leader, capable employees, and a superb corporate culture. When performance falters, they conclude that the strategy was wrong, the leader became arrogant, the people were complacent, and the culture was stagnant. In fact, little may have changed -- company performance creates a Halo that shapes the way we perceive strategy, leadership, people, culture, and more.
Drawing on examples from leading companies including Cisco Systems, IBM, Nokia, and ABB, Rosenzweig shows how the Halo Effect is widespread, undermining the usefulness of business bestsellers from In Search of Excellence to Built to Last and Good to Great.
Rosenzweig identifies nine popular business delusions. Among them:
- The Delusion of Absolute Performance: Company performance is relative to competition, not absolute, which is why following a formula can never guarantee results. Success comes from doing things better than rivals, which means that managers have to take risks.
- The Delusion of Rigorous Research: Many bestselling authors praise themselves for the vast amount of data they have gathered, but forget that if the data aren't valid, it doesn't matter how much was gathered or how sophisticated the research methods appear to be. They trick the reader by substituting sizzle for substance.
- The Delusion of Single Explanations: Many studies show that a particular factor, such as corporate culture or social responsibility or customer focus, leads to improved performance. But since many of these factors are highly correlated, the effect of each one is usually less than suggested.
In what promises to be a landmark book, The Halo Effect replaces mistaken thinking with a sharper understanding of what drives business success and failure. The Halo Effect is a guide for the thinking manager, a way to detect errors in business research and to reach a clearer understanding of what drives business success and failure.
Skeptical, brilliant, iconoclastic, and mercifully free of business jargon, Rosenzweig's book is nevertheless dead serious, making his arguments about important issues in an unsparing and direct way that will appeal to a broad business audience. For managers who want to separate fact from fiction in the world of business, The Halo Effect is essential reading -- witty, often funny, and sharply argued, it's an antidote to so much of the conventional thinking that clutters business bookshelves.
Review
"I was taken by this book. It destroys myths concerning the attribution of success in the management literature using potent empirical arguments. It should stand as one of the most important management books of all time, and an antidote to those bestselling books by gurus presenting false patter and naive arguments." -- Nassim Nicholas Taleb, author of Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets
Review
"In The Halo Effect, Phil Rosenzweig has done us all a great service by speaking the unspeakable. His iconoclastic analysis is a very welcome antidote to the kind of superficial, formulaic, and dumbed-down matter that seems to be the current stock in trade of many popular business books. It's the right book at the right time." -- John R. Kimberly, Henry Bower Professor of Entrepreneurial Studies, The Wharton School, University of Pennsylvania
Review
"Business books all too rarely combine real-world savvy with scientific rigor. Rosenzweig's book is an outstanding exception -- it's a superb work and long overdue." -- Philip E. Tetlock, Lorraine Tyson Mitchell II Chair in Leadership and Communication, Haas School of Business, University of California, Berkeley
Review
"Rosenzweig doesn't only poke fun at the mass of bad writing and bad science in the management world. He explains why it is so bad -- and how you can learn from it, despite the efforts of the authors." -- John Kay, Financial Times columnist and author of Everlasting Light Bulbs: How Economics Illuminates the World
About the Author
Phil Rosenzweig is a professor at IMD in Lausanne, Switzerland, where he works with leading companies on questions of strategy and organization. He earned his PhD from The Wharton School, University of Pennsylvania, and spent six years on the faculty of Harvard Business School. He is a native of Northern California. Comments to the author can be sent to
[email protected].
Visit The-Halo-Effect.com to download a user’s guide to The Halo Effect for your company or classroom, or to join a discussion forum about delusions in the business world.
Table of Contents
Contents
Preface
Chapter One: How Little We Know
Why do some companies prosper while others fail? Despite great amounts of research, there's much we don't know. While some studies of company performance meet the standard of science, many are better described as pseudoscience -- they follow the form of science but are better described as stories.
Chapter Two: The Story of Cisco
Cisco Systems surged in the late 1990s with a brilliant strategy, a laserlike focus on its customers, and a masterful skill for acquisitions. When the bubble burst, Cisco was said to have bungled its strategy, neglected its customers, and made reckless acquisitions. History was rewritten in light of diminished performance.
Chapter Three: Up and Down with ABB
While times were good, ABB was a New Age wonder with a great corporate culture, a futuristic organization, and a hero at the helm. When it collapsed, ABB was remembered as having a complacent culture, a chaotic organization, and an arrogant leader. ABB hadn't changed much -- the difference was mainly in the eye of the beholder.
Chapter Four: Halos All Around Us
A central problem that clouds so much of our thinking about business is The Halo Effect. Many things we commonly believe lead to company performance -- corporate culture, leadership, and more -- are often simply attributions based on company performance.
Chapter Five: Research to the Rescue?
Can academic research about company performance overcome the Halo Effect? Only if it measures independent variables in a way that's truly independent of performance. Even then, many studies have other flaws, including The Delusion of Correlation and Causality and The Delusion of Single Explanations.
Chapter Six: Searching for Stars, Finding Halos
Examining two well-known bestsellers, In Search of Excellence and Built to Last, we find strong evidence of the Halo Effect as well as other errors such as The Delusion of Connecting the Winning Dots, The Delusion of Rigorous Research, and The Delusion of Lasting Success.
Chapter Seven: Delusions Piled High and Deep
Subsequent studies, including Good to Great, tried to be even more elaborate and ambitious but reveal still more mistakes in their thinking about company performance, including The Delusion of Absolute Performance, The Delusion of the Wrong End of the Stick, and The Delusion of Organizational Physics.
Chapter Eight: Stories, Science, and the Schizophrenic Tour de Force
Many popular business books are deeply flawed as science, but are appealing because they work well as stories. They inspire and comfort their readers. Yet they also focus attention on the wrong priorities and sometimes lead managers in dangerous directions.
Chapter Nine: The Mother of All Business Questions, Take Two
So what does lead to high performance? One approach looks at just two elements: strategic choice and execution. Yet both are full of uncertainty, which explains why company performance can never be guaranteed and why efforts to isolate the secrets of success will always come up short.
Chapter Ten: Managing Without Coconut Headsets
How can managers press onward without delusions? Consider a few managers who set aside wishful thinking and guide their companies with wisdom and clarity, recognizing the uncertain nature of business performance and working to improve their probability of success. In closing, a few words for wise managers.
Appendix
Notes
Bibliography
Acknowledgments
Index