ABOUT THE BOOK
A brief overview
The Halo Effect is an unusual business book: it offers a sharp critique of current management thinking, exposing many of the errors and mistaken ideas that pervade the business world, and suggests a more accurate way to think about company performance. I've tried to make it lively, informal, provocative, and accessible to a wide audience.
The main arguments of the book can be summarized in three points:
- Much of our thinking about company performance is shaped by the Halo Effect, which is tendency to make specific evaluations based on a general impression. When a company is growing and profitable, we tend to infer that it has a brilliant strategy, a visionary CEO, motivated people, and a vibrant culture. When performance falters, we’re quick to say the strategy was misguided, the CEO became arrogant, the people were complacent, and the culture stodgy. Using examples like Cisco, ABB, IBM, Lego, and more, I show how the Halo Effect is pervasive in the business world. At first, all of this may seem like harmless journalistic hyperbole, but when researchers gather data that are contaminated by the Halo Effect—including not only press accounts but interviews with managers—the findings are suspect. That is the principal flaw in the research of Jim Collins’s Good to Great, Collins and Porras’s Built to Last, and many other studies going back to Peters and Waterman’s In Search of Excellence. They claim to have identified the drivers of company performance, but have mainly shown the way that high performers are described. My book is the first to show why, for all their claims of voluminous data and rigorous analysis, their research is fundamentally flawed—and why their conclusions about the drivers of company performance are unfounded.
- Reliance on contaminated data leads to other errors, the most important of which is the widespread notion—explicit in Jim Collins’s work as well as that of many other management gurus—that companies can achieve success by following a formula. This is erroneous for a simple but profound reason: in business, performance is inherently relative, not absolute. I provide a very striking example about Kmart: on many objective dimensions (e.g., inventory management, procurement, logistics, automated reordering, etc.) Kmart improved during the 1990s. Why then did profits and market share continue to decline? Because on those very same measures, Wal-Mart and Target improved even more rapidly. Kmart’s failure was a relative failure, not an absolute one.
- Since performance is relative, not absolute, it follows that companies succeed when they do things differently than rivals, which means making choices under conditions of uncertainty, which in turn involves taking risks—and which may end in failure. The Halo Effect shifts our thinking about performance from one that looks for a formula for success, toward one that sees the world in terms of probabilities. Strategic leadership is about making choices, under uncertainty, that have the best chance to raise the probabilities of success, while never imagining that success can be predictably achieved. Even good decisions may lead to unfavorable outcomes, but that doesn’t mean the decision was wrong. The Halo Effect is not just an exercise in debunking flawed thinking—it seeks to improve the way that managers understand company performance and make strategic decisions.
Why I wrote The Halo Effect
I wrote The Halo Effect because during 25 years in and around the business world, I've seen so much nonsense—unsupported claims by famous gurus and self-described "thought leaders," sweeping assertions based on poor data, and simplistic stories that claim to be rigorous research. Worse, most people—including many very smart managers, consultants, and journalists— can't tell the difference between good and bad research. The Halo Effect is an attempt to raise the level of discussion in the business world, and to sharpen our skills of critical thinking about management.
From the book jacket
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 best-selling 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. The Halo Effect is widespread, undermining the usefulness of business bestsellers from In Search of Excellence to Good to Great.
The Halo Effect is a landmark book that replaces mistaken thinking with a sharper understanding of what drives company performance. It’s a guide for the thinking manager, a way to detect errors in business research and to reach a clearer understanding of what drives success and failure. For managers who want to separate fact from fiction in the world of business, The Halo Effect is a much-needed antidote to the conventional thinking that clutters business bookshelves.