The Halo Effect
Phil Rozenzweig - Author
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What leads to high performance? That deceptively simple question, says IMD professor Phil Rozenzweig, in his recent book The Halo Effect (Free Press, 2007) is the mother of all business questions. Yet simply being able to formulate a simple question, of course doesn’t mean that there is a simple answer. Rozenzweig then proceeds to demonstrate the errors we make in attempting to answer this question.

Principal among these errors, and where the book gets its title, is the “halo effect” - a well-documented mental tendency to assume that, simply because we judge a person or thing to be good in one area or quality, we then assume that they must be also be good in other separate, but unrelated, areas. (Physically attractive job candidates, for instance, may consistently be rated by interviewers as being brighter and smarter than their less attractive peers). Applied to business, Rozenzweig argues that the knowledge of high performance (or indeed low performance) in a company leads us to falsely assume that their culture, systems, strategy and leaders must all share the same performance characteristics.

By examining the coverage of some iconic companies over the years – Cisco, IBM, ABB etc - Rozenzweig demonstrates his point by showing how the perceptions of both leaders and companies inevitably rises and falls with their financial performance, even though they may be behaving in exactly the same way. A CEO, for instance, who was described as visionary, committed and having a bias for action when a company is succeeding will later be described (if the company is failing) as deluded, inflexible and impulsive. When a company is succeeding it is because of its customer focus, yet when it is failing it must, by definition, be “out of touch with its customers”. The company may, of course, have been consistent in all its customer-related behaviours and systems, yet our knowledge of the different results achieved lead us to entirely different conclusions about the same phenomenon.

What’s the problem with this? Fundamentally, Rozenzwieg believes we are being too simplistic in attributing cause and effect. If we look at a successful company, and simplistically and mistakenly attribute its success to the wrong things, we are likely to be wasting time, money and resources. “For all the secrets and formulas, for all the self-proclaimed thought leadership, success in business is as elusive as ever.” In fact, says, the author, “it’s probably more elusive than ever, with increasingly global competition and technological change occurring at faster and faster rates – which might explain why we are tempted by promises of breakthroughs and secrets and quick fixes in the first place. Desperate circumstances push us to look for miracle cures.”

Yet, as British economist John Kay commented in his review of the book, the author does more than simply “poke fun at a lot of the bad writing and bad science in the management world. He shows why it is so bad – and what we can learn from it.” By showing us how our delusions operate – such as the halo effect, attributing false causality, the belief in a single cause, the belief in absolute knowledge – he gives us the possibility of seeing through the glass a little less darkly.

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