The Halo Effect

…and the Eight Other Business Delusions That Deceive Managers. Phil Rosenzweig Free Press 2014

For a change, this month’s M&A insight is a book review. A book review that confirms the reservations that many successful managers and owners have about famous bestsellers such as Tom Peters’ “In Search of Excellence” and Jim Collins’ “Good to Great“. 

This includes scepticism about the primary motivation of these authors. Is it to give you good business advice, or is it to create themselves a bestseller by publishing simple, easy-reading ‘recipes’ for success, based on poor (or no) actual research and evidence? These books seem to contain no explanation for why the hero manager at the helm is one day the smartest in the room, however when their business hits hard times, that same manager is much derided as incompetent.

It is a very enlightening but sobering reading which may well change, influence or confirm your views on reported hero managers, gurus and their secrets to business successes and what drives company performance. It certainly had a significant impact on me.

Don’t be put off by the title, “The Halo Effect and the Eight Other Business Delusions that Deceive Managers”. Central among the delusions in the Halo Effect is the tendency on the part of the experts to point to the extraordinary financial performance of a successful company and then spread that golden glow to all of the company’s attributes: a clear strategy, strong values, a brilliant hero leader and leadership, the best culture, and customer focused with outstanding execution.

But should the sales and profitability of that same company with same leader head south, those very same attributes are turned on their heads and derided across the board. Suddenly the strategy was wrong, the culture was wrong, and the leader became arrogant, deluded and out of touch. In fact, little in the company may have changed.

Entering new markets at the time was deemed brilliant but later seen as “drifting from the core”, bungling its strategy or neglecting its customers. Companies that do not enter new markets are on the other hand described as rigid, inflexible and unimaginative, with their leaders out of touch, not ready to embrace change, and stuck in the past…

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 and success. Phil Rosenzweig explores 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 and enormous amounts of research data, with extensive statistical analysis and intricate models, however they operate mainly at the level of storytelling. Ex post facto research is speculative at best, establishing some sort of correlation (but no causation) largely based on subjective interviews with current or past managers. They provide comfort and inspiration but deceive about the true nature and elements of business success.

…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 patters and naïve arguments”.

Nicholas Taleb, author “The Black Swan”

As Rosenzweig finishes: What really drives company performance? “The fundamental things apply. Strategy is about making smart choices and executions is about relentless implementation.”

“Bestow all the Halos you wish, as gurus and journalists and self described experts will always be ready to do, the the truth is often simpler. Our task is to see that truth more clearly.”

Phil Rosenzweig

Enjoy the read…