Before you read another business book, read Phil Rosenzweig’s The Halo Effect … and the Eight Other Business Delusions That Deceive Managers (Rosenzweig, 2007), it could save your career. This book ranks as one of the most important books anyone, especially people in business should read. The basis of this bold assertion (not made by Rosenzweig) is the high risk that a large amount of the information with which we all make decisions is based on halo effects and business delusions, and is thus inherently flawed.
The halo effect is a bias of perception where we attribute traits to a person or object based on another trait, for example assuming, perhaps unconsciously, that someone is intelligent because they are good looking, or assuming that a poorly dressed person is either poor, unintelligent, or both.
We become subject to halo effects and business delusions due to our preference for compelling stories over not-so-compelling research reports. This is due in large measure to our preference for simple, plausible, sure-fire, yet unproven, recipes over weakly correlated but validated research data. Unless we have the time, inclination, and the resources to validate the information we are being provided, it is too easy to get swept along by the flood of invalid research and false authority.
The danger of the halo effect is the risk posed by making judgements and decisions when we don’t know it is happening. These judgements and decisions can affect your career, your staff, and your organisation. In The Halo Effect, Rosenzweig discusses the errors of logic and attribution that impact our judgements and decisions, and ultimately our personal and organisational performance. It is a brilliant book and ought to be mandatory reading for all managers. In the space allowed here, only the briefest of summaries of the halo effect and the eight business delusions can be provided:
1. The halo effect – the tendency to attribute a company’s performance to factors such as its leadership, vision, strategy, and culture to name a few. However such attributions are based prior performance, not the cause of it, and such attributions have little predictive value of future company performance.
2. The delusion of correlation and causality – just because two phenomena are correlated, it does not mean that they have a causal relationship. For example, does good employee satisfaction cause good company performance, or does good company performance cause good employee satisfaction?
3. The delusion of single explanations – The success of a company is correlated with many factors. There is a tendency however to attribute success to single factors such as strong leadership or culture – the effect of such single factors is usually overstated.
4. The delusion of connecting the winning dots – by picking only successful companies, we will not be able to isolate the factors that lead to success; we need to compare both successful and not-so-successful companies and look for, analyse, and explain the differences.
5. The delusion of rigorous research – many best selling authors claim to have collected and analysed huge amounts of data. However, it’s not the quantity of the data that is important, it’s the quality. For example, if the data is contaminated by the halo effect, then the quantity of data will have no material value.
6. The delusion of lasting success – Almost all highly successful companies regress (to the mean) over time. Everlasting success is appealing but unrealistic; it is mere wishful thinking.
7. The delusion of absolute performance – the performance of a company is relative to that of its competitors; a company can both improve its performance and fall behind its peers (and go bankrupt) at the same time.
8. The delusion of the wrong end of the stick – Successful companies probably have highly focused strategies, but it is not a given that a highly focused strategy will automatically lead to success.
9. The delusion of organisational physics – despite our desire for a mechanical and Newtonian world where we can predict and plan with certainty, the world is complex and does not comply with our whims, or the recipes for success in best sellers.
So what’s it to be? The comforting oblivion of wishful thinking or scientifically researched and validated data?
Rosenzweig, P. M. (2007). The halo effect– and the eight other business delusions that deceive managers. New York: Free Press.