A few years ago, my son Tommy took my advice and signed up for a college class on logic. I had taken a philosophy-logic class in college and felt that the subject-matter was the essence of what college is intended to teach – i.e., clear thinking about important issues.
A few days ago Tommy, who has been out of college and working for a few years, told me that he was interested in revisiting the subject of logic, especially as applied to his business work. He hadn’t save his college text book and was wondering if I had anything on the subject in the library. I didn’t have anything, but I was able to find four such books at the San Antonio Library. He and his fiancé selected the most inviting of the four, and left me the other three, one of which was the most excellent, The Halo Effect, by Phil Rosenzweig.
The Halo Effect, written in 2007, is subtitled “… and the Eight Other Business Delusions That Deceive Managers.” As suggested by the subtitle, this book doesn’t provide “ready-made answers, for plug-and-play solutions that might give them a leg up on their rivals.” In fact, it spends quite a few words debunking earlier books that do this, like In Search of Excellence (1977), with its Eight Practices of America’s Best Companies, Built to Last: Successful Habits of Visionary Companies (1994), with its Timeless Principles of Enduring Greatness, and Good to Great (2001), with its Seven Characteristics of Companies that Went from Good to Great. Instead, The Halo Effect identifies faulty thinking that often leads to incorrect assumptions. The nine identified delusions:
- The Halo Effect. The tendency to look at a company’s overall performance and then characterize that company’s culture, leadership, values, etc. as consistent with the performance. Actually, studies have shown that those characteristics reflect past success, but don’t predict ongoing success.
- The Delusion of Correlation and Causality. Two things may be correlated, but we may not know which one causes which. E.g., employee satisfaction does not lead to high performance; rather, company success leads to employee satisfaction.
- The Delusion of Single Explanations. Studies might show that a single factor is highly significant, but that significance is exaggerated because that many other important factors tend to co-exist with it.
- The Delusion of Connecting Winning Dots. Most studies focus on business winners, and this focus precludes an in-depth understanding of what differentiates winners from losers.
- The Delusion of Rigorous Research. Because most data is polluted by the Halo Effect and other delusions, huge amounts of data will still produce flawed thinking.
- The Delusion of Lasting Success. Almost all so-called winners will regress to the mean. There are no blueprints for lasting success.
- The Delusion of Absolute Performance. Success is not about getting better; rather, it’s about being better than your competitors.
- The Delusion of the Wrong End of the Stick. A strategy that worked for one company might have not worked for a dozen other companies.
- The Delusion of Organizational Physics. Business performance is not science; rather, it is an art. What works in one place at one time may not work at another place in another time. A good manager will play the percentages, while recognizing that there is no certainty.
The bulk of the book focuses on the delusions and then finishes with two chapters on the solution, which is that a company needs to excel at (1) strategy, and (2) execution, but that luck often plays a critical role. Companies that have excelled for a longtime are exceedingly rare, and they have probably benefited from series of lucky events. Like the Spurs getting David Robinson in one draft and Tim Duncan in another. That good fortune, along with good strategy and execution, resulted in the NBA team with the all-time highest winning percentage.