While I have lost my original post and interview with Professor Rosenzweig to the ravages of time and the Web, I did focus on a handful of take-aways from his 2007 book, The Halo Effect.1. The author’s central thesis is that our thinking about business, and especially the success or failure of companies, is muddled by a number of delusions—promises that you can achieve great success if you just do one thing or another. These delusions are reinforced by a parade of business bestsellers which, for all their claims of scientific rigor, for all their lengthy descriptions of apparently solid and careful research, they operate mainly at the level of storytelling. They offer tales of inspiration that we find comforting and satisfying, but they’re based on shaky thinking. They’re deluded.
2. The book’s stories about Lego, ABB, and Cisco describe beautifully the often bizarrely inconsistent and contradictory messages we receive from the business press about company strategy and success. The chapter on Cisco in particular, which traces the performance of the company from glowing reviews (Fortune’s May 2000 cover: “Is John Chambers the world’s best CEO”) to its rapid decline (Fortune’s May 2001 article: “Cisco Fractures Its Own Fairy Tale”) is particularly enlightening.
As long as sales and profits were up, Cisco was held up as a shining example of excellent customer orientation. It was described, at its pre-bubble peak in 2000, as having “extreme customer focus,” and John Chambers was “the most customer-focused human being you will ever meet.” A year later, as performance fell, Cisco was said to have exhibited “a cavalier attitude toward potential customers,” and its sales tactics had been “irksome.”
As Rosenzweig writes, Read in the context of their times, each of these articles seems plausible. . .But look at them over the course of a few years, and we have to question whether the reporters got the story right—or if their descriptions were colored by the story they wanted to tell.
3. The Halo Effect, then, is a tendency to make inferences about specific traits on the basis of a general impression. So, when Cisco stock is high, its management practices and strategy must be exceptional. But when Cisco stock crashes, those very same practices and strategies are now criticized and ridiculed. (Rosenzweig uses the example of President Bush, whose approval rating for his handling of the economy rose from 47% to 60% after the September 11 attacks, when his response to terrorism was widely acclaimed. Everything about the President apparently improved.) The Halo Effect, the author tells us, is a way for the mind to create and maintain a coherent and consistent picture, to reduce cognitive dissonance.
The risk to managers, of course, is that they "buy" the success story when performance is good and go about implementing the strategies and practices of a successful company like Cisco--only to find a year later that those same strategies and practices have resulted in failure.
4. So, in the debate over Google’s impact on American business, will gourmet cooking in the company cafeteria and free massages for engineers, which are now seen as powering the company’s culture of innovation, be seen as profligate spending if (and when) the company’s stock falls? Looked at through the lens of the Halo Effect, and remembering what happened to Cisco over a single year’s time, that possibility certainly exists.
5. Besides the Halo Effect, there are a number of other related delusions—single explanations, connecting the dots—that the author describes and highlights. Taken as a whole, the theme is consistent and illuminating; the book is written to help managers think for themselves, rather than listen to the parade of management experts and consultants and celebrity CEO’s, each claiming to have the next new thing. Think of it as a guide for the reflective manager, a way to separate the nuggets from the nonsense.
6. Nothing recedes like success. In fact, Delusion Six—the delusion of lasting success—may keep you out of the bookstores for years. The author reminds us the two-thirds of the companies highlighted in In Search of Excellence faded within just a few years. And half of the companies offered in Built to Last failed to match the S&P 500 over the next five years, after collectively outperforming the market by a factor of 15 over more than sixty years.
If we start with the full data set and look objectively at many years of company performance, we find the dominant pattern is not one of enduring performance at all, but one of rise and fall, of growth and decline. . .the golden company that continually performs better than the markets has never existed. It is a myth.
Tom Peters said: “To be excellent you have to be consistent. When you’re consistent, you’re vulnerable to attack. Yes, it’s a paradox. Now deal with it.”
7. The author takes us through a fascinating discussion of what factors might impact success, including markets, technology, competition, leadership, and luck. In fact, leadership—culminating in the myth of the CEO—may be the very least of the factors that determine a company’s success. One study indicates, after controlling for several other factors, the impact of a manager’s personal style on company performance was about 4 percent.
8. There’s no magic formula, no way to crack the code, no genie in the bottle holding the secrets to success. The answer to the question What really works” is simple: Nothing really works, at least not all the time. . .Searching for the secrets of success reveals little about the world of business but speaks volumes about the searchers—their aspirations and their desire for certainty.
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