Lost Job Start Business

Back when I was at grad school I remember thinking that if all you needed to do to achieve success was to follow the (insert random business acronym here) model why are all businesses not successful?

It got me thinking. Can you package success? Is there one pathway to success that will work every time that you follow it?  However, I put these thoughts to the back of my head and continued working on mastering a plethora of three letter acronyms and pseudo mathematical statements (management gurus like to use technical mathematical terms instead of plain English. I think it makes then feel more  important.)

It was when I donned my entrepreneurial robes for the first time that  I realized that applying a systematic approach blindly doesn’t cut it in the world of start-ups.  Instead of learning traditional management theory I would have been better honing my observational skills.  I would have been better to stay off the sheet music and become great at Jazz improvisation.

In an article by Yanky Fachler,  which I have kindly been given permission to republish for you here, this issue is looked at in greater detail. It looks into Phil Rozenweig’s claim that there are no formulas for successful business people. Good reading for people who have worked within a system driven by a three letter acronym.

Here it is:

The Halo Effect

Yanky Fachler examines Phil Rozenzweig’s claim that there are no formulas for successful business performance

Most smart managers, business consultants, and business journalists, says veteran business manager turned professor Phil Rosenzweig, cannot tell the difference between good and bad research. His book, The Halo Effect, is designed to be a counter-weight to the unsupported claims made by famous gurus and self-described “thought leaders,” and to counter the phenomenon of books that tell simplistic stories under the guise of rigorous research. In the author’s own words, The Halo Effect is an antidote to conventional leadership books, an attempt to raise the level of discussion in the business world, and to sharpen critical thinking skills about management.

That’s a pretty bold claim. Equally bold is the endorsement of the book by Nassim Nicholas Taleb, author of Black Swan and Fooled by Randomness. Taleb has achieved new guru status of his own, since he was almost alone in predicting the economic meltdown that we are now experiencing. He describes The Halo Effect as an antidote to those bestselling books by gurus presenting false patter and naive arguments, and as one of the most important management books of all time.

Does the book live up to the claims of its author? I think that Rosenzweig does a convincing job of showing that much of our thinking about company performance is shaped by the Halo Effect – the tendency to make specific evaluations based on a general impression. Using the example of Lego, he shows that when a company performs well, we infer that it has a brilliant strategy, a visionary CEO, motivated people, and a vibrant culture. When performance falters, we infer that the strategy was misguided, the CEO became arrogant, the people were complacent, and the culture stodgy.

If this tendency was only limited to journalistic hyperbole, says Rosenzweig, it would be harmless. But when researchers gather data contaminated by the Halo Effect, the findings become suspect. This becomes critical when so many best-selling authors claim to have identified the drivers of company performance. This is a fallacy, says Rosenzweig. The only thing these authors show is how highly we regard these high performers. And since so much research is fundamentally flawed, any conclusions about what drives company performance are necessarily suspect.

The most dangerous consequence of reliance on contaminated data is the widespread notion, explicit in such books as Jim Collins’s Good to Great, that companies can achieve success by following a formula. The Halo Effect seeks to show that performance is not about formulas for success, but about seeing the world in terms of probabilities. Strategic leadership is about making choices in an uncertain environment. The fact that even good decisions can lead to unfavourable outcomes, does not mean that the original decision was inherently wrong. Likewise, a bad decision can lead to a favourable outcome. Luck, rather than a magic formula, can often dictate the outcome.

The problem with so many management books, says Rosenzweig, is that they operate mainly at the level of storytelling. They provide comfort and inspiration, but ultimately they deceive managers about the true nature of business success. This is echoed by Tom Groenfeldt at Technology and Finance. “Pop business books probably won’t do you any harm, unless you take them too seriously. However, before you settle down with the next one, read through The Halo Effect to sharpen your critical faculties.

If Rosenzweig is correct, and I believe he is, then the question is Why? Why are so many management gurus contaminated with the Halo Effect? Why do so many authors make such extravagant claims about their 3 principles, 4 habits, 5 secrets, 6 keys and seven principles? Why, in other words, are so many business experts deluded?

I found one answer in a book called Mistakes were made (but not by me): Why we justify foolish beliefs, bad decisions, and hurtful acts, by Carol Tavris and Elliot Aronson (who is quoted in The Halo Effect.) The authors examine the issue of cognitive dissonance: why people dodge responsibility when things fall apart, why public figures are unable to own up when they screw up, and why we can see hypocrisy in others but not in ourselves. The book offers a fascinating explanation of the harm and damage caused by self-deception and delusion.