What if the leading business authors are wrong?
What if we have been following ideas that have made the wrong conclusions?
The Halo Effect is an aura that surrounds companies, people and strategies that are successful. Once a person or a company achieves a certain status, the halo effect will touch everything they do. This often leads many to the conclusion that it was the company culture, or their leadership, or their personal traits and values, or their customer obsession that made them successful.
As important as it is, the Halo Effect is only the first of 9 delusions that cloud the path to success in business. The 9 delusions are beliefs that impact strategy and business decisions every day, detailed masterfully by Phil Rosenweig in his book properly named The Halo Effect.
In this book, Phil Rosenzweig debunks Good to Great, In Search of Excellence and other classic business books and research reports. These publications and their conclusions fall in the trap of one or many delusions. Following these conclusions as proven formulas carries the risk of disastrous effects.
Let’s look at the nine Delusions and the real driver for high performance in organizations.
1 – The Delusion of The Halo Effect
Many of the things experts think contribute to high company performance are often attributions based on performance. Many studies like Fortune’s Great Places to Work studies multiply the halo effect. Often a great company culture is a result of success. We think as successful companies as innovative. We think about CEOs as powerful leaders.
2 – The Delusion of Correlation and Causation
The author points to many examples: Bain and Co claims their customers outperform the market 4 to 1. The assumption is that hiring Bain caused high performance. We need to consider the possibility that companies who are outperforming the market have the time and the money to hire Bain.
3 – The Delusion of the Single Explanation
We live in a complex world. It is easy to think that a single thing caused high performance. Our brains have limited ability to grasp many of the essential abstract concepts in business like customer orientation and execution, it is almost impossible to think clearly about how multiple factors contribute to an outcome, so we lean to a single explanation.
Why did your partner marry you? Your looks, your smarts, your humor, your success? Most likely a combination of many, many factors. Choosing one is delusional. Yet, in business, we look for single explanations. In marketing, we look for the ROI of a specific marketing activity. We look for the single root cause of a problem.
4 -The Delusion of Connecting the Winning Dots
By looking only at companies that perform well, we can never hope to show what makes them different from companies that perform less well. Applying a scientific process to business requires us to look at a sample that is not contaminated by success and to compare how companies in all ranges of success reflect the elements of comparison.
5 – The Delusion of Rigorous Research
This is the assumption that just because exhaustive research has been done, the conclusions must be right. If someone has worked hard for many hours on a problem, we assume this person is an expert and the conclusions should be valid. We need to consider the possibility that the basic assumptions could be wrong. We need to acknowledge the confirmation bias that makes us ignore anything that disproves our theory and reinforce anything that reinforces our preconceived notions. “The quality of the data is entirely beside the point if the data aren’t of a good quality.”
6 – The Delusion of Lasting Success
Over half of the companies listed in Build to Last and In Search of Excellence failed to match industry performance after only 5 years. “Lasting business success, it turns out, is largely a delusion.” Competitive advantage is hard to sustain.
7 – The Delusion of Absolute Performance
Success or failure is not black and white. In addition, continuous market changes in customers, competitors and technology affect success every day. Success is relative to the context: the definition of the market and the definition of success.
8 – The Delusion of the Wrong End of the Stick
Very closely related to the second delusion, is about confusing cause and effect in the context of selecting a singularly focused strategy versus spreading bets and being agile to respond to market conditions. While many high performance companies pursued a highly focused strategy, it would be wrong to conclude that focused strategies are a clear path to high performance.
9 – The Delusion of Organizational Physics
Mathematical laws that define the universe with precision define physics: We can define the trajectory of celestial objects and the qualities of atoms. The delusion fails to acknowledge business is not a science, companies do not operate by immutable laws and we cannot predict what will happen in a company or in an industry over time. There are no immutable laws of organizational performance that can predict outcomes with precision or replicability.
Conclusion: What Leads to High Performance?
All these delusions are risks that can set us in the wrong path towards success. The ultimate goal of this one and many other books is to lead your organization to high performance.
The Halo effect debunks many business classics that claim leadership, culture or focus to be the magic formula for success. The author makes a good case for all of these to be attributes of high performing companies rather than causes of high performance.
Strategic choice and execution are the only paths to high performance.
Execution is uncertain and depends on many factors, but it requires a clear strategy that defines what to execute. Strategic choice implies there are many strategic paths a company can take, each one with its own risk. Because execution is uncertain and strategy implies risk and requires choices based on the specific context of any company, there is no simple formula for success.
While I agree with the author’s conclusion that there is not a formula, there is a process to make the right strategic choice. Making the right strategic choice and building a strategy that guides execution is possible. Good strategy will give you at the very least a much higher probability to achieve high performance.
What is this process? It is a bit longer than what can fit practically in a blog post. This book is one of the factors that inspired me to start writing a book on the process of strategic choice. My goal is to provide a practical roadmap based on decades of personal experience. If you are interested, please subscribe to my mailing list here.
If you find these 9 delusions interesting, or if you want to know more about the counter arguments by the author, get The Halo Effect from Amazon.