An MBA Book Club, Part 2

The Halo Effect

Philip M. Rozenweig

           «« (but growing)

Summary

Many of the leading business management books are based on bad science and flawed logic.  Chief among these sins against reason is the Halo Effect, the implied causality between high marks on subjective data and company performance.  Successful companies (and their leaders) will consistently be rated as top-tier in all areas, due to the difficulty in separating ends from the means.  This casts serious doubt on works and authors not giving enough credence to the halo.

Notable Quotes

·         The Eight Other Delusions

1.      The Delusion of Correlation and Causality

2.      The Delusion of Simple Explanations

3.      The Delusion of Connecting the Dots

4.      The Delusion of Rigorous Research

5.      The Delusion of Lasting Success

6.      The Delusion of Absolute Performance

7.      The Delusion of The Wrong End of the Stick

8.      The Delusion of Organizational Physics

·         “Collins urges his readers to ‘confront the brutal facts.’ Well here’s a brutal fact you may wish to consider: If you start by selecting companies based on outcome, and then gather data by conducting retrospective interviews and collecting articles from the business press, you’re not likely to discover what led some companies to become Great.  You’ll mainly catch the glow from the Halo Effect” (p 120).

·         “Studies in organizational performance stand in two very different worlds.  The first world speaks to practicing managers and rewards speculations about how to improve performance.  The second world demands and rewards adherence to rigorous standards of scholarship.  These two worlds operate on different logics, follow different sets of rules, and speak to audiences with different needs, but they rarely intersect” (p 135).

·         “The test of a good story is not whether it is entirely, fully, scientifically accurate—by definition it won’t be.  Rather, the test of a good story is whether it leads us toward valuable insights, if it inspires us toward helpful action” (p 137).

·         “Anyone who claims to have found the laws of business physics either understands little about business, or little about physics, or both” (p 173).

Response

While reading this book, I was extremely disgruntled.  I made notes such as “If you ask this guy what time it is, he’ll tell you how a watch works.  Or even better, if you asked someone else what time it was, he’d interrupt the person and tell you why he’s wrong.”  I could easily imagine the genesis of this book occurring when the author, having just polished off Jim Collins’ latest book, threw it against the wall amid a stream of epithets.  It seemed to be an irritated book critique elevated to its own book.

And yet…I can’t help thinking about Rozenweig’s conclusions.  As we’ve read several other books (including Collins’ most recent addition to his line of bestsellers), I have an insidious little voice whispering, “Halo Effect.  They’re assuming causation. These performance scores are due to company performance, and not the other way around.”

Sure, Rozenweig breaks each of his own three rules in prescribing how best to measure superior performance.  In sharing his own examples of successful leaders, he interviews them posthoc, quotes articles from the business press, and offers platitudes with no data, let alone suspect data.  But participating in the delusions doesn’t make them any less delusional.  In fact, my bridling at the author’s hypocrisy is more a confirmation of his main points, rather than a refutation of them (in fact, as I was reading through the book for the first time, I thought he was intentionally contradicting himself to make a point).

And so, while I may feel like this book was a bit of parade-raining, the management publishing industry may have been due for a storm.