Learning - The Halo Effect

The Halo Effect by Phil Rosenzweig dissects two famous books which i have read. 

First being In Search of Excellence and other Build to Last.

I was aware that in, In Search of Excellence Tom Peters fudged the data. This was revealed by Tom Peters himself in an interview. Also, Build To Last was also in my good reads list.

My learning from the book is reproduced below:

The desire to feel that we know

Of course, we don’t like to admit how little we know. The social psychologist Eliot Aronson observed that people are not rational beings so much as rationalizing beings. We want explanations. We want the world around us to make sense. We may not know exactly why Lego ran into a brick wall, or why WH Smith fell on hard times, or why Wal-Mart has done so well, but we want to feel that we know what happened. We want the comfort of a plausible explanation, so we say that a company strayed or drifted. Or take the stock market, whose daily fluctuations, edging higher one day and a bit lower the next, resemble Brownian motion, the jittery movement of pollen particles in water or of gas molecules bouncing off one another. It’s not very satisfying to say that today’s stock market movement is explained by random forces.

Feynman and Cargo Cult Science

In the South Seas there is a cult of people. During the war they saw airplanes land with lots of materials, and they want the same thing to happen now. So they’ve arranged to make things like runways, to put fires along the sides of the runways, to make a wooden hut for a man to sit in, with two wooden pieces on his head like headphones and bars of bamboo sticking out like antennas — he’s the controller — and they wait for the airplanes to land. They’re doing everything right. The form is perfect. But it doesn’t work. No airplanes land. So I call these things Cargo Cult Science, because they follow all the apparent precepts and forms of scientific investigation, but they’re missing something essential, because the planes don’t land.

On Harvard Case studies and Pink Paper Journalism

No doubt Serwer and Burrows are correct. There’s a natural tendency, even at leading publications like Fortune and Business Week, to exaggerate the highs and lows, and to rely on simple phrases to explain a company’s performance. It makes for a better story, yet it leads us down a dangerous path. It’s often said that journalism is the first draft of history, and these journalistic accounts become the primary sources for later studies. The Harvard case study mentioned previously, for example, was based on these same newspaper and magazine articles, and the chapter about Cisco in O’Reilly and Pfeffer’s Hidden Value also cited these same Fortune articles reviewed earlier. These case studies and book chapters are only as good as the sources on which they’re based. But there’s an even deeper problem. The story of Cisco is perhaps less an example of intentional journalistic hyperbole than it is of something more basic: the difficulty we have in understanding company performance, even as it unfolds before us. For all the attention that Cisco received, for all its prominence in the press over several years, even experienced journalists and respected academics had trouble identifying with any precision the reasons for Cisco’s outstanding success or its stunning decline. There was talk, over and over, about customer orientation and leadership and organizational efficiency, but these things are hard to measure objectively, so we tend to make attributions about them based on things we do feel certain about — revenues and profits and share price. We may not really know what leads to high performance, so we reach for simple phrases to make sense of what happened.

On Great Place to work employee survey

We know not to measure employee satisfaction simply by asking employees, “Are you satisfied?” since the answers will likely be colored by the Halo Effect.

Central Idea of the book

The central idea in this book has been that our thinking about business is shaped by a number of delusions. My hope is that managers will read business books a bit more critically, free from delusions, their deepest fantasies and fondest hopes tempered by a bit of realism. I would hope in particular that managers would remember:

·        If independent variables aren’t measured independently, we may find ourselves standing hip-deep in Halos.

·        If the data are full of Halos, it doesn’t matter how much we’ve gathered or how sophisticated our analysis appears to be.

·        Success rarely lasts as long as we’d like — for the most part, long-term success is a delusion based on selection after the fact.

·        Company performance is relative, not absolute. A company can get better and fall further behind at the same time.

·        It may be true that many successful companies bet on long shots, but betting on long shots does not often lead to success.

·        Anyone who claims to have found laws of business physics either understands little about business, or little about physics, or both.

·        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.

Once we’ve swept away these delusions, what then? When it comes to managing a company for high performance, a wise manager knows:

·        Any good strategy involves risk. If you think your strategy is foolproof, the fool may well be you.

·        Execution, too, is uncertain — what works in one company with one workforce may have different results elsewhere.

·        Chance often plays a greater role than we think, or than successful managers usually like to admit.

·         The link between inputs and outcomes is tenuous. Bad outcomes don’t always mean that managers made mistakes; and good outcomes don’t always mean they acted brilliantly.

·         But when the die is cast, the best managers act as if chance is irrelevant — persistence and tenacity are everything.

Will all of this guarantee success? Of course not. But I suspect it will improve your chances of success, which is a more sensible goal to pursue. And you won’t find yourself on the shore of a tropical island, wondering why, despite all your earnest efforts to follow the formula of success, the cargo planes still haven’t landed.

The Halo Effect is worth reading.