Book Review- Halo Effect

Halo Effect

By Phil Rosenzweig

The book talks about how different management gurus point to high financial performance of a successful company and then EXTRAPOLATE it to believe high on other counts – strategy, values, people and leadership. The author points out that our study of the successful companies is deluded based on HALO EFFECT. The author pokes fun at bad science of the management world and believes there is no publicly available secret to a successful company. In the preface the author writes “Most management books try to answer the first order question: What leads to high performance? This book sets out to answer- Why is it so hard to understand high performance?” Towards the end the book sets out to give some principles which are not guaranteed source of high performance but leads to a more thoughtful approach.

The book in multiple chapters take case studies of multiple companies whose policies were lauded when they were successful and then ridiculed for poor performance when they started showing losses - Lego (Danish toy company), Cisco, ABB, Intel to name a few.

So what exactly is Halo Effect – it is a tendency to make inferences about specific traits on the basis of general impression. As author explains in one of this example- George Bush’s rating rose after Sep 11 attack as country stood by their President which is ok. However, on a question related to handling of economy his rating increased from 47% to 60% as well. Now whether his handling of economy suddenly became better in weeks after Sep 11 is a question mark. The American public conferred a Halo on their President and made all favorable attributions to him. In business there are HALOS every where – in people, in leaders, surveys. When a company's sales and profits are up, people often conclude that it has a brilliant strategy, a visionary leader, capable employees, and a superb corporate culture. When performance falters, they conclude that the strategy was wrong, the leader became arrogant, the people were complacent, and the culture was stagnant. In fact, little may have changed -- company performance creates a Halo that shapes the way we perceive strategy, leadership, people, culture, and more.

In the appendix of this book there are tables showing the performance of the companies studied in "In Search of Excellence" and "Built to Last", two great management books of their time. It is interesting to note the difference in performance in the years before and after these studies.

Overall, highly recommended!