The Halo Effect

Synopsis

We never stop learning, and that is a good thing. Each day brings a new set of learning experiences, some of which are good and others that are downright bad. But learning is the process of watching, listening, seeing and understanding so one can achieve greater successes and fewer failures.

The Halo Effect helps managers think for themselves, rather than listen to the parade of management experts and consultants and celebrity CEOs, each claiming to have the next new thing.

Think of it as a guide for the reflective manager, a way to separate the nuggets from the nonsense.

Summary

In the opening section of the book, the author writes:

Mark Twain once said: "Always do right. This will gratify some people and astonish the rest." My purpose is a bit different. Rather than gratify and astonish, I hope this book will stimulate discussion and raise the level of business thinking.

The author observed dozens of top level executives from a wide variety of industries and concluded that many managers tend to look for and embrace quick solutions that have been tried by others in the past…rather than take the time to question the rules and think for themselves.

The central idea in this book is that our thinking about business is shaped by a number of delusions. There are good precedents for investigating delusions in business and economics. Charles Mackay's 1841 classic, Extraordinary Popular Delusions and the Madness of Crowds, chronicled the follies of public judgment, from Dutch tulip mania to speculative bubbles and more. More recently, cognitive psychologists have identified biases that affect the way individuals make decisions under uncertainty. This book is about a different set of delusions, the ones that distort our understanding of company performance, that make it difficult to know why one company succeeds and another fails. These errors of thinking pervade much of what we read about business, whether in leading magazines, in scholarly journals or management bestsellers. They cloud our ability to think In other words, the delusions get in our way!

1 questions and answers

Tell me more about halo effect

View answer

The halo effect is a cognitive bias where an observer's overall impression of a person, company, brand, or product influences their feelings and thoughts about that entity's character or properties. It was named by psychologist Edward Thorndike, it's essentially the idea that our overall impression of a person (he's nice!) impacts our evaluations of that person's specific traits (he's probably smart, too!).

In business, the halo effect is often used in marketing to influence customers' perceptions of a product or brand based on favourable direct experiences or associations. For example, a customer might perceive the products of a well-known brand to be of high quality due to their positive experiences with other products from the same brand.

However, the halo effect can also lead to errors in judgement, such as overestimating a company's financial performance based on a single successful product.

Ask follow up

The delusions include

• Delusion One: The Halo Effect — The tendency to look at a company's overall performance and make attributions about its culture, leadership, values, and more. In fact, many things we commonly claim drive company performance are simply attributions based on prior performance.
• Delusion Two: The Delusion of Correlation and Causality — Two things may be correlated, but we may not know which one causes which. Does employee satisfaction lead to high performance? The evidence suggests it's mainly the other way around—company success has a stronger impact on employee satisfaction.
• Delusion Three: The Delusion of Single Explanations — Many studies show that a particular factor—strong company culture or customer focus or great leadership—leads to improved performance. But since many of these factors are highly correlated, the effect of each one is usually less than suggested.
• Delusion Four: The Delusion of Connecting the Winning Dots — If we pick a number of successful companies and search for what they have in common, we'll never isolate the reasons for their success, because we have no way of comparing them with less successful companies.
• Delusion Five: The Delusion of Rigorous Research — If the data aren't of good quality, it doesn't matter how much we have gathered or how sophisticated our research methods appear to be. If data is not significant or representative, then insights should not be extracted.
• Delusion Six: The Delusion of Lasting Success — Almost all high-performing companies regress over time. The promise of a blueprint for lasting success is attractive but not realistic.
• Delusion Seven: The Delusion of Absolute Performance — Company performance is relative, not absolute. A company can improve and fall further behind its rivals at the same time.
• Delusion Eight: The Delusion of the Wrong End of the Stick — It may be true that successful companies often pursued a highly focused strategy, but that doesn't mean highly focused strategies often lead to success.
• Delusion Nine: The Delusion of Organizational Physics Company — Performance doesn't obey immutable laws of nature and can't be predicted with the accuracy of science—despite our desire for certainty and order.

Ask follow up

Overall

Leadership is not a natural trait, something that is inherited like the color of eyes and hair, it is a skill that can be studied, learned and perfected through practice. Good judgment comes from experience and that experience grows out of mistakes. An effective leader must from time to time be stubborn, and armed with the courage of their convictions, fight and struggle to defend them. An effective leader must know when to see through the Delusions that are steering his company down the wrong path.

Ask follow up

The world of work is different today than it was even a few decades ago. But yet, leaders still find themselves struggling to overthrow the weight of the past. In the days of our fathers and grandfathers, rigid bureaucratic discipline dominated the lives and careers of every executive. The price of success was blind obedience. But these days it takes a new brand of leadership to make things happen. Clarity and understanding must now replace the foggy mindset of the years past. Still, achieving the results you desire as a leader in the 21st century may seem like an uphill battle, but you can go the distance. You can come out on top as a winner. In other words, you can be a leader of tomorrow in today's world!

Ask follow up