I have just finished reading what I consider to be one of the most valuable business books in a long time. Maybe a long, long time. Written by Phil Rosenzweig, a professor at IMD in Lausanne, Switzerland, The Halo Effect … and the Eight Other Business Delusions That Deceive Managers claims that most business books contain errors of logic and flawed judgments that distort our understanding for a company’s performance.
He uses two prominent case histories to support the latter claim. Cisco and ABB. He recalls for readers how before the dotcom bubble collapse Cisco’s John Chambers was widely regarded as the world’s best manager and Cisco itself as without surpass in its organizational structure and corporate culture. Beyond that, according to the common view expressed in media, no company operated with greater customer centricity.
Within months of the dotcom collapse the same media that had virtually canonized Chambers were ripping his reputation as a great CEO to shreds. Cisco’s was criticized for lack of attention to customer needs. This was alleged to have played a major role in its downturn in revenues and consequent precipitous loss in stock value. Writers told how the company’s organization was fragmented and its culture grossly defective.
Rosenzweig tells a similar story of the Swiss-Swedish power company ABB. From being one of Europe’s most highly regarded company to being a favorite whipping boy in media within not very many months, ABB turned out to be another example of what Rosenzweig calls the Halo Effect.
As Rosenzweig explains it, the Halo Effect refers to the aura surrounding a company and its leadership that promotes gross generalizations about its nature. When a company is outperforming, most everyone assumes everything about the company is exemplary. When the same company is underperforming, most everyone assumes everything about the company is defective.
Rosenzweig reminds us that externalities accounted mainly for Cisco’s and ABB’s decline in fortune. Cisco’s downturn for example was inextricably linked to its Internet customers who flamed out in droves when the dotcom bubble burst. No amount of executive brilliance could have stayed the fiscal injury inflected by the dotcom bust.
Rosenzweig takes on the business book genre with lethal dispatch. While observing that some of the principles presented in Tom Peters and Bob Waterman’s classic, In Search of Excellent, have wonderfully withstood the test of time, he say Peters and Waterman’s prose is filled with extractions from corporate halos. However, he ruthlessly guts Jim Collins’ two books, Built to Last and Good to Great for their errors of logic and flawed judgments. Rosenzweig avers that Collins’ and most other writers of business books usually ignore external influences on a company’s performance over which a company has no control
I do have some problems with Rosenzweig’s total dismissal of the Halo Effect. A Halo Effect can have positive value to a company. When employees bask in the iridescent glow of the admiration and love flowing from customers, suppliers, the community, investors and employees themselves, it serves to boost performance to even higher levels.
What does it matter that under a cold, clinical light their company has warts – isn't perfect? Perhaps unlike any other time in human history, we desperately need things – companies, people, institutions, ideas – in which we can believe. We have maybe grown to prone to demand perfection. A Halo Effect – like that cast by New Jersey-based Commerce Bank’s philosophy of WOW! can be a wonderful, comforting good thing.
Notwithstanding some nits here and there with The Halo Effect, it is for me one of the most thought-provoking books on business in some years. Writer Nassim Nicholas Taleb calls The Halo Effect, "One of the most important management books of all time."
Whether Nassim is right or not, I suspect that you will never read another book on business the same after being exposed to Rosenzweig’s diligent analysis of how we are so often taken in by writers offering us their silver bullets for achieving sure-fire success for our companies.