The Halo Effects and Eight Delusion Book Summary

The Halo Effects and Eight Delusion

Book Summary • Challenges popular misconceptions about business success, explaining how experts mistakenly assume that money-making companies naturally prioritize strong leadership and clear strategies as well as high profits. • The world of business is complicated, uncertain and unpredictable. A company's performance depends upon a variety of factors beyond the actions of its managers. These include currency shifts, competitors' actions, shifts in consumer preferences, technological advances, etc.

The Halo Effect and 8 Delusions • Halo Effect: Tendency to look at a company's overall performance and make attributions about its culture, leadership, values, and more. • Correlation and Causality: Two things may be correlated, but we may not know which one causes which. • Single Explanations: Many studies show that a particular factor leads to improved performance. But since many of these factors are highly correlated, the effect of each one is usually less than suggested. • 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.

The Halo Effect and 8 Delusions • Rigorous Research: If the data aren't of good quality, the data size and research methodology don't matter. • Lasting Success: Almost all high-performing companies regress over time. The promise of a blueprint for lasting success is attractive but unrealistic. • Absolute Performance: Company performance is relative, not absolute. A company can improve and fall further behind its rivals at the same time. • The Wrong End of the Stick: It may be true that successful companies often pursued highly focused strategies, but highly focused strategies do not necessarily lead to success. • 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.

The Halo Effect - Summary • How Little We Know – Cases : Lego Company (‘It lost sight of its roots’), GE (Did it go beyond its core? ), WH Smith vs. Nokia – Study of Business is not like science, but quasi-experimental and pseudo -science, namely Story • The Story of Cisco – Success story : John Chambers, Acquisition, Energy of workforce – A Fairy Tale - Reversal at Fortune - Springtime • Up and Down with ABB – Success story : CEO, dynamic corporate culture, org design, philosophy – Running off the rails, ABB through the looking glass ‘narcissism’ • Halos All Around US – Tendency to blend together to reduce cognitive dissonance using rule of thumb – Cases : Halos in the business world, Halos on the People and for the People, Halos on our leaders, Halos in our Surveys

The Halo Effect - Summary • Correlation Issues – What leads for high performance? – Establishing a relationship • Data quality issues vs. Research methods – &/%! In - &/%! Out • Stories are important in the business world • Scientific research should be followed by good stories • Strategies and execution are not enough to achieve the high performance • Its unwise to think that a firm has foolproof strategy • Execution can also differ from company to company one way of execution may not work in another firm • Good and bad results of a firm are not always from good or bad performance of the managers there are many other factors which influence the outcome • Examples of Intel, Logitech

Question 1. Do Rosenzweig’s arguments change our views?

• Yes, it challenges the mainstream business strategy by questioning – How firm’s performance is attributed to strategy or execution – How non-quantitative factors can contribute towards success – How data supporting the success can be mis-leading • Only 74 stocks from the 1957 S&P 500 were still even listed in 1997. Of those 74, only 12 outperformed the S&P 500 that year.

Recent Mainstream in Business Strategy Author Peters/ Waterman Porter Prahalad/ Hamel Collins/ Porras Nonaka/ Takeuchi Pfeffer Wichan Kim Title Focus In Search of Excellence Soft sides, 7 S Competitive Strategy Industry, competitors Competing for the future Intangible assets, cults Built to Last Philosophy, BHAGs Knowledge-Creating Company Knowledge, comm. Competitive Advantage Thru People Blue Ocean Strategy New business model

Evolution of business research Periods 1970 -80 Main Interest Themes Management Manager, organization structure, mgt process, motivation Strategy boundless competition, competitiveness, environmental responsiveness After 1990 Renaissance core competence, brand, knowledge, innovation system, people

Humans and Organizations which business deals with are ignorable and non-experimental • - The Limitation of Human Nature Humans are Not rational. Many times emotional pursuing self-satisfaction based on political behaviours • Lack of Understanding on the Black box, Organization H. Simon’s decision making process Power and politics inside the organization So we developed frame such as Rational Decision. Making, Contingency Perspectives, Incremental Processes, Garbage Can Model, etc. -

Business , Mathematics and science are different q Methodologies • Deduction, induction, synthetic approach • Case Analysis, Comparative Analysis, biblical analysis • Quantitative, Qualitative

Conclusion 1. • Business Education is practiced under pseudoscientific approach. It can not eliminate Halo Effect, lacks practical experience, and many times make Paralysis through Analysis. • But, it is needed to have better understanding and frames for Strategy. Study of Business is social interdisciplinary. We believe Business Management is closer to ART than Mathematics. • P = f(----Strategy, HE)

Question 2. The relation between Rosenzweig’s view and the narrative and performative perspective on strategy?

Halos are more than we thought • A “Right” Strategy is pre-requisite to success but not the only factor • It is easier to blame “Execution” than “Strategy”. E. g. Hewlett Packard • Management’s narrative in case of failure pointed towards execution • Management is reluctant to accept the flaws in the strategy • Raising questions about strategy as well as execution is important in analysing the firm’s performance

Strategic Risks • Risk of customers – (Failed market research) • Risk of competitors – Game theory – Failure to predict competitor’s move • Risk of technology – Cornflakes v/s Intel • Internal capability risk – People and skills

Going in the middle is better for all of us giving satisfaction • • Decisional behaviours are in the middle of both extremes 100 Rational 100 Emotional Lack of time, energy, and information Most in cases are incremental or are based on bounded rational The first step is key (Path & Institutionalism)

Input-Output Distortion Persistance and tenacity Inputs Uncertainty gic e t a r t S e choic Outputs Chance Exe cuti on Risk

Conclusion 2. • Strategy involves risks. Between inputs and outputs, there is Black Box which changes the anticipated outcomes. • Rosenzweig seeks to improve the way that managers understand company performance and make strategic decisions.

Thank You.