The Halo Effect

Phil Rosenzweig wrote an interesting book called, "The Halo Effect and Eight Other Business Delusions That Deceive Managers."

I have often said that when I am not performing well, that I am better than what people think I am and when I am performing well, I am not as good as what people think I am. The Halo Effect can have a great impact. I noticed that if a company is on a roll and successful then more people want to work there and more people want to buy from there, etc. The opposite can also be true if a company gets the reputation of not being a good place to work, etc.

The gist of The Halo Effect is it tends to accentuate either the positive or the negative and gives attributes to someone that the person does not have because of their expertise in another area. For example, business people are often asked (and listened to) for their advice on politics or sports but they may have no expertise at all in that area.

I often find because of my success in business that people ask me for advice about things that I would have little knowledge of and they tend to weigh my advice more heavily then they should. One of the reason I seek success as much as I do is because it actually means that people do tend to listen and we all like people to listen to us.

Some take-aways from the book…

-The "Halo Effect" occurs when people ascribe positive attributes to a person or company, even without evidence that the positive traits, in fact, really exist.

-The halo effect is rooted in cognitive dissonance theory: people want a cohesive picture of the world, and so they disregard facts that don’t fit that framework.

- Some famous business books were based on delusions about company performance. The authors were victims of the halo effect, snowed by fleeting success and shallow data.

- Most business studies try to extrapolate upbeat results from meager correlations.

- Real performance emanates from inside a company and its market.

- Tom Peters, co-author of In Search of Excellence, said its data was "faked." The stock prices of more than half the top companies in Built to Last did not beat the S&P 500 in five years after the book was published.

- Company performance is relative to assess it, see it in a competitive context.

- Long-term success is comprised of a series of short-term successes. Companies that adapt have a greater chance of sustained success.

- Beware of "storytelling that masquerades as science."