Leaders should say goodbye to their haloes

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There is no recipe for enduring excellence: the distinctive characteristics that yield competitive advantage, because they are hard to replicate or emulate, will inevitably be more appropriate for some conditions than for others.

They call it the halo effect. Over a century ago, it was discovered that officers thought that soldiers who were strong were also brave and intelligent, but those who were cowardly were also weak and stupid. Performance, ranked by entirely different measures, gave the same answers. Commanders simply thought some soldiers good and others bad.

When I get feedback on a speech, or a class, I see the same thing: the answers are all clustered at the extreme right, or extreme left, of the form. Perhaps you have filled in a hotel’s comment form. If you found the reception staff friendly, you probably also thought the bedroom was spacious and the restaurant offered good value for money.

Sometimes this describes reality. A well-run hotel expects its receptionists to be welcoming and also cares about its restaurant: a well prepared lecturer is more likely to present relevant material. But often the halo effect is the product of our human tendency to find evidence to support the hypothesis to which we are already committed.

That is why first impressions are important and a well-run hotel offers a smile at reception. The halo effect poses a problem for market researchers and those who try to interpret the results of market research. Which product characteristics really matter?

The fine recent book by Phil Rosenzweig illustrates the power of the halo effect in business journalism about Cisco Systems. In the dotcom boom, the calibre of the company’s management, the effectiveness of its processes and the vision of its chief executive were discussed in reverential tones. In the dotcom bust, the same features of the company that had once been so lavishly praised were roundly condemned. What had been viewed through rose-tinted spectacles was now seen through the lens of failing performance.

There is a large element in performance that is random, or at least outside the control of the individuals and organisations concerned. The environment changes more than the personalities and corporations that populate it. Winston Churchill was a disastrous chancellor of the exchequer in Britain’s depressed 1920s, but the man of the hour when the country faced Adolf Hitler alone in 1940.

But our search for excessively simple explanations, our desire to find great men and excellent companies, gets in the way of the complex truth. The power of the halo effect means that when things are going well praise spills over to every aspect of performance, but also that when the wheel of fortune spins, the reappraisal is equally extensive.

That goes for Tony Blair and John Browne. The characteristics that were once the prime minister’s virtues are now his faults. What was once pragmatism is now lack of principle: broad popular appeal is now readiness to say all things to all men. Refreshing informality is lack of proper process; and the face of charm becomes the mask of insincerity. No one was much interested in scurrilous gossip about Lord Browne’s personal life when all was going well at BP but after the Texas City refinery disaster all bad news is news. In Chicago the grand figures who so readily accepted Lord Black’s cheques and hospitality rush to court to explain how comprehensively they were deceived.

For individuals, the lesson is to get out when the going is still good. But few do: basking in the halo effect, people come to believe the adulation they receive is well deserved. All political careers end in failure, said Enoch Powell, and if this is less often true of business careers it is not because business people are less vain or more shrewd, but because companies more often impose mandatory retirement.

For corporations, the lesson is that there is no recipe for enduring excellence: the distinctive characteristics that yield competitive advantage, because they are hard to replicate or emulate, will inevitably be more appropriate for some conditions than for others. If you top the list of most admired companies, there is only one direction in which your ranking can go, and it will.

P. Rosenzweig, The Halo Effect, Free Press, 2007

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