As a speak, I sometimes receive the results of survey forms completed by conference delegates.  Mostly, they seem to like what they hear.  They give high marks for relevance, presentation, originality.  But some people take a less favourable view.  And those critics think you are very, very bad.  Not just irrelevant, but poor in presentation, weak in delivery and originality.  Could these people really have heard the same speech?

       Some people like you, and others don’t.   The ones who do give you high marks for everything, and the ones who don’t give you low marks for everything.  It’s very rare for someone to say – although I know it’s often true – that the material was right but the presentation didn’t quite come off, or that I sounded convincing even though I didn’t really have anything new to say.

       The halo effect was first discovered a century ago in the assessment of military capability.  Recruits were assessed on having all soldierly qualities, or none.  Few people were good in some respects, deficient in others.  When people fill in guest comment forms in a hotel, those who think the room was spacious also find the reception staff friendly and the restaurant food good. People who think their room is too small tend to find the employees surly and the breakfast disappointing.  Ratings of subjective characteristics of performance are strongly correlated with each other.

       Phil Rosenzweig describes how the halo effect not only colours, but dominates, accounts of business performance.  When Cisco was thought to be performing well in the 1990s the company was admired for its customer focus, envied for its ability to integrate acquisitions, praised for the rigour of its cost control.  Suddenly, in mid 2000, these judgments were revised.  Not just one judgment, but all.  The company had been cavalier in its treatment of customers, was a sprawling conglomeration of disparate businesses, and its systems had failed to give management the required information.  The halo had become a cloven hoof.   And, as Rosenzweig emphasises, no one was saying that Cisco had changed.  The company that had once been seen through rose-tinted spectacles was now seen through the lens of failing performance.

       Similarly, Percy Barnevik was for years Europe’s most admired business leader..  Then, as ABB stumbled, business journalists and business school professors told a different story.  What had seemed to be charisma was a cult of personality.  The most upright of corporate citizens had engaged in ethically questionable practices.  The risks that had once seemed so finely judged had, in fact, been rash gambles.  It wasn’t that Barnevik had lost the plot.   It was just that the chief executive of a company that is exceeding expectations is described differently from a chief executive whose company is underperforming.  Even when the chief executive is the same individual.

       Rosenzweig offers a telling indictment of the superficiality of much management literature, and a specific critique of the many studies which claim to illuminate the source of high performance through the experience of successful companies – the literature which has burgeoned since In Search of Excellence.   These insights into corporate success are often only restatements that the company is doing well.  

So successful companies have customer focus and tight cost control?   That’s really useful information for people who thought it was a bad idea to focus on customers and a good one to give up cost control, but most managers have reached that insight for themselves.  Successful companies bask in the halo effect conferred by having got the basics of management right.  That’s why they are successful, but it doesn’t tell us how they did it – or, crucially, how they did it more successfully than their competitors.

       More problematically still, these characteristics of success often really are correlated with each other.  A hotel that has friendly reception staff needn’t have pristine bedrooms, but it probably does:  the management that is good at inspiring the front desk will often be successful in motivating the chambermaids.  Suppose some underlying cause – call it the secret of business success –  leads to both strong customer focus and effective cost control.  We would observe that good businesses were strong on both customer focus and cost control, but be no closer to identifying the secret of business success.

       There is a large random element in performance.  Cisco was probably never particularly good or particularly bad.  The company had the good luck to live through a period – the late 1990s – when its customers’ demand for its products was insatiable and Wall Street analysts fawned over its chief executive.   Then the wheel of fortune turned. The business didn’t change,  the environment in which the business operated did. 

The man who buys the winning ticket in a lottery will always be applauded for his prescience and admired for his shrewdness.  Just don’t ask him for tips on how to win the lottery next time.  Asked for the secrets of his business success, Paul Getty reportedly said ‘strike oil’, and he got to the heart of the matter, even though it wasn’t the kind of answer his interlocutor was looking for.

       Books like In Search of Excellence and Built to Last are great stories, containing genuine insights from thoughtful observers of management practice.  But the claimed rigour of their scientific analysis isn’t worth a row of beans, and Rosenzweig explains why with wit and vigour.  Put The Halo Effect alongside these earlier volumes on your business bookshelf.