Our thinking about business is shaped by a number of delusions - ones that distort our understanding of company performance, that make it difficult to know why one company succeeds and another fails. These errors of thinking pervade much that we read about business, whether in leading magazines or scholarly journals or management bestsellers. They cloud our ability to think clearly and critically about the nature of success in business.

Business Delusions

Success cannot be usually attributed to one factor.Many studies show that a particular factor—strong company culture or customer focus or great leadership—leads to improved performance. But since many of these factors are highly correlated, the effect of each one is usually less than suggested.

The Delusion of Single Explanations

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.By looking only at companies that perform well, we can never hope to show what makes them different from companies that perform less well.

The Delusion of Connecting the Winning Dots

Company performance is relative, not absolute. A company can improve and fall further behind its rivals at the same time.A company’s performance should be measured relative to other similar companies’ performance as it is a competitive environment. Measuring the company in isolation in absolute terms is not of much use.

The Delusion of Absolute Performance 

The study of corporate performance is not a science like physics. We wrongly believe that there are certain rules or a formula for success and if a company follows the rules or the steps of the formula, it will see all its goals being achieved. But in the real world, success is not because of a few controllable factors. There are many variables that determine the success or failure of the organization.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.

Delusion of Organisational Physics

Just because two sets of things are correlated does not mean that one causes the other to happen. Sometimes one might cause the other to happen. But we won't know which of them is the trigger. Maybe, another separate thing might be influencing both of them to happen. It is also possible that there is no relationship at all.Does employee satisfaction lead to high performance? The evidence suggests it’s mainly the other way around—company success has a stronger impact on employee satisfaction.

The Delusion of Correlation and Causality

This is our tendency to make inferences about specific traits on the basis of a general impression.In the business world, it refers to the tendency to look at a company’s overall performance and make attributions about its culture, leadership, values, and more. In fact, many things we commonly claim drive company performance are simply attributions based on prior performance.For example, if a company is profitable, people conclude that the leadership and processes must be competent.

The Halo Effect

It may be true that successful companies often pursued a highly focused strategy, but that doesn’t mean highly focused strategies often lead to success.Some companies have a focused strategy and some change their strategy based on competition, market, and internal factors. Some are successful and some are not due to internal and external factors..But this is not dependent on the type of strategy alone. For example, Intel decided to move to processors from memory chips and was successful. The Intel leadership was praised for this visionary move. But if the processors had not been successful, the leadership would have been criticized.

The Delusion of the Wrong End of the Stick

Almost all high-performing companies regress over time. The promise of a blueprint for lasting success is attractive but not realistic.Success is transitory, and many companies that have outperformed in the past, won't do so in the future. A company cannot be successful forever on the basis of a few traits. Many external and internal factors affect a company and the company has to continually work towards achieving short-term and long-term success.

The Delusion of Lasting Success 

If your data sources are corrupted by the halo effect, it doesn't matter how much data you have gathered, or how sophisticated your methodology was.Data quality and quantity are equally important when it comes to research. If one takes a wrong assumption and backs it up with some numbers, the conclusion cannot be taken seriously.

The Delusion of Rigorous Research 

Controversial and iconoclastic, a veteran corporate manager and business school professor exposes the dangerous myths, fantasies, and delusions that pervade much of the business world today.

Understand yourself and those around you.

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Psychology

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Business

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Leadership & Management

With two new chapters and a new preface, the award-winning book The Halo Effect continues to unmask the delusions found in the corporate world and provides a sharp understanding of what drives business success and failure. Too many of today’s most prominent management gurus make steel-clad guarantees based on claims of irrefutable research, promising to reveal the secrets of why one company fails and another succeeds, and how you can become the latter. Combining equal measures of solemn-faced hype and a wide range of popular business delusions, statistical and otherwise, these self-styled experts cloud our ability to think critically about the nature of success. Central among these delusions is the Halo Effect—the tendency to focus on the high financial performance of a successful company and then spread its golden glow to all its attributes—clear strategy, strong values, brilliant leadership, and outstanding execution. But should the same company’s sales head south, the very same attributes are universally derided—suddenly the strategy was wrong, the culture was complacent, and the leader became arrogant. The Halo Effect not only identifies these delusions that keep us from understanding business performance, but also suggests a more accurate way to think about leading a company. This approach—focusing on strategic choice and execution, while recognizing the inherent riskiness of both—clarifies the priorities that managers face. Brilliant and unconventional, irreverent and witty, The Halo Effect is essential reading for anyone wanting to separate fact from fiction in the world of business.