Tuesday, March 27, 2007

Management delusions


Phil Rosenzweig is the author of The Halo Effect: . . . and the Eight Other Business Delusions That Deceive Managers. He has an article based on this book in McKinsey Quarterly (free registration required). Here's the description of the halo effect:

How does the halo effect manifest itself in the business world? Imagine a company that is doing well, with rising sales, high profits, and a sharply increasing stock price. The tendency is to infer that the company has a sound strategy, a visionary leader, motivated employees, an excellent customer orientation, a vibrant culture, and so on. But when that same company suffers a decline—if sales fall and profits shrink—many people are quick to conclude that the company’s strategy went wrong, its people became complacent, it neglected its customers, its culture became stodgy, and more. In fact, these things may not have changed much, if at all. Rather, company performance, good or bad, creates an overall impression—a halo—that shapes how we perceive its strategy, leaders, employees, culture, and other elements.

As an example, when Cisco Systems was growing rapidly, in the late 1990s, it was widely praised by journalists and researchers for its brilliant strategy, masterful management of acquisitions, and superb customer focus. When the tech bubble burst, many of the same observers were quick to make the opposite attributions: Cisco, the journalists and researchers claimed, now had a flawed strategy, haphazard acquisition management, and poor customer relations. On closer examination, Cisco really had not changed much—a decline in its performance led people to see the company differently. Indeed, Cisco staged a remarkable turnaround and today is still one of the leading tech companies. The same thing happened at ABB, the Swiss-Swedish engineering giant. In the 1990s, when its performance was strong, ABB was lauded for its elegant matrix design, risk-taking culture, and charismatic chief executive, Percy Barnevik. Later, when the company’s performance fell, ABB was roundly criticized for having a dysfunctional organization, a chaotic culture, and an arrogant CEO. But again, the company had not really changed much.

Hmmm ... Vivek makes a similar point about Indian cricket team's batting! "There has been no fundamental change in Indian batting in the last few years. We have remained as good (or as bad) as we were before."

2 Comments:

  1. Vivek Kumar said...

    Abi.. thanks for giving it a name! Quite an informative piece :)

  2. Prakash said...

    Thanks Abi for visiting my site. Nice blog you have with impressive stats.
    Regards,
    Prakash