The relentless onslaught of business and management books often feels (to me, at least) like standing at the bottom of the sluiceways of the Grand Coulee Dam. Fortunately, all but a tiny slice of the dead-tree armada is utterly inconsequential. Of the remaining few books that penetrate consciousness for a week, a season, or a year, my secret suspicion has always been that far more are bought than are read.
A still slimmer slice are those select few that become household (or perhaps "office-hold") words: In Search of Excellence, The Innovator’s Dilemma, Good to Great, The Effective Executive, et al.
But even more unusual in my experience is the seriously-pedigreed book that questions the very foundations of the genre: The business book, in other words, that’s a meta-entry in the category. In case you haven’t guessed, I’m nominating The Halo Effect, by Phil Rosenzweig, a professor of strategy and management at the International Institute for Management Development in Lausanne. He’s a Wharton Ph.D, UCLA MBA, and former Harvard Business School Professor. (I did say "seriously pedigreed," didn’t I?)
New reviews of Halo, published this month, are coming out virtually daily, so I can’t and won’t attempt an exhaustive literature search here; besides, that’s not what "Adam Smith, Esq." is all about. I do want to focus on a piece Rosenzweig wrote himself in The McKinsey Quarterly, which, alas, is not yet available online (I subscribe to the print version, which arrived last night), but in the meantime the most capable review I can point your browser towards is courtesy of the stalwart FT.
Rosenzweig begins with the inarguable observation that "The quest of every high-quality corporate executive is to find the keys to superior performance." In this quest, they "too often" put their faith in books and articles that "have claimed to reveal the blueprint for lasting success, the way to go from good to great, or how to craft a fail-safe strategy or to make the competition irrelevant."
If you’re starting to feel queasy at the claims of these books, in my opinion ever-so-fairly characterized by Rosenzweig, get on line.
His indictment of the accumulated managerial literature can succinctly be stated, in my view, as falling prey to mistaking correlation for causation. Specifically, many management books that focus on excellence, strategic success, enduring and powerful cultures, and so forth, start out by looking for companies that have succeeded and then trying to tease out and analyze what they have in common. Rosenzweig’s point is that, when the business writer begins the search for superior traits in firms by examining those who are (we now know, in our wisdom) successful, that the writers have by hypothesis excluded from the dataset firms that underperformed or even failed.
Yes, of course, you may be nodding, but the issue is this: What if some or many of the sub-par performers shared the traits the author proceeds to identify as indicia of success? We would never know, because the authors never asked.
The "halo effect" itself is a phenomenon first identified in the 1920’s by Edward Thorndike, a US psychologist, and is "the tendency to make specific inferences on the basis of a general impression." This may at first blush seem abstract, but Rosenzweig fleshes it out thus: A firm that is conspicuously successful (say, Cisco during the late 1990’s) is typically praised for "its brilliant strategy, masterful management of acquisitions,a nd superb customer focus." Then, when the dot-com’s collapsed, observers were "quick to make the opposite attributions: [That] Cisco now had a flawed strategy, haphazard acquisition management, and poor customer relations."
Rosenzweig’s insight follows immediately: "On closer examination, Cisco really had not changed much—a decline in its performance led people to see the company differently." After all, those various attributes ("strategy," "customer focus," indeed "management" itself) are profoundly subjective, or, as he puts it, "ambiguous and difficult to define."
Elsewhere, I have made the observation that the problem with statements to the effect that your firm is pursuing maximum (or higher, or optimal, or whatever) "profitability" is that as a manager there’s no dial on your financial dashboard that tunes profitability up or down. It’s the residual, if you will, of everything else you do, from professional development and cultural hygiene to the needs and preferences of your clients and the exertions of your competitors.
The dashboard/race car analogy may actually be useful. How? What a race car driver would really like would be a dial on his dashboard for "faster lap times." Of course there’s no such thing, and we all must work with the pedals and wheels that we can control:
- The innate performance capabilities of your tools: The engine, suspension, brakes, tires, steering, etc. (think your IT infrastructure, your KM system, your office layout, your support and administrative staff).
- The external environment including the track design and condition (think the regulatory and public-opinion environment, and if you doubt it matters, I have three words for you: Stock options backdating).
- The abilities of your team-mates and pit crew (your colleagues, partners and associates and paralegals, and your line staff).
- What the other drivers and teams are doing (your competitors: If you subscribe in principle to the observation that "no battle plan survives its first encounter with reality," ask yourself if you are truly mindful of how your competitors might preditably react to your firm’s new initiative X). And
- The driver’s own level of experience, reflexes, risk tolerance, peripheral vision, etc. (your expertise as both a legal practitioner and as a trusted advisor to your client).
But back to Rosenzweig. He proceeds to deconstruct the promises of the books, in particular the promises of absolute performance and of enduring success, as having especially pernicious consequences for executives who rely on their false hopes.
As for absolute performance, it’s largely irrelevant. All that matters is relative performance. Need an example? Try GM. Its US auto market share has gone from 35% in 1990 to 29% in 1999 and 25% in 2005. That’s the relative measure—the only one that matters. In absolute terms? Without question, GM cars in 2005, compared to those it put out in 1990, were of far higher quality, safer, with more features, performance, and comfort. Yet the comparison that mattered was not to itself in 1990, it was to the Japanese, German, and South Korean competition, where GM was (sadly, but richly deservedly, in my view) was getting hosed.
And as for enduring success?
In today’s globally competitive environment, there is no such thing as incumbency. There’s both a statistical and an empirical dimension to this observation.
The statistical reality is simply that in any given population of X (human beings, fruit flies, wonders of the world, companies), there will be some remarkably long-lived examples. The problem is that they are only identifiable after the fact.
The empirical reality is that long-term successful firms haven’t magically "unlocked the secrets of sustained greatness:" Instead, they’ve strung together a long string of many short-term successes. Rosenzweig doesn’t mention this example in the McKinsey piece, but I would nominate GE as a long-term-successful firm that has achieved that privileged position only by continually re-inventing itself at a pace that would shame Madonna.
Managers cannot rely on principles of this or principles of that, seven habits programs (or 12-step programs), 2 x 2 matrices, or other guru wisdom @ $29.95. Instead, we must realize that the world is uncertain and indeterminate: We are affected more than we’d like to admit by:
- technological change,
- capricious customer preferences, and
- unknowable internal capabilities within our own firms.
This means we must learn to "see the world through probabilities," as summarized in this observation from ex-Goldman Sachs, ex-US Treasury Secretary Robert Rubin:
"Once you’ve internalized the concept that you can’t prove anything in absolute terms, life becomes all the more about odds, chances, and trade-offs. In a world without provable truths, the only way to refine the probabilities that remain is through greater knowledge and understanding."
So is Rosenzweig’s thesis a counsel of despair? Can we, indeed, know nothing meaningful about successful management strategies?
I view it, as does Rosenzweig, as a counsel of inspiration.
In this unknowable world, what attitude and what approach grace us with the best odds of success? Only one: Critical thinking.
This means rigorous and unblinking analysis of reality as it is, not as you want it to be; a welcoming attitude towards mistakes as learning opportunities and a skeptical attitude towards successes as profoundly time-and-place specific; and a severe allergy to formulae, knee-jerk reactions, and wilful ignorance of the new, the foreign, and the "other."
As Rosenzweig puts it, "If a set of steps that could guarantee success did exist, and if greatness were indeed simply a matter of will, then the value of clear thinking in business would be lower, not greater."
Would you want it otherwise?
