The Halo Effect - A Leadership Book Dialogue

The Halo Effect: . . . and eight other business delusions that deceive managers

Phil Rosenweig

The Free Press, 2007, New York, USA



Summary [The Halo Effect helps answer the question, why is it so hard to determine the factors that lead to high performance? Is there something about the way we ask the question, or the way we go about trying to find answers, that keeps us from getting it right? The central idea in this book is that our thinking about business is shaped by a number of delusions that distort our understanding of company performance and that make it difficult to know why one company succeeds and another fails. I'd like The Halo Effect to help managers become wiser, more discerning, more appropriately skeptical, and less vulnerable to simplistic formulas and quick-fix remedies.]

C[The Halo Effect is an important book. It helps us evaluate the prescriptions for organizational effectiveness that are offered by researchers and consultants. What may seem at first blush as solid recommendations based on extensive research, are built on a weak foundation. Furthermore, following these prescriptions can be a distraction from what really leads to success, or worse, they may actually do some harm to the organization and its people. Although the book focuses on organizations, many of the 'delusions' that are presented can be applied to leadership and leadership development. I highly recommend The Halo Effect]

D[Halo Effect - the tendency to look at a company's overall performance and make attributions about what has driven it level of success (culture, leadership, values, and more).

Q[Managers are busy people, under enormous pressure to deliver higher revenues, greater profits, and ever larger returns for shareholders. They naturally search for ready-made answers, for tidy plug-and play solutions that might give them a leg up on their rivals. p.xiv]

D[Delusions - promises of achieving great success if you just do one thing or another]

But they are fundamentally flawed.

The biggest business blockbusters of recent years contain not one or two, but several delusions usually including the halo effect. They operate mainly at the level of storytelling.

L[Black Swan - Narratives]

Rather than tell you what to think, I'd rather have you think critically for yourself.

N[Important to manager's if they are to be able to evaluate prescription]

The point in looking at prescriptions is to force us to ask under what circumstances it's correct and when it's false - and that sort of critical thinking is always useful.

N[Contingency theory]

The second thing a wise manager must do is focus on the elements that drive company performance while recognizing the fundamental uncertainty at the heart of the business world.

N[Suggests dealing with ambiguity as a competency]

CHAPTER ONE - How Little We Know

R[How do we define a company's core? Zook identifies 6-dimensions: geographies, channels, customer segments, value chain steps, businesses, and products. Anyone of them might be a sensible step into an adjacent area, radiating out from the core and bringing success. ]

N[Or some combination]

The Mother of All Business Questions

The fact is, it's often hard to know exactly why one company succeeds and another fails. How did WalMart become such a success? Are some of these explanations right? Are all of them right? Which are most important? Do some work only in combination with others?

N[Contingency theory]

Aronson, people are not rational beings so much as rationalizing beings.

N[Symbolic perspective]

Science and the Study of Business

Q[Science - a method for trying to answer questions which can be put into the form: If I do this, what will happen? (Feynman) p.12]

You conduct experiments and put together information in systematic ways to deduce rules that govern the phenomena and that can lead to accurate predictions. Plenty of business questions lend themselves to scientific experimentation. N[Super Crunchers, Long Tail]

One explanation of Wal-Mart's success is that it was among the first retailers to apply scientific rigor to merchandising,

N[Isn't this explanation another example of the halo effect?]

But other questions in business don't easily lend themselves to this sort of experimentation.

N[Contingency factor data driven companies]

Science, Pseudoscience, and Coconut Headsets

D[Report - providing the facts, without manipulation or interpretation.]

D[Stories - a way that people try to make sense of their lives and their experiences in the world.]

Insidious, are stories that are dressed up to look like science, but are stories based on the halo effect.

N[Black Swan - narrative fallacies]

Q[The business world is full of Cargo Cult Science, books and articles that claim to be rigorous scientific research but operate mainly at the level of storytelling. p.17]

CHAPTER TWO

The Story of Cisco

Cisco Systems has been a stellar performer. How to Explain Cisco's Success? Why was this company doing so well? A few themes emerged. John Chambers skill at acquiring companies; excellence at digesting acquisitions; and extreme customer focus. There is a natural tendency to exaggerate the highs and lows, and to rely on simple phrases to explain a company's performance. Articles, and the chapter about Cisco in O'Reilly and Pfeffer's Hidden Value also cited these same Fortune articles. These case studies and book chapters are only as good as the sources on which they're based. Journalists and respected academics, succumbing to the halo effect, had trouble identifying with any precision the reasons for Cisco's outstanding success or its stunning decline.

N[Retrospective Rationalization - working backwards from knowing the outcome to attributing cause, which is what the halo effect is about.]

Q[We may not really know what leads to high performance, so we reach for simple phrases to make sense of what happened. p.34]

CHAPTER THREE

Explaining ABB's Success

Most explanations started at the top, with ABB's chief executive. A second theme: highlights the dynamic corporate culture. Third, its complex organization design of 'federation of national companies.' that found the best solutions to customers' problems and then spread them throughout the world.

On lookers attributed ABB's success to "five guiding lights": customer focus, connectivity, communication, collegiality, and convergence.

N[Which could be applied to any organization]

Running Off the Rails: ABB After 1997

ABB's transformed to a knowledge company, which involved moving up the value chain, delivering greater competitiveness rather than products and services. Signs of trouble emerged by 2000, as revenue growth slowed. With the sale of "non-core" assets, ABB narrowed its focus and now defined itself in terms of automation technologies and power technologies. Now ABB was described as having been impulsive and foolish. As long as times were good, the complex matrix organization had been described as a key to its success, Now a different picture emerged. Units ended up causing conflicts and communication problems between departments, "vast duplication of effort." Sharing data had become a nightmare. None of these recent articles suggested that ABB's organization had changed in any way, it was the same organization, but now the emphasis was on its flaws. Once performance fell, Bamevik was remembered as arrogant, imperial, and resistant to criticism. Had Barnevik changed? Looking across fifteen years, Bamevik was portrayed as very much the same man throughout bold, direct, and very sure of himself. No one offered any evidence that he had changed it is inferred based on the company's performance.

N[Good example of retrospective sense making]

One of the main reasons we love stories is that they don't simply report disconnected facts but make connections about cause and effect, often ascribing credit or blame to individuals. These stories offer a means of establishing right and wrong, a way of attributing moral responsibility. "Barnevik was never as good as the rave reviews he receive in the 1990s, nor was he half as bad as the more recent damning press coverage might suggest.

N[Fundamental attribution error applied to organizations exaggerates the halo effect, This section also implies a contingency model for effective leadership]

CHAPTER FOUR - Halos All Around Us

Q[The halo effect is not just a way to reduce cognitive dissonance. It's also a heuristic, or rule of thumb that people use to make guesses about things that are hard to assess directly and to grasp information that is relevant. It's tangible and appears to be objective; so then we make attributions about other features that are more vague or ambiguous. p.52]

We routinely trust financial performance figures. At Cisco and ABB, analyst inferred people that it had a wonderful ability to listen to its customers, a cohesive corporate culture, and a brilliant strategy. And when the bubble burst, observers were quick to make the opposite attribution.

N[There is a circular logic to all of this]

Halos in the Business World

R[Staw concluded that people attribute one set of characteristics to groups they believe are effective, and a very different set of characteristics to groups they believe are ineffective.] N[Reference to challenge retrospective interview and survey results as a halo effect]

You can't hope to measure cohesiveness or communication or motivation by asking people to rate themselves when they already know something about the outcome. A wide variety of behaviors can lead to good decisions. There's no precise way to engineer an "decision" discussion process. And because we really don't know what makes an optimal decision process, we tend to make attributions based on other things that appear relevant and are seemingly objective - namely, what we're told about performance outcomes. This is the essence of the halo effect

N[Commonly played out in organizations]

The Halos Effect on the People and for the People

It's widely believed that companies that manage their human resources well will outperform those that don't. If we're not careful, any successful company can attribute its good results to its people. In the 1980s, IBM's poor performance was explained by pointing the finger at its people and company culture.

N[Yet this view is taken on board without questioning]

The Halo Effect and our Leaders

Q[Perhaps nothing lends itself to the Halo Effect more than leadership. p.57]

A critical reader ought to ask if any successful companies have inauthentic leaders, and if any unsuccessful companies are run by authentic leaders, because if not, it's quite possible we're just throwing around the halo effect.

N[Power of disconfirmation]

R[Meindl concluded after a series of insightful studies that we have no satisfactory theory of effective leadership that is independent of performance. p.60]

N[Absolutely a key point!!]

We think we know what good leadership is all about - clarity of vision, communication skills, good judgment, and more, but in fact a wide range of behaviors can be said to fit these criteria.

N[Supports a limitation of 360 behavioral feedback]

Show me a company that delivers high performance, and I can always find something positive to say about the person in charge; or one that has fallen on hard times, and I can always find some reason to explain why the leader failed (the halo effect applied to leadership). Most people don't reorganize good leadership when they see it unless they also have clues about company performance from other things that can be assessed more clearly-namely, financial performance.

L[Implicit leadership - leadership is an outcome attribution, not an input]

Halos in our Surveys

If we're not careful, surveys might be little more than a large collections of halo effects.

N[Key Point - relates to 360 feedback]

The scores on the 8-different factors for a given company turn out to be highly correlated and driven by the company's financial performance, what would be expected given the salient and tangible nature of financial results (common financial results halo effect).

N[Leadership attribution based on success]

Delusion One: The Halo Effect

The halo effect is the most basic delusion of them all. It is a flaw - sometimes compounded by other errors that turn up again and again, weakening the quality of our data and often diminishing our ability to think clearly about the factors that shape company performance.

N[Suggests it would be good for managers to be trained to see the halo effect]

CHAPTER FIVE

Research to the Rescue?

If we're aware of the halo effect we can take corrective measures (e.g., standardized tests or conducting interviews blind, without knowledge of the person's background to avoid the halo effect]

N[Interesting idea for creating an evidence base with Behavioral Event Interviewing - does seeing the resume affect how raters evaluate the event description?]

R[Blink - orchestra audition]

It is much trickier to uncover the halo effect in studies about what goes on inside a company, like the quality of management or levels of customer orientation, or company culture.

N[Insiders have too much knowledge of history and results]

The Halo Effect of Customer Orientation

The link between customer orientation and company performance needs to rely on measures that are independent of performance in order to have any validity at all.

N[And not ask company managers - interesting to note, organizations are probably beneficiaries of the halo effect by their customers]

The Halo Effect of Corporate Culture

Kotter and Heskett first tested for a "strong culture" by merely asking managers to rate the strength of their corporate culture on a 1-to 5-scale. Not surprisingly, they found a positive correlation between strength of culture and performance. Despite these basic flaws of logic and data validity, Kotter and Heskett were emphatic that they had demonstrated corporate culture has a causal effect on performance.

N[Typical of the research managers are consuming through consultants.]

But you don't discover these qualities by asking: Are you customer oriented? All you'll get is the self-reporting halo effect, cued by company performance. Instead, you have to look for specific actions or policies or behaviors that are not shaped by perceptions of performance.

N[A difficult task, and this has significant implications for leadership development research]

Delusion Two: The Delusion of Correlation and Causality

As long as we gather data at one point in time - we won't know the cause

Q[While the method of correlation may be useful for the purposes of suggesting causal hypotheses, it is not a method of scientific proof. A correlation, by itself, explains nothing, (Locke) p.74]

To improve our ability to explain causality we need to gather data at different points of time, so that the impact of one variable on some subsequent outcome can be more clearly isolated.

N [This makes case for predictive studies, but then the control of exogenous variables come into play.]

R[Schneider used a longitudinal design to examine the question of employee satisfaction and company performance to try to find out which one causes which]

Q[Financial performance, measured by return on assets and earnings per share, has a more powerful effect on employee satisfaction than the reverse. Being on a winning team is a stronger cause of employee satisfaction; satisfied employees don't have as much of an effect on company performance. p.75]

Delusion Three: The Delusion of Single Explanations

R[Jaworski & Kohli defined market orientation in terms of three elements - market intelligence generation, market intelligence dissemination, and business unit responsiveness to market intelligence, Most of these statements were not about perceptions, but about objective facts. Finding were that better market orientation leads to improved business performance.]

Ruf et. al., reported an extraordinary finding - more than 40% percent of the change in a company's financial performance was linked to corporate social responsibility. The authors declared results of this study suggested that improvements in (CSR) had both "immediate and continuing financial impacts." If market orientation explains 25%, corporate social responsibility explains 40%, together they explain 65% of variance in performance. Are these separate effects and therefore additive? Because if these effects overlap, then we really can't say the improvement observed by Jaworski and Kohli was due to market orientation alone or that the performance rise found by Ruf was due to CSR alone. Another study focused on leadership. The improved performance we us attributed to the CEO. This almost certainly overlaps with one or more other explanations for company success.

N[The claims for these factors included other unmeasured variables that come in via the halo effect, attributes]

McGahan and Porter "segmented specific effects and explained about 32% of a business unit's performance. Just 32%. The rest was due to industry effects or corporate effects or was simply unexplained. So maybe all of the studies we've looked at make sense after, their effects overlap - they all explain the same 32%. This studies isolated an important driver of the halo effect, of the Delusion of Single Explanations.

N[Measure of the key variables is critical]

CHAPTER 6 - Searching for Stars, Finding Halos

Peters and Waterman - Why are some companies more successful than others? "When we finished our interviews and research, we began to sift and codify our results. It was roughly 6-months after we had started, that we reached, the conclusions which are the backbone of this book."

N[This is what is done with leadership cases - lessons based on the halo effect]

The Eight Practices of America's Best Companies from In Search of Excellence

In Search of Excellence was nothing less than an affirmation of basic principles of good management.

Q[Peters and Waterman went searching for excellence, but they found a handful of Halos. p.87]

It's also possible that these 8-principles reflect attributions made about successful companies, and in fact the drivers of success lie somewhere else.

Delusion Four: The Delusion of Connecting the Winning Dots

The scientific term for this is sample selection based on the dependent variable - that is, based on outcomes. All we'll do is find out the sorts of halos effects that people place on successful companies. Which is not a bad way to describe what In Search of Excellence is really all about. But delusions or no, In Search of Excellence was a huge success. Why the appeal? Because it worked wonderfully as a story.

The Quest for Corporate El Dorado

Collins and Porras in Built to Last looked at companies that had been successful over the long term. For each visionary companies, there was a comparison company from the same industry, of about the same vintage, and that was a good performer - not a "dog."

"The Timeless Principles of Enduring Greatness"

Not very different from the list put forth by Peters and Waterman, The methodology may have been different, but the findings were largely similar. Collins and Porras didn't address a basic problem: the halo effect.

Q[And if your data contain Halos, it really doesn't matter how many cartons you fill. p.97]

Built to Last? Not So Fast!

So how well did the eighteen visionary companies fare in the years after the study ended in 1990? Out of 17-companies, chosen specifically because they had outperformed the market by a factor of 15 for more than 64 years, only eight outperformed the S&P 500 market average; the other nine didn't even keep up for ten years, only 6 out of 16 visionary Companies kept pace. Whether we look to market performance or profit performance, the picture is the same; But the sheer amount of decline, so quick and so extensive, suggests that there's more going on here. More likely, the very things Collins and Porras claimed to be drivers of enduring performance - strong culture, commitment to excellence, and more - were attributions based on performance. Results are what we'd expect from the halo effect and regression to the mean.

Q[Differences that Collins and Porras found between visionary and comparison companies were more likely attributions based on performance that had already taken place, rather than differences that led to performance. p.100]

Delusion Five: The Delusion of Rigorous Research

N[Authors describe voluminous data and a large research team - which places the halo effect on the study itself.]

The effect of all this was to present Built to Last as very serious research,

Q[The quantity of data is entirely beside the point if the data aren't of a good quality. p.101]

Delusion Six: The Delusion of Lasting Success

Lasting business success, it turns out, is largely a delusion. Its one that managers are eager to grasps. The dominant pattern is not stability or endurance, but the perennial gale of 'creative destruction' that Schumpeter talks about.

Rivals copy the leader's winning ways, new companies enter the market, consulting companies spread best practices, and employees move from company to company. Competitive advantage is hard to sustain. If we look at the full population of companies over time, there's a strong tendency for extreme performance in one time period to be followed by less extreme performance in the next.

CHAPTER SEVEN Delusions Piled High and Deep

Joyce & Nohria, created four categories in What Really Works? These were: companies that performed well in both five-year blocks (Winners); weak in the first five-year block but showed dramatic improvement in the second (climber); well in the first block but fell back in the second (tumblers); badly in both blocks (losers),

Regrettably, this study was no better than its predecessors. It used interviews with managers, asking them to look back over the ten-year period and recount their experiences, which initiates the halo effect. They collected large amounts of documents and found 8-practices that were highly correlated with total shareholder return, their measure of company performance. You can mix and match, the authors said: The first four and any two of the next four will really work.

Q[The ways we describe, mythologize, and sometimes speak rhapsodically about company culture and organization are almost entirely the result of performance. p.111]

Delusion Seven: The Delusion of Absolute Performance

These 4 elements might not be separate and independent at all but are very likely linked. Companies are often described as succeeding or failing on the merits of their actions alone, as if performance were absolute. But in a competitive market economy, the performance of one company is always affected by the performance of other companies. Kmart saw an improvement in inventory turns of 32%, but its rivals improved at an even faster rate. The difference between absolute and relative performance can be seen at other companies as well. The Delusion of Absolute Performance is important because it suggests that companies can achieve high performance by following a simple formula, regardless of the actions of competitors.

Q[ Yet once we see that performance is relative, it becomes obvious that companies can never achieve success simply by following a given set of steps, no matter how well intended; their success will always be affected by what rivals do. p.116]

This studies show 'What Was Said About Companies When They Really Worked', which is what the halo effect generates.

N[Applies to leadership - what is said about what Leaders did after they are judge to be successful - Jack Welch]

The Grand Delusions of Good to Great

Q[Interview questions where managers are asked to look back and explain what happened, rarely produce valid data, since retrospective self-reporting is commonly biased by performance. p.119]

N[Significant implication for leadership research based on interviews]

Does having "humble leadership" and "great people" lead to success? Or is it more likely that successful companies, through a halo effect, are described as having excellent leadership, better people, more persistence, and greater courage?

Collins claimed to explain why some companies made the leap while others didn't, but he did not.Good to Great documented what was written and said about companies that had made the leap versus those that had not - which is completely different.

N[Key distinction to watch out for in studies - applies to derailment research.]

The message is that greatness is not a matter of circumstance. But, largely a matter of conscious choice. It's a compelling story.

N[Attribution]

Delusion Eight: The Delusion of the Wrong End of the Stick

The overarching lesson of Good to Great is that any company can become great if it is focused and persistent, that success is not a matter of circumstance. Collins urges managers to be hedgehogs by pointing out the upside while overlooking the attendant risks.

Delusion Nine: The Delusion of Organizational Physics

Q[The most important questions in the business world don't lend themselves to the predictability or replicability of physics.]

CHAPTER EIGHT Stories, Science, and the Schizophrenic Tour de Force

Each successive study made a bolder set of claims - by the last two, there are grandiose claims about virtual guarantees of success and immutable laws of physics. Why were the 1st two so popular - they are great stories. Stories that made helped managers make sense of their world, that directed their actions, and that gave them confidence evidence in the future

N[Symbolic Frame]

And the Hits Just Keep on Coming

The latest one (2006), Big Winners and Big Losers shows the importance the importance of adaptability and focus, both at the same time. Marcus found that Big Winners had discovered an attractive industry position - a sweet spot - and were well managed (adaptive, disciplined, and focused). The Big Losers were stuck in a sour spot (rigid, inept, and diffuse). Unless those terms are defined in ways that aren't shaped by performance, all we're doing is highlighting a halo effect.

Good Science, Bad Stories?

R[Bertrand & Scholar investigated whether company performance was affected by the chief executive's personal managerial style. They defined "managerial style" in terms of investment policies (captured by levels of capital expenditures and administrative costs, and the frequency of mergers and acquisitions) and financial policies (captured by levels of debt and of dividends). Data drawn from audited financial statements had little chance of a halo effect. They controlled for a number of other variables: time, and company tenure. Managers indeed have preferred personal styles and these preferences explain about 4% of the variance of company performance. Bloom and Dorgan tested specific management practices and company performance. They selected a wide sample of 700 medium-size manufacturing companies in Europe and the United States, and they asked managers to describe specific practices, wording their questions in such a way as to ensure the answers were not colored by the halo effect. They used a "double blind" method of gathering and coding the data. The authors were careful to point out they had found correlation only. They study showed that specific management practices were indeed associated with differences in performance and explained about 10% of the total variance in firm performance. Both of these studies, and plenty more like them, meet the test of good science, but they don't exactly sizzle as stories.]

N[They provide hints of how a double blind approach might be done in leadership research - also emphasizes treating research results for practitioners as 'valid' stories; challenge is to incorporate rigorous results into a compelling story]

March and Sutton pointed out that studies of organizational performance stand in two very different worlds. One is made up of practicing managers, which rewards speculations about how to improve performance, and the second of researchers which demands and rewards adherence to rigorous standards of scholarship.

N[Challenge in how to blend these two worlds - Gladwell comes close with Psychology in Blinkand Capra did it much earlier for Science with the The Tao of Physics

Q[Stories about company performance appear to be all the more persuasive when they're dressed up to look like science, and based on exhaustive research, p.136]

N[This creates a challenge for evidence-based leadership development: how to dress up science in compelling stories?]

Satisfying Stories or Dangerous Delusions?

Q[The test of a good story is whether it leads us toward valuable insights, if it inspires us toward helpful action, at least most of the time. p.137]

We need to ask whether halo effect stories about company performance, although comforting and in many ways, might also be harmful. Pursuing a dream of enduring greatness may divert attention from the pressing need to win immediate battles; success and failure always take place in a competitive environment. The Delusion of the Wrong End of the Stick lets us confuse causes and effects, actions and outcomes and creates a belief that a given set of actions can work in all settings and ignores the need to adapt to different conditions: (intensity of competition, rate of growth, size of competitors, market concentration, regulation, global dispersion of activities, and much more.)

N[Reason contingency theories matter]

CHAPTER NINE The Mother of All Business Questions, Take Two

What brings about high performance? While we can do many things to improve our chances of success, at its core business performance retains a large measure of uncertainty. It actually be simpler than it is often made out to be but may also be less certain and less amenable to engineering with predictable outcomes.

D[Strategy - performing different activities from those of rival companies, or performing similar activities in different ways. It's about being different (Porter)]

L[Lynchpin; & 80-20 Individual - applied at personal level.]

D[Execution - carrying out strategic choices and mobilizing resources to deliver on the strategy.]

Surely managers ought to be able to get two things right! But a closer look shows that both are fraught with uncertainty

N[Simple and difficult often go together.]

The Risky Business of Strategic Choice

These sorts of choices aren't bland statements of aspiration, but fundamental decisions that set a company apart from its rivals. Strategy always involves risk because we don't know for sure how our choices will turn out. A second source of risk has to do with competitors. A third source of risk comes from technological change.

N[Implies need for adaptive strategy with open options - also applies to leadership]

So-called disruptive technologies at first didn't look attractive to established players - they didn't meet the needs of existing customers and didn't promise substantial sales and therefore tended to be ignored, yet they improved over time and eventually displaced the existing technology, spelling disaster for market leaders.

L[Peripheral Vision]

Q[Add together - uncertain customer demand, unpredictable competitors, and changing technology - and it becomes clear why strategic choice is inherently risky. p. 147]

L[Whether the risk is recognized or not - Behavioral Decision Making]

If the criterion is years of consecutive high performance, it may be more accurate to say that only companies in stable industries are likely to achieve greatness. A final source of risk comes from surrounding internal-capabilities uncertainties.

D[Causal Ambiguity - the many and subtle interrelationships inside a company that make it hard to know exactly what will be the outcome of a given set of actions.]

May be true that 78% of high performing companies had a single core business, but it doesn't follow that having a single core improves your chances of success. Because we don't know the proportion of companies in the total population that had one core business versus those that had more. The key question is not how many successful companies have a focused profile; but rather, it's whether companies with a focused profile are more likely to be successful.

N[Importance of asking the right question and falsification] Q[A change in strategy might not be the cause of bad performance as much as the result, since companies normally stick with a winning formula. p. 149]

March and Shapira, post hoc reconstruction (as in the halo effect) permits history to be told in such a way that 'chance,' either in the sense of genuinely probabilistic phenomena or in the sense of unexplained variation, is minimized as an explanation.

N[Black Swan]

More interesting question, what should a company do when its core comes under pressure?

Q[The task of strategic leadership is to gather appropriate information and evaluate it thoughtfully, then make choices that, while risky, provide the best chances for success in a competitive industry setting. p.50]

And the Uncertainties of Execution

Execution takes place entirely within the company. but still involves a number of uncertainties. When we examine how technical systems interact with social systems, (people and values and attitudes and expectations), the results are harder to predict.

N[Complexity is addressed in socio-tech approach]

Q[The way human resource policies affect performance reflects an "idiosyncratic contingency." Effective execution remains uncertain. p. 152]

R[Bloom and Dorgan, found business practices explained about 10% of the variance in, company performance. Why not more than 10%? Because those same practices will lead to somewhat different results depending on a whole host of factors: an organization's people, their skills, their expectations, and the organizational context in, which those practices are used. Execution, doesn't lend itself to predictable cause-and-effect relationships. "We need to execute better," is about as helpful as saying, "Let's all do a better job."]

N[Adds to the contingency complexity]

Q[For our company, at this time, competing against our rivals, which of the many dimensions of execution are most important? Which ones are most vital for us at this time? p.154]

N[Implies 80/20 rule.]

But by putting the attention on execution, the topic of strategic choice was neatly sidestepped. This happens all the time.

N[Minimizes importance of execution - seems that strategy and execution are a whole - false split similar to managers vs. leader]

Q[Whenever someone says, "We have the right strategy, we just need to execute better," I make sure to take an extra close look at the strategy. p.156]

CHAPTER TEN Managing Without Coconut Headsets

Q[The answer to the question What really works? Is simple: Nothing really works, at least not all the time. p. 158]

N[Interesting twist]

Q[Stories of inspiration may give us comfort but have little more predictive power than a pair of coconut headsets on a tropical island. p.158]

It is important to recognize that good decisions don't always lead to favorable outcomes, that unfavorable outcomes are not always the result of mistakes, and therefore to resist the natural tendency to make attributions based solely on outcomes. N[Behavioral Decision Making]

Acknowledge that luck often plays a role in company success. It isn't "just" luck high performance is not purely random - but good fortune does play a role,

N[Not recognizing this is Behavioral Decision Making bias]

Robert Rubin and the Management of Probabilities

Many people infer that a bad outcome is the result of a bad decision (a negative halo effect). The optimal rate of failure wasn't zero, any more than the optimal number of defaults on bank loans is zero. Just make sure that one loss doesn't break the bank!)

N[Black Swan - especially the part about not breaking the bank: risk perspective is a great concept - antithesis of zero defect]

If even a large and painful loss doesn't necessarily mean a bad decision, then what does? We have to take a close look at the decision process itself, setting aside the eventual outcome. Had the right information been gathered, or had some important data been overlooked? Were the assumptions reasonable, or had they been flawed? There are no formulas with any assurance of certain success, but the chances for success can be improved to as great a degree as possible.

N[Difficult concept to get across - 'It was been a wrong decision, it didn't work']

And Last

Getting to the top is hard - staying at the top is even harder, because success attracts imitators, some of which are willing to take risks that appear foolish to incumbents but a few of which may turn out spectacularly well, even disrupting established players.

S[The central idea in this book has been that our thinking about business is shaped by a number of delusions that ignores:

  • Any good strategy involves risk
  • Chance often plays a greater role than we think
  • Link between inputs and outcomes are tenuous
  • When the die is cast, the best managers act as if chance is irrelevant-persistence and tenacity are everything.]

Will recognizing all of this uncertainty guarantee success? Of course not. But I suspect it will improve your chances of success, which is a more sensible goal to pursue.

N[Key Point - increase the probability of a successful outcome by avoiding the halo effect and the other delusions.]

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