When I read Built to Last, In search of ex­cel­lent and Good to great I im­me­di­ately thought: What a bunch of BS!!. But again, I think that about most busi­ness books.

The con­tent of these books seemed par­tic­u­larly lu­di­crous to me. I found both log­i­cal in­con­sis­ten­cies and method­olog­i­cal flaws in their process. For ex­am­ple, pick­ing suc­cess­ful com­pa­nies af­ter the fact is anal­o­gous to pick­ing the win­ners of a lot­tery and claim that they have ex­cep­tional skills. Betting the farm on a sin­gle con­cept (i.e. Big Hairy Goal) is clearly the right thing when you are right, but most of­ten than not you are wrong. What about all the com­pa­nies that did that and failed? Also, Keeping to the Core worked re­ally well for Coca Cola, but re­ally badly for Kodak.

These are just ex­am­ples. These books are packed full of such rea­son­ably sound­ing ab­sur­di­ties. I thought that every­body would im­me­di­ately spot this. I thought that the mediocre sub­se­quent per­for­mance of the com­pa­nies orig­i­nally se­lected as ex­cel­lent would ob­vi­ously demon­strate the un­sound­ness of such con­clu­sion. I was very wrong. These tomes are hugely suc­cess­ful. People seemed to dis­agree with me. They re­ally like this stuff. Given that my work and my life were not overly im­pacted one way or the other, I left the mat­ter to rest.

And then came The Halo Effect. It was a plea­sure for me to read, as it con­firmed my own ideas (confirmation bias any­one?) and added many more.

The ti­tle is slightly mis­lead­ing. A bet­ter ti­tle would have been: Why the idea of find­ing com­mon traits among suc­cess­ful com­pa­nies is baloney. I know, not as catchy. The catchy halo ef­fect, men­tioned in the ti­tle, is just the biggest delu­sion that peo­ple have about the topic.

I found an ex­per­i­ment re­counted in the book to be very il­lu­mi­nat­ing. They di­vided a set of peo­ple in mul­ti­ple groups and gave each group a prob­lem to solve. They then told half of the groups that they did a very good job and the other half that they did a very poor job. The thing is, they did so at ran­dom. They then asked peo­ple to rate the dy­nam­ics of their group on sev­eral fac­tors. People that were told that they did a good job re­ported to have had won­der­ful dy­nam­ics: open dis­cus­sions, in­spired lead­ers, high cal­iber peo­ple and such. The op­po­site was true for the other groups.

It did­n’t mat­ter what the ac­tual dy­nam­ics had re­ally been: some groups were very con­fronta­tional, oth­ers were very am­i­ca­ble; some were very vo­cal, oth­ers were very quiet. In the end, peo­ple who were told that they did good re­called the ex­pe­ri­ence in pos­i­tive terms. People who were told that they did poorly, re­called the ex­pe­ri­ence in neg­a­tive terms. Remember, good and bad out­comes were as­signed ran­domly. Also, the re­sults have been con­firmed in sev­eral sim­i­lar stud­ies.

It is not a good strat­egy that dri­ves per­for­mance. It is per­ceived per­for­mance that makes peo­ple think that they had a good strat­egy. This is: The halo ef­fect. This sim­ple con­cept has dra­matic reper­cus­sions.

First of all, it in­val­i­dates the main process used in these stud­ies: if you use news­pa­pers ar­ti­cles and man­agers rec­ol­lec­tion to draw con­clu­sions, you are just pil­ing ha­los over ha­los. People would cer­tainly give all sort of pos­i­tive at­trib­utes to com­pa­nies that suc­ceeded. They do it ex­actly be­cause they suc­ceeded. And when these com­pa­nies fail, they sud­denly give all sort of neg­a­tive at­trib­utes to them. The book is full of ex­am­ples of com­pa­nies that were rated as ex­cel­lent when their stock price went up and ter­ri­ble when their stock price went down. Nothing changed in these com­pa­nies, they were still do­ing the same ex­act thing.

The book con­tains many other in­sights of why these ‘studies’ are deeply flawed. It calls them delu­sions. You are prob­a­bly fa­mil­iar with some of them if you have a sci­en­tific back­ground: for ex­am­ple, Delusion of Correlation and Causality, Delusion of Single Explanation (factors are not in­de­pen­dent), Delusion of Connecting the Winning Dots (ad hoc af­ter the fact se­lec­tion). Other delu­sions are spe­cific to the an­a­lyzed do­main: Delusion of Lasting Success, Delusion of Absolute Performance, Delusion of Organizational Physics.

In the end what should man­agers do? Instead of fol­low­ing these book­s’s pre­cepts, they should fo­cus on two things: strat­egy and ex­e­cu­tion. Both of these things are prob­a­bilis­tic en­deav­ors where the ab­solutely wrong mea­sur­ing stick is the re­sult that you ob­tain. I al­ways found this to be a very com­mon er­ror peo­ple fall into at what­ever level in an or­ga­ni­za­tion. The er­ror is judg­ing the sound­ness of a de­ci­sion by its re­sult. A de­ci­sion should be judged by the sound­ness of the process to get to the de­ci­sion and the in­for­ma­tion avail­able at the time the de­ci­sion was taken. This is the only thing that is con­sis­tent with the prob­a­bilis­tic na­ture of the world we live in. The book pro­files three lead­ers who em­body this prob­a­bilis­tic view.

In sum­mary, please go and read this book. There are many more things in it than I de­scribed in this (albeit long and bor­ing) post.