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The Halo Effects and Eight Delusion. Book Summary Challenges popular misconceptions about business success, explaining how experts mistakenly assume that.

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Presentation on theme: "The Halo Effects and Eight Delusion. Book Summary Challenges popular misconceptions about business success, explaining how experts mistakenly assume that."— Presentation transcript:

1 The Halo Effects and Eight Delusion

2 Book Summary Challenges popular misconceptions about business success, explaining how experts mistakenly assume that money-making companies naturally prioritize strong leadership and clear strategies as well as high profits. The world of business is complicated, uncertain and unpredictable. A company's performance depends upon a variety of factors beyond the actions of its managers. These include currency shifts, competitors' actions, shifts in consumer preferences, technological advances, etc.

3 The Halo Effect and 8 Delusions Halo Effect: Tendency to look at a company's overall performance and make attributions about its culture, leadership, values, and more. Correlation and Causality: Two things may be correlated, but we may not know which one causes which. Single Explanations: Many studies show that a particular factor leads to improved performance. But since many of these factors are highly correlated, the effect of each one is usually less than suggested. Connecting the Winning Dots: 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.

4 The Halo Effect and 8 Delusions Rigorous Research: If the data aren't of good quality, the data size and research methodology don't matter. Lasting Success: Almost all high-performing companies regress over time. The promise of a blueprint for lasting success is attractive but unrealistic. Absolute Performance: Company performance is relative, not absolute. A company can improve and fall further behind its rivals at the same time. The Wrong End of the Stick: It may be true that successful companies often pursued highly focused strategies, but highly focused strategies do not necessarily lead to success. Organizational Physics: Company 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.

5 The Halo Effect - Summary How Little We Know –Cases : Lego Company (‘It lost sight of its roots’), GE (Did it go beyond its core?), WH Smith vs. Nokia –Study of Business is not like science, but quasi-experimental and pseudo-science, namely Story The Story of Cisco –Success story : John Chambers, Acquisition, Energy of workforce –A Fairy Tale - Reversal at Fortune - Springtime Up and Down with ABB –Success story : CEO, dynamic corporate culture, org design, philosophy –Running off the rails, ABB through the looking glass ‘narcissism’ Halos All Around US –Tendency to blend together to reduce cognitive dissonance using rule of thumb –Cases : Halos in the business world, Halos on the People and for the People, Halos on our leaders, Halos in our Surveys

6 The Halo Effect - Summary Correlation Issues – What leads for high performance? –Establishing a relationship Data quality issues vs. Research methods –&/%! In - &/%! Out Stories are important in the business world Scientific research should be followed by good stories Strategies and execution are not enough to achieve the high performance Its unwise to think that a firm has foolproof strategy Execution can also differ from company to company one way of execution may not work in another firm Good and bad results of a firm are not always from good or bad performance of the managers there are many other factors which influence the outcome Examples of Intel, Logitech

7 Question 1. Do Rosenzweig’s arguments change our views?

8 Yes, it challenges the mainstream business strategy by questioning –How firm’s performance is attributed to strategy or execution –How non-quantitative factors can contribute towards success –How data supporting the success can be mis-leading Only 74 stocks from the 1957 S&P500 were still even listed in 1997. Of those 74, only 12 outperformed the S&P500 that year.

9 AuthorTitleFocus Peters/ Waterman In Search of Excellence Soft sides, 7S PorterCompetitive Strategy Industry, competitors Prahalad/ Hamel Competing for the future Intangible assets, cults Collins/ Porras Built to Last Philosophy, BHAGs Nonaka/ Takeuchi Knowledge-Creating Company Knowledge, comm. Pfeffer Competitive Advantage Thru People People Wichan KimBlue Ocean Strategy New business model Recent Mainstream in Business Strategy

10 PeriodsMain InterestThemes 1970Management Manager, organization structure, mgt process, motivation 1970-80Strategy boundless competition, competitiveness, environmental responsiveness After 1990 Renaissance core competence, brand, knowledge, innovation system, people Evolution of business research

11 Humans and Organizations which business deals with are ignorable and non-experimental The Limitation of Human Nature -Humans are Not rational. Many times emotional pursuing self-satisfaction based on political behaviours Lack of Understanding on the Black box, Organization -H. Simon’s decision making process -Power and politics inside the organization -So we developed frame such as Rational Decision- Making, Contingency Perspectives, Incremental Processes, Garbage Can Model, etc.

12 Business, Mathematics and science are different  Methodologies Deduction, induction, synthetic approach Case Analysis, Comparative Analysis, biblical analysis Quantitative, Qualitative

13 Conclusion 1. Business Education is practiced under pseudo- scientific approach. It can not eliminate Halo Effect, lacks practical experience, and many times make Paralysis through Analysis. But, it is needed to have better understanding and frames for Strategy. Study of Business is social interdisciplinary. We believe Business Management is closer to ART than Mathematics. P = f(--------Strategy, HE)

14 Question 2. The relation between Rosenzweig’s view and the narrative and performative perspective on strategy?

15 A “Right” Strategy is pre-requisite to success but not the only factor It is easier to blame “Execution” than “Strategy”. E.g. Hewlett Packard Management’s narrative in case of failure pointed towards execution Management is reluctant to accept the flaws in the strategy Raising questions about strategy as well as execution is important in analysing the firm’s performance Halos are more than we thought

16 Strategic Risks Risk of customers –(Failed market research) Risk of competitors –Game theory –Failure to predict competitor’s move Risk of technology –Cornflakes v/s Intel Internal capability risk –People and skills

17 Decisional behaviours are in the middle of both extremes Lack of time, energy, and information Most in cases are incremental or are based on bounded rational The first step is key (Path & Institutionalism) Going in the middle is better for all of us giving satisfaction 100 Rational 100 Emotional

18 Persistance and tenacity Chance Risk Uncertainty Outputs Input-Output Distortion Execution Strategic choice Inputs

19 Conclusion 2. Strategy involves risks. Between inputs and outputs, there is Black Box which changes the anticipated outcomes. Rosenzweig seeks to improve the way that managers understand company performance and make strategic decisions.

20 Thank You.


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