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Summary: How to separate the "nuggets" from the "nonsense"
Comment:
According to Phil Rosenzweig, "The central idea in this book is that our thinking about business is shaped by a number of delusions...the ones that distort our understanding of company performance, that make it difficult to know why one company succeeds and another fails. These errors of thinking pervade much that we read about business, whether in leading magazines or scholarly journals or management bestsellers. They cloud our ability to think clearly and critically about the nature of business." When our minds play tricks on is, the result is an illusion. "But if you think you can lace up a pair of Nikes, grab a basketball, and be like Mike [i.e. Michael Jordan], that's a delusion. You're kidding yourself." Rosenzweig identifies nine separate but somewhat related delusions, the first being the Halo Effect: "The tendency to look at a company's performance and make attributions about its culture, leadership, values, and more. In fact, many things we commonly claim drive company performance are simply attributions based on prior performance.
For example, he calls into question the validity research conducted for several of the most successful business books of recent years, notably In Search of Excellence co-authored by Tom Peters and Robert Waterman (1982) and Jim Collins' Good to Great (2001). "According to Peters and Waterman, America's best companies do not only a few of the eight exemplary practices, they do them all together. "In Search of Excellence was nothing less than an affirmation of basic principles of good management...How good was their research? Peters admitted in 2001 that the quantitative data analysis came after they had reached their findings...'I confess, we faked the data.'....Peters and Waterman went searching for excellence, but they found a handful of Halos."
"Collins claimed to explain why some companies made the leap [from good to great] while others didn't, but in fact he did nothing of the kind. Good to Great documented what was written and said about the companies that had made the leap versus those that had not - which is completely different." More specifically, Rosenzweig explains, "If you start by selecting companies based on outcome, and then gather data by conducting retrospective interviews and collecting articles from the business press, you're not likely to discover what led some companies to become Great. You'll mainly catch the glow from the Halo Effect."
Rosenzweig seems to have no quarrel whatsoever with any of the basic principles of good management that Peters and Waterman, Collins, and other prominent business book authors affirm. If I understand his ultimate objective (and I may not), it is to eliminate any delusions his reader may have about what leads to high performance in business. What then really works? "Nothing! At least not all the time." Rosenzweig concludes his book with observations that include these:
"Success rarely lasts as long as we like - for the most part, long-term success is a delusion based on selection after the fact."
"Company performance is relative, not absolute. A company can get better and fall further behind at the same time."
"Execution, too, is uncertain - what works in one company with one workforce may have different results elsewhere."
"Chance often plays a greater role than we think, or than successful managers usually think."
"The link between inputs and outcomes is tenuous. Bad outcomes don't always mean that managers made mistakes; and good outcomes don't always mean they acted brilliantly."
Rosenzweig's rigorous analysis of the nine delusions will help a reflective manager to challenge the assumptions and premises of conventional wisdom and thereby "separate the nuggets from the nonsense." That is precisely what Phil Rosenzweig did and then he wrote this book to share what he learned.
Those who share my high regard for this book are urged to check out Hard Facts, Dangerous Half-Truths and Total Nonsense: Profiting From Evidence-Based Management co-authored by Jeffrey Pfeffer and Robert Sutton as well as Pfeffer's more recently published What Were They Thinking?: Unconventional Wisdom About Management and Roger Martin's The Opposable Mind. Also Gary Hamel's The Future of Management with Bill Breen, Jim Champy's Outsmart!: How to Do What Your Competitors Can't, and Edward Lawler's Talent: Making People Your Competitive Advantage.
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Summary: What does (not) lead to high performance?
Comment: Phil Rosenzweig is a Professor at IMD in Lausanne, Switzerland. He earned his PhD from University of Pennsylvania's The Wharton School and has spent six years on the faculty of Harvard Business School. This book consists of 10 chapters, plus a preface and appendix, and was published in 2007.
In the preface, the author explains that this book should be seen as "a guide for the reflective manager, a way to separate the nuggets from the nonsense", whereby the aim is to "pull back the curtains and ask the questions we don't often raise, to point out some of the delusions that keep us from seeing clearly."
In the first chapter Rosenzweig uses several examples to point out clearly that most business books and articles are storytelling rather than based on rigorous scientific research as being claimed by their authors. The second chapter expands on the theme from the first chapter by describing the ups and downs in the history of technology firm Cisco. "The story of Cisco is perhaps less an example of intentional journalist hyperbole than it is of something more basis: the difficulty we have in understanding company performance, even as it unfolds before us." The third chapter expands again, this time by describing the ups and downs with industrial company ABB with a strong focus on the leadership role played by chief executive. "Our most compelling stories often place people at the center of events. When times are good, we lavish praise and create heroes. When things go bad, we lay blame and create villains."
In the fourth chapter discusses the various sorts of Halo Effect, which show up in many places. "The Halo Effect is a way for the mind to create and maintain a coherent and consistent picture, to reduce cognitive dissonance." Rosenzweig discusses halos in the business world, on people, on leaders, in surveys. But he also warns us: "The Halo Effect isn't the only delusion that distorts our thinking about business ... But in many ways the Halo Effect is the most basic delusion of them all."
The author is more positive in the fifth chapter. "If we're aware of the tendency to bestow Halos, we can take corrective measures ... we might expect that careful research conducted ... can avoid the Halo Effect. Maybe then we can find a satisfactory answer to the most fundamental of all business questions - What leads to high performance?" First, we need good data about company performance. And one has to avoid the Halo Effect. Through discussions on data gathering Rosenzweig introduces delusions two - the delusion of correlation and causality - and three - the delusion of single explanations.
In the sixth chapter Rosenzweig explains that although a blueprint for lasting success may be appealing, it is not supported by evidence. He takes the evidence from several landmark studies and business bestsellers, such as `In Search of Excellence' and `Built to Last'. "These studies ... all point to the basic nature of competition in a market economy ... there's a strong tendency for extreme performance in one time period to be followed by less extreme performance in the next." This chapter also introduces delusion four - the delusion of connecting the winning dots, five - the delusion of rigorous research, and six - the delusion of lasting success.
In the seventh chapter delusions seven - the delusion of absolute performance, eight - the delusion of the wrong end of the stick, and nine - the delusion of organizational physics are introduced, whereby Rosenzweig comes up with a very strong warning: "... since the best studies of business ... can never achieve the precision and replicability of physics, then all the claims of having isolated immutable laws of organizational performance are unfounded."
The author continues with his onslaught on the business bestsellers in chapter 8. He highlights that although some of the bestsellers provide good stories, they are often not based on good science. However, Rosenzweig does not completely want to reject stories and insist on a purely scientific approach to business and management. "... 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." Again, he provides a warning that the delusion of lasting success, together with the delusion of the wrong end of the stick, plus the delusion of organizational physics expose "the principal fiction at the heart of so many business books - that a company can choose to be great, that following a few key steps will predictably lead to greatness, that its success is entirely of its own making and not dependent on factors outside its control."
Rosenzweig sets out his thinking about company performance in Chapter 9, whereby he distinguishes two pillars of company performance. The first is strategic choice: "All companies face a handful of basic strategic choices. ...And choosing to be different implies risk." The author discusses various reasons for uncertain strategic choices, while he concludes that the task of leadership is to gather appropriate information, evaluate that information, and make choices that provide the best chances for success in a competitive industry setting. The second pillar is execution. Although there are fewer unknowns in comparison to strategic as execution takes place entirely within the company, he still discusses the uncertainties around execution. Main conclusion from the author is that "... there's simply no formula that can guarantee success" and one has to deal with that.
In the final chapter, the author states that the answer to "what really works?" is simple: "Nothing really works, at least not all the time." So what can one do about that? "A first step is to set aside the delusions that color so much of our thinking about business performance", understand that success is relative and that competitive advantage demands calculated risks. "It is not enough to do something well; you have to do it better than others - and that means you have to take chances." Rosenzweig finalizes this fine book with some remembers on the halos and delusions surrounding business. He also finalizes with 5 points for the wise manager to manage a company for high performance. But rest assured: "Will all of this guarantee success? Of course not."
Yes, I do like this somewhat unconventional business/management book. It breaks down some of the famous so-called facts within the business bestsellers. Rosenzweig does this through the introduction of 9 delusions. In the final two chapters, the author also discusses the two main pillars of business performance: strategic choice and execution. This book did certainly get me thinking, especially after originally reading the bestsellers from Peters & Waterman and Jim Collins. Recommended to all managers, but also management students.
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Summary: A refreshing look on the world of business
Comment: This is a very unorthodox and refreshing look at the world of business. The author is not afraid to admit, that, when it comes to deciphering what works, we know very little. As the factors that influence the success or failure of a particular business venture are so complex and numerous, there is no certain way of predicting what will work.
Also great to tease pompous consultants with!
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Summary: Loved it
Comment: I have to say this is one of the best finance/business books I have read in long time. Much of it is taken up with trashing the typical "analysis" you find in the business pages and management books. A key element is this idea of the Halo Effect, namely if a company does something right - performance - people often see (or choose to see) success in other areas. So a successful company is accredited with having a great culture, or management, or both. In contrast poor performers are are seen as getting the same things wrong.
In addition, many studies of successful companies look backwards. They find successful companies and ask them, or search the business media for, what the company got right. As such they tend attribute success to certain factors once they know what the performance 'answer' is. Although some studies try to overcome this by also including a sample of less good or poorly-performing companies, they often still draw on the same kind of flawed reporting (business press 'stories', asking managers what they got 'right', etc).
The book also argues that success is temporary. Not only is there the effect of mean regression, but companies are also not operating in a vacuum. Competitors can copy products or practices and thus close the gap. Therefore advice (consulting) that claims to offer management techniques that are surefire winners on some quasi-scientific basis, is basically rubbish. In addition performance is, unfortunately, relative, not absolute. A company can significantly improve, becoming more efficient and profitable, yet still lose ground if its competitors are improving at a faster rate. So a business can fail even when it is doing well.
Perhaps my favourite thing about the book is the emphasis on story-telling in both the business press and management books. Much commentary stresses the roles of key individuals, certain decisions, or elements of a particular business's culture or strategy. Yet these are really little more than narratives with a moral in them (ie focus on your core business). I've always had a gut feeling that business reporting works primarily on this basis, and is therefore fundamentally misleading (if perhaps inspiring to some). I don't think I'll ever be able to read the business pages in the same way now.
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Summary: A healthy dose of cynicism and realism in "cutting down tall poppies"
Comment: Do not worry about what the Nine Delusions are that the author uses to develop his thesis - they largely overlap and interlock and as you read the book will be seen as a powerful continuum. Why you should read this book is because bottom dollar like me you will have read one of the prior highly successful tomes that is one of the key targets for his thesis.
Whether it is "In search of excellence", "Built to Last" or "Good to great", by the end of this book you will I reckon have a more questioning attitude to such works (if not 100% cycnical) because this book challenges many preconceptions and makes you think and look afresh at how one will ever achieve success in business management.
The theme is not just "cutting tall poppies" down to size, but more basically that nothing is as simple or easy as many have claimed in writing such books. His chapter on why "strategy" and "execution" are actually so hard to do well, is alone worth the price of the book for me.
The core argument of the "delusions" being based on too much retropsective story telling is bought full circle by the three examples at the end of companies and business leaders who have in the authors opinion sought to face reality and do not underestimate the uncertainty that faces everyone.
A highly recommended book since it makes its points thoroughly and cogently and as such comes over as thoughtful and provoking of fresh views - as such it is a welcome change from too many of the best selling tirade type books that have come to represent both business but also political and history bestsellers recently. Definitely a book that is long overdue and one hopes will be succesful plus lead to more realism in such future writing.
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