Halos, strategy, and uncertainty

In a recent edition of McKinsey Quarterly (registration required), Phil Rosenzweig discusses the “Halo Effect” and other business delusions. The article is adapted from his book the Halo Effect: . . . and the Eight Other Business Delusions That Deceive Managers. Rosenzweig, a professor of strategy and international management, adjustis the halo effect from psychology to business. The basic argument, one trait or perception influences the rest. In this case if business or industry is going well, many believe that a company or leader has a sound strategy. Conversely when trends or companies are performing poorly, one may say it is poor strategy, etc. Case in point, Enron. When they were redefining business they were genius -- the media and Tom Peters couldn’t praise them enough. Now, they are seen as villains and are the subject of “business ethics” case studies.

Dr. Phil (I had to, c’mon), says that business managers are often deceived by business books that propose simple solutions. The problem is that we live in a complex and chaotic world. So the halo is "hey look at how good this is, we should implement here." Rosenzweig seems irritated by the lack of critical thinking skills by business managers (can I get an Amen?)

Getting past the irony of one business book saying that other business books are wrong and I have the right answer, I enjoyed Rosenzweig’s Zen-like insight on uncertainty. Like the first rule of Zen -- all life is sorrowful (but sorrow can be transcended) -- in business, we are continually faced with uncertainty and it is the role of the strategist to make the best decisions for the organization in the face of that uncertainty. While people want and need the world to make sense an move in an orderly fashion, it doesn’t. All systems tend towards chaos.

Chaos inducing uncertainty arises from many sources in the business-world including (1) the business world itself, (2) customer choice and adoption of new goods or services, and (3) technological change -- new technologies disrupt business all the time.

Given all of this, Rosenzweig concludes:

The task of strategic leadership is therefore not to follow a given formula or set of steps. Instead it is to gather appropriate information, evaluate it thoughtfully, and make choices that provide the best chance for the company to succeed, all the while recognizing the fundamental nature of business uncertainty. Paradoxically, a sober understanding of this risk—along with an appreciation of the relative nature of performance and the general tendency for performance to regress—may offer the best basis for guiding effective decisions. These complex decisions, made without any guarantee of success, are ultimately the main contribution of business strategists. 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.