Musings on Entrepreneurship and Innovation
Friday, April 13, 2007Beware the Halo Effect
Phil Rosenzweig wrote a pretty good article for The McKinsey Quarterly titled The halo effect, and other managerial delusions. The halo effect "describes the tendency to make specific inferences on the basis of a general impression." In a business context, that means attributing positive characteristics such as intelligence and leadership to successful people and organizations and attributing negative characteristics such as incompetence and timidity to those who are less successful. Sometimes such attributions are fair, but retrospective attributions are often little more than fictional "just so" stories.
Rosenzweig advises business decision makers to watch out for inferences contaminated by the halo effect and acknowledge the central role of uncertainty:
Faced with [basic] uncertainty, wise managers approach problems as interlocking probabilities. Their objective is not to find keys to guaranteed success but to improve the odds through a thoughtful consideration of factors...Wise managers know that business is about finding ways to improve the odds of success--but never imagine that it is a certainty...
It's easy to infer that good outcomes result from good decisions and that bad outcomes must mean someone blundered. Yet the fact that a given choice didn't turn out well doesn't always mean that it was a mistake. Therefore it's important to examine the decision process itself and not just the outcome.
