Home / Uncategorized / Tom Peters, Jim Collins — Fairy Tales About Business — IMD’s Phil Rosenzweig

Tom Peters, Jim Collins — Fairy Tales About Business — IMD’s Phil Rosenzweig

The Halo Effect Takes the glow off some of the most popular business books of the last two decades with an intelligently critical view of methodology.

            Two weeks ago I pulled “Good to Great” by Jim Collins off my shelf and began reading. An inspiring book about companies that had chugged along for years and then taken off on a hockey stick curve that led them to outperform the market by a substantial margin for 15 years, it included just 11 which made the grade, including Circuit City, Fannie Mae, Gillette, Nucor, Walgreen’s and Wells Fargo.

            The university research team Collins worked with found certain common features – Level 5 Leadership – CEOs who were ambitious for the company but personally modest; getting the right people on board and, equally important, getting the wrong people off the bus. Focusing narrowly – the hedgehog rather than the fox in Isaiah Berlin’s terms, a culture of discipline largely resulting from having the right people who can be counted on to do the right things, and using technology as an accelerator rather then being led by it.

            All very good until I picked up The Halo Effect, Phil Rosenzweig’s somewhat gimmicky term for a very real problem in heroic business books – the tendency to find winning companies and then collect the stories from participants and the business press to look back and explain the factors of success. A professor at IMD in




and a former employee at HP, he ruthlessly picks apart the results of some of the best selling business books over the last two decades.

            Although Collins and a team of researchers spent 5 years gathering information such as interviews with managers and loads of press clippings once they had identified the 11 public companies which met their cut, Rozenzweig contends the materials, such as business press articles, suffered from The Halo Effect – once a company is anointed a winner, all its history is written to explain its success. (As for Collin’s descriptions of the filing cabinets full of materials, the 6,000 press clippings, etc. it reminds me of what Charles Peters, founding editor of The Washington Monthly, says about bureaucrats who brag about the hours they work – when you can’t measure output, measure input.)

            Rozenweig sets his foundation with Chapter 2 about Cisco, lionized by the business press in the run-up to the 2000 bubble peak when for two weeks it had the largest market cap in the world, and then roundly criticized by the same publications, such as Business Week and Fortune just a year later, often on the same grounds such as its aggressive acquisitions and customer relationships that they had praised earlier. In just months, valuable strengths had morphed into obvious failure, as if Karl Rove had taken up business journalism.

            It’s enough to make you cancel your subscriptions. Especially since the business publications for the most part failed to understand the shortcomings of the research when they reviewed these books

            The best sellers, from “In Search of Excellence,” which Business Week debunked a year or two after its publication when it reviewed the performance of highly praised companies that had since tanked, to Built to Last or the Evergreen Project, directed by a McKinsey’ partner with William Joyce at Dartmouth’s Tuck School of Business and Nitnin Nohria at Harvard Business School, books supposedly cutting to the core of what makes a business successful suffer from pseudo scientific methodology masked by inspiring story-telling. Of the Excellent companies, only 12 managed to grow faster than the overall market in the 10 years after the book was published, and 23 failed to keep up.

            The late James Meindel at SUNY Buffalo conducted a series of careful studies that concluded we have no satisfactory theory of effective leadership that is independent of performance, Rosenzweig says.

            “So many of the things that we commonly think contribute to performance are often attributions based on performance.”

            He does find some studies that are rigorous, but they don’t make great stories. Marianne Betrand at the University of


and Antoinette Schoar at MIT studied the impact of individual CEOs and concluded that they explain about 4 percent of the variance of company performance.

            “That’s a statistically significant finding, but it’s hardly a seductive story.”

            Nick Bloom at the London School of Economics and Stephen Dorgan at McKinsey tested specific management practices against results in a survey of 700 companies in a cross sectional, rather than retrospective survey and hid their aims by telling people the survey was about practices, not performance. They concluded best practices contributed about 10 percent to superior performance. While Tom Peters and Jim Collins can command around $100,000 for an appearance, Rosenzweig doubts that these academic researchers will get anything like that with their cautionary conclusions.

            What’s the alternative to business self-help books? He thinks success comes down to strategy and execution. Both require extensive, continual and critical thinking – not the mainstays of self-help books whether in dieting or business.

            But, he notes “You wouldn’t appreciate the risk nature of strategic choice if you read most business books.”

            He cites the Evergreen Project which said, “Whatever your strategy, whether it is low prices or innovative products, it will work if it is sharply defined, clearly communicated and well understood by employees, customers, partners and investors.”

            Sheer nonsense, comments Rosenzweig. “Good to Great” has nothing about strategic choice, competitors, positioning or risk. In fact, its index doesn’t list even strategy.

            “Neither or these books recognized a central fact: Strategy always involves risk because we don’t know for sure how our choices will turn out.” Competitors and technological change are also sources of risk. He mentions Clayton Christansen’s ground-breaking “The Innovator’s Dilemma” which showed through numerous case studies that listening to customers and refining existing products can lead a company straight to ruin, even while it seems to be doing everything right. For execution, he turns to Larry Bossidy of Honeywell who laid out specific areas of focus – accelerating new product development, improving the order-fill rates, superior inventory management, and better working capital management.

            So what is to be done, as Lenin so famously quoted Nicholai Chernyshevsky?

            First, contends Rosenzweig, give up the idea that you can manage to greatness with a couple of simplistic ideas. He prefers Andy Grove, former CEO of Intel, whose approach was explained in the title of his book, “Only the Paranoid Survive.” “…a thoughtful primer on strategic inflection points – moments of extreme risk when the company’s life is at stake.”

            The pop business books probably won’t do you any harm, unless you take them too seriously. However, before you settle down with the next one, read through “The Halo Effect” to sharpen your critical faculties. Success doesn’t come through managing by fairy tale.


About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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