Are you clear on what contributes to your company’s high performance? Do you need to clarify exactly what are the drivers of performance in your business?
One of the most powerful questions you can ask as a leader is “What are the true drivers of our performance?” You need to make attributions based on reliable data.
Are you sure what makes your company successful?
The Halo Effect Delusion
Psychologist Edward Thorndike researched the ways superiors rated subordinates during World War I. If a soldier was given a high rating for one trait, his superior officer usually provided high ratings for all other traits. And if a soldier was rated sub-par on a trait, he usually garnered low ratings for all other traits.
Thorndike called this the “Halo Effect”: our tendency to make inferences about specific traits on the basis of a general impression. It’s difficult for most people to measure discrete traits; we tend to blend them together. The Halo Effect tricks the mind into creating and maintaining a coherent, consistent picture.
For example, after the 9/11 attacks, George W. Bush’s overall approval rating rose sharply. The percentage of Americans who approved of his handling of the economy also rose. There’s no reason to believe the latter suddenly improved in the weeks after Sept. 11, but it was hard for Americans to separate these issues.
Our minds become uncomfortable when we approve of one area of performance, but not another. We create consistency by conferring a halo across the board to avoid cognitive dissonance.
When companies are profitable and sales are growing, we routinely attribute positive evaluations to other performance particulars. Numbers don’t lie; we trust them. So, when we make inferences about company culture, customer outreach and core strategies based on financials, we succumb to the Halo Effect.
It’s hard to know in objective terms exactly what constitutes good communications, optimal group cohesion or appropriate role clarity, so we make attributions based on other data we believe to be reliable.
Good People Equals Good Results?
It’s widely believed that companies that manage people well will outperform those that don’t. This was the conclusion of the landmark book Hidden Value: How Great Companies Achieve Extraordinary Results With Ordinary People, by Charles A. O’Reilly III and Jeffrey Pfeffer (Harvard Business School Press, 2000). A company that attracts people, provides them with an environment where they can be productive and creative, and motivates them to work for the common good ought to do well. But how much of the research is influenced by the Halo Effect?
We bestow halos on CEOs all the time, but they’re always based on company performance. In all of the books written about good leadership, descriptions are always accompanied by company performance based on financial data.
Why is it so hard to understand why some companies succeed and others fail? Because our thinking is shaped by the Halo Effect. Even when we try to gather data in large-scale samples like Fortune Magazine surveys or Great Places to Work studies, we often multiply the Halo Effect.
This is less of a conscious distortion and more of a natural human tendency to make judgments about abstract, ambiguous concepts based on seemingly objective criteria. Our desire to find answers and create a coherent story is too compelling to withstand.
Awareness of such tendencies may help us guard against the Halo Effect. Of course, solid research also helps.
While the Halo Effect is not the only delusion that distorts our thinking about business, it’s the most basic one. This flaw permeates most surveys and interviews, weakens the quality of data, and diminishes our ability to think clearly about important factors that lead to key decisions.
Working with a seasoned executive coach trained in emotional intelligence and incorporating leadership assessments such as the Bar-On EQ-i and CPI 260 can help you become a high performance leader. You can become a leader who models emotional intelligence and who inspires people to become happily engaged with the strategy and vision of the company.
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