Shed your delusions

Back when everyone thought that computers everywhere would turn into pumpkins at the stroke of Year 2000, a UK publisher hired me to write a book profiling 21 companies that would surely prosper in the 21st century. Al Ries, the marketing guru, contributed a couple of pages of pithy and entertaining commentary for each company.

Yesterday, Free Press sent me a new book titled The Halo Effect by another pithy commentator, IMD prof Phil Rosenzweig. Rosenzweig mauls books like the one I wrote with Al, especially two infinitely more successful ones, In Search of Excellence and Built to Last. In fact, he checks the subsequent shareholder return and market performance of Peters and Waterman’s 35 Excellent companies and Collins and Porras’ 17 Visionary companies and discovers that the majority of them did not measure up to the S&P 500 average. Worse, the majority of the companies that Collins and Porras used as negative examples actually outperformed the S&P 500.

Why are we so lousy at predicting corporate success? Rosenzweig pegs the problem to nine delusions, of which the primary one is the so-called Halo effect. Namely, "many of the things that we – managers, journalists, professors, and consultants – commonly think contribute to company performance are often attributions based on performance,” he writes. I’m just happy he didn’t get his paws on my book.