Spring is in the air, and it is time once again for business magazines to begin unveiling their annual “best of ” lists. Get ready to hear about the best companies to work for, most admired companies, best plants, and many more.
Those of us who don’t work for establishments anointed by one of these lists might gaze wistfully at the write-ups. Business-magazine prose often makes”best of ” companies sound like oases of competence in a desert of firms run by dunderheads. In these times of layoffs and stress-filled work environments, no doubt some people are tempted to fire off resumes to such firms.
Think twice before you hit the send key on that resume. There’s reason to believe the companies populating those lists aren’t run much better than businesses with mediocre practices. Jump to a “best of ” company and you may find the same kinds of underachievers who now run your current employer, though they may be luckier.
What’s often at work among companies that make “best of ” lists is the Halo Effect. The Halo Effect happens when people make groundless inferences about specific traits based on a general impression. Scott Adams lampooned the Halo Effect in an old Dilbert cartoon about a guy promoted to upper management because he looked like a CEO. A psychologist in the 1920s first noticed it among army officers rating subordinates.
It turns out the same mental mistake happens with companies. We tend to think a company that performs better does so because it is run better.
More recently the Halo Effect has been popularized in a book of the same name by Phil Rosenzweig, a business professor at the International Institute for Management Development in Switzerland. Rosenzweig points to numerous studies that overturn a lot of conventional wisdom about why some companies do better than others.
He says the Halo Effect explains much of what passes for insight about which management practices yield good performance. Business writers tend to seize on habits of companies that happened to post good results in the recent past without considering cause and effect. One revelation from this work: Company financial performance has a more powerful impact on employee satisfaction than the reverse. So tell your HR department to forget about “morale-building” exercises. To maximize your satisfaction quotient, just boost the bottom line.
Which brings us back to the companies populating “best of ” lists. The people who assemble these lists tend to make a critical mistake in that they only examine the traits of outstanding performers. This, says Rosenzweig, is like trying to understand what causes high-blood pressure by only studying patients who suffer from the affliction and not comparing them with people who don’t.
There are, in fact, researchers who have made more scientific comparisons. By looking at both good and bad performers, they’ve found that use of certain business practices explains only about 10% of the variance in company performance. Nor are these practices any guarantee of longterm success.
All in all, if you envy those working at a company on a “best of ” list, consider one of Rosenzweig’s management maxims: Success rarely lasts as long as we’d like — for the most part, long-term success is a delusion based on selection after the fact.
— Leland Teschler, Editor