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Cisco, the Silicon Valley firm, was once a darling of the new economy. Business journalists gushed about its success in every discipline: its wonderful customer service, perfect strategy, skilful acquisitions, unique corporate culture and charismatic CEO. In March 2000, it was the most valuable company in the world.
When Cisco's stock plummeted 80% the following year, the journalists changed their tune. Suddenly the company's competitive advantages were reframed as destructive shortcomings: poor customer service, a woolly strategy, clumsy acquisitions, a lame corporate culture and an insipid CEO. All this - and yet neither the strategy nor the CEO had changed. What had changed, in the wake of the dot-corn crash, was demand for Cisco's product - and that was through no fault of the firm.
The halo effect occurs when a single aspect dazzles us and affects how we see the full picture. In the case of Cisco, its halo shone particularly bright. Journalists were astounded by its stock prices and assumed the entire business was just as brilliant - without making closer investigation.
The halo effect always works the same way: we take a simple-to-obtain or remarkable fact or detail, such as a company's financial situation, and extrapolate conclusions from there that are harder to nail down, such as the merit of its management or the feasibility of its strategy. We often ascribe success and superiority where little is due, such as when we favour products from a manufacturer simply because of its good reputation.
Another example of the halo effect: we believe that CEOs who are successful in one industry will thrive in any sector - and furthermore that they are heroes in their private lives, too.
The psychologist Edward Lee Thorndike discovered the halo effect nearly 100 years ago. His conclusion was that a single quality (e.g., beauty, social status, age) produces a positive or negative impression that outshines everything else, and the overall effect is disproportionate. Beauty is the best-studied example. Dozens of studies have shown that we automatically regard good-looking people as more pleasant, honest and intelligent. Attractive people also have it easier in their professional lives - and that has nothing to do with the myth of women 'sleeping their way to the top'. The effect can even be detected in schools, where teachers unconsciously give good-looking students better grades.
Advertising has found an ally in the halo effect: just look at the number of celebrities smiling at us from TV ads, billboards and magazines. What makes a professional tennis player like Roger Federer a coffee machine expert is still open for debate, but this hasn't detracted from the success of the campaign. We are so used to seeing celebrities promoting arbitrary products that we never stop to consider why their support should be of any importance to us. But this is exactly the sneaky part of the halo effect: it works on a subconscious level. All that needs to register is the attractive face, dream lifestyle and that product.
Sticking with negative effects, the halo effect can lead to great injustice and even stereotyping when nationality, gender, or race becomes the all-encompassing feature. One need be neither racist nor sexist to fall victim to this. The halo effect clouds our view, just as it does the view of journalists, educators, and consumers.
Occasionally, this effect has pleasant consequences - at least in the short term. Have you ever been head over heels in love? If so, you know how flawless a person can appear. Your Mr or Ms Perfect seems to be the whole package: attractive, intelligent, likeable and warm. Even when your friends might point out obvious failings, you see nothing but endearing quirks.
The halo effect obstructs our view of true characteristics. To counteract this, go beyond face value. Factor out the most striking features. World-class orchestras achieve this by making candidates play behind a screen, so that sex, race, age and appearance play no part in their decision. To business journalists I warmly recommend judging a company by something other than its easily obtainable quarterly figures (the stock market already delivers that). Dig deeper. Invest the time to do serious research. What emerges is not always pretty, but almost always educational.'
THE ART OF THINKING CLEARLY
AUTHOR: Rolf Dobelli
PUBLISHER: Hachette India
PRICE: Rs 299
ISBN: 9781444759549
Excerpted from The Art of Thinking Clearly/Rolf Dobelli. Re-printed by permission of Hachette India. Copyright Rolf Dobelli 2013. All rights reserved.
