McKinsey Quarterly had an article on the halo effect by Phil Rosenzweig. He explores how the halo effect affects business and particularly business perceptions. “Imagine a company that is doing well with rising sales, high profits, and a sharply increasing stock price. The tendency is to infer that the company has a sound strategy, a visionary leader, motivated employees, an excellent customer service orientation, a vibrant culture, and so on. But when the same company suffers a decline–if sales fall and profits shrink–many people are quick to conclude that the company’s strategy went wrong, its people became complacent, it neglected its customers, its culture became stodgy, and more.” Rightfully so, nothing may have changed at all. The halo effect affects perceptions of all elements of a company’s reputation.
This concept applies to the world of reputation. All of a sudden, high flying companies such as Dell or JetBlue or Sony hit a bump in the road and they are instant pariahs. The halo effect that protected them becomes a veil of shame. Their CEOs are thought of as less worthy and their reputations are called shams. But as soon as their financial performance and operations get going again, these same companies are hailed as turnaround successes and the past is forgotten.
Worth reading the article. The author believes that lasting success is largely a delusion. In fact, Rosenzweig points out that there is a strong tendency for extreme performance in one time period to be followed by a less extreme performance in the next. In other words, success and financial performance are not predictable and enduring.
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McKinsey Quarterly, reputation, halo effect, elements of reputation, Philip Rosenzweig, CEO reputation, culture, stock price, visionary leader, culture, employees, business success, high fliers
