Managerial Delusions

I know this isn’t a management blog, but since the success of a sourcing team is considerably influenced by the quality of the manager running it, I don’t feel too bad about pointing out a recent article from The McKinsey Quarterly on The halo effect, and other managerial delusions.

I loved this article, and not just because just about every manager I ever worked for (during my days as an employee) suffered from at least a few (dozen) delusions. The article describes three common delusions that every manager should be aware of if they care about their performance along with three tips they can employ to help them think clearly.

Delusion #1: The halo effect

The halo effect refers to the tendency to make specific inferences on the basis of a general impression. Company performance, good or bad, tends to create an overall impression – a halo – that shapes how its strategy, leaders, employees, culture and other elements are perceived. Most everyday concepts in business – including leadership, corporate culture, core competencies, and customer orientation – are ambiguous and difficult to define and what we believe to be contributions to performance may actually be attributions. In simple terms, as the author points out, outcomes can be mistaken for inputs. Thus, it’s important that managers look for independent evidence that their company, when successful, has a visionary leader and superb customer orientation or that their company, when struggling, has a poor strategy and weak execution. Sometimes even a poorly run company can do well in a bull market and a well run company can do poorly in a market slump.

Delusion #2: Absolute Performance

Following a given formula can’t ensure high performance, and for a simple reason: in a competitive market economy, performance is fundamentally relative, not absolute. Moreover, whereas a given set of factors may appear to have led predictably to success, the reverse is more likely – it would be more accurate to say that successful companies tended to be described in the same way. The direction of causality is wrong.

Delusion #3: Lasting Success

The halo effect can lead to a second misconception about company performance: that they can achieve enduring success in a predictable way. Statistically, lasting success is an anomaly and, in reality, markets, and marketplaces, change daily. There is no reason to blindly believe that a strategy that worked yesterday will work tomorrow. Most companies that have enjoyed long-term success have generally done so by stringing together many short-term successes, not necessarily related.

Clear thinking tip #1: Recognize the role of uncertainty

Rather than search in vain for success formulas, business executives would do better to adjust their thinking about the context of strategic decisions. Strategic thinkers must recognize the fundamental uncertainty of the business world. This uncertainty is everywhere – customers, competitors, capabilities, technology.

Clear thinking tip #2: See the world through probabilities

This will help you improve your odds of success through a thoughtful consideration of multiple external and internal factors.

Clear thinking tip #3: Separate inputs from outcomes

Clear-thinkers understand that in an uncertain world, actions and outcomes are imperfectly linked. Just because a choice didn’t turn out the way you expected does not mean it was a mistake. Thus, it’s important to examine your decision process as well as your decision – good decision processes have a much better chance at arriving at good decisions.

There are, of course, many more delusions – and a more detailed description of a good decision making process could have been included – but it’s a great article, and great advice.