EclecticLip

Phil Rosenzweig’s The Halo Effect was the 21st book covered by the book club, and was deliberately chosen to complement (and contrast with) Good to Great, read some weeks prior.

Rosenzweig’s contribution to management literature has been to illuminate the irrigourous thinking that underlies much business/management popular wisdom and their associated memes.  More precisely, his contribution has been to write a popular book on the subject (no doubt many perfectly-obscure authors pointed this out before him).

In a business context, the “Halo Effect” for which the book is named is the phenomenon of observing successful businesses / business people, and concluding the common traits are what make them successful.  A more perspicatious researcher would test whether these common traits are present in unsuccessful companies, and whether these traits are quantifiable or merely qualitative.  Business writers also tend to succumb to a steady-state fallacy — the assumption that success can be codified into permanence — when mean reversion happens to even the best companies, given sufficient timeframes.

As always, if you enjoy the book summary, please consider supporting the author by purchasing a copy. 

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The Halo Effect - summary

The Wilkins ice shelf in Antarctica is melting.

The good news: it won’t raise sea levels because it’s sea ice.

The bad news: it’s even further evidence that global warming is getting worse, even faster than the worst-case IPCC forecasts.

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A couple days ago, I came across two articles about Nippon Oil’s plans to JV their way into solar power and fuel cells production, respectively.  Both projects are with Sanyo (recently taken over by Panasonic, the new official name of Japanese behemoth Matsushita Electric).

This struck me as inspirational, because Nippon Oil is Japan’s largest oil company!  Its core competency, or comparative advantage, is fossil fuels and petrochemicals.  But instead of choosing to fight a bruising, unethical, long rear-guard action to deny global warming or defend its old ways…  management has decided the company needs to evolve.
It’s reminiscient of the decision by pulp-mill / tire-maker Nokia to get into telecommunications.  I’m sure there were doubters — especially since their telco division took seventeen years to turn a profit.  But was it worth it in the end?  I’m sure every Nokia shareholder would now vote “yes”.

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I’ve encountered a major fallacy in two fields, relating to the incorrect application of a steady-state assumption.  So I’m making it a category.

I’m going to say arguments suffer from a steady-state fallacy when they improperly assume that a present-day circumstance will carry over unchanged into the future.  Because over time, most circumstances do change.  People get older.  New technologies emerge.  Empires fall, and new ones rise. And so forth.
A few examples below the fold…

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