How the Halo Effect Manifest Itself in Business - Essay Example

Abstract

The halo effect is a cognitive preconception in which the general impression of an observer of a company, individual, brand, or product affects the thoughts and feelings of the observer regarding the properties or characters of a particular entity. In one end, the halo effect might be because of extrapolation from an overall impression to unidentified characteristics. Individual assessments might color assumptions regarding particular characteristics of a company. Therefore, if a company has an effective performance, individuals assume that these attributes of the company regarding which individuals are less knowledgeable about are more favorable. On the other hand, if the performance of the company declines, the presumptions of a person for a company changes.

Introduction

Edward Thorndike, an American psychologist, identified the halo effect. Thorndike used the Halo effect in a 1920 publication to describe the manner in which the officers in command rated their soldiers (Grcic, 2008). The psychologist found out that the commanding officers often judged their soldiers as being good across the board or bad. Halo effect gives a description of the tendency to make particular inferences on a general impression basis (Kervyn et al., 2012). It is a cognitive bias in which the general impression of an observer of a company, individual, brand, or product affects the thoughts and feelings of the observer regarding the properties or characters of a particular entity.

Identification that the halo effect has a powerful effect on business has been recent. For instance, Scorcher & Brant (2002) stated that in their experiences, presidents, CEOs and other individuals at the top level usually fell into the trap of making decisions regarding candidates based on lopsided information. In most times, they fall trap to the halo effect in that they overvalue particular attributes while undervaluing other attributes.

Rosenzweig (2007) contends that much of the thinking of an observer regarding the performance of a company is molded by the halo effect. When the company is developing and at the same time profitable, people seem to suppose that it has a remarkable strategy, a dynamic culture, motivated workforce and a visionary chief executive. When the company performance dwindles (Dobelli, 2013) there is subsequent rapid judgment with claims that the company adopted a misguided strategy, the personnel were complacent and the company’s culture was stodgy with an arrogant chief executive (Rosenzweig, 2007).

The halo effect not only discovers these delusions in business that keeps individuals and entities from understanding the performances of a company, but it also proposes a more effectual means to think about an excelling business. A case in point is the Silicon Valley firm, Cisco. The company was once the new economy’s favorite. The business journalists could not stop gushing about the success of the firm in almost every sector (Scheiber, 2014). The journalists gushed about its perfect strategy, remarkable customer service, distinct corporate culture, enigmatic CEO, and adept acquisitions.

Nonetheless, the same journalists immediately changed their tune when the stock of the company plunged 80% the subsequent year. Within no time, the competitive advantages of the company were reframed as disparaging shortcomings despite Cisco’s strategy not changing any bit. It was stated that the company had a vague strategy, poor customer service, a characterless chief executives, a lame corporate culture, and inept acquisitions.

What had changed nonetheless was the demand of the firm’s products, which was not its own fault. Thus, the halo effect takes place when a single factor about a company is astounding and influences how people view the whole picture. In Cisco’s case, the business journalists were surprised by the stock prices of the company and assumed that the whole business was prosperous. They did not bother to make any close examination of Cisco.

How the halo effect manifest itself in business

The fact remains that in numerous day-to-day business concepts such as central competencies, leadership, customer orientation and leadership are tricky and uncertain to define (Gentry et al., 2014). Perceptions of these concepts of business are usually inferred from something else that seems to be actual and tangible. A case in point is the financial performance. Consequently, several aspects that are commonly believed are company performance key contributors are in real sense attributions. In other words, results can be misinterpreted for inputs.

Intelligent managers are knowledgeable about the halo effect. These managers search for independent substantiation rather than simply accepting the notion that a thriving business has an exemplary orientation of the customer and a visionary manager, or that a company facing hurdles must be having a weak plan of execution or poor strategy. The managers are aware that as long as their judgments are simply attributions that reflect the performance of a company, their judgment will then be circular.

The halo effect is particularly damaging since it usually compromises the data quality utilized in a research. It is not surprising that numerous business performance studies bank on data that has been contaminated by this effect. The researches boast of the large data quantity they have accumulated. However, these studies overlook the fact that the data is not valid. Consequently, there is an increase in number of further errors in logic because of over-reliance on questionable data.

Absolute performance delusion of the halo effect

One of the most seductive assertions in best sellers of business is that a firm can attain success if it adheres to certain set of procedures. In fact, some books are overt on this assertion, stating that a firm adhering to a particular formula is almost certain of becoming a great performer in the market. However, these researches rely on data sources on a closer view. These data are regularly undermined by the halo effect. While a given set of aspects may seem to have led unsurprisingly to the success of a company, the reverse is probable. It would be more correct to state that successful performing businesses seem to be described in a similar manner.

Pursuing a particular formula as argued by Rosenzweig (2007), cannot guarantee exemplary company performance. In fact, performance is not absolute but essentially relative in a competitive market economy. Both success and failure of a company depends on the actions and the rivals of that particular company. The operations of a company can be enhanced in numerous ways through aspects such as decreased costs, better quality, and superior management of the company assets among many others. However, if the company competitors improve rapidly, the performance of that company is likely to suffer.

Lasting success delusion of the halo effect

The halo effect also leads to another misconception regarding company performance. This misconception makes companies have the illusion that they can attain long lasting success in conventional means. Much of the data from research emerge from sources that are often contaminated by this effect. What the researchers of these studies assert to be the reasons of enduring performance are more correctly implicated to be attributions that are made concerning companies that have been chosen exactly for their long lasting performance.

Rosenzweig (2007) further contends that success in the long term is mostly an illusion. In general, when the absolute companies’ populace is observed in the end, there is a sordid likelihood for extreme performance in a particular period that will be followed by a lower performance in the next period. The proposition that businesses can pursue a certain blueprint in order to be successful in their performances is not backed by evidence, even though it might be appealing.

Sustainability of great business performance is hard for companies since profits appear to dwindle in a free market economy. This is because of competition and imitation. Rival companies copy the winning ways of the big business players, effectual practices are diffused, novel businesses enter the market, and employees shift from one corporation to another.

The lasting success delusion is a grave issue since it gives the illusion that for a company to achieve its objectives, then it should be highly performing despite the fact that it is rare to get companies that outperform the market consistently. According to Rosenzweig (2007), no criteria can guarantee the success of a company in a competitive environment of business. If the success of a business could be reduced to a certain criteria, then there would be no use of strategic thinking for companies. Instead, these companies could be relying on administrators to take the right measures and make sure the criteria were precisely followed. The fact that there is no guarantee to success makes it so difficult for companies to make strategic decisions.

Fiorella (2013) also concurs with Rosenzweig’s assertions. He believes that the contemporary social economy has introduced very many variables that are not very clear and cannot be predicted for general books of business to be comprehensively valuable. He states that such overwhelmed strategies are dangerous since they promote a strategist of business to center on the current trends thus restricting the capability of managers to re-invent the business playing field. They instead train these managers to be the best players in the present market game. The basic economics regulation is being challenged day in day out as economists, and business leaders attempt to adapt to the existing change speed but in vain.

Fiorella (2013) also outlines business strategists delusions that he believes are reasoning mistakes that undermine business success principles that the strategic thinking and business books genre imply. He gives an instance of a judgment made by a consumer on the customer focus of a company and other attributes which according to his view are dependent on performance and indicators of business such as the price share. Relations become insignificant since the success of a company was the root for the focus of the perceived customer and not particular engagements of the customer.

Instead of falling for the false promises and exaggeration found in numerous books of management, strategists of business would excel by advancing their critical thinking powers. Intelligent company executives or leaders should have the ability to think in a clear manner concerning the research assertions’ quality. They should also be able to discover some of the shocking errors that permeate the world of business.

The critical thinking capacity is a significant asset for any particular business strategist. This critical thinking will permit the company executive to go through the clutter and to get rid of the halo effect delusions. The executive will instead embrace a more practical business success and failure consideration.

As the foremost step, it is vital for managers to pinpoint some of the illusions and misunderstandings found in the world of business. When managers utilize these insights, they might replace flawed thinking with a more sensitive means of arriving at strategic decisions. Additionally, execution is not clear and is reliant on numerous facets (Dada, 2014). However, execution needs a clear strategy that defines what needs to be executed. Strategic choice means that there are numerous paths of strategy a business can pursue with each path having its own risks.

Since execution is not certain and strategy needs alternatives according to the particular setting of any business, there is probably no simple success formula. However, there is a procedure to make the correct strategic choice. Making the correct choice and designing a strategy that conducts execution is no doubt possible (Dada, 2014).

Proponents of the halo effect

The halo effect makes it hard to assess company brands in their strength and weakness terms. Nevertheless, if a brand name reputation is of quality in the marketplace, then the halo effect may work to the advantage of the brand, especially when the company is introducing a novel product into the market (Coombs & Holladay, 2006).

Additionally, the halo effect can also shield the reputation of a company if stakeholders rated its reputation in a similar manner despite a crisis that the company faced. The halo effect might propose that stakeholders might have a higher likelihood to view a company crisis as a technical error instead of a human error, a factor that the company had no control over. This is in line with experts of a crisis who note that a positive repute in a firm obtaining the benefit of doubt from the stakeholders in the times of a crisis. Rather than having the presumption that the company is accountable, the stakeholders confer the benefit of doubt and give minimal crisis accountability to the organization. Further, the halo effect as the benefit of doubt, predicts that the stakeholders will not robotically presume that the crisis reason is due to errors of the company’s workforce (Coombs & Holladay, 2006).

Building on earlier research, the halo effect stemming from the company’s socially responsible activities moral undertone can affect the general image of the company and the perceived company products performance. This means that the products the company made are seen to have a superior performance. This suggestion further means that a company’s pro-social tendencies influence on the perceived product performance is a several key factors function.

There is a likelihood of the halo effect to involve an uncertainty degree linked with the perceived performance of product, as an inference-making procedure. Researchers have contended that the effect that is likely to affect the evaluation of the particular object properties is likely to be more pronounced when these particular properties are not well defined in individuals’ minds.

Researchers further argue that there is a less likelihood of individuals to depend on inferential procedures such as the halo when they have the ability to draw on their sphere skills to assess the performance of a product based on its complex traits. Thus, it is expected that this effect linked with the pro-social activities of a business will be more pronounced when there is low skill instead of high (Chernev, 2015).

Approaches business executive should adopt

The most significant contribution for a business chief executive is the capability to make tricky intricate judgments that are central to the fortunes of a company. A variety of approaches may assist these executives in making of decisions. First, they should acknowledge the uncertainty role; it would be accurate for the executives to adjust their thoughts regarding the strategic decisions context instead of searching in vain for formulas of success. They should acknowledge the essential business world uncertainty as the first step. Additionally, even if a firm accurately expects the activities of the customers, it has to agree with the erratic actions of both old and new rivals.

Another uncertainty source emanates from change in technology. Some companies quickly change in erratic ways even though others are relatively steady with products that do not experience many changes and demand remains steady. The other uncertainty source concerns itself with the internal abilities. The ultimate uncertainly source is about the internal abilities (Rosenzweig, 2007). The CEOs cannot precisely tell how a company can respond to a novel action course.

Secondly, they should view the world through probabilities; wise executives approach issues as intertwine possibilities when they are faced with these primary uncertainties. The objectives of the managers are to enhance the odds after a thoughtful factors consideration. Some of the objectives are external while some are internal. On this analysis foundation, the business strategists’ role is to come up with decisions that enhance the opportunities of the success of a company while never having an illusion that a company has the power over its achievement. Instead, the objective should be to collect correct information and putting it through careful examination to enhance the success odds. Wise executives are knowledgeable about searching for means to enhance the success odds but never have an illusion that success is a conviction.

Thirdly, there should be detached inputs from the outcomes; managers that think clearly are aware that in unsure environment, results and actions are improperly connected. It is not hard to suppose that accurate results emanate from good decisions and that the bad results emanate from bad decisions.

It is crucial to assess the process of decision making and not simply what comes from it. Besides, accurate choices do not always lead to favorable results and unfavorable results are not always a symbol of inaccuracy. Wise executives will defy the natural propensity to make attributions that are only based on the effects. These executives evade the halo effect that has been conferred by the company performance and instead insist on sovereign proof.

Conclusion

In sum, the halo effect gives a description of the tendency to make particular inferences on a general impression basis. It is a cognitive bias in which the general impression of an observer of a company, individual, brand, or product influences the thoughts and feelings of the observer regarding the properties or characters of a particular entity. Consequently, the halo effect can lead to great prejudice.

The current outcomes back the interpretation of the halo effect phenomenon. The outcomes point out that international assessments change attributes assessment regarding which a person has information that is adequate to give room for an independent evaluation. These outcomes are in line with earliest theory that was hypothesized by Edward Thorndike in 1920. He believed that outcomes were a representation of an essential incapability to defy the sentimental international assessment effects on the valuation of particular attributes.

Scholars have tried to share Thorndike’s views as depicted in the study above. The strategic leadership task is not to adhere to a particular formula. Rather, the purpose of this strategic leadership task is to collect suitable information, assess the information in a thoughtful manner, and come up with options that offer the most effective chance for the success of the company while at the same time acknowledging the essential business uncertainty nature. Ironically, a sober risk understanding may provide the most accurate basis for guiding effectual choices. These intricate choices are in the end the major business strategists’ involvement even though it is made without any success guarantee.