We like stories because they create a sense of order from disjointed facts. If I give you a set of numbers and charts about the company’s performance, you may figure out whether it is doing well, but it feels dry, and you won’t get any emotional reaction. If I tell you a story of a founder who started from nothing and, after several failed attempts, built a great company while facing tough competition, you will be hooked.
The story about heroes and villains is easy to digest and easy to remember. Unfortunately, it is also profoundly flawed. In business, there is never only one hero or one villain. We forget that it was a team effort, the market conditions were right, and the company just got lucky. We misattribute success to one individual and hero-worship them, while we ignore all the other people and things that had to go right for that person to succeed. Rarely is the person able to replicate the same level of success again.
Another problem with our business stories is that it mislabels the actors. Winners and heroes are seen as assertive, proactive, and confident. Losers and villains are seen as overconfident and arrogant. The same behavior gets a different moniker depending on the results and the person exhibiting it. As George Bernard Shaw wrote in Pygmalion, “The difference between a lady and a flower girl is not how she behaves, but how she’s treated.”
In The Halo Effect, Phil Rosenzweig points out that the stories we tell are heavily influenced by the Halo effect. Our brains try to remove cognitive dissonance by creating a coherent narrative of the events that naturally led to the results we observe. Rosenzweig points to a study conducted by H. Kirk Downey. The researchers asked several teams to perform a task requiring some collaboration. When completed, researchers informed the teams how well they performed and asked the team members’ descriptions of the experience. The high-performing teams reported significantly more positive feelings about the group’s cohesiveness, the high competence of its members, and that they enjoyed working together. Those teams that were informed that they underperformed were more negative about the team and its members. It makes intuitive sense. The problem is, the researchers didn’t analyze the results of the teams’ work at all. They picked the so-called high-performing teams at random. The team’s feelings about how well they worked together had nothing to do with the actual work but with the perceived results.
Similarly, if you see a group of people in the middle of a heated debate, arguing passionately with each other, how do you think its members describe the interaction afterward? It depends. If the group performs well, the interaction will be described as healthy debate, an open exchange of opinions that led to finding the best solution and, therefore, the group’s success. If the activity fails, the team will note that it was because of constant bickering, arguments, and fights when people were unable to leave their egos behind and work for the good of the team.
It is not only the Halo effect, but even cause and effect can be tricky to pinpoint. Does low employee turnover lead to higher company performance? Well, it probably does. A stable team means less recruitment and training expenses, a more knowledgeable workforce, and more focus on the core business. Or is it that high company performance leads to lower employee turnover? Well, that also makes sense. Everyone wants to work for winners. A company that is doing well has a more positive atmosphere, can pay better, has more career opportunities that come with growth. So which one is it? We often mistake the cause and effect and misattribute success or failure to wrong causes.
Putting it all together
When we see a successful company or a successful leader, we immediately conclude that what they are doing is a recipe for success. We analyze the company culture, the leader’s behavior and happily exclaim that this is how you build great companies. We forget that there are many other companies with similar cultures, where leaders behave the same way and fail.
Don’t get seduced by simplistic answers. Don’t get seduced by the worship of personality. The world is a complicated place with myriads of small causes that led to a success or a failure. It is a mistake to latch on only one of them, or one person, and say that they are the reason behind the success. You may miss all the other factors that played a role and learn the wrong lessons. Therefore you may not be able to repeat the same success.
What is your take on the topic? Do you have your business heroes? Do you believe you truly understand their successes? Do you understand your own successes and failures? Could it be that there is more to your success or the success of the company than meets the eye?
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