Recently, an academic named Philip Rosenzweig wrote a book called The Halo Effect that brings a refreshingly skeptical eye to the business competency halo that I talked about last week. In an article that explains its main theories, he says that academics, consultants and journalists all make some fundamental errors in researching and writing about successful companies.

One is that they assume that success can be attributed wholly to the company's internal practices, rather than more random environmental factors such as timing, location, industry and the relative fitness of competitors--what Rosenzweig calls "the delusion of absolute performance."

He highlights companies like Cisco and Nokia, which were darlings of Wall Street, the press and the pundits in the bubble years. Articles fawned over the management practices of the companies. Yet when the bottom fell out during the bust, the same journalists and pundits managed to find crummy practices that led to the downfall--even though you could argue that both companies had improved on at least some objective measures such as costs and quality. Could their flameouts have been due to the fact that new competitors swarmed in around them, or a general saturation of their markets, rather than lousy management? Apparently not (though my colleague Scott Berinato did discover that Cisco's demand planning systems were flawed).

Even hallowed business books like In Search of Excellence and Good to Great suffer from the halo effect, according to Rosenzweig. Search set the pattern. Why was it such a big hit? Data. It stood out from the pack of business bromides because it purported to be based on real data--rather than the author's self-serving findings from his consulting gigs. Tom Peters and his co-author Bob Waterman, both McKinsey consultants at the time, researched hundreds of companies to find out which ones consistently performed well.

For journalists, this was all we needed to hear. Data lent the book a critical patina of objectivity. Ignoring the potential flaws in the research (which Peters' openly cops to in this column and the banal generalizations it spawned, the press legitimized the book and lionized Peters (who turned out to be a good interview). Time would show that many of the companies that glowed under Peters' halo did not live up to their billing.

More importantly, the research was flawed from the start, says Rosenzweig, because it looked only at successful companies to determine what makes a successful company. Rosenzweig makes the analogy of trying to figure out what causes high blood pressure by studying only those who have it, rather than comparing them to healthy patients. The research also suffered from the corruption of self-reporting. As we experienced recently with our IT archetypes quiz,http://www.cio.com/state/quiz.php ask people if they are good and smart and they will always say yes. Ask them why their companies are successful and they will likely say the things that they believe constitute the latest consensus on best practices, regardless of whether they and their companies are actually doing those things.

In other words, we lie.

One of Peters' McKinsey colleagues who helped work on Search, Jim Collins, tried to get more scientific when researching his blockbusters Built to Last and Good to Great. He looked for companies that were "visionary" (meaning their products and practices had lasting impact over the long term) and compared them to good performers in the same industry--for example, Procter & Gamble (visionary) and Colgate-Palmolive (good). But the methodology falls apart, says Rosenzweig, when you consider how Collins and his co-author Jerry Porras did the rest of their research: by reading the business press (likely to be fawning) and asking the companies what made them successful (which leads to the self-reporting trap). You can download this self-assessment tool from Collins' website to see what I mean. (Collins gives a vigorous defense of his work and methods in this interview, on his website and in one of his speeches that I blogged about last year.) http://blogs.cio.com/node/356 Though the original Built to Last companies are all still around, their results have been mixed.

To be fair, there probably isn't any truly scientific way to go about this unless you were to create a vast corporate longitudinal data pool akin to the Framingham heart study and wait 50 years.

Nevertheless, the press embraced Collins' research, even though his findings were nearly identical (and thus as banal) as Peters'--and just about every other business book, for that matter: Have a strong culture, hire good people, have big goals, take risks and push constantly for better performance.

Oprah could do as well: Be happy, eat well, marry/partner well, don't be a schmuck at work and don't get hit by a truck on your way home.

With the current state of business performance research we will never know whether such hopelessly generalized recommendations actually cause companies to perform better or merely describe what everyone wants successful companies to look like.

It's the business equivalent of comfort food.

Yet why do we keep lapping it up? Why do people keep watching Oprah--or the Sunday football game, for that matter? Because it makes them feel good. These things make life seem more reliable and predictable and they offer good stories every now and then. (The more appropriate analogy for IT, of course, is the Paris/Britney/Anna-Nicole/[fill in name of self destructive screw-up here]. Their failures make us feel superior. We could certainly handle fame better than those bozos.)

Companies need to believe that they can take specific actions (beyond the only real, verifiable best practices in business today: having the right product or service at the right time and selling it well) to become great performers and defy the odds. Otherwise, why bother to get up in the morning? If we really wanted to face reality, we'd probably hit the snooze button. Of all the companies listed on the S&P 500 in 1957, only 74 survived to 1997, according to a study by McKinsey consultants. It's damned hard to stay on top once you get there.

The more we believe in the rules of success purveyed by gurus and the media--or believe that there can even be rules of success to begin with--the more we jeopardize our companies and careers, warns Rosenzweig. The world is uncertain and business threats can come out of nowhere. But we don't want to believe it. Worse, if we are satisfied that we are practicing the 10 Rules for Eternal Market Domination every day, we may discount threats and avoid making risky decisions that could save our bacon. K-Mart saw Wal-Mart coming for 20 years. So did Sears.

Few companies, gurus or journalists are in a state of denial when it comes to IT, however. We're not surprised when IT fails but we're shocked to see how the S&P gets decimated over time. As I said last week, we need to readjust the halos for both business and IT and do a better job of linking them together as partners in the destiny of the company--for better and for worse.

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