APICS Pikes Peak Colorado Chapter

EDITORIAL

The Halo Effect: Proceed with Caution

By Ira Smolowitz, Ph.D.

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The halo effect is found in such diverse disciplines as psychology, marketing/advertising, finance, and management. Despite its pervasiveness, it may lead to poor decisions.

What is the halo effect? The halo effect is a psychological mind-set where the presence of one desirable attribute causes one to believe that other desirable attributes are also present. For example – “attractive people are often judged as having a more desirable personality and more skills than someone of average appearance. Celebrities are used to endorse products that they have no expertise in evaluating.”1

Phil Rosenzweig has written a book: The Halo Effect.

Consider the following:

Rosenzweig’s usage, the halo effect refers to the glow that financial performance casts on a company – a glow frequently reflected in business articles, he maintains. Has Standard Widget’s stock price outpaced the S&P 500 for the past few years? Journalists readily assume that it must have a brilliant strategy or superior leadership. Or terrific execution. Or an intense focus on customers, or happy employees, or a strong corporate culture.

The effect also works in reverse. If a company’s stock is a laggard, depend on business writers to deride its strategy as misguided, its managers as shortsighted, its execution as sloppy, and so on, says Rosenzweig. Or perhaps the company “strayed from its core.”

Rosenzweig devotes a chapter to how the halo effect shaped press coverage of Cisco Systems, positively and negatively. When Cisco was the darling of the New Economy, it could do no wrong. Its strategy was brilliant; its CEO, John Chambers, was a visionary leader; its devotion to its customers was exemplary. But when the Internet bubble burst and Cisco’s stock swooned, the press pounced on the company for its alleged shortcomings in all of the above respects. Had the company really changed so dramatically in a short time, between 2000 and 2001? Or had the overall perception of Cisco changed?2

I am particularly concerned about the presence of the halo effect in personnel management. Consider the following:

…Good looks can have a real impact on workers’ bank accounts, according to research by Daniel Hamermesh and Jeff Biddle published in the Journal of Labor Economics. Attractive people earn about 5 percent more in hourly pay than their average-looking colleagues, who in turn earn 9 percent more per hour than the plainest-looking workers.

This means if an average-looking person earned $40,000, their prettiest co-workers would make $42,000 while their least attractive colleagues brought home just $36,400.

Plain-looking workers may also receive fewer promotions than those awarded to their more striking contemporaries.

…Richard St. John, author of “Stupid, Ugly, Unlucky, and RICH,” says he’s so unconvinced of the connection between good looks and competence, he often chooses to hire the “visual underdog.” “I’m not saying looks won’t help you be successful at getting a date,” St. John said.

“I’m saying looks won’t help you be successful in other areas of life.”3

It seems to me that the halo effect is a natural, pervasive impulse. Unfortunately, it frequently results in erroneous judgments. The decision maker should review the rationale behind his/her judgment. Failure to do so will impair the performance of the decision maker. The ensuing negative organizational impact may have serious implications. It has been said – a predictable error is a preventable error.

The halo effect is, in my opinion, a form of the settled point of view. In the words of the American drama critic, Brooks Atkinson: “the most fatal illusion is the settled point of view. Since life is growth and motion, a fixed point of view kills anybody who has one.”4

References
1. “Halo Effect” downloaded from Wikipedia, the free encyclopedia (http://en.wikipedia.org/wiki/halo-effect) 1/22/07, p. 1

2. Teach, Edward “Blinded By the Light,” CFO, January 2007, p. 21

3. Morsch, Laura “Do Pretty People Earn More?” downloaded from http://www.careerbuilder.com Custom/MSN/CareerAdvice/View Article. aspx?articleid=29) 1/22/07, pp1-2

4. Thought for Today, The Hartford Courant, January 24, 2007, p D9
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Articles printed with the permission of Dr. Ira Smolowitz, Professor of Finance and Dean, Bureau of Business Research and Program Development at American International College, Springfield, MA.
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Page updated: May 21, 2007 8:37 AM

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