How the Halo Effect Demands Cautionary Advice about Innovation Best Practices
Careful. Innovation professionals should tone down their zeal for Best Practice studies.
These studies suggest you should copy best practices. If you do, your company can become high-performing, just like the best. But there are two problems. One that’s widely recognized and another that’s not.
The problem that’s clear to most managers is time-delay. This happens because best practice studies examine methods, tools, and approaches that have taken several years to produce results. Then it takes your company several years to copy, set up, and realize a gain from those practices. In the meanwhile, the best practice companies don’t stand still. They continue to advance their approach. It’s like the Red Queens race in Alice in Wonderland. You have to run as fast as you can to stay in the same place.
The good news is that aping others may prevent your company from falling further behind. That’s notable. And it’s a compelling reason to chase best practices.
But the bigger problem is that best practice research can dupe practitioners. It turns out some practices may not be as great as researchers suggest, and the findings may not apply to your company. The issues stem from The Halo Effect, a natural influence that leads best practices askew[i].
The Halo Effect
Most brand managers know the power of the Halo Effect. It’s our human nature to transfer an impression about one thing onto something else. It’s because we wish to make sense of the world and associate different items. Think: Apple’s computers and phones are cool. Therefore, anything Apple makes is also cool. The halo effect makes brand management a powerful force in marketing and new products.
But the halo effect also applies to other areas. For example, some people might say tall men make better leaders. Really? Sure, you might prove tall men become leaders more often. But critical thinking would show the general statement doesn’t transfer to every case. Here, the halo effect drives bias in favor of tall men.
Notice how the halo effect works. First, our brains create a relationship based on a common factor, such as a brand or people’s height. Then we ascribe the general characteristic to a specific case. The effect is helpful because it speeds decision-making. But it often leads to poor outcomes. And that’s because the halo effect bypasses critical thinking.
In business, the halo effect influences how we seek better performance. It supports the importance we assign to a topic. And the importance then encourages researchers to probe and cull out guidelines for exploiting that topic. We call these guidelines, “Best Practices.”
Professional associations and consulting firms sponsor most best practice studies. The researchers use statistics to compare top-performing companies against weak performers. And thankfully, you don’t need to know statistics to learn about the “best practices.” You just need to read the conclusions.
The performance difference is what matters. It’s the differences that define the best practice. And while this sounds good, there’s a significant problem. Beliefs and assumptions stemming from the halo effect often bias the survey and the results.
Allow me to explore the disconnect by using Innovation Strategy[ii]. But please recognize I’m not arguing this topic. Instead, I’m using the subject to show the influence of the halo effect.
Pisano based his Innovation Strategy theory on observations of several successful companies. And the credibility gained by referencing these companies and his association with Harvard set the halo effect in motion. I’d suggest we’d think differently about Innovation Strategy if he published under an unfamiliar name, didn’t associate with Harvard, and cited lesser-known companies.
Pisano asserts outstanding business performance demands an innovation strategy linked to business strategy. He bases his argument on results viewed, not measured, at Corning, Apple, lntel, and Google. All rational thinking supports the notion that innovation or lack of it will affect business performance. Plus, most of us believe having a strategy must be better than not, at least most of the time.
The Halo’d Matrix
But Pisano goes further by citing a classic four-quadrant matrix laid out by others at Harvard. He asserts the matrix helps managers think through the strategy and link it to their business.
Here’s where the halo effect leads us astray. Our impressions lead us to accept how Pisano’s matrix connects to business performance.
Understandably, a researcher would want to measure the four-quadrant investment blend against performance. But a best practice study that uses statistics can worsen the halo effect. The problem is the study declares a best practice without proving causality.
This failing is crucial because so many other factors also influence business performance. Without confirming cause and effect, the link between the investment quadrant and business performance remains a thought-provoking opinion.
Yet managers who read the results are likely to agree with the researchers’ conclusions. Who’s to argue the statistics? They’ll believe their business’s performance would improve if they create the correct mix of investments across the four quadrants.
RQ and Innovation Strategy
Allow me to contrast Pisano’s Innovation Strategy theory with different work related to product innovation and research. This study was conducted by Anne Marie Knox, a Stanford educated professor now teaching at Washington University. Knox’s work[iii], supported by the National Science Foundation, sought to find how product innovation and research drive business performance. Notice how I laid out facts to support a Halo Effect.
Here’s what’s interesting. Knox doesn’t cite the importance of an Innovation Strategy. She states nothing to suggest a matrix investment blend drives business performance. Instead, Knox declares the key to be the amount of money invested in product innovation and research. She defines the proper measure as a company’s RQ or research quotient. More money spent on research increases the RQ.
The more money you spend on research, the more likely you’ll change the matrix blend of investments. Does a proper investment blend cause outstanding business performance? Or does the R&D strategy drive improvement while forcing the investment blend?
The problem with blindly accepting Pisano’s halo affected Innovation Strategy is that it closes the door to other thought worlds, like those proposed by Knox. What’s the best practice? Or are we seeing a battle of which theory has the most halo effect?
Halo Effect in Action
I recently spotted the Innovation Strategy halo effect in a best practice survey a friend asked me to review. I believe the survey would enlarge the halo effect because it doesn’t tackle causality.
Plus, the survey didn’t address other performance-influencing practices in any meaningful way. Other practices would include roadmapping and understanding competitive strategies, to name a few. These topics matter because each can affect innovation and the resulting business performance.
The survey offered minor consideration for such influences as technology, marketing, and product strategies. Nor was there consideration of the reverse impact. This is the case where the business strategy or the RQ might force the matrix blend of innovation work.
Is the survey intended to test Pisano’s thinking? No. To do that, it needs to ask many other questions. Instead, the survey seeks to quantify the connection between an Innovation Strategy’s investment quadrant and business performance. And with this approach, the “best practice” moniker becomes dubious. The research only serves to anchor and extend Innovation Strategy’s halo effect. It’s not a survey to cull out best practices.
Best Practices Aren’t Always Best
But that’s often the case. “Best Practice” studies declare their relevancy based on large data sets.
Researchers overlook the fact the data aren’t relevant without exploring a broader range of topics. It doesn’t matter how large the data set or how sophisticated the analysis.
The problem, though, is rampant across innovation and product development. It’s because so much of what we see is anecdotal. Plus, each case or data point is always in flux in response to dynamic environments and uncertainty. You’ll see the effect in research on topics like Product Portfolio Management, Creativity, Intrepreneurship, and Development Practices.
I know I’ve argued the halo effect problem specific to Innovation Strategy, and I don’t mean to undermine Gary Pisano’s thought-provoking work. Please don’t ignore this work. But I wish to call out those researchers who unintentionally misguide practitioners by extending the halo effect under the Best Practice title.
Duping the Practitioner
Many best practice studies are too limited. They suffer from resource constraints, or researchers may have designed questionnaires to support their organization’s marketing. Still, the research rarely recognizes time-delayed context, high uncertainty levels, and the halo effect.
It’s not my concern that researchers don’t understand the problems. Most do[iv]. My concern is that by continuing the errant research, they worsen the effect. And such research, under the pretense of statistics, dupes the practitioner. That’s neither helpful to a practitioner’s career nor the health of their business.
Some Salient Advice
Be cautious of Best Practice conclusions. Don’t underestimate context and the many unaddressed reasons that drive performance.
Never declare success to result directly from a halo effect “best practice.” It just doesn’t work that way. Consider Tom Peters’s best-selling book In Search of Excellence. In it, he declared cultural best practices for fifty ‘excellent’ companies. But how excellent were these companies? In retrospect, they were “more likely to do really badly than really well.”[v]
My advice to innovation professionals is simple. Be resilient and responsive in what you do and how you do it. And use critical thinking to avoid being lead astray by the halo effect.
The idea is to use critical thought built on systems thinking, creativity, and strategy exploration. And by all means, work hard to discover and then couple your thinking to intelligent insights and foresight.
There you have it. Resiliency, responsiveness, and critical thinking create a brilliant practice. I can’t wait for a best practice study to anchor its importance and its link to business performance.
[i] Psychologist Edward Thorndike first describe the Halo Effect in 1920
[ii] You Need an Innovation Strategy, by Gary P. Pisano, Harvard Business Review, June 2015
[iii] The Trillion-Dollar R&D Fix, by Anne Marie Knott, Harvard Business Review May 2012
[iv] The Halo Effect: . . . and the Eight Other Business Delusions That Deceive Managers, New York: Free Press, 2007. By Prof. Phil Rosenzweig , Strategy and International Management, The International Institute for Management Development (IMD), Lausanne, Switzerland
[v] “Surprise: Those ‘great’ companies generally turn out to be meh … or duds” by Chris Bradley; MarketWatch Aug 2017