As a business book junkie, I have pored through countless texts that claim to reveal the blueprint for lasting success, the path from good to great, and various formulae for a fail-safe strategy that would make the competition irrelevant. Were it that simple.

As management professor Phil Rosenzweig points out in his piece The halo effect, and other managerial delusions, there is no simple formula and businesses keep getting sucked in by plug-in solutions.

One is the halo effect, where people make inferences based on a general impression without actually looking at the potential flaws. So when a company's share price goes up, for examples, everyone says it's because of the superior strategy. But when it runs into trouble, the same strategy gets canned.

Rosenzweig points to other delusions. One is the myth of absolute performance. Performance has to be relative. There is one very good reason why formulas can't guarantee high performance: in a market economy, success and failure depend not only on a company's actions but also on those of its rivals. Sure a company can improve its operations with better quality, lower cost, faster throughput time and superior asset management. But if rivals are doing the same at a faster rate, its performance may suffer.


Another myth is the notion of lasting success. Statistically, it's highly unlikely. Again for a very good reason: in a market economy, profits will decline as a result of imitation and competition. Companies that have enjoyed long-term success have only done so by stringing together short-term successes and pushing into new areas.

The answer, says Rosenzweig, is for managers to understand the nature of uncertainty and make allowances for it. Risk management is critical. Also, they have to see the world in terms of probabilities, gathering accurate information and subjecting it to rigorous scrutiny to ensure the odds are okay.