Built to Regress to the Mean

25 January 2007 at 1:03 am 3 comments

| Peter Klein |

Of 35 “Excellent” companies studied in In Search of Excellence, 30 declined in profitability over the 5 years after the authors’ study ended in 1979. . . . Similarly, of 17 of the 18 “Visionary” companies studied in Built to Last, only 8 outperformed the S&P 500 market average for the 5 years after the authors’ study ended in 1990.

This is from Phil Rosenzweig’s The Halo Effect (Free Press, 2007) (I’m quoting this summary in CFO Magazine). Rosenzweig’s book reads like a primer on research methods for producers (and consumers) of popular management literature. Rosenzweig, a management professor at IMD, explains the problem of selection bias, the difference between correlation and causality, the need to compare rival explanations, the difference between absolute and relative performance, and more.

“Some of what I talk about in The Halo Effect is Research Design 101,” Rosenzweig tells CFO. “You gather your independent variables, independently of the thing you’re trying to explain. You don’t confuse correlation with causality, and you don’t confuse ends with means. You control for other variables. It’s basic stuff.”

But that basic stuff is hard to translate into a BusinessWeek best-seller.

Thanks for the link to Gary Peters, who notes that the book might be good reading for a doctoral seminar on research methods.

Entry filed under: - Klein -, Management Theory, Methods/Methodology/Theory of Science, Myths and Realities, Recommended Reading, Strategic Management.

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3 Comments Add your own

  • 1. spostrel  |  25 January 2007 at 4:16 pm

    It actually sounds like the CFO article might be good for MBA students to read, if not the book. A little immunization.

    To be fair to the readers of popular management books, I think many of them really aren’t drinking the Kool-Aid but are sort of foraging for ideas they may find useful. They may get value from a book if it inspires them, stimulates a new idea or even reminds them of an old one. The overall rigor of the book’s message is thus often of secondary importance.

    This attitude frustrates us academics, because we are intensely interested in valid intellectual frameworks and have little use for helpful metaphors, bits of persuasive rhetoric, clever rules of thumb, etc., especially if their domain of usefulness can’t be pinned down accurately. But the readers of these books have different priorities.

  • 2. Peter Klein  |  25 January 2007 at 4:20 pm

    Steve, you are surely right. The attitude you describe in your second paragraph applies to many academics as well. Most us are short on management experience, after all.

  • 3. Gary Peters  |  25 January 2007 at 7:37 pm

    Steve nailed my thoughts pretty well. When I sent this article to Peter, I sheepishly admitted that I enjoyed reading many popular business books; not for their profound “insights” but for the colorful “experiences” they describe. I think the article could also be used at the undergraduate level to help students question what they are being exposed to by their professors (me included) or by potential employers.

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