Organisational Decision Making: Halo Effect Analysis

This report delves into the concept of the Halo Effect within business management, examining its influence on decision-making processes and organizational performance. It explores how the Halo Effect, a psychological phenomenon where initial impressions shape subsequent judgments, impacts the evaluation of organizational capabilities and future growth. The report analyzes the challenges managers face, especially in balancing shareholder and stakeholder interests, and the importance of focusing on both financial and social goals. It discusses the Halo Effect's impact on societal perceptions of companies, employee evaluations, and strategic decision-making. The report also emphasizes the need to avoid cognitive biases and consider independent variables for accurate performance assessment. Furthermore, the report highlights the significance of effective strategy execution, internal capabilities, and workforce management in achieving organizational success, while also providing examples of organizations and practical implications of the Halo Effect. Finally, it stresses the importance of eliminating delusions and focusing on current situations and industry prospects for effective business analysis and strategy development.

ORGANISATION
DECISION MAKING
2020
STUDENT DETAILS
[Company name] | [Company address]

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Table of Contents
Introduction................................................................................................................................2
The Halo Effect in Management................................................................................................3
Financial and Social Goals of the Organisation.........................................................................7
Examples of Organisations focused on achieving financial and social goals......................10
Conclusion................................................................................................................................11
References................................................................................................................................13

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Introduction
Business management requires leaders as well as managers who can effectively analyse the
business requirements and can take necessary decisions to improve the organisation’s
performance. The Halo Effect is a challenge in front of the managers in the industry. Halo
effect influences, the way society, as well as business researchers, analyse the capability or
the performance of the organisation. The people evaluate the performance of the organisation
based on certain inter-relatable factors and determine the future growth of the organisation.
The business researcher focuses on the basic factors such as organisation’s financial and
cultural factors and judges the performance of the organisation in future based on the past
industry experiences as well as the firm’s performance within the industry (Cho & Kim,
2012). The Halo Effect by Phil Rosenzweig explains about the evolution of the concept of
Halo effect within the management practice; and how it affects the decision-making process
and the activities within an organisation, through various organisations case studies and
business scenarios.
The managers within the organisation face certain challenges while managing the activities
within the business organisation. As within the public organisations, the ownership is with
the shareholders; therefore, it becomes necessary for the organisation to balance the
relationship between the requirements of the shareholders and the stakeholders of the
business. During the process, the firm is required to focus on the financial as well as the
social goal of the organisation (Tang, et al., 2012). The report focuses on analysing the
impact of the Halo Effect on the business organisation and analyses how the impact can be
minimized. In addition, the report analyses the firm’s social as well as financial
responsibilities and the effectiveness of management to focus on attaining both financial and
social goals.

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The Halo Effect in Management
The Halo Effect is a psychological phenomenon termed by Edward Thorndike, in which the
human brain continues to make inferences about an individual based on a particular trait.
Halo effect influences the individual to perceive as good or bad if he has a specific quality.
As Thorndike experimented to evaluate the effect of the Halo Effect and found that the
individual’s personality factors influence the thinking of societies about the qualities present
within him. As in the experiment conducted, Thorndike asked the army officers to rate their
soldiers, and the army officers ranked the officers who were handsome and have a good
posture, as highly rated and other as subpar. The experiment resulted that the individual’s
personality trait influenced the opinion of an individual rather than his ability. Therefore,
Thorndike explained Halo Effect as a way through which the human mind creates and
maintains a constant picture to reduce a cognitive bias (Rosenzweig, 2007).
Halo effect not only influences the human mind to develop opinions about the individuals but
also influences the way the people perceives the organisation’s decision process, leadership
and the organisation’s role within the industry (Pohl, 2016). Halo effect plays an important
role in management and organisational context, as the society view of considering a better
place to work is dependent upon the organisation performance within the industry. If the
organisation performing well and growing fast within the industry, it is considered as a better
place to work and it changes when the organisation fails to deliver results within the industry.
The organisation cultures, as well as the customer satisfaction, are the topics that are related
to the organisation’s performance and are influenced by the Halo Effect. To identify the
factors that lead the organisation towards improved performance, it is required that the Halo
effect is avoided and the independent variables that are not influenced through performance
such as financial factors or the employee turnover is required to be considered (Rosenzweig,
2007).

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The society’s perception for a company is highly dependent upon the organisation’s
experiences and the practices within the industry. Stephen Jay Gould explains that the Human
beings are the storytelling creatures, they are fascinated by the past stories and current trends,
and such habit of following trends lead us to develop fake perceptions about the things or the
individuals. As the example of Lego, WH Smith and Nokia clearly explains that when Lego
stocks started falling within the industry and the organisation was focusing on innovative
products; the society considered that the company has strayed and is not able to find a path
through which it can lead towards success. In case of WH Smith when the newspaper and
magazine retail chain started introducing products such as office supplies and stationeries into
its store; the analyst considered it as drifting within the industry, because they were bringing
products that were different from their core business. However, when Nokia focused on
expanding its operations into imaging music or mobile gaming the analyst considered it that
the organisation is expanding. The usage of the term strayed, drifted or expanded is an impact
of the Halo effect. As the business analyst as well as the society has formed certain
perception related to organisations and if the organisation tries something different from their
core business, society considers it as an organisation that has lost its core value and it will fail
within the industry (Rosenzweig, 2007).
Halo effect also influences how the employees or the management of an organisation values
their organisation within the industry. The organisation performing well within the industry
describes themselves they have a better organisational culture, effective and satisfied
workforce and are dedicated towards achieving success. On the other hand, the organisations
performing low does not consider their workforce or organisation culture effective enough to
deal with the challenges within the industry (Rosenzweig, 2007). The fact that the culture, as
well as the communication within the organisation, plays an important role but it is not
important in every situation; there are other factors within the industry other than working

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culture or the communication that affects the performance of the organisation (Askarany,
2011).
The effectiveness of the workforce, the leaders as well as the managers and the survey ratings
of the Fortune’s Most Admired Companies, are also influenced by the Halo effect. As the
companies having high financial performance are referred to as a company having high-
quality products and with a satisfied customer base. Cisco is an example of such influence of
Halo effect within the industry, as when the company was performing well the ratings were
high including better quality of management, innovativeness and employing better quality of
workforce, but in 2001 when Cisco’s stock fell, the rating for the company declined and the
company was less admired for the qualities that were admired by the society before. Along
with the internal qualities, the financial performance of Cisco also influenced the fact that the
company was focused on customer orientation, and to be a company having a cavalier
attitude towards its customers (Rosenzweig, 2007).
Therefore, within the industry the performance of an organisation and its growth is highly
assumed or predicted based on the halo effect. To determine the exact growth of the business
organisation or to analyse its performance it is required that the Halo effect is neglected and
the inter-relating factors are avoided by the management. As the organisation is either
consumer-oriented or not; should be defined by effectively analysing the market share and
the customer feedbacks, not based on the firm market growth or its financial performance.
The organisation’s performance is dependent upon the choice of effective strategy and its
execution within the organisation (Rosenzweig, 2007).
As identifying, a strategy that would be profitable for the organisation is a risky decision, the
industry has certain risk factors, such as the unpredictable customer demand or expectation,
change in technology and the unpredictable rivals within the industry; and such factors are
beyond the control of the management of the organisation. In addition, the implementation of

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the formed strategy within the organisation is required to be effectively analysed, as it will
define the organisation’s performance in future. The effective execution of the strategy within
the organisation is only possible if the organisation focuses on managing its internal
capabilities, its workforce, as well as the attitude of people involved within the process. The
Halo effect is also a challenge while implementing the strategy plan, as a successful company
can effectively justify its failure or success and can execute the planned process. As the
organisation assumes that, it has the best and dedicated workforce and an effective work
environment within the industry that encourages employees to work towards organisation
goals. (Rosenzweig, 2007).
The organisational success within the industry is not dependent upon the past results; it is
dependent upon the present organisation’s capability to lead it towards success in future. The
management develops certain delusions regarding the business performance in future is
required to be eliminated so that the business can effectively be analysed and can be led
towards growth in future. The delusions include the Halo effect, defining the organisational
performances with relatable factors if a successful firm will remain successful and the
strategies formed will lead the business towards success. Such delusions are required to be
eliminated to define the business growth and for the development of effective business
strategy (Rosenzweig, 2007).
Logitech is an example of such a successful organisation that does not have a famous CEO or
a human resource familiar to society. It proves that the organisation’s success is not always
dependent upon the organisation's reputation or the reputation of its workforce. Logitech has
achieved success despite the competition from Microsoft and Intel within the industry
(Rosenzweig, 2007). Therefore, it proves the fact that Halo effect is required to be eliminated
from the management practice so that the effectiveness or the success of the organisation can

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be defined effectively and the focus can be moved from assuming the business success based
on experiences to the analysis of the current situation and the prospects within the industry.
Financial and Social Goals of the Organisation
The business operating within the industry focuses on its financial as well as social goals, to
ensure the growth and development of the business. The financial goals are referred to the
development of the firm’s financial capacity and the social goals can be defined as the
organisation’s interest towards the development of the society in which it is operating its
business (Grant, 2016). The public organisations have a distributed ownership within the
industry, as such companies offer shares to the public and the daily trading of the shares
within the market determines the value of the organisation within the industry.
In managing the financial and social goals, the organisations face the issue of balancing the
interest of the managers of the company and the shareholders within the industry. Agency
theory provides a guideline through which the relationship between the managers and
shareholders are managed. As the managers are required to work towards the organisational
goals and provide dividends to the shareholders (Rummler & Brache, 2012); therefore, the
interest of the shareholders and the managers within the organisation are required to be
aligning so that the firm’s value can be improved. The relation between the managers and
shareholders within the organisation has been supported by a study, which explains that the
issue of the agency problems within the corporate governance has increased and it is a result
of the dispersion of ownership in public limited companies (Bebchuk, et al., 2017). As per
Jensen, the managers are not necessarily the shareholders of the firm they are working for;
due to which their focus is not always on maximizing the value of company’s share, they
work in order to improve the organisation’s performance within the industry which does not

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always contributes towards maximising the shareholder’s wealth. Therefore, an incentive
problem exists between the shareowners and the manager agents (Ertürk, n.d.).
The Edelman Trust Barometer Report, reflects that within an organisation the employees
have fear of job loss, and the employees believes that the organisation does not focuses upon
providing them with training and development programs. Around 59% of all employees
around the world do not have skills to get a better wage pay-off, and approx. 76% employees
believes that if CEOs take interest in leading the firm then the changes can be implemented
effectively within the organisation ( Edelman Trust Barometer Team, 2019). The fact that
trust is the major factor that influences the organisation’s goal achievement is supported by
Ahmad, et al; they concludes that the organisations are required to focus upon building trust
among the stakeholders within the organisation as well as in the industry so that the
organisational performance can be improved (Ahmad, et al., 2017).
Apart from managing trust within the organisation, the organisation faces the issue to cater to
the needs of both the society as well as the shareholders of the firm. The organisations have
moved from the scope of unlimited liability to limited liability and the ownership has been
transferred to the shareholders of the organisation. Therefore, the manager's interest in the
achievement of organisational goals has been limited to the incentives that they earn (Polman,
2014). As a result, the organisations face a major challenge of managing the shareholders as
well as the stakeholder’s interest within the organisation (Cossin, 2019). The interest of the
shareholders lies in maximization of the dividend, and to achieve the goals and objectives it is
required that such dividend should be invested within the organisation for further growth.
Moreover, to meet the interest of the business shareholders the organisations focus on setting
up of short-term goals, due to which it becomes a challenge to achieve the social goals along
with the financial goals (Haldane, 2015).

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The financialization of the organisations is also a challenge for the achieving the social and
financial goals, as with the financialization the organisations are investing their amounts
within the financial markets, which increases the financial value of the organisation but does
not contribute towards increase in shareholders wealth or any societal development (Storm,
2018). The financialization of firms results in increased inequalities within the society as the
organisations are focusing more on investing their cash reserves in financial assets more than
investing in productive activities. The organisations like Apple and Google focus on holding
up of cash reserves, Google held a cash reserve of 60% in 2010 and Apple compared to
Google held even more. Due to which the industry is facing decline in wages and in corporate
tax incomes (Fernandez & Hendrikse, 2015).
Business ethics play an important role in the achievement of the goals and objectives of the
organisations, as the ethics act as a guide for the organisations in the situations of dilemma
and help the management to make better business decisions. The organisations should focus
upon establishing long-term goals focused upon the firm’s financial goal as well as the social
goals (Ertürk, 2016). Due to the financialization of the organisation and the economy, the
income level of the peoples working within the society is decreasing and the organisations
have a major role in managing the income sources within the industry. As after the recession
of 1990, the organisation within the UK and US has not recovered enough, also they are
focusing more on investing their capital more in financial markets rather than in labour or
capital market. Due to which the disposable income of the households has declined and
around 65-70% of the households have experienced a decline in their income as compared to
their parents (Dobbs, et al., 2016). Another perspective on the decline of income has been
presented through a statistical survey which shows that the inequality between the income has
recovered after the recession and in recent years, based on the living costs and food survey in

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FY2017 indicates that the median disposable income has increased between the FY 2016-17
(ONS, 2018).
The middle class finds it difficult to invest within the financial markets and due to declining
wage, the overall demands for products are declining. Therefore, it is required that three
conditions must be fulfilled before introducing the individuals within the financial market.
the conditions include enabling the individual to effectively evaluate the income and wealth
effects over its life cycle, ensuring the basic financial literacy and the ability of the individual
to analyse the risk and return factors while dealing within the financial market (Erturk, et al.,
2007). Therefore, an organisation can focus on meeting the financial and social goals if it
succeeds to develop trust among its stakeholders, maintain an ethical business nature and
focuses on the establishment of long-term goals rather than focusing on short-term goals.
Examples of Organisations focused on achieving financial and social
goals
Unilever is an example of an organisation focused on achieving the organisational
development goals along with the social goals. Unilever has set up sustainability plans that
are focused on business development along with the development of society. Unilever
believes that it alone cannot implement all the required changes but can be a part of the
change process. The management at Unilever ensures implementation of effective leadership
within the organisation, and focuses upon the development of trust among its stakeholders
within the industry. Unilever believes that being sustainable and society focus is the best to
conduct and develop business (Unilever, 2019).
Microsoft is also an example of organisation focused on delivering the social values along
with its continuous effect on the business development. The mission of the Microsoft is to
empower the society, its shareholders as well as the development of the organisation.

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Microsoft has earned revenue of $125 billion in the fiscal year 2019, and has provided around
$30 billion to the shareholders, along with focusing on customer’s satisfaction, maintaining
trust among the employees, developing an ethical work culture and contributing towards
environmental and societal activities (Microsoft, 2019).
Among the real life examples of the organisation focus on achieving the social and financial
goal together, Dell is an organisation that focuses on sustainable development and believes
that being sustainable is not just an important part of the business, it is the way the business
activities need to be conducted so that the goals and objectives can be achieved. To promote
the social values and to relate the shareholders interest with the organisation interest, Dell
focuses on continuous monitoring of activities and ensures transparency, innovation and
effective leadership within the business process that contributes to both financial as well as
achievement of social goals. Also, the organisation focuses on developing the society as well
as the industry environment so that the stakeholders of the business can be satisfied, and the
organisation can lead towards improved performance (Dell, 2018).
Conclusion
The Halo effect influences the business decision-making process and how society interprets
its future performance. The Halo effect defines that the human brain analyses each activity or
the decision based on the experience. Therefore, an organisation achieving excellence within
the industry will be perceived as an organisation that has the best quality resources and a
satisfied customer base. The Halo effect does not only influence the society’s interpretation,
but it also influences the global business surveys. Therefore, it is required that the Halo effect
is eliminated from the management practices so that the business performance within the
industry can effectively be analysed.