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Halo Effect in Management: Examples & Concept

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  • 0:00 Definition
  • 0:29 Halo Effect in Management
  • 1:17 Examples
  • 2:56 Lesson Summary
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Lesson Transcript
Instructor: Shawn Grimsley
The halo effect is an important concept to understand because it can create errors in analysis and decision-making. The concept was first developed by psychologist Edward Thorndike in 1920. In this lesson, you will learn what the halo effect is and its application to the business world.

Definition

The halo effect describes an error in thinking in which you make specific inferences about a person, thing, or process based upon a single trait or general impression. The halo effect distorts a proper analysis of the subject. It creates a bias in future analysis when you have a preconceived notion of prior performance. The halo effect can be countered by the use of independent data in your analysis.

The Halo Effect in Management

The halo effect often occurs in business and adversely affects the analysis of the performance of employees, management, and the business in general. The halo effect can incorrectly generalize the success of one aspect of a business upon the entire business or generalize a good trait of a manager or employee, assuming complete effectiveness of that manager or employee.

Conversely, the halo effect can cause you to wrongfully blame a failure on a particular trait of a business, manager, or employee that was once considered great. In other words, company performance shapes how we perceive a company's business strategy, leaders, employees, culture, and other elements. In fact, some things we perceive as the 'cause' of performance may really be the 'result' of performance.

Examples

Let's go over some examples.

Let's say that your company has been highly successful over the past two years in developing a new social network service. Profits have continued rising, and market share continues to double quarter over quarter. Business journalists hail your company as innovative, visionary, lean, and hungry. Its management was considered brilliant and relentlessly dedicated.

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