The halo effect's influence on business decisions and employee perception

Halo Effect in Business

Halo Effect Literature Review

The existence of the halo effect has been recognized for many years since 1920 when Edward Thorndike was the first psychologists to research the halo effect. This was then followed by other researchers who studied the halo effect in relation to the attractiveness of the person or organization and led to its application in various sectors such as business, education and judicial systems. The researchers stated that the halo effect was greatly influenced by the first impression on a person or organization Luttin, 2012.

The halo effect has a very powerful influence on business. This literature review attempts to find the halo effect in business and how it affects decisions made by the public on the company or organization. It also looks at how the halo effect affects decisions made by the company employees and the management team regarding the company and how they need to understand the halo effect in order to make better informed decisions.

Definition of the halo effect

Thorndike (1920)

was the first to define the halo effect is a deviation in the judgment of the character of a person or organization which is influenced by the overall impression of the person or organization. Over the years, new definitions of halo effect have developed from the widespread research that has been conducted in this field. In the literature that was reviewed, several conceptual definitions of the halo effect arise. Though these definitions are conceptually different, there is a general consensus that the halo effect is a bias caused by a correlation of one item in a scale above the normal levels thus leading to a reduced variance in the other items Murphy, Jako, & Anhalt, 1993.

Tiffin and McCormick (1965)

define the halo effect as the domination of all other attributes or traits by one particular one.

Fisicaro and Lance (1990)

attempted to categorize the different definitions of the halo effect that exist. Their first category was the general impression halo effect which encompassed the definition of Thorndike (1920)

and Nisbett and Wilson (1977)

of halo effect as a bias of the general impression that leads to performance ratings being consistent with the person's general impression. The second category was the salient dimension halo effect. These definitions defined halo effect as the evaluation of less important items based on the evaluation of other more dominant items

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(Cooper, 1981; Fisicaro & Lance, 1990; Kozlowski, Kirsch, & Chao, 1986)

. The last category is the inadequate discrimination halo effect. This is the definition of halo effect as the unwillingness or inability of a person to distinguish among the attributes or traits that are evaluated which creates a cross effect of the attributes on the same scale thus resulting in increased correlations Balzer & Sulsky, 1992(; Banks & Murphy, 1985)

In all definitions of the halo effect the outcome is that there is improper representation of the true situation as a result of an inability or willingness of the respondent to differentiate several items on a single scale Wirtz, 2003.

It, therefore, emerged that this it was difficult to differentiate among the categories of definitions as a result of their identical outcome. Lack of differentiation of the items on the scale is the origin of the halo effect. The respondent may be unable to recognize the difference as result of their experience or knowledge or they may be unwilling as a result of lack of motivation, fatigue or boredom Tourangeau, Couper, & Conrad, 2004()

Methods

This literature review concentrates on peer-reviewed books, articles and journals on the issues surrounding halo effects in business. It is organized thematically according to the various areas where the halo effect is felt in business.

Current situation

Halo effect in teams

Organizations have increased the use of work teams to help them accomplish their everyday tasks. This is because teams are believed to deliver high performance in a marketplace that is hypercompetitive. Teams are also though to integrate the unique skills of each individual in order to produce high performance. This perception of teams is a halo effect since empirical evidence on the efficacy of work teams in organization does not show consistency. A study that was conducted by a.T. Kearney found that 70% of teams do not deliver the required results. In another study reported by Cleaver (2001)

, it was found that teams greatly improve the output of the organization.

Researchers on the effectiveness of work teams are more careful in making conclusions about their efficacy since they found that their efficacy is simply a myth and that teams are often overused in situations which would have been better with non-team structures. Popular press and business professional continue to profess the importance of work teams. Evidence from research, however, shows that there is mixed evidence on their benefit. It can also be seen that there are many dysfunctional dynamic which teams may encounter. Scholars are therefore of the opinion that teams are overhyped and overused. What business professionals and popular press fail to recognize is that teams when inadequately managed face a lot of dynamics which could lead to their failure.

Naquin and Tynan (2003)

posit that teams are not usually blamed for their failure. This is a documented phenomenon where two distinct studies which used real teams in a controlled scenario found that the failure of the team is often pinned on individuals than the team as a collective. This result supported their hypothesis that teams are given more recognition for their success than for their failure. Teams often escape being blamed for failing because of the halo effect on teams. As a result of impaired cognitive judgment, teams are not attributed any negative traits therefore they are not blamed for their failure.

When a team fails, the management applies counterfactual thinking to understand the past events that could have triggered the failure. The person charged with this responsibility often finds alternative ways in which the situation would have played out. Each alternative scenario assigns the members of the team different decisions which often than not lead to the failure being pinned on the individual or individuals whose alternative scenario are furthest from the actual scenario rather than the team as a whole. The fact that the counterfactual thought processes identify the individual as the cause of the failure rather than the team as a whole does not necessarily mean that the causal attribution process is erroneous. However, the use of counterfactual thinking to identify causal factors has been found to be biased by several factors such as the experience and perspective of the individual charged with identifying the causal factors.

The researchers also posited that the person undertaking the counterfactual thinking is more likely to look at the more developed theories and schemas of individual behavior than those of team dynamics and team behavior which are still substantially underdeveloped. They also argue that in the diagnosis of the performance of the team, it is more likely that the individuals performing this diagnosis will focus more on other individuals as the causal agents rather than the team as a collective. The argument here is that relatively a person has more knowledge on the thinking of individuals rather than the systems thinking of a team. This argument is supported by Kahneman and Varey (1990)

who stated that causal reasoning is affected by the choice of counterfactuals. This is used to predict that when the person has a deeper understanding of teams, they will think more factually on the team as a collective rather than targeting the individual.

In another study that attempted to reanalyze the experimental halo effects, it was found that the halo effect leads a person to judge another based on the global rather than on analytic judgment. The researcher also found that the correlation coefficient was due to objective variations that exist between the individuals themselves or the public information about them. Though the researcher did not succeed in showing any experimental differentiation between the rating conditions when the information was held constant, the research showed the value of the halo effect in influencing the judgment of a person or organization Johnson, 1963()

This same principle can be applied in the analysis of the halo effect of team. When the person uses counterfactual thinking to judge the role then individual played in the failure of the team, the judgment may be based on other global characteristics such as attractiveness rather than on analytic judgment Naquin & Tynan, 2003()

Halo effect in human resource management

Recruitment.

The first impression that a recruiter has on a person could greatly affect their likeability and lead to a recruiter selecting the person over another more experienced but less likeable person. Research on the halo effect has shown that good-looking individuals or those who are smartly dressed creating a lasting fast impression on those who they come across. Consequently, they are assigned favorable traits such as kindness, intelligence, honesty and talent. These traits are awarded to them as a result of their physical attractiveness rather than judging their inner personality. The situation that applies to federal elections where attractive candidates often receive twice as many votes as their unattractive competitors shows that there is favoritism in the handsome politicians. Researchers did a follow-up on the voters and found that none of them realized this bias. In fact, it was found that 73% of voters denied the strongest candidates the chance at victory as a result of their physical appearance. This supports the results of a study conducted on employment interviews where it was found that when faced with difficult choices, recruiters often used the overall likeability of the person to make the decision. The study found that good grooming of candidates influenced their likelihood of being hired on their looks rather than their knowledge, skills, abilities and other characteristics (KSAOs). Recruiters openly admit that appearance does play a role, though small, in their choices. Economists studying U.S. And Canadian salaries found that individuals who are attractive often get paid about 12-14% more than their unattractive co-workers in the same job Dennis, 2007()

This evidence shows that attractiveness of candidates greatly influences their ratings. They are given bias of being intelligent, honest and kind because these traits are often perceived to perfectly fit these people. Researchers have studied the effect of the halo effect and have shown that attractive people are generally treated better than their unattractive counterparts. This is as a result of the perceptional bias that comes as a halo effect Dennis, 2007()

The halo effect in recruitment also occurs where in the interviewing process, the candidate may give an answer that provides positive indicators of their competencies and there is no probing to check for negative examples. In the final selection, the halo effect makes the recruiter choose this employee based on the positive indicators without considering the negative aspects of their assessment. These negative aspects may either be downplayed by the overall judgment of the recruiter about the person or it may be ignored Dennis, 2007()

When head hunting is used as the recruitment procedure, the halo effect also plays a role in picking of candidates to be 'hunted'. The human resource management team may choose the candidates from looking at their influence in the activities of the organizations which they currently work for without looking at their negative aspects. A good example is given by Rosenzweig (2009)

where they observed headhunting as the common practice in startups trying to find a successful senior management person for their team. Rosenzweig states that by looking at the companies run by the manager being hunted as profitable and growing, the recruiter simply attributes the success of the company to the manager or CEO. He also argues that in head hunting, the recruiter may already have the perfect candidate in mind. Therefore interviewing may not play any role in the selection process. Once more, the negative aspects of the candidate may either be downplayed or ignored.

Rosenzweig states that though corporate attributes such as a visionary CEO, vibrant culture, brilliant strategy and motivated employees may be correlated, it is difficult to them assign causal relationship. Similar studies have shown that though a specific factor may lead to improved performance of the employees; it cannot be the sole factor. This is because the many factors are correlated. Furthermore, studies have shown patterns of regression in companies that were once high-performing.

Stereotyping is also a common phenomenon in recruitment that comes as a result of the halo effect. Stereotyping can be positive or negative. When positive, it would mean that a person of a certain age, educational background or experience is seen to have a positive causal relationship to performance thus is deemed to be a suitable candidate for the position. In negative stereotyping, the age, education and experience of the individual lead to the detriment of the candidate's suitability of the position.

Studies have shown that the performance of employees who are chosen as a result of their physical attractiveness often perform worse than those who are chosen fairly without any error in judgment. Though selection of employees is not exactly a science, mistakes often occur which lead to poor performance of the employees in their role. Over-reliance of the recruiters on a single element or KSAO of the employee can lead them to set high standards of expectation on the employee which affects their performance appraisal. The single element gives a distorted view of the candidate which allows for some of their more obvious shortcomings to be covered.

The recruiters need to understand the halo effect in order to downplay its negative influence on the staffing decisions of the organization. In the overall decision-making, a multiple-technique approach should be used in order to gain a balanced picture of the employee and thus enable the most suitable employee to be chosen for the job. There needs to be carefully-drafted specifications which help to guide the selection process above the superficial appearance and stereotyping of the candidate.

Promotion.

A research published in the Harvard Business Review in the year 2002 showed that CEOs and other management executives often fall prey to the halo effect where they overvalue certain attributes of employees while undervaluing others. The management executives may see an improvement in the overall performance of the company as a result of a particular employee putting in added effort. Here, the halo effect in teams also applies since the success of the whole team is attributed to one person and this person is often deemed to be most suited for the promotion. Unfortunately, this decision to promote the employee may not take into account other necessary qualities to perform in their new role such as leadership qualities, organizational and other technical skills such as prioritization, budgeting skills, team management skills and logical reasoning.

Performance appraisal.

In the appraisal of employee performance, the halo effect has been studied to influence the results of the appraisal. Supervisors may score their employees high on one particular element of the performance appraisal scale which makes them also rate them highly on other items of the performance. These ratings may give an inaccurate reflection of the capabilities of the employees thus making it hard for them to perform in their future roles and responsibilities as a result of their expectations being heightened based on an inaccurate performance appraisal.

This is supported by the findings of Dennis (2007)

in his research on the halo effect in the grading of student projects. The research involved analyzing the grades awarded by two graders independently. The grades were analyzed on a correlated uniqueness model. Dennis found that there was substantial halo effect in the grading of students despite the assessors being experts with vast experience. It was found that when there was regular contact between the assessor and the student, the student was more likely to score higher as a result of the halo.

Cooper (1981)

found that in the workplace, performance appraisals are given as a basis of samples of behaviors exhibited by the employees over the period of time preceding the deadline for the submission of the appraisals. Therefore, there could be gross under-sampling and systematic distortions which lead to the performance appraisals not being adequate representations of the employee's performance. Kozlowski et al. (1986)

found that the halo effect is, however, not present in the situation where performance appraisals are conducted for a specific task or responsibility. It was found that there was less haloing observed in the assessors when they were appraising employees on a single particular task.

To control the halo effect in this situation, Kozlowski et al. (1986)

suggest that more than one person should be required to do the performance appraisal such as the supervisor and line managers. The personal biases as a result of the halo effect will cancel out thus leaving a more accurate performance appraisal of the employee. Another suggestion is to have supervisors do performance appraisals based on one particular trait at a time instead of rating each employee on all traits at the same time.

Performance-related compensation.

The dynamics of employee promotion and wage growth have always been recognized as important issues in the workplace. Halo effect in performance-related compensation comes from three distinct situations. The first is the situation where the employee is promoted as a result of the halo effect. The second is where the employee receives increased compensation as a result of an inaccurate performance appraisal and the last is where the past performance of the organization affects future compensation.

The researchers found strong evidence that supports the halo effects from past promotions on the base pay growth of the employees.

Halo effect in corporate social responsibility

Companies have continued to stress the importance of corporate social responsibility to their strategic direction. They have also associated increased brand and product awareness to the amount of corporate social responsibility of the company. Management executives of companies such as General Electric, Coca Cola, IBM, Starbucks and others have always stressed the importance of corporate social responsibility despite the financial times being trying Madden, Roth, & Dillon, 2012

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Even in budget-constrained situations, it is believed that corporate social responsibility has a huge effect on the value that investors and communities place on the company, its brands and products. Marketers also feel that successful corporate social responsibility (CSR) initiatives influence the product evaluation on the side of the consumers and influence their purchase decision

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(Hoeffler & Keller, 2002; Luo & Bhattacharya, 2006; MacInnis, Moorman, & Jaworski, 1991)

Further research has also shown that consumers form both CSR and ability associations about companies as a result of their CSR activities. These studies have shown a strong association between product quality and CSR. Though items that measure the consumer's perception of CSR activities are thought to be independent, Dillon and Goldstein (1984)

showed that the brand attribute ratings contain a global or holistic impression of the brand. This means that the halo effect plays a major role in influencing consumer decisions.

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Madden et al. (2012)

state that the nature and degree of halo that is present in CSR is essential for marketers when they know how to understand the structure of consumer perceptions and how they can use these perceptions to their advantage. Their study showed that the halo on consumers created more bias for their perception of product quality which created strong brand recommendations.

Brown and Dacin found a distinction between the CSR halo and product quality but found the two to be independent. Building upon this result, companies need to find ways of driving consumer perceptions and corporate responsibility to create strategies for sustainability of their businesses. Research has shown that the influence of corporate social responsibility on consumers is highly contingent and therefore has great implications on other marketing activities such as branding and advertising Bechger, Maris, & Hsiao, 2010.

CSR has been known to lead to a halo effect on consumers where they generalize the purchase intent from the knowledge on the beliefs and initiatives. Additionally, Klein and Dawar (2004)

found that there is a halo effect in the type of CSR activity. This is where one set of CSR actions such as giving back to the community influences the perception of consumers on other CSR actions such as eco-friendliness.

Questions for further research

Research on the halo effect has always focused on a single product category. All conclusions that are made by researchers base their findings on one product category such as electronics, fast moving consumer goods or software. This creates an interesting question for research whether the degree of halo effect varies with the category of product. The aim here would be to find out whether the degree of halo in each product category is different Ng, Koh, Ang, Kennedy, & Chan, 2011

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. This is because consumers assign different levels of importance to each product category. They may feel that electronics which are one-off purchases are more important than fast moving consumer goods which are purchased regularly since they give the consumer a chance to try different products. This question for research is also supported by the finding that for products or brands for which consumers have strong emotions, there are stronger halo effects. Luttin (2012)

found that for the iPhone, there is a greater halo effect since consumers feel strongly passionate with the product and thus want to be associated or identified with it.

Researchers have constantly argued on the presence and degree of halo in various aspects of business. From the literature, it has become clear that haloing is a serious phenomenon which affects how businesses run their activities as well as consumer perception on the business and its products. The nature of the circumstance of haloing is continually being understood by business professionals. The amount of attention being paid on haloing and its effects in marketing, research and consumer surveys has increased over the years with increased understanding of its presence in the business world.

Managerial implications

Most studies on the occurrence of halo in the business world show that product and brand evaluations are greatly affected by global perceptions of the company and its brands. Research on the effects of halo on business has shown that managers need to understand how to detect and measure the degree of halo and use this information in their decision-making process. The halo effect is a potential source of faulty decisions on the part of managers. Marketers and market researchers need to extend their knowledge on the effect of halos in their business. This will help them improve their marketing strategies.