When best practice isn’t good practice
It’s easy to see why ‘best practice’ is popular.
Among a business class increasingly dominated by those with managerial education, with post-graduate MBAs and other qualifications, best practice promises the certainty of quantification.
It tells shareholders and the board that your company is doing the best thing it can. For outsiders (analysts, journalists, opinion-makers) who are likely to take only a fleeting look at your company, it provides an easy, if superficial, way for them to measure your success. And, of course, it’s attractive to you, the company leader. There’s a certain relief in thinking your competitors aren’t doing any better, or if they are, in knowing you can copy them and do just as well.
But, as Paul Hunter from the Institute of Strategic Management tells LeadingCompany, an unthinking focus on best practice can undermine the strategic positioning of a company.
The reason for this is very simple.
“Best practice is about standardisation,” Hunter says. “It doesn’t provide any basis for competitive advantage. It’s just about becoming as efficient as the next person.”
But of course, if everyone does the same thing, the competition sees everyone’s margins get squeezed.
When you’re looking at a particular industry, each competitor should have different strategy, explains Chris Dubelaar, a marketing professor at Bond University. “If everyone has the same strategy some of the firms are going to die.”
Companies who copy their competitors could even end up helping the opposition, Dubelaar continues.
“If you’re copying your competition, you can end up helping them by giving them additional credibility,” he says.
According to Andrew Downard, the managing director AD Supply Chain Group, even if you’re in the same industry, with the same customers, you should never assume your position is entirely the same.
“Anyway, it’s kind of foolish to think you’ll be better at implementing their strategy than they are,” he says.
When is ‘best practice’ useful?
One shouldn’t assume concepts of best practice have no place in business.
Best practice is a term that’s evolved over a long time, and is usually related to process performance management, explains Hunter. “It’s a way of benchmarking. It’s quite easy to measure and judge.”
Dubelaar says it’s often best used when processes and techniques are adopted from other industries, rather than from competitors.
“It’s possible to find successful companies that aren’t competing with you, and think ‘how come they’re working and we’re not’. You can then adopt those practices in your business… So it’s not about your competitors. It’s about trying to implement a practice in a different industry.”
What makes best practice so attractive?
So why is it that we keep hearing about best practice in isolation from strategy?
“The issue is that people look at another business and go, wow, they’re performing better than we are,” says Downard. “It’s the old margin envy. Companies wish they were making as much money as their competitors, so they drop into what they’re doing.”
“I was in the automotive industry in the 1980s. We were convinced the Japanese were winning because they implemented Kanban (a Japanese production system). We were convinced the answer was to adopt their practice, and then we would be as successful as Toyota. That was plainly not the case.”
Downard still sees such thinking in some of his clients.
“We sometimes talk about management by in-flight magazine,” he says. “It goes like this: the CEO comes back from a trip to America. On the way, they’re reading the in-flight magazine that says everyone should implement, for example, social media strategies, or ‘quality circles’.”
“Sometimes you get called in to implement something you know isn’t quite right for that business.”
How to have good processes AND good strategy
The world’s leading companies are those who have resisted this temptation, says Dubelaar.
“If you look at any list of top performing companies, in every single case, either they’re ridiculously lucky – which never lasts long, anyway – or they’re successful by matching their practice with their strategy.”
He gives the example of online shoe retailer Zappos, which allows customers to return shoes for no charge. In any retail business, best practice is to reduce returns. But Zappos does nothing to discourage them.
“What they realised is that the people who return the most shoes are their most profitable customers,” says Dubelaar. “So they wouldn’t make more profit by stopping these people from trying and returning.”
“The typical best practice of reducing returns would sink Zappos.”
Downard says leaders should figure out their strategic thinking first, and their processes to get there second.
“People looking in from outside think it’s about copying the processes. But they do that without going through the process of getting their thinking organised. Successful companies have thought through their strategy, understand what it is to succeed, and use processes to get there.”
The lesson is that you cannot establish best practice without considering your strategy, Dubelaar concludes.
“You cannot do one in the absence of the other.”