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Why Best

Practices Often
Fall Short
For many leaders, the allure of best practices is strong and
their expectations for results are unrealistic.

Jérôme Barthélemy

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Why Best Practices Often Fall Short


JÉRÔME BARTHÉLEMY

For many leaders, the allure of best practices is strong and their expectations for
results are unrealistic.

which minimizes the need for long-term storage and


makes wines easier to drink young. For most vintners,
this leads to an improvement in quality. But there is a
downside: Micro-oxygenation also makes wines taste
more similar, and thereby reduces brand distinction and
competitive advantage.

This phenomenon isn’t peculiar to winemaking. After


following the outsourcing, franchising, and wine
industries closely for the past 15 years, I’ve come to the
conclusion that adopting a best practice is a great way to
achieve average results. Not only that: Adopting a best
practice that is wrong for your company can destroy
value.

What’s Really the Best?


Managers often assume that everything a successful
Executives tend to take the value of best practices as a company does is a best practice. But many such practices
given. We have an abiding faith in the idea that the most aren’t actually critical to the success of the organizations
direct route to improved performance is to study what that embrace them. For instance, a best-selling author
successful companies do and copy them. once claimed that creative companies such as Pixar
Animation Studios all have centralized restrooms. He
Best practices certainly do have their beneNts. In
argued that locating the restrooms in the middle of a
Bordeaux, France, for instance, many wineries now follow
company’s oOces fosters creativity because it leads to
practices recommended to them by winemaking
chance encounters among employees from different
consultants, such as micro-oxygenation, a technique that
departments who might not otherwise mix with one
involves injecting controlled doses of oxygen into wines
another. In reality, the practices that explain a company’s
during fermentation. Micro-oxygenation softens tannins,

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success are rarely that obvious. Nor does correlation proNtability, and sales growth. It also decreases the
prove causation: Many analysts believe that Pixar’s likelihood of bankruptcy. Setting targets, rewarding
creativity owes more to its nurturing peer culture, which employees based on performance, and monitoring what
allows employees to get candid feedback on their goes on within your company are not particularly
unNnished work, than to the location of its restrooms. glamorous activities, but they are generally more effective
than many best practices that are more highly touted.
Consider also a very different example: In corporate
Nnance, the use of stock options is often viewed as a best To reduce the risk of adopting the wrong best practice,
practice. CEOs tend to be more risk-averse than begin by considering how similar your organization is to
shareholders would like them to be, so the boards of the businesses that follow the practice. For instance,
many organizations now offer top executives a portion of because McDonald’s Corp. is famous for using a policy of
their compensation in the form of stock options. This granting geographically nonexclusive licenses to
encourages leaders to take greater risks on behalf of franchisees, many new franchisers have adopted this
shareholders because they stand to gain from increases in practice. However, research has shown that granting
share price. By being bolder, the theory goes, CEOs make nonexclusive licenses increases the likelihood that a new
more money for the company (and its shareholders). franchiser will fail. Prospective franchisees fear that the
Research conNrms that the more CEOs are paid in stock value of their license will suffer if another unit of the
options, the more aggressively they invest in research and same brand opens nearby, and they look skeptically at
development (R&D), capital expenditures, and licenses that don’t have territorial exclusivity. Their
acquisitions. Bigger bets, in turn, lead to bigger gains — objection is not a major concern for established
but also bigger losses. Risky practices that lead to extreme franchisers such as McDonald’s that have enough
performance — either big wins or big losses — cannot resources to open and operate their own outlets, but new
really be considered best practices at all. On the contrary, franchisers need franchisees in order to grow. Indeed,
best practices are tried and tested practices that McDonald’s itself followed an exclusivity policy in its
consistently enhance performance. early years when it was still growing.

Therefore, on a risk-adjusted basis, copying practices that Most best practices are similarly situational. Should you
are just OK may be a better bet than copying practices outsource a process or perform it in-house? My research
that ostensibly promise a huge upside. suggests that outsourcing is a best practice when the
activity is surrounded by a lot of uncertainty, but not
For instance, a team of researchers examined the impact when it offers the potential for competitive advantage and
that three standard management practices — targets, the supplier is likely to behave opportunistically. For
incentives, and monitoring — have on performance. instance, Apple Inc. outsources manufacturing because
Using data on thousands of organizations across several production does not generate a competitive advantage in
countries, they found that implementing these standard computers and consumer electronics. On the other hand,
management techniques enhances productivity,

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design is crucial to Apple’s success, so the company found that switching management models after launch
performs that activity in-house. triples the likelihood of failure, even when the change is
to the admittedly superior commitment model.
Hidden Costs
Best practices also often come with hidden long-term
Finally, it’s important to understand the hidden costs of a
costs. In 2001, Jim McNerney was appointed CEO of 3M
best practice. The implementation of a new practice often
Co. Within three years, he converted the entire company
depresses short-term performance because it disrupts the
to Six Sigma, a system of best practices whose goal is to
company’s existing processes. The more the new practice
boost operational quality and reduce errors. Six Sigma
differs from the old one, the greater the implementation
was developed at Motorola Inc., and one of the most
cost.
high-proNle companies to embrace its principles was
One study of large U.S. companies examined the General Electric Co., McNerney’s previous employer.
relationship between Nnancial performance and the Initially, Six Sigma generated substantial cost savings for
adoption of eight IT best practices (use of application 3M. But there was a downside: By mid-2005, when
service providers, implementation of business process McNerney left 3M to become CEO of Boeing Co., Six
reengineering projects, participation in e-commerce, and Sigma had contributed to compromising 3M’s ability to
use of customer relationship management, data innovate, which had always been the company’s most
warehouse, enterprise resource planning, groupware, or important competitive advantage. To limit the damage,
knowledge management systems) and found that the George Buckley, 3M’s next CEO, largely discontinued the
implementation of IT best practices leads to an initial use of Six Sigma in research and development (R&D). As
performance dip. According to the study, performance he explained: “You can’t put a Six Sigma process into
starts to improve only after the third year of adoption. [R&D] and say, well, I’m getting behind on invention, so
Clearly, the stakes for implementing a new practice — I’m going to schedule myself for three good ideas on
however “best” it may appear — can be quite high. Wednesday and two on Friday. That’s not how creativity
works.”
Sometimes, in fact, adoption costs are so high that
switching to a likely better practice can be worse than The hidden costs of a new practice are particularly large
staying the course. For instance, research on technology when its implementation alters a company’s core pursuit
startups in Silicon Valley found that of the Nve most (such as 3M’s focus on innovation). If your organization
popular management models, the one that is far and away is doing well, think twice about adopting new practices. If
the best is the so-called commitment model, which you’re in trouble, however, you may want to adopt a new
focuses on hiring employees based on cultural Nt and approach temporarily. For instance, Six Sigma was
developing strong emotional bonds with those employees. arguably the right prescription for 3M in the short run,
Startups using the commitment model are less likely to despite the nasty side effects. When McNerney Nrst
fail and more likely to go public than startups that follow arrived, 3M’s proNtability was low and its stock price was
other management models. However, the same study lagging. Thanks to Six Sigma, 3M’s eOciency improved,

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and by 2005, it was in a better position to focus on The key is to Nnd a best practice early, while it is still in
innovation again. use only by a small number of organizations. For
example, while most mergers and acquisitions fail,
Finally, it is important to keep in mind that even the best research has shown that a practice known as staged
of best practices has a limited shelf life. The more popular investment can signiNcantly increase their likelihood of
a practice becomes, the less likely it is that adopting it will success. Staged investment involves entering into a
enable you to outperform your competitors. A similar strategic alliance with the partner before eventually
dynamic often occurs in sports. In football, for example, buying it. Although this technique signiNcantly decreases
when Bill Walsh became head coach of the National the odds of merging with the wrong company, only 1% of
Football League’s San Francisco 49ers in 1979, he buyers are currently taking advantage of it. A potential
implemented and popularized an innovation known as explanation is that staged investment delays the synergy
the West Coast offense. With the West Coast offense, creation process. Therefore, companies prefer to make
Walsh led the 49ers to Super Bowl championships after outright acquisitions — that often end up as failures.
the 1981, 1984, and 1988 seasons. The team went on to
win two more Super Bowls under George Seifert, but the As is the case with so many things, the successful use of
distinctiveness of the beneNts associated with the West best practices is found in moderation: Be selective about
Coast offense started declining after other teams began which practices you choose to follow, and be realistic
hiring coaches who had worked as assistants to Walsh about the returns you will achieve. The right best
and those coaches implemented similar schemes with practices can help improve your performance, but they
their new teams. As micro-oxygenation is to wine, so the alone cannot turn you into an outstanding performer.
West Coast offense was to football.

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About the Author Business School in Paris. His book best management book award in
Libérer la Compétitivité (Unleash 2017.
Jérôme Barthélemy is a professor of Your Company’s Competitive Spirit)
strategy and management at ESSEC (Pearson, 2016) received France’s

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