Best practice can make lemmings of us all

If I have learnt one thing in business journalism, it is that flops and failures are rarely available for interview, while successes flock to the limelight.

By the same token, business leaders love biographies, where in the lives of great figures they can trace the similarities to their own careers. Consultants and academics research leading companies while corporate laggards shrink from study.

So the curse of “best practice” spreads. Chief executives seek simple, repeatable patterns in success stories. Here is the problem, though: often those patterns are neither simple nor repeatable. Worse still, they may propagate bad behaviour and unproductive methods.

It would be senseless for every generation of leaders to have to start from scratch, ignoring proven ways to be more productive and profitable. But the follow-the-leader approach can backfire.

Freek Vermeulen of London Business School points out that perception bias, imperfect copying of methods, herd-like benchmarking against top-ranked rivals and an obsession with short-term results can sucker companies into bad habits.

Like a virus, rather than killing their host quickly, bad practices linger long enough to be transmitted to others.

A bias towards perceived success is inevitable, Prof Vermeulen says. He and Xu Li, now at ESMT in Berlin, showed people a decade’s worth of performance data for 1,000 companies, each of which followed one of three strategies. After a while they noticed that people stopped poring over complex information on each company and fell back on the performance ranking. Using the rank of a few successful companies as a rule of thumb, most wrongly decided that their strategy was best, when most companies following that path underperformed.

“It’s human [nature], when people have information overload and there’s a lot of companies to look at,” Prof Vermeulen told me. “[But] I don’t think it’s necessarily inevitable that we can’t do something about those biases.”

Managers sometimes stick with what was once deemed best practice simply because they never question why such methods still apply. In his book, Breaking Bad Habits, Prof Vermeulen cites Britain’s broadsheet newspapers, whose format is a relic of a long-repealed tax on the number of pages printed.

One way to lift the curse of best practice is to be aware of how — and where — a method is being used and whether its success is specific to one sector, company or country.

Prof Vermeulen points out, for example, that US companies stuttered when they tried to introduce Total Quality Management, the meticulous Japanese method for process and product improvement, in the 1980s and 1990s. US imitators applied it in idiosyncratic ways. They simplified the system, took shortcuts and added features such as performance measurement, although W Edwards Deming, one of TQM’s architects, believed this “builds fear, demolishes teamwork, [and] nourishes rivalry and politics”.

Similarly, when Michelin, the tyremaker, tried to introduce lean production methods — as pioneered by Toyota — in the 1990s, it succeeded in improving productivity at the expense of agility and at a cost to its carefully nurtured humane corporate culture.

Eric Ries, author of The Lean Startup and The Startup Way, has laid out broad principles for “lean” methods to be used by companies launching products, but he agrees that “there’s always going to be a tension between wanting to seek out universal laws [and] recognising that context matters a great deal.”

Another way to avoid bad habits is to put working methods to the test. Start small and revisit practices regularly to assess consequences. In other words, apply a version of the “build-measure-learn” method taught by Ries.

Michelin, seeking a way to make itself more agile and responsive to customers five years ago, tried a new management approach first with selected teams, giving more responsibility to frontline workers. It extended the successful experiment to production lines, then pilot factories, before this year rolling it out to the group.

Of course, the good practices of today, such as Michelin’s initiative or Ries’s lean start-up methods, adopted by companies such as General Electric, may become the bad habits of tomorrow.

The key is not to be lulled by short-term success into pursuing practices that jeopardise long-term survival.

Consider the lemming. Bounding cliffwards in the slipstream of its furry comrades, it must feel as though running with the pack is best practice. It is only just before impact that the hapless creature realises it should have veered away from the dangerously popular path that leads to the precipice.

Andrew Hill is the FT’s management editor

This opinion article is taken from our European Business Schools special report