Breaking bad habits why best practices are killing your business

Why Best Practices Are Killing Your Business BR E AK ING H A BI TS Freek Vermeulen  Breaking Bad Habits  Breaking Bad Habits Why Best Practices Are Killing Your Business Freek Vermeulen Harvard Business Review Press Boston, Massachusetts HBR Press Quantity Sales Discounts Harvard Business Review Press titles are available at significant quantity discounts when purchased in bulk for client gifts, sales promotions, and premiums Special editions, including books with corporate logos, customized covers, and letters from the company or CEO printed in the front matter, as well as excerpts of existing books, can also be created in large quantities for special needs For details and discount information for both print and ebook formats, contact booksales@harvardbusiness.org, tel 800-988-0886, or www.hbr.org/bulksales Copyright 2018 Freek Vermeulen All rights reserved Printed in the United States of America 10 No part of this publication may be reproduced, stored in or introduced into a retrieval system, or transmitted, in any form, or by any means (electronic, mechanical, photocopying, recording, or otherwise), without the prior permission of the publisher Requests for permission should be directed to permissions@hbsp.harvard.edu, or mailed to Permissions, Harvard Business School Publishing, 60 Harvard Way, Boston, Massachusetts 02163 The web addresses referenced in this book were live and correct at the time of the book’s publication but may be subject to change Library of Congress Cataloging-in-Publication Data Names: Vermeulen, Freek, author Title: Breaking bad habits : why best practices are killing your business / by Freek Vermeulen Description: Boston, Massachusetts : Harvard Business Review Press, [2018] Identifiers: LCCN 2018029345 | ISBN 9781633696822 (pbk : alk paper) Subjects: LCSH: Organizational behavior | Industrial management Classification: LCC HD58.7 V46 2018 | DDC 658.4/094—dc23 LC record available at https://lccn.loc.gov/2018029345 eISBN: 978-1-63369-683-9 C O NTE NT S Prefacevii Introduction: Fertile Ground PART ONE How Bad Practices Prevail We’re Suckers for Success 21 Causal Ambiguity 43 They Spread Quicker Than They Kill 53 PART T WO Eliminating Bad Practices The Tale of the Giant Newspapers 63 More Than Painting a Gray Wall Green  71 Innovation in the Market for Employees 83 Ten Commandments for Identifying and Eliminating Bad Habits 97 Contents PART THREE Reinvigorating Your Organization Embrace Change for Change’s Sake 129 Make Your Life Difficult 163 10 Balance Exploration with Exploitation 179 11 Be Varied and Selective 209 Epilogue233 Notes237 Index243 About the Author vi 251 PRE FAC E Organizations are great; I love them Not just because I make a living studying them, but because they are the true building blocks of human life Organizations have produced or affected pretty much everything we touch, eat, wear, and see They achieve and construct things that no individual could make, or sometimes even imagine However, organizations are also filled with practices— habitual ways of doing things—that are sometimes inefficient and bureaucratic, and that make our blood boil Sometimes these inefficient practices and strategies spread and persist for decades, or even longer They persist just like viruses persist in nature They take on lives of their own and continue operating despite leading to suboptimal results in the companies that embody them The good news is that smart managers can purposefully identify and eradicate them, and then turn them into a profitable source of renewal and innovation That is what this book is about vii INTRO D U CTIO N Fertile Ground Some years ago in London, I met a doctor who worked at an in vitro fertilization (IVF) clinic After telling me about his field and the shape of the industry in the United Kingdom, he immediately—and vigorously—started discussing what he and others in the industry referred to as the “League Table,” a government-mandated and publically accessible website with information on all the IVF clinics in the UK that the Human Fertilisation and Embryology Authority compiles and publishes annually Since the website included information on each clinic’s success rate, people had started treating it as a ranking The website was an admirable attempt to increase transparency and influence consumer behavior Since Notes Chapter 1.  Markus Reitzig and Stefan Wagner, “The Hidden Costs of Outsourcing: Evidence from Patent Data,” Strategic Management Journal 31, no 11 (2010): 1183–1201 2.  Mary J Benner and Michael L Tushman, “Process Management and Technological Innovation: A Longitudinal Study of the Photography and Paint Industries,” Administrative Science Quarterly 47 (2002): 676–706; Mary J Benner and Michael L Tushman, “Exploitation, Exploration, and Process Management: The Productivity Dilemma Revisited,” Academy of Management Review 28, no (2003): 238–256 Chapter 1.  See, for instance, William H Durham, Coevolution: Genes, Culture, and Human Diversity (Palo Alto, CA: Stanford University Press, 1991) Chapter 1.  Liz Welch, “Entrepreneur Designs Upscale Hotels for Budget Travelers,” Inc., June 2014 Chapter 1.  Clayton M Christensen, Dina Wang, and Derek van Bever “Consulting on the Cusp of Disruption,” Harvard Business Review, October 2013 2.  “Enough Leadership Time for Communityship,” Henry Mintzberg blog, February 12, 2015, http://www.mintzberg.org/ blog/communityship 238 Notes Chapter 1.  Natalie Mizik and Robert Jacobson, “Are Physicians ‘Easy Marks’? Quantifying the Effects of Detailing and Sampling on New Prescriptions,” Management Science 50, no 12 (December 2004): 1704–1715 2.  Solomon E Asch, “Studies of Independence and Conformity: I A Minority of One Against a Unanimous Majority,” Psychological Monographs: General and Applied 70, no (1956): 1–70; and Wendy Wood et al., “Minority Influence: A Meta-Analytic Review of Social Influence Processes,” Psychological Bulletin 115, no (May 1994): 323–345 Chapter 1.  For example, Ranjay Gulati and Pahish Puranam, “Renewal Through Reorganizations: The Value of Inconsistencies Between Formal and Informal Organization,” Organization Science 20, no (2009): 422–440 2.  See, for instance, Daniel A Levinthal and James G March, “The Myopia of Learning,” Strategic Management Journal 14 (1993): 95–112; and Danny Miller, “The Architecture of Simplicity,” Academy of Management Review 18, no (January 1993): 116–138 3.  Alfred P West, Jr., and Yoram (Jerry) Wind, “Putting the Organization on Wheels: Workplace Design at SEI,” California Management Review 49, no (Winter 2007): 138–153 4.  For example, Jeffrey Pfeffer and Gerald R Salancik, “Organizational Decision Making as a Political Process: The Case of a University Budget,” Administrative Science Quarterly 19, no (June 1973): 135–151 5.  Nitin Nohria, “Appex Corp.” Harvard Business School Case 491-082, February 1991 (Revised February 1992) 239 Notes Chapter 1.  Mihaela Stan and Freek Vermeulen, “Selection at the Gate: Difficult Cases, Spillovers, and Organizational Learning,” Organization Science 24, no (May–June 2013): 796–812 2.  Cristina Gibson and Freek Vermeulen, “A Healthy Divide: Subgroups as a Stimulus for Team Learning Behavior,” Administrative Science Quarterly 48, no (June 2003): 202–239 Chapter 10 1.  James G March, “Exploration and Exploitation in Organizational Learning,” Organization Science 2, no (March 1991): 71–87 2.  Jack A Nickerson and Todd R Zenger, “Being Efficiently Fickle: A Dynamic Theory of Organizational Choice,” Organization Science 13, no (September–October 2002): 547–566; and Ranjay Gulati and Phanish Puranam, “Renewal Through Reorganization: The Value of Inconsistencies Between Formal and Informal Organization,” Organization Science 20, no (March–April 2009): 422–440 Chapter 11 1.  See Lukas F Keller and Donald M Waller, “Inbreeding Effects in Wild Populations,” Trends in Ecology & Evolution 17, no (May 2002): 230–241; Pär K Ingvarsson, “Restoration of Genetic Variation Lost—The Genetic Rescue Hypothesis,” Trends in Ecology & Evolution 16, no (February 2001): 62–63 2.  Freek Vermeulen, “How Acquisitions Can Revitalize Companies,” MIT Sloan Management Review 46, no (Summer 2005): 45–51 3.  Robert A Burgelman, “Fading Memories: A Process Theory of Strategic Business Exit in Dynamic Environment,” Administrative Science Quarterly 39, no (March 1994): 24–56 4.  Robert A Burgelman, Strategy is Destiny: How StrategyMaking Shapes a Company’s Future (New York: Free Press, 2002) 240 Notes 5.  See, for instance, Barry M Staw, “The Escalation of Commitment To a Course of Action,” Academy of Management Review 16, no (October 1981): 577–587; Kai-Yu Hsieh, Wenpin Tsai and Ming-Jer Chen, “If They Can Do It, Why Not Us? Competitors as Reference Points for Justifying Escalation of Commitment,” Academy of Management Journal 58, no (February 2015): 38–58; and Timo O Vuori and Quy N Huy, “Distributed Attention and Shared Emotions in the Innovation Process: How Nokia Lost the Smartphone Battle,” Administrative Science Quarterly 61, no (2016): 9–51 6. Burgelman, Strategy is Destiny 241 IN D E X acquisitions, 212–215 airline industry, 100–101, 114–115, 117, 118 association with success See success and association with success bad habits See bad practices bad practices acceptance of status quo, 64, 65, 66 causal ambiguity’s role in (see causal ambiguity) counterproductiveness of some best practices, discovering why newspapers are so large, 63–66 ease of spread of (see persistence of bad practices) experimenting with change, 67–68 lure of association with success (see success and association with success) potential in eliminating, 17–18, 68–69 reasons that organizations employ, 10–12 spread of within industries, 10 ten commandments for breaking (see identifying and eliminating bad practices) value of best practices, 8–9 Beacon Press, 39 benchmarking cutting out the practice, 98–99 reverse, 99–101 replication of success and, 29–31 Benner, Mary, 47–51, 205 best practices See bad practices British Telecom (BT), 188, 211 Brown, Shona, 192 bundles of practices, 113–116 Burgelman, Robert, 219, 225 business models, 113–116 buyback guarantees, 38–39, 69, 109 243 Index causal ambiguity companies’ adherence to bad practices, 51–52 contribution to bad practices, 14–15, 17 link between cause and effect and, 45–47 patent-filing activities’ hidden cost, 43–45 questioning of process management system (see ISO 9000) Chadha, Rattan, 70–71 See also citizenM change for change’s sake costs incurred by, 153–154 creating balance and, 161 deadening impact of routine and (see routine versus change) determining if it is time for change, 156–160 explaining change to employees, 155–156 interplay between power and resources, 148–150 long-term results of escalated power structures, 151 options for, 154–155 problems inherent to stable organizations, 133–134 resistance to idea of unprovoked change, 131–133 resource allocation and power centers, 151–152 244 silo mentality and (see silos) timing the change, 154 Chaudhuri, Farooq, 185 Christensen, Clayton, 86 Cisco, 139–142 citizenM, 69, 117 bedroom design, 76 booking strategy, 78 check-in experience, 75 consumer base, 73, 74, 75, 79 elimination of traditional facilities, 75 founders’ frustration with hotel industry, 71–73 interrelationship of practices, 80 public spaces design, 76 recognition of gap in hotel market, 73 staffing and supplies, 77–78 storing of guest preferences, 77 success of concept, 74 codification of new practices, 172–177 Cohen, Tony, 217–218 Deming, W Edwards, 22, 28 detailing practice in pharmaceuticals, 103–105, 107–108, 109 Eden, Liann, 84 Eden McCallum, 69, 117 freelance model, 84–85, 92–93 Index genesis of, 84 growth of firm, 85–86 recognition of need, 83–84, 91 roles in traditional consulting firms, 85 supply-side focus, 87–90 Edmans, Alex, 90 Eisenhardt, Kathleen, 192 experimentation breaking bad practices and, 67–68 danger of running flawed experiment, 105–106 detailing practice in pharmaceuticals, 103–105 using controlled approach, 101–102 value in, 164–167 See also exploration and exploitation exploration and exploitation balancing between, 180, 196–197 determining your organization’s orientation (see measuring exploration and exploitation) example at theater company (see Sadler’s Wells Theatre) flipping back and forth between, 194–196 maintaining structural separation between, 193–194 using exploitation to support exploration, 197–199 Fore people, 53–55 FremantleMedia, 217–218 GE, 30 Gladstone, Emma, 187, 188 Google, 202 Grove, Andy, 219 Guardian, 65, 66 Gulati, Ranjay, 131, 139 Hackman, J Richard, 28 Hamel, Gary, 203 Hornby, 211–212, 229, 230 hotel industry See citizenM hybrid vigor, 212–215 identifying and eliminating bad practices asking insiders for concerns, 109–111 asking outsiders for suspicions, 111–113 conducting experiments, 101–106 creating bundles of practices, 113–116 cutting out benchmarking, 98–99 monitoring other companies, 107–108 245 Index identifying and eliminating bad practices (continued) reverse benchmarking and, 99–101 stopping bad practices, 117–119 taking aim at chunk of market, 116–117 watching out for entrenched practices, 120–125 Independent, 66, 67–68, 107, 108 in vitro fertilization (IVF) clinics benefits from engaging in complex projects, 167–169 causal ambiguity’s role in adoption of bad practices, 14–15 codifying acquired insights, 172 ease of spread of bad practices, 14–15 leveraging difficult cases to enhance teamwork, 170–171 lure of association with success, 13–14 problem with accepting only easy cases, propagation of bad practices, 59 recognition of detrimental practice, 110–111 selection at the gate, 3–7 success rate publication, 1–3 246 value in experimentation, 164–167 innovation allowing strategy to follow, 228–230 arbitrariness of current social norms, 87 balancing exploration with exploitation (see exploration and exploitation) benefits of non-routine work, 163, 167–169 benefits of routine work, 163 codifying acquired insights, 172–177 competitive advantage’s basis in people, 90–91 elimination of unnecessary evils, 118–119 embracing challenges and, 174, 176–177 ending bad practices (see identifying and eliminating bad practices) example on input side (see Eden McCallum) example on output side (see citizenM) impact of entrenched processes, 49–51 learning behavior and (see learning cycle) leveraging difficult cases, 170–171 Index measuring learning behavior, 174, 175f open innovation, 210–212 potential in eliminating bad practice, 17–18, 68–69 processes that foster, 130–131 staying focused on your market niche, 93–95 steps to break out in tired industry, 79f supply-side focus, 87–90 ten commandments of business innovation, 98 value in exploration and experimentation, 164–167 Intel Corporation, 219, 221, 222, 225, 229, 230 internal champions, 35–36 Ishikawa, Kaoru, 22 ISO 9000 applicability in dynamic environments, 48–49 impact on innovation, 49–50 popularity of, 48 purpose of, 47 resistance to accepting downside of, 50–51 IVF See in vitro fertilization (IVF) clinics Jacobson, Robert, 103 Japan, 21–22 Jayasekera, Kingsley, 183 Jobs, Steve, 190 Juran, Joseph, 22 Kelleher, Herb, 100–101 Kelner, Simon, 67–68, 101, 107 key performance indicators, League Table, 1–2 learning cycle consequences of focusing on narrow metric, 1–5 effects of selecting at the gate, 3–7 embracing challenges and, 174, 176–177 exploration and experimentation and, 164–169 measuring learning behavior, 174, 175f reflection and, 170–171 translation and codification and, 172–175 LEGO, 211 Levie, Michael, 70–71, 94, 117 See also citizenM Li, Xu, 31 London Business School, 148–150 London Times, 108 Lovas, Bjorn, 189 March, James, 180 Markides, Costas, 123 Martin, Frank, 211–212 McCallum, Dena, 83–84 247 Index measuring exploration and exploitation diagnostic tool graphic, 200f ease of getting project approved and, 204–205 ease of getting funding to pursue innovation and, 203–204 identifying source of your company’s revenues, 201–202 quantifying employee time spent on innovation, 202–203 reliance on process management systems and, 205–206 Metro, 67–68, 107 Mintzberg, Henry, 91 Mizik, Natalie, 103 monkey story, 120–125 Monteiro, Felipe, 188 Perscombinatie Meulenhoff (PCM), 64 persistence of bad practices competitive disadvantage and, 55–57 ease of diffusion and, 15–17, 58–59 slowness of impact and, 59–60 story of continuing destructive practice, 53–55 Pfizer, 213–215 pharmaceutical industry, 103–105, 107–108, 109 Pixar, 190 platform strategy, 183–185 power centers altering resource allocation to shift, 151–152 interplay between power and resources, 148–150 long-term results of escalated power structures, 151 Puranam, Phanish, 131, 139–140 newspaper industry, 66, 67–68, 107, 108, 109 open innovation, 210–212 Oticon, 189–190 PARC, 194 Parke-Davis, 213–215 patent-filing system, 43–45 perception bias, 31–35 248 Reitzig, Markus, 43, 44 reverse benchmarking, 99–101 replication of success See success routine versus change inertia in companies and, 142–143 process change and, 145 rewards change and, 145 serial change’s impact on organization, 146–148 Index structural change and, 144 value in regular organizational change, 136–139, 143–146 Sadler’s Wells Theatre allowance for experimentation, 190–191 background, 180–181 balancing between exploration and exploitation, 196–197 continual scouting process, 187–188 creation of alliances, 185–187 exploitation used to support exploration, 197–199 flipping between exploration and exploitation, 194–196 fostering of informal meetings, 188–190 narrowing of focus, 182–183 open focus strategy adoption, 182 platform strategy development, 183–185 structural separations, 193–194 test runs of shows, 191–193 variation and selection system summary, 222–224 Schumpeter, Joseph, 209 SEI Investments, 146–148, 152 selecting good practices See variation and selection selection at the gate effects of IVF clinics selecting easy patients, 3–7 lure of association with success, 13–14 spread of practice within industry, 10 use by IVF clinics, 3–4 Sharp, Chrissy, 195 silos development of over time, 134–135 example of avoiding, 139–142 overlap between formal and informal structures, 136–139 reorganizing to foster coordination, 137–139 value in periodic change, 138–139 Simon & Schuster, 38–39 Southwest Airlines, 17–18, 100–101, 117, 118 Spaghetti Company, The, 189–190 Spalding, Alistair, 180 See also Sadler’s Wells Theatre Stan, Mihaela, Stephenson, Gordon, 120–125 success and association with success American companies’ adoption of TQM, 25–29 benchmarking and, 29–31 continuation of outdated practices, 37–40 249 Index success and association with success (continued) internal champions and, 35–36 long-run consequences and, 36–37 lure of association with success, 13–14 perception bias and, 31–35 poor replication of, 29 Szulanski, Gabriel, 27 Takeda, 107–108 ten commandments for breaking bad practices See identifying and eliminating bad practices 3M Corporation, 201–202, 203 total quality management (TQM) American companies’ adoption of, 25–26 complex nature of organizations, 27–28 core components, 23–26 origins of, 22 philosophy, 23–24 shortfalls in companies’ implementation of, 27, 28–29 Tushman, Michael, 48, 205 allowing strategy to follow innovation, 228–230 design rules for selection system summary, 227t hybrid vigor and, 212–215 importance of strategic intent in, 225–227 letting evidence match investment, 222–225 making selection objective, 220–222 open innovation and, 210–212 organizing for selection, 217–218 tapping into wisdom of your crowd, 218–220 typical new-idea selection process, 215–217 Wageman, Ruth, 28 Wagemans, Rob, 73 Wagner, Stefan, 43, 44 West, Al, 146–148, 152, 155 Winter, Sidney, 27 Xerox lab, 194 variation and selection advice on how to increase variation, 209 250 Zbaracki, Mark, 35 AB O UT TH E AUTH O R Freek Vermeulen is a professor of strategy and entrepre- neurship at the London Business School He is the first-ever winner of the school’s Excellence in Teaching Award and has received various international prizes for his research on strategic management, and particularly for his application of rigorous research to improve the practice of management Freek writes regularly for Harvard Business Review, the Financial Times, Forbes, and the Wall Street Journal, among others In the past, the Financial Times described him as a “rising star” and a “new management guru.” 251 ... Breaking Bad Habits  Breaking Bad Habits Why Best Practices Are Killing Your Business Freek Vermeulen Harvard Business Review Press Boston, Massachusetts... bad practices are created, why they persist, and how they are negatively affecting your business in subtle but pernicious ways Best Bad Practices Every organization follows a series of best practices: ... Vermeulen, Freek, author Title: Breaking bad habits : why best practices are killing your business / by Freek Vermeulen Description: Boston, Massachusetts : Harvard Business Review Press, [2018]