Cautionary Tale for Best Practice Promoters
The Halo Effect
Ed Teach (http://www.cfo.com/article.cfm/8477016?f=search ) wrote a great review of "The Halo Effect" in the January 2007 issue of CFO magazine. This book, by Phil Rosenzweig, debunks much of the 'research' or science purported to be in books like In Search of Excellence, Built to Last and Good to Great.
Consultants should really heed this work as many are quite quick to point to best practices, developing core competencies, etc. as causal cure-alls to fix whatever ails their client du jour. For example, being customer intimate in a declining market space will not save a company and neither will implementing hundreds of irrelevant best practices.
The best firms, and by extension the best consultants, look at the totality of events, forces and factors impacting a firm and develop comprehensive and fluid approaches to dealing with same. Choosing 'solutions' from a list or menu just doesn't work.
Yet, I've had this conversation dozens of times in my career where a consultant, software vendor or client wants to emulate an aspect of a much admired company with the thought that the same results will accrue to them. It almost never works.
As an example, I've watched countless software firms come and go over the years. Were their fates dictated by adherence to specific best practices or benchmarks? NO! They lived and died due to a mosaic of market forces that determined whether their firms lived or died. Imagine the following, if a startup company chose to compete with today's Microsoft, their chances for survival are not likely to be improved if they select some business operating guidelines from a list that other companies (who might not be software firms) have used. In fact, this startup software company will likely fail as it cannot market aggressively enough to be heard, cannot differentiate its solution to dissuade buyers from buying from Microsoft, cannot get the scale it needs to operate profitably or other reasons.
I was advised by a major New York book agent a few years ago. He told me that the way to get a business book published was to:
- come up with a simple to understand premise
- write about it in detail for two chapters
- explain how other companies should/could replicate this
- define the value these companies will receive
- then spend the next five chapters doing case studies (one firm per chapter) that 'prove' your theory
What is even better is have a famous Fortune 500 CEO co-author the book. This person can lend the credibility of one company that used your technique or displayed this trait.
I hate books like this. CEO books, in particular, are really bad as they use a collection of one company as the benchmark. These books rarely if ever discuss other companies that used this theory and the results that did or didn't follow.
One Big 8 accounting genius developed a huge best practices database years ago. He and his cohorts would arrive at client sites and meticulously check off each best practice against what they observed. They always found thousands of practices that weren't being used and this then led to additional consulting and systems gigs. Unfortunately, whenever I would ask to see the correlation between any of these best practices and improved business performance, I got lots of defensive posturing. Proof/causality is really hard to come by. Why? Success is complex and not single factor dependent.
Yes, you can sometimes identify traits of top quartile firms vs. those in the bottom. However, the reasons a firm lies in either end of spectrum may have nothing to do with the adoption of best practices. For example, many oil firms today are wildly successful in spite of themselves. The reason for the explosion in profits has nothing to do with internal processes, systems or people but is all about rising oil prices, insatiable energy demand and global instability. Likewise, great companies can be doing everything right but they still suffer or fail.
The best companies do not accept competitive parity as a cure-all. Mimicry won't help them succeed long-term. A unique strategy is what will help a company carve out its niche in the marketplace.
Read this review and read Phil's book. These may definitely change the way you advise clients.
