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November 17, 2017

Editor's Choice: Breaking Bad Habits: Defy Industry Norms and Reinvigorate Your Business

By: Dylan Schleicher @ 12:23 PM – Filed under: Big Ideas & New Perspectives, Innovation & Creativity, Leadership & Strategy, Management & Workplace Culture

Breakingbadhabits

Breaking Bad Habits: Defy Industry Norms and Reinvigorate Your Business by Freek Vermeulen, Harvard Business Review Press, 272 pages, Hardcover, November 2017, ISBN 9781633693821

Freek Vermeulen’s Breaking Bad Habits is not the first book that explains why so-called “best practices” can end up being just the worst for organizations—Steven Shapiro’s Best Practices Are Stupid and Carol Sanford’s The Regenerative Business are both sterling examples—but it is one of the best.

Vermeulen begins the book by explaining how these practices spread through industries and take hold in different organizations, and how they often do more harm than good. Poor replication of a practice is an obvious example of why that can be the case, but benchmarking is perhaps an even greater threat, because you always benchmark against the very top performers in your field, literally the exceptional examples, and attempting to mimic their practices robs you of the only advantage you have to build on—what differentiates you in valuable ways.

Because even best practices that are replicated well, and show signs of early success, can lead organizations to a path toward conformity, and that is the enemy of innovation. Those early successes can entrench a practice in place even when that success wanes, even when its longer-term effects may be harmful. And, because it happens so slowly, management is often blind to when a supposedly improved process begins to impede progress. It’s a blind spot in management and process that Vermeulen finds perplexing:

 

I’m often surprised that this surprises people. Everybody understands that short-term effects are often different from long-run consequences. That’s the whole idea behind investing in something: we accept short-term pain (money out the door) in return for bigger, long-term gain (more money coming through the door). Often it works the other way around, too. A bit of short-term gain can cause a lot of long-term pain.

 

This is why he counsels organizations to always carefully weigh potential long-term consequences of any new practice before they institute it, to be aware of “causal ambiguities” to make sure any new management system or process being implemented doesn’t lead to rigidity and harm in the end. The opening example in the book, and one that is brought back throughout, is “a government-mandated and publically accessible website with information on all the IVF [in vitro fertilization] clinics in the UK.” It is updated annually, and lists each clinic’s success rate online. Such transparency would seem to be a good thing for both well-performing clinics, and patients. It turned out to be bad for both.

As the practice became entrenched and people began treating it as a ranking, some clinics began to shy away from more difficult cases to keep their success rates up. It is a practice Vermeulen refers to as selection at the gate. This, of course, made it harder for those who were deemed more difficult cases to find treatment, and those “ranked” lower, but it also hurt those clinics who kept their success rates up by taking easier patients. In rejecting difficult cases, they weren’t learning as much as those that took them on, their knowledge and expertise stagnated and they ended up performing worse in the long run. The lower success rates of others, it turns out, were occurring not because those clinics were inadequate, but because they were taking on those harder cases—a commendable inclination that hurt them in the rankings and caused the patients that would be the best fit to shy away from their services, but led them to actually improve, and come up with innovative solutions and better practices in the long-run. So the immediate success some clinics found in the rankings led to a long run deficiency in practice—an attempt at a process improvement that led to a progress impediment. We are blind to such “causal ambiguity” because the immediate benefits are clear, while the long-term costs occur slowly:

 

Selection in IVF does not immediately depress a clinic’s success rate—quite the contrary—it may take several years until the deprivation of learning opportunities (from treating difficult cases) lowers the clinic’s performance.

 

Consider newspapers, whose unwieldy broadsheet format is an industry standard everyone accepts, even though no one could tell Vermeulen when he asked where it originated. It had been a pet peeve of his since college, one he finally got to address when he began consulting for newspapers, when after scouring the records, his team found that it originated in 1712 when “the English government started taxing newspaper companies based on the number of pages they printed.” In response, newspapers basically just cheated the system by using bigger pages, and we’ve been flipping and folding ever since. Here’s the kicker: It’s actuallty more expensive to print on large pieces of paper. So newspapers all over the world are spending more money, and have been for centuries, based on a practice started by London newspapers to cheat taxes in 1712. “But,” Vermeulen writes, “there’s a happy ending to this story.”

 

While I was working with the Guardian, the Independent launched a much smaller edition of its newspaper, which was exactly half the size of its original and, as a result, its circulation increased.

 

An experiment done by the Independent, in which they offered the new format for sale next to the traditional format, found that the more compact size outsold the broadside format three to one. Circulation rose “by 20 percent annually, which was quite a feat in a shrinking market.” So the broadside has been shown to be a clear example of a bad practice, and a clear competitive advantage. So why do other papers continue to spend more money on a bad practice? Tradition!?

Other examples of breaking bad practices Vermeulen tells us about include what citizenM is doing to carve our there own space in the hotel and hospitality industry by catering to seasoned travelers in high-density, urban areas, and how Eden McCallum is transforming consulting. Both are upending established, traditional industries, and while there may be some additional technology incorporated into their business models, they are successful because of supposedly best practices they’ve subtracted—in Eden McCallum’s case allowing business consultants the option to freelance instead of work full-time, which leads us to another thing that perplexes Vermeulen:

 

Most competitive advantages stem from people, rather than patents or products. I am always surprised when people find this point contentious, because this is what organizations are: collections of people (and, if you do it well, communities of people).

 

The very idea of “full-time”—a forty-hour work week chopped up into five eight-hour days—is itself an example of a potentially bad practice, and getting rid of it is what has led to Eden McCallum’s success is an industry where most are forced to maintain long hours and almost constant travel.

Part One of the book explains the cultural and cognitive reasons bad practices are able to enter, and entrench themselves in, organizations. Part Two, which encompasses the examples above along with “Ten Commandments for Identifying and Eliminating Bad Habits,” explains how to get rid of them. And Part Three helps us build an organization that is continuously updating itself and adaptive to change—even able to lead it. To do that, Vermeulen writes, “managers need to create organizations that constantly reevaluate and renew themselves.”

The first thing to do is “embrace change for change’s sake.” He received a lot of hate mail from Harvard Business Review readers for that one. But the main point is that change is a capability, and one that companies are better at when practiced in it. Since every company is going to have to change at some pointprobably significantly—instituting smaller, more commonly occurring changes builds up the organization muscle to do so, and prevents rigidity from setting in.

He also tells you that you must “make your life difficult” (equally popular, I imagine), and “balance exploration with exploitation.” It is here I think we get to the human heart of the matter. He not only discusses the need for a balance between “freedom and long-term innovation” and “stability and hierarchy,” and short-term gains, he begins to unpack why we do any of it at all. Here he turns to the example of the Sadler’s Wells Theatre, a non-profit arts organization. When he asked them, as he asks every company he studies, “Why do you do this innovation stuff?” it was their turn to be perplexed.

 

For a moment I feared that the question had offended them. Finally, [managing director Chrissy Sharp] chimed inchimed in with an answer “Because … that’s what we do: innovation.”

 

That could be the answer of every organization, the answer of your organization. Enriching the organization should coincide with enriching the world by bringing something new and of value into it. You should seek profit so you can continue the pursuit of progress, not progress in pursuit of profit. That may seem like a small difference, and Vermeulen believes it may be semantic, but I think it makes a big difference in whether you’re willing to change, to make progress, and to innovate, which is often just a decision to let go of archaic ideas and practices that are holding the world back.

“That’s my take on innovation” Vermeulen writes, “no need to think of something novel or clever; just stop doing bad things.”


 

About Dylan Schleicher


Dylan Schleicher has been a part of the 800-CEO-READ claque since 2003. Even though he's stayed on at the company, he has not stayed put. After beginning in shipping & receiving, he joined customer service and accounting before moving into his current, highly elliptical orbit of duties overseeing the ChangeThis and In the Books websites, the company's annual review of books and in-house design. He lives with his wife and two children in the Washington Heights neighborhood on Milwaukee's West Side.