The tyranny of best practice

Why businesses should be wary of trying to copy more successful competitors.

by Paul Simpson
Copying
Copying

In the CEO’s eyes, the consultant’s task was simple: “We want you to make us more like Google.” The business, which directors believed was at a strategic crossroads, was not a Silicon Valley start-up, but a large multinational mining company based in the southern hemisphere. Making them “like Google” in any meaningful sense would be an act of alchemy not consultancy. “It reminded me of all those meetings I’d had at the turn of the century where the CEO would ask his managers: ‘Where’s my iPod?’,” the consultant recalled. 

To be fair to the mining company board, they weren’t jumping on the most popular bandwagon. They grasped that something was lacking in their corporate culture and wanted to fix it. When they were searching for fixes, Google was widely regarded as a shining exemplar of best management practice. (This was before the tech giant became embroiled in a slew of HR controversies.) In a different business age, they might have aspired to be like ABB, Apple, Ford, IBM, General Electric, Siemens or Toyota. Each company had, in their heyday, exemplified different aspects of best practice but, taken out of context, how applicable are they to other businesses?

This does not mean that leaders cannot learn from other companies, but the quest for best practice can encourage executives’ innate preference for following the crowd. As Warren Buffett has said, the problem with most companies is that, instead of creating a difference – a moat, as he calls it – they tend to imitate their competitors. In this instance, best practice can be a cover for old fashioned herd instinct.

As Jouko Karvinen, the former CEO of forest products giant Stora Enso, told me in 2009: “The question you must always ask is: ‘Can we win?’ I don’t care how big we are, or how big our rivals are, I care about whether we can generate returns above the cost of capital. And you can do that if you have a dramatic differentiation through cost advantage – not 2% but 20% – or because your product has a unique feature which cannot be quickly replicated.”

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