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How — and Why — You Need to Break Bad Business Habits

Businesses in a rut have a longer path to the top. Strategy professor Freek Vermeulen discusses how rooting out bad habits can free an organization to become more creative and innovative.

 

Those whose skin crawls when they hear, “It’s the way we’ve always done it” will find themselves nodding in agreement on virtually every page of “Breaking Bad Habits: Defy Industry Norms and Reinvigorate Your Business,” by Freek Vermeulen, Associate Professor of Strategy and Entrepreneurship at the London Business School. Throughout the book, Vermeulen explains why “best practices” are not always “best,” and he urges companies to identify those practices that no longer serve their purpose — and, in fact, hinder innovation — and replace them with new, productive habits.

Vermeulen discusses his iconoclastic views with YPO.org and offers advice on how to reinvent a business by having the courage to break with tradition.

Among your “10 commandments” an organization can use to identify and break bad habits, what are a few you think organizations might find surprising, but impactful?

Leaders of existing organizations may be surprised to hear that I am not a proponent of benchmarking. In my view, it is an exercise in seeing what others are doing and assuming that if a lot of others are doing something, it is best practice and we should do it too. We do it out of uncertainty; we do not know what process or strategic decision to adopt so we exercise the very human behavior of seeking safety in numbers. However, research shows that we often end up copying bad, outdated practices — practices people have not yet realized are no longer working. I do not recommend eliminating benchmarking entirely, I am just advising that organizations be aware that just because everyone is doing something does not make it a good practice. I also recommend doing some reverse benchmarking: finding out what competitors are doing and doing the opposite.

The other “commandment” is to become very suspicious anytime you ask, “Why do we do this like that?” and you receive the answer, “That’s how we’ve always done it.” If no one in the organization can explain why a certain practice is the best, or why the product has to offer certain features, that may reveal a bad habit. I suggest several activities the leaders of organizations can do to get to the bottom of this puzzle. First, write down key business processes and ask yourself if you understand why the organization is doing it this way. Then ask others in the company if they understand why. Finally, ask newcomers to the company — after they have been with the organization two or three months — what processes they have seen in the organization they do not understand.

You propose that an organization implement “change for change’s sake.” Why?

There is value in the process of change itself. Many organizations are attached to certain processes and do not realize that when these processes become less relevant or do not work as well, it is time to change. I suggest not waiting for trouble; be proactive about making changes.

When processes become routinized, silos develop across firms, communication and cooperation fade away, and certain departments begin to command a disproportionate amount of resources. If the company waits for these things to emerge, it is often too late and too difficult to change. Instead, the company should adopt minor but proactive changes on a consistent basis.

Why are you such a fan of codification as part of “making life difficult?”

I recommend that an organization proactively make its own life difficult, for the purpose of creating learning opportunities. When a company focuses on mastering difficult variances of a product or service, it might not make a lot of money from that specific variance, but it does create a significant amount of learning that can then be applied to standard products. Solving difficult problems calls for experimentation and exploration, which trigger reflection and communication among people of different disciplines working together. But sometimes, after organizations find a problem and solve it, they do not proceed to the third stage — translation and codification. This means they fail to translate what they have learned in solving the problem to their standard products or processes, where they may be able to apply them to be more effective, productive and profitable. They have fallen short of capitalizing on all they have learned.

You counsel that organizations must find a balance between exploration and exploitation. How does an organization determine its optimal balance?

We cannot label exploration or exploitation “good” or “bad;” both are useful. The problem arises when an organization slips into one extreme or another. They focus so much on getting very, very good at what they are already doing that they miss new opportunities, or they are so busy entering new markets, they fail to serve their core customers.

The balance does not have to be 50-50, but choices do have to be made, and those choices must depend on the organization’s strategy. My book offers some tips on this, but ultimately, judgment calls must be made: what do you want to do as an organization? Which way should the organization go?

What role does organization strategy play in employee creativity?

Employee creativity is a strategic issue. How much creativity do we need, and where? Organization strategy is a top-down activity, the responsibility of business leaders. It is not a democratic process. Strategy sets the boundaries within which the organization wants its people to have initiative and be creative.

Thinking again about exploration and exploitation, a strategy that favors exploration probably has fairly broad boundaries within which employees can exercise creativity; an exploitation strategy can still offer opportunities for creativity, but the boundaries may be narrower. The organization’s strategic direction channels creativity. Setting that direction is a crucial responsibility of leadership.

Jane Seago is a business writer who focuses on topics related to governance, risk and compliance. Her work has appeared in publications targeted to insurance, internal audit, cloud computing, association management, IT governance, information systems audit and information security readerships.