Are 'Best Practices' Really Best?

Best practices can help companies gain a competitive advantage. However, the opposite is often true. There are various reasons for this, but, in our experience, we have observed three major problems with implementing what a company perceives to be best practices.

• First, the benefits are elusive. They are often difficult to measure, with no baseline or true comparison, and the costs to implement them are often excessive and misunderstood. This often means there are significant implementation costs and effort with few tangible results.
• Second, best practices exist in the rearview mirror. By the time you have adopted them, business conditions and the right ways for implementing them will have changed.
• Third, once adopted, these practices can be very difficult to change. The organization has invested emotion, credibility, time and money, and it's very difficult to abandon a practice even if it doesn't work or needs to be adapted.

What's often missing is clarity on the best practices that are most relevant to the business.

Companies naturally want to be competitive, and many seek inspiration outside their own industry in their search for the best-of-the-best. Companies tend to reach broadly, embracing a great number of potential best practices. Conversely, some companies narrowly benchmark themselves against only their peers. Following either extreme often results in missed opportunity for real improvement. In addition, if implementation occurs in silos, then best practices tend to compete with one another and increase complexity and overhead.

Although the benefits from deftly applied best practices can be real and demonstrable, they often are more elusive than anticipated and can result in frictional costs, impasses, noise in the system and ultimately few concrete benefits to the bottom line. Moreover, implementation costs can be high but may not be visible until the cost of adoption or compliance becomes evident throughout the organization. Finally, benefits may elude adoption, specification, measurement and capture.

Our observations

Best practices tend to be selected and defined in isolation. Once they have a mandate, individual business and functional areas, centers of excellence and shared services often tend to implement new practices without giving sufficient consideration to downstream implications, such as costs. New best practices come with costs, and when they are supposed to result in higher service levels, they may come with higher-than-average costs.

Accordingly, the application of new practices requires balance and compromise. They may reduce expenses in part of the organization but may increase frictional costs and place an extra burden on people, process and technology elsewhere.

A common problem is that many companies attempt to implement too many new practices in too many places. Most organizations' ability to adapt to change is limited, and change tends to be undermanaged, especially when new best practices are required by new control mandates.

Many companies also tend to overestimate the opportunities that standardization offers. We have seen some companies try to standardize everything and inevitably encounter challenges they had not anticipated. New best practices need to be capable of changing and evolving over time, as well as being able to adaptable to local differences and requirements.

Lastly, many companies fail to conduct a cost/benefit analysis when instituting new best practice mandates. If a best practice is central to the business strategy's success, then frictional costs are an acceptable risk. However, excessive application of best practice improvements can waste resources (e.g., a need for excess staff to perform the work, complex policies and procedures, standardization for its own sake and demands for "unnatural acts of cooperation" that hinder the business' ability to respond to changes in the marketplace).

What should companies do differently?

Many companies have the habit of relying on practices that are not appropriate for them and therefore fail to effectively execute desired strategy. To help prevent these problems, we suggest using a success framework that prioritizes and enhances company focus on improvement efforts. This framework should have the following six characteristics:

It is critical to first identify which best practices are worth the effort, through prioritization.

Implementing leading practices can cost money, but there may or may not be tangible benefits or related savings. The question to ask is: How good is good enough? Moreover, when the implementations of best practices compete with each other for time and focus, there are frictional costs that further minimize expected benefits. Being cognizant of frictional costs and avoiding them is critical to optimizing investment and benefit realization.

What we've concluded

Best practices are about performing better and therefore adding strategic and operational value.

Accordingly, because of the highly subjective nature of "best," we suggest the term "value added practice" (VAP) instead. By putting value at the center of practice improvement efforts, a company can better plan and implement new practices. Frameworks for investment and continuous improvement are key, especially at larger organizations where budgets, controls and approvals tend to be complex.

Before embarking on a new best practices initiative, a company should perform a quick self-diagnosis. Are you trying to implement a best practice for its own sake, or are you clearly focusing on the value you hope to realize?

If you plan to invest in new capabilities without tying them to specific business objectives, then you should step back and determine just how implementing new best practices will benefit the company.