investiledysfunction

Yes what you’re looking at is a Krispy Kreme Cheeseburger.  This is having one of 3 impacts on you:

1. You’re completely revolted and think the person who came up with these is an idiot
2. You’re completely revolted but strangely want to have a bite of one of these
3. You’re hungry and are going to get one of these at the earliest

If you’re feeling #3, I’d recommend you purchase the burger and enjoy it at your friendly neighboorhood emergency room.  Unnatural combinations such as the above or even sometimes natural-seeming combinations often seem to lead to bad or suboptimal outcomes.  Ever buy a combo fax-copier-printer?  They generally work okay, but none of the components works as well as stand-alone units.

Some Corporate Combinations that Also Yield Dubious Results

Mergers & Acquisitions

Another example of unhealthy combinations often occurs when corporations acquire other organizations.  Whether it is done in the name of diversification, to build out a geographic footprint, synergistic value creation or some other non-sense, M&A combinations are notorious for falling flat and destroying value (Sprint-Nextel, AOL-Time Warner, Boston Scientific-Guidant).  We’ve just completed an exhaustive quantitative analysis of all mega-deals (M&A transactions over $10B) since 2000 and quantified the actual shareholder returns of such deals.  On average, they underperform the market.  Most notably, when they go bad, they go real bad.  Shareholders rarely benefit from these combinations yet they continue to happen.  (Note: We will be releasing the full mega-deal M&A analysis as a research report shortly)

Best Practices

Another unnatural and unfortunate combination we often see in corporations centers around best practices.  The logic with these combinations works something like this.

• The corporation has a broken process/strategy that is in need of fixing.  It can be anything from procurement to innovation to budgeting to strategic planning that is not working.
• To “fix” the issue, the corporation looks for best practices they can utilize based on what may have worked with other organizations - usually GE, P&G, Google, Apple, etc being favorites for practices to follow.  They find something that they like and then the magic is supposed to happen.

The recipe is:

1. Take broken process
2. Add best practice
3. The issue is fixed automagically

Unfortunately, it doesn’t work quite this way.  While researching what others have done can be useful, many organizations and managers seem content to follow the lead of others when it comes to making key organizational decisions. One of the most pervasive and damaging follower afflictions which has increasingly infested corporate psychology and behavior is a disease I call Best Practicism.

I’ve written an article entitled “The Myth of Best Practices” which just appeared in the Journal of Accounting & Finance.  A pre-print version of the article is available here as a pdf.  Click here to see it.  Some excerpts are below.

“Best Practicism is the errant belief that there are certain practices that are truly “best” and that replicating another organization’s processes, strategies and ideas within your organization will somehow miraculously yield a better reality or even leadership status. Best practices are not all bad, and some may actually exist, but when best practices become a crutch that replaces independent critical thought and innovation, it can have deleterious impacts on an organization. Best practicism is a follower’s disease and is often found in organizations who are risk-averse and unimaginative and who have lost the ability to be bold. Ironically, many organizations suffering from best practicism once were bold and risk-taking but over time, somehow that former competitive edge has been dulled.

It generally surfaces when people and organizations errantly believe that management and organizational performance are a science. The truth, however, is that there is no formula that guarantees corporate leadership or outperformance. Although obvious, organizations and managers enamored with best practices seem to have forgotten this. Phil Rosenzweig commented on this in his outstanding book, The Halo Effect, when he writes about the social science research done on company performance and states, “It’s just not very appealing to read that a given action has a measurable but small impact on company success. Managers don’t usually care to wade through discussions about data validity and methodology and statistical models and probabilities. We prefer explanations that are definitive and offer clear implications for action.”"

While M&A and best practices probably won’t lead to higher cholesterol and obesity like the wonderful Krispy Kreme Cheeseburger, the travails you are likely to encounter with them along with their uncertain results might lead to some stress and heartburn.

Time Magazine’s March 10, 2008 issue had an article about the Presidential Race and whether experience or expertise drives performance.  The article had some interesting findings which are applicable to the business world especially given the number of experts that are out there professing their wisdom on some particular topic.  If you’re not sure where to find business ‘experts’, turn on CNBC, attend a conference or look for consultants who maybe sitting in your building now selling you their ‘expertise’.

The main findings revealed in the article were as follows:

“Experts tend to be good at their particular talent, but when somthing unpredictable happens - something that changes the rules of the game they usually play - they’re little better than the rest of us.”

Implication - When an expert is offering up some one-dimensional solution for some intractable organizational problem, see how they’ll react to a curveball.  One-dimensional solutions don’t work for multi-dimensional problems. 

“Primary finding is that rather than mere experience or even raw talent, it is dedicated, slogging, generally solitary exertion…that leads to first-rate performance.  And it should never get easier; if it does, you are coasting, not improving.  Ericcson (author’s study) calls this exertion ‘deliberate practice,’ by which he means the kind of practice we hate, the kind that leads to failure and hair-pulling and fist-pounding.”

Implication - If an expert is selling you something they’ve never practiced, built, etc, their expertise is dubious at best or even on non-existent.  Sitting in a room and looking at numbers and coming up with frameworks is easy compared to actually practicing something in reality.

“The number of years of experience in a domain is a poor predictor of attained performance.” - Anders Ericsoon, co-editor, The Cambridge Handbook of Expertise and Expert Performance

Implication - If someone has been trying to solve the same problem for many many years, that doesn’t mean they’re experts.   It can often mean they’re clueless or selling snakeoil.  Don’t mistake years for wisdom or expertise.  (Note: The clueless comment doesn’t apply to scientific research generally, but I’d say is often applicable to the business consultants out there who continue to pitch the same solution, dressed differently, for many years with no real improvement in client performance.)

Remember to test the experts.  See that they’ve practiced what they preach, their solutions work even if a curveball is introduced and don’t think that someone who has been coming up with ’solutions’ to the same problem for many years is an expert.  You’re interested in progress they’ve made - not their activity.