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.

My favorite business book ever is called The Halo Effect.  The description on Amazon reads “This tart takedown of fashionable management theories is a refreshing antidote to the glut of simplistic books about achieving high performance.  Consultants, journalists and other pundits tap scientifically suspect methods to produce what he calls ‘business delusions’: deeply flawed and widely held assumptions tainted by the ‘halo effect,’ or the need to attribute sweeping positive qualities to any company that has achieved success.”

In essence, business and the management of business is not a science so despite the well-crafted storytelling of the pundits, most business books are just good stories built on dubious assertions and data.  Click here to learn more about the book.

And so it was nice to read Elizabeth Spiers’ recent column in April 2008’s Fast Company entitled Library of the Living Dead: Embrace a Business Best Seller at Your Brain’s Peril.  (Note: Spiers is the founding editor of Gawker and Dealbreaker)  She writes “Contrary to what your parents and teachers told you, reading does not necessarily make you smarter…I’ll point you to the modern era’s second-worst literary promulgator of intelligence reduction: your local bookstore’s business section.”

She closes with a great paragraph which I’ve copied below so everyone can just take it in because it quite perfectly captures the problem that business books present.

“Business books let us amble zombielike through our careers, freeing us from responsibility for the quality of our own decision making. Better to delegate that responsibility to other people — Jack Welch, perhaps. It’s a fresh spin on the old saw that no one ever got fired for buying IBM: No one will ever get canned for leaning on something with a Ken Blanchard blurb on the front cover. The alternative, too frightening to contemplate, is to admit that problems are usually too complex to be reduced to one-size-fits-all solutions, to train ourselves to do our own analysis, and to be a little more skeptical when the shrieking man on TV tells us to buy shares of Google right this very minute. If we can’t do that, let’s at least reshelve business best sellers where they belong — in the self-help section.”

Couldn’t have said it better myself.