It's not often a management guru keynoting a conference for business leaders comes straight out and suggests industry best practices may not be the right way to grow your business. It seems counter-intuitive.
But that's exactly what Vijay Govindarajan told several hundred attendees of the recent SAS Institute's Premier Business Leadership Series.
Why? After a decade of research, Dr. Govindarajan, the Earl C. Daum 1924 professor of international business at the Tuck School of Business at Dartmouth College in New Hampshire, has concluded that “best” practices and innovation don't necessarily mix.
In fact, the thinking and processes involved in operations, where best practices are usually implemented, have little to do with the strategic mindset needed for innovation. He challenged conference attendees to sort their current projects into these three boxes, pointing out only one of them involves the here-and-now:
1. Managing the present.
2. Selectively forgetting the past.
3. Creating the future.
Dr. Govindarajan says what he finds in his research is that most projects are likely weighted toward box one, and while businesses often think that’s strategic, it’s boxes two and three that are all about strategy. “Strategy has nothing to do with competing for the present,” he explains. “Strategy is all about you preparing for the future by managing the present.”
Box-one concepts such as Six Sigma (quality management) and kaizen (continuous improvement) are linear, he explains, and they rely on incremental changes. Boxes two and three are non-linear (the “a-ha!” moments that send you off in a different direction), and they form the basis for innovation. The Internet, for example, was a non-linear shift.
“Box-one leadership continually improves existing things, but you can only do that if the world never changes,” Dr. Govindarajan says.
Independent analyst Carmi Levy agrees. “While every company needs to nurture and build a culture that tightly integrates best practices into their operational framework, the increasing pace of innovation in any given competitive market means that this is no longer sufficient. While adopting best practices across the board will allow you to tread water, they won't get you across the pool before your competitors, if at all.”
“Best-practice benchmarking is not strategy,” Dr. Govindarajan adds. “Strategy is about creating next practices, not adapting to the best practices of industry today.”
Consider the Grameen Bank. The bank and its founder, professor Muhammad Yunus, a Fulbright scholar at Vanderbilt University and a professor at the University of Chittagong, won a Nobel Peace Prize in 2006 by essentially doing everything wrong.
During the Bangladesh famine in 1974, a group of impoverished villagers needed a small loan of $27. Banks, understandably, considered them a poor risk: they had no assets and many of them were illiterate. Prof. Yunus loaned them the money, and he was repaid, with interest. At that point, says Dr. Govindarajan, Prof. Yunus realized he could make money by converting non-consumers of banking into consumers.
According to Dr. Govindarajan, Prof. Yunus then went to the leading commercial banks, asked for their best practices, and proceeded to do exactly the opposite at the Grameen Bank. It offers microcredit only – tiny loans, less than $100, repaid in small weekly instalments. Interest payments can never exceed the value of the original loan.
While big banks require credit history and signed agreements, Grameen relies on peer pressure – borrowers are placed in small groups that screen participants, and since a default by any member of a group means no others in that group can ever get a loan, they’re self-policing. In a society where women are very much second-class, Grameen focuses on female borrowers. And the borrowers themselves own more than 90 per cent of Grameen shares, with the Bangladesh government holding the rest.
