Friday, October 22, 2010

Best practices not always best

This article in Computerworld by my friend Tom Wailgum, The Trouble with Supply-Chain Best Practices, got me thinking again about this whole subject. What are best practices?

The problem, as I see it, is two-fold. First, the term best practices has at least two major and totally different definitions, and second, in many areas of business, there is not generally agreement on what are the best practices.

Two definitions
As just noted, practitioners often use the term best practices in two completely different ways, and you have to be sure you understand the context. The first is in the sense of "the best way to do something." The current definition in Wikipedia is typical:
A best practice is a technique, method, process, activity, incentive, or reward which conventional wisdom regards as more effective at delivering a particular outcome than any other technique, method, process, etc. when applied to a particular condition or circumstance.
For example, conventional wisdom might define a best practice in recruiting new employees as establishing a formal employee-referral program, as this channel often results in the highest quality candidates, lowest cost of recruiting, and best retention rates.

The second definition, which I run into occasionally, has to do with best practices in the sense of metrics. Here, folks use the term not to describe the best way to do something, but the best performance that is attained among peers against some metric. For example, again using the recruiting example, the median retention rate after six months for newly-hired nurses in US hospitals might be (I'm making this up) 75%. But the "best practice" (i.e. the retention rate achieved by the best performing hospitals) might be 92%.

So, when someone asks, what are best practices for recruiting, you have to ask, do you mean what are the best policies, procedures, and practices in recruiting, or do you mean, what is the best performance against some metrics by the organizations that are the most successful in recruiting.

Best practices not always universally applicable
For now, let's go with the first definition. Are there really ways of doing business that are generally accepted as best? In some cases, yes, but in many cases no.

Let me illustrate with an experience I had several years ago. My consulting firm, Strativa, was bidding on a business process improvement project for a mid-size medical device manufacturing firm. Our first meeting with the selection committee went quite well. We outlined our approach to business process re-engineering and business improvement and described some case studies for similar projects.

Based on the committee's recommendation, we then scheduled a one-on-one meeting with the President. That didn't go so well, and it came down to this issue of best practices. After describing our proposed work plan for the project, he asked, "Where do you compare our practices against industry best-practices?" I indicated where such an evaluation could take place. He then asked, what are your sources for best practices? I indicated that there are a number of professional societies that are good sources for best practices, such as APICS, which is the generally accepted source for best practices in materials management. In addition, we would use our own knowledge and experience from other clients as to where this organization could be viewed as having a need for improvement.

We went back and forth on this subject for some time, and I had the feeling that he wasn't satisfied with my answer. In a debriefing session afterward, the VP of Information Systems, who was sitting in on the meeting, confirmed that the President didn't feel our approach to best practices was strong enough.

The VP was sympathetic and still hoping we could win the deal. So I shared with him why I felt that the President's emphasis on best practices might be misplaced.

I said, "Isn't it true that your company uses significant part numbers?"

I had learned earlier that this company had the practice of letting each each digit or character of the product item number stand for something meaningful. For example the first two characters might indicate the product family, the second two might indicate the sub-family, the third digit might indicate the size of the product, the fourth digit might indicate the material, and so forth.

The VP said, "Yes, that's right. We've always done it that way."

"That's not a best practice," I replied.

"Really, says who?" asked the VP.

"APICS," I said. "They've been preaching against the use of significant part numbers since the mid-197o's. The reason is that it creates all kinds of problems. Invariably, as companies grow and their product portfolio changes, they outgrow their numbering schemes. Either the part number becomes extraordinarily long, or people just give it up. If you want to describe the product, use other fields on the item master. You don't need to make the part number work that hard. "

I continued, "Now, here's my point. In spite of what I just said, if we do this project, we're probably NOT going to try to change your part-numbering scheme. You've got it, and it's probably too difficult to change at this time, even though it's not a best-practice. A good consultant will look at what you are doing and will weigh the pro's and con's of changing it. That's how you've got to apply so-called best practices."

You can't just go to some database of best practices and say, here's what you should be doing. You need to apply judgment, based on experience.

Of course, this approach does not scale for large consulting firms, who like to staff business improvement projects with a lot of junior associates. It's much easier to give them a database of best practices and tell them, find out if the client is doing these. If not, recommend they do them. It's much harder to go in and evaluate the situation according to the client's specific situation. But that's the way to create meaningful change.

Best performance not universally attainable
There are problems also with the second definition of best practices: the best performance attained among peers against some metric. The problem is that which is common to all benchmarking exercises: defining the peer group and identifying the reasons for superior performance.

For example, my IT research firm, Computer Economics, publishes metrics on IT spending and IT staffing ratios. In addition, we provide a IT spending benchmarking service where we calculate the client's metrics, compare them to our published ratios, and provide our analysis of the gaps in performance.

Invariably, there is almost always a significant amount of judgment that we need to apply in our analysis. For example, just recently, a benchmark client (a public utility) showed that the number of users per IT help desk staff member was near the 25th percentile in comparison with other organizations of this size. The number of PCs supported by each help desk staff member showed similar sub-standard performance.

However, when interviewing the client, we discovered that the agency had an online permitting system that builders and developers used to submit permit applications. The IT help desk, which normally would only serve internal users, was also serving the general public as users of this application. Knowing our data, we were sure that this was not the case with the majority of our survey respondents.

So this client was well under what we would consider a "best performance" (something at or above the 75th percentile for this metric). But when we factored in the percentage of help desk incidents fielded from the general public, we found that the agency was, in fact, well above the median.

The concept of best practices can be useful, if properly understood and applied with judgment. Certainly, in terms of how to do business, organizations can learn from one another. And in terms of measurements, it is quite useful to have a sense for what levels of performance are achieved by peer organizations, or even by organizations outside of one's own industry.

But in both cases, there's no magic formula.

Related posts
Computer Economics: IT Management Best Practices
ERP implementation: putting processes and people first
Solving the four problems with ERP
Four problems with ERP
Business changes needed to ensure enterprise system success
Large system implementations require organizational discipline


Matthew King said...

Another pitfall of best practices - in the context of the Wikipedia definition above - is "standard" practice.

The idea of getting every business unit in a corporation to "sing from the same songsheet" sounds theoretically attractive in practice. But to achieve harmonization across such a broad environment - compromises are made. What happens is that the shared practices are closer to "average" practice - rather than a combined culmination of the best practices from each division or reference standards.

To make matters worse, each business unit and the enterprise software used to support the practices is burdened with the complexities of every other business unit - or marketplace - or legalities.

Furthermore the amount of time and resources required to successfully undertake such projects is huge, allowing the business practices to fossilize. Lack of continuous improvement, near zero innovation, no internal competition between divisions or divisional ownership of business practices.

A different view concerns competive advantage versus best practice. Software marketing material is now espousing this approach more frequently - to my delight. The idea being that software is now more easily tailored - using code generation approaches - allowing legacy business practices that have made a company so successful and set it apart from its competitors - be be retained and improved.

Some would argue that best practice logic coded or configurable in packaged enterprise software is the best of the best, but the truth of the matter is that huge one-size-fits-all compromises are present.

Frank Scavo said...

Matthew, great comment. Worthy of a blog post in its own right.

I like your points, a lot. The only qualification I would make is this. In multi-site organizations, quite often there are differences in business practices that have nothing to do with legal or local requirements, or competitive advantage--they are simply different. Sometimes this is the result of the organization's having acquired various businesses around the world. Such organizations can achieve much better economies of scale and consistency in processes and systems by standardizing.

But your basic point is right on: quite often in the process of standardization, organizations leave out key local requirements. Of course, the local managers still need to do business, so they will satisfy their local requirements one way or the other, often outside the formal system.

There is no easy answer, except that organizations and the consultants that serve them need to think. There is no easy cookie-cutter solution.

Martijn Linssen said...

Thanks Frank, for a balanced view on "best" - your best or mine? ;-)

Best practices in large consultancy firms usually vary in between countries, regions and sometimes even sectors (e.g. private vs public), as also Matthew points out

I just tweeted, before even starting to read this, "The mind craves for formulations and definitions, always eager to squeeze reality into a verbal shape - Sri Nisargadatta Maharaj" and it is just so. Combine that with NIH attitudes, and once can see various best practices for the same "practice" even within a medium-sized company

Rajesh Raheja said...

Interesting post. Curious whether you still won the business process improvement deal with the medical device manufacturer after giving the explanation.

Frank Scavo said...

Martijn, thanks for the comment. No doubt there are better ways of doing things, but the application in practice takes a lot of judgment. The problem for large consulting firms, as you know, is that you can't scale that approach, as in any consulting firms, there are only a small percentage with that kind of experience.

Rajesh--unfortunately, no, at least not yet. The company did not go forward with the business improvement initiative, due to the recession.

Si Chen said...

This is a very important post and should be something everybody reads before implementing enterprise software. There are too many clients who try to replicate legacy business practices that aren't good for them. And, as you say, too many consultants who want to push one size fits all solutions. there a book about what "best practices" are? I think they'd be more convincing if there is a resource that described the best practices, why they are "best", when they or for whom they are important, and what the risks are if they are not followed.

Frank Scavo said...

Si, as I indicated in my dialog conveyed in the post, there is not, in my opinion, a definitive source for best practices. On the other hand, there are MANY sources (e.g. APICS, as I indicated), including books, depending on the functional area.

Paraphrasing something I heard once, "The great thing about standards is that there are so many to choose from." The same could be said about "best practices."

That's not to say that best practices do not exist, but that an organization needs to pick and choose according to their practical situation and ability to implement.

There's no substitute for thoughtful analysis and practical application.

Si Chen said...

You're right....Now that you mention it, I remember reading that as well. Sorry!

I guess vendors want to preach "best practices" to standardize the market, but to the extent they really aren't universal, the ERP market remains fragmented and requires people to do the "thoughtful analysis and practical application." Interesting...more and more you're helping me see the fundamental challenges of this industry.

Matthew King said...

Thanks Frank.

After thinking about this some more, I googled the phase:

"best practice is for followers not leaders"

Here is the link to the first result returned:

Your blog post touches it, but after reading this page the relationship between the competing definitions of best practice became clearer to me.

I now view (the application of) best practice in three sequential parts:

1) Identify best performance.
2) Identify and define the policies, procedures, and practices that produce that best performance.
3) Apply those policies, procedures, and practices to a different environment in the hope of replicating that best performance.

That makes sense, but the problem of follower versus leader remains.

Frank Scavo said...

Hi Matthew. I really like that article you found, and yes, it is really consistent with what we are talking about here.

Personally, I don't have a problem with being a follower. If another organization is better at something than we are, and we can learn from how they do things, there is no shame in following them in that
process or practice.

The alternative, of course, is to try to invent everything ourselves, so we can be "unique." That, of course, leads to the NIH "not-invented-here" syndrome, which everyone criticizes.

Sometimes I think "innovation" is overrated. In some things, organizations *don't* need to innovate. They just need to imitate.

My late business partner was an expert in business strategy. He used to say, if you are setting up a neighborhood pizza shop, do you really need to find a unique and innovative business model? No, you just need to make darn good pizza. Go study a good pizza parlor in another neighborhood and imitate them in your neighborhood. Good enough.

I think a lot of things in business are like that.