Many businesses are built by imitating existing models while giving them a unique twist. Freek Vermeulen, an associate professor at London Business School, explains how you can avoid copying the bad practices along with the good ones.

Many businesses are built by imitating existing models while giving them a unique twist. Freek Vermeulen, an associate professor at London Business School, explains how you can avoid copying the bad practices along with the good ones.

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Transcript

One of the biggest influences on strategic decision making is imitation. We do what others do. Very often that’s not a bad thing, we can rely on the collective wisdom of our peers and competitors. However, my research over the last five years has also shown that firms very often imitate bad practices from each other, and just do it because everybody else is doing it.

Imitation can occur in many ways. Should we enter this new market, yes or no? Where should we locate this new plant? Should we adopt this new divisional structure or stick with the old geographic structure? Should we adopt Six Sigma performance management systems? How much acquisition premium should we pay? And so on. All of it is influenced by imitation. And that’s because there is uncertainty. We don’t quite know what will happen and whether it will work or not and therefore we rely on what others are doing.

The question is how can you as a company identify some of these practices in your industry which are actually better for you if you would drop them.

But my research has identified three things. First of all, some of these practices are surrounded with an aura of success. They don’t lead to success but they seemingly do. For example General Electric, as one of the first adopters of Six Sigma, triggered many companies imitating Six Sigma because they thought if General Electric does it, it must be a good thing. Of course General Electric was already successful before they adopted Six Sigma and as we know now from ample research, Six Sigma can be very harmful for you. But firms imitated it because it seemed to be adopted by a successful company.

Second of all, in the characteristic of harmful practices is that the benefits appear in the short run. For example, if you adopt ISO9000 you will reduce the failure rate in your company, you will get more customers and so on. Those benefits are immediate. However, the harmful effects only appear in the long run. For example, reduced innovation.

Thirdly, and lastly, very importantly, harmful practices you could say spread quicker than they kill. In a way they operate like viruses. Why do viruses persist? Well the AIDS virus persists although it kills its host because it spreads to the next person quicker. And that’s what harmful practices do. They kill you slowly as an organisation but they also spread easily, other firms can observe them easily and also imitate them, like Six Sigma, ISO9000 or Diversification or so. So these are three characteristics of harmful practices which may help you to identify them.

If you are the first company in your industry to identify what this harmful practice is, it may be a very good business opportunity. Think of the low cost airlines. They are the first ones to figure out that we didn’t really need the three course meal, a newspaper and a hot towel on a 45 minute flight although everybody else was doing that, and they built a very big business opportunity out of this.

Therefore, harmful practices spread and persist, but you being able to identify them can get you one step ahead of your competitor.

Freek Vermeulen teaches on Making Strategy Happen, a new two-day programme at London Business School.