Why It’s Time to Kill Industry Norms and Embrace Change

Freek Vermeulen Interview - Why It’s Time to Kill Industry Norms and Embrace Change

Freek Vermeulen Interview - Why It’s Time to Kill Industry Norms and Embrace Change

 

Since he was a university student in the Netherlands, it has bothered Freek Vermeulen that newspapers are printed in the broadsheet format, which he contends is awkward and flimsy to read.

When he became an assistant professor of strategic and international management at London Business School, he took the opportunity to question newspaper leaders about their format and discovered leaders didn’t really know why they used broadsheets – it had just always been done that way.

Vermeulen then turned a couple of research assistants loose to dig deeper into the reasoning. They found that the broadsheets were born after the English government in 1712 began taxing newspaper companies based on the number of pages that were printed. While printing the larger pages made sense at the time, the practice continued even after the tax law was abolished.

Vermeulen, now a full professor, says this is a great example of the trap many companies fall into – hanging onto things that don’t really make sense. It’s also why they fail to evolve and innovate.

“In principle, the world is Darwinian, including in business. Part of adaptation is dumping things that don’t work,” he says. “If you have bad habits, you may not survive.”

While some businesses may be able to continue bad habits for a “surprisingly long amount of time,” they eventually stumble because they’ve left the door open for competitors who are willing to shed “suboptimal practices,” and embrace better ideas, he says.

 

How to break bad habits

Vermeulen’s new book, “Breaking Bad Habits: Defy Industry Norms and Reinvigorate Your Business,” seeks to upend the thinking about longtime business habits, such as relying on best practices.

“Some best practices are, in fact, inefficient; some are stupid; and some are plain harmful,” he says. “They prevent our organizations from creating new sources of innovation.”

He says that while companies don’t set out to establish bad habits, these habits often thrive because they’ve been linked to success in some way; the long-term consequences of the habit are not understood; and it’s such a simple practice that it is easily adopted by organizations, both new and experienced, he explains.

For example, with total quality management (TQM), American companies jumped on board with the Japanese practice, seeking to deliver the same great results. But even though the American companies had good intentions, they “became suckers for success…they blindly adopted a practice based on nothing but its prior success, implemented it poorly, and then overlooked its nefarious effects once they committed to it,” Vermeulen says.

Further, one of the reasons that TQM spread so rapidly is because those outside the companies exaggerated its benefits and glossed over occasions when it did not work, he says. Having internal champions of something like TQM only perpetuates the success myth, he adds.

Research reveals that companies tend to imitate the action of other successful organizations, even when it’s clear that it is not the new practice that is driving that organization’s success.

For example, whenever GE did something new such as Six Sigma, many companies did the same because it was assumed that GE’s leaders knew it all, he says.

“If you’re trying to be agile by jumping on all sorts of bandwagons, then you might be jumping on a lot of bad bandwagons and adopting harmful practices instead of dumping them,” Vermeulen says.

 

Don’t shy away from what’s outside the norm

George E.L. Barbee, a Batten fellow at the University of Virginia Darden Graduate School of Business, writes that in even in brainstorming sessions where the free exchange of ideas is encouraged, organizations can shy away from ideas that fall outside the norm.

But without embracing far-from-typical notions, companies may miss out on ideas that break new ground – such as when a camera was added to a phone. “More often than not, true innovation uproots conventional mind-sets – which can lead to revolutions in categories,” Barbee explains. “Don’t be too quick to judge or dismiss what might seem like a crazy notion.”

Vermeulen says one of the best ways to start uprooting old notions and looking for innovative pathways is to simply ask others why they do things a certain way.

“The answer may be that ‘we’ve always done it this way. Everyone in our industry does it this way.’ Write down any answer that doesn’t explain why. I’ll bet you some of them have become antiquated. The list may be short – or it may be long,” Vermeulen says.

This “reverse benchmarking” is one way that stable companies that are “scarily alike” others in the industry can find ways to break out, he says. “Stable businesses pick up bad habits simply by not changing their habits,” he says.

Vermeulen says there are several other ways that companies can find innovation opportunities. Among the ideas:

  • Monitor distress signals. What experiments are being conducted by new entrants to the industry or companies in trouble? For example, new entrants can be emboldened by lower risks and implement a new practice. Those organizations that are in distress have even less to lose and are willing to do just about anything to survive – are they finding success?
  • Look for suspicious employees. Employees may not be 100% sure about why something isn’t working or have an idea for a better way, but if they’re asked outright they are more likely to voice their concerns. “It’s the top management that set the context and guide the strategic decisions, but it’s the employees who actually make the changes,” he says. “You need both.”
  • Make things difficult. Companies can become complacent with the status quo if they don’t work with customers, products and markets that challenge them.

 

One of the biggest dangers for companies is to believe that their success means they are doing things right, and keep on doing them that way. The problem is that the bad business practices that stifle innovation often are like a slow-moving virus, and the deadly impact isn’t discovered until it is too late, Vermeulen says.

 

 

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