Innovation begins with identifying and banishing the bad practices damaging your business. Here’s how.
When South African bank Captec first came to the market, it was standard practice for banks to link their customers’ access to products to their salaries. The company CEO said: “When I go to Nando’s, they don’t ask me for my salary… and get me a different menu with different prices and food.” By offering one basic account, Captec could offer 50% better rates, was profitable by year two, and now has nine million customers.
When someone says, “everyone in our industry has always done it this way”, you know something is wrong, says the London Business School’s Freek Vermeulen. Interviewed by Strategy+Business’s Jeremy Grant, he says reevaluating business practices to find and eliminate those which no longer work not only improves productivity, but also inspires game-changing corporate innovation.
It’s impossible to completely eradicate bad habits, but understanding where they come from means you can get better at pinpointing and banishing them. Here are seven bad habits to guard against:
1) Perception bias. Research involving 1,000 companies reveals that – rather than basing strategies on frank assessment of their utility – managers tend to favour their favourite approaches, rewarding those who apply them with the most success.
2) Complacency. Advertising pharmaceutical drugs is illegal in many countries. To circumvent the law, medical sales people have long handed out free samples as a way of building brand loyalty. But research shows that, on average, sales personnel must give away 26 samples to gain a single prescription order.
It’s wrong to assume that bad habits die out naturally as better ways of doing things emerge. In cases where the business environment changes only slowly, it’s not always apparent that what was once innovative is now obsolete.
3) Short termism. Since they first opened, private fertility clinics have been required by law to publish their IVF success rates. Because some IVF candidates are harder to treat successfully than others, some firms adopted a strategy of cherry picking the patients most likely to respond to treatment. But while boosting the clinic’s ranking in the short term, this has had a detrimental effect on performance over the long term.
IVF clinics which continued to take the most difficult-to-treat patients, have been forced to innovate to survive, and are now reaping the rewards of that innovation. What is expedient often comes at the cost of long-term reward.
4) Benchmarking. Basing strategy on what your sector’s best players do may not yield the results you might expect. Success sometimes masks risk, and what looks like a route to success could turn out to be nothing more than a gamble that happened to pay off.
5) Herd mentality. Uncertainty makes leaders pay too much attention to what others are doing rather than focusing on the best strategy for them. When Chinese markets opened, many firms faced the question of whether to enter or not. Many firms did decide to go for it, and a lot got their fingers burned.
If you stay with the herd and they get it wrong, at least you can share the blame. Standing alone means taking a bigger reputational risk. Get it right and you’ll be feted; get it wrong and you’ll take all the blame.
6) External pressure. Long-term gain may come at the cost of short-term pain inflicted by other actors in your business sector or supply chain.
Champagne growers produce grapes and sell them to the champagne houses who turn their produce into the eponymous beverage. But when firms began to experiment with making sparkling wine in California and creating cheap supermarket-brand labels, it was conservative suppliers who put the squeeze on innovators, putting up their prices to penalise firms they thought were meddling with tradition.
7) Importing solutions. When some firms saw how successful the Japanese were with their total quality management strategy, they imported it wholesale to the US. But business practices are partly cultural constructs, and what works well in one part of the world doesn’t necessarily translate into success elsewhere.
ADOPT GOOD HABITS
These three good habits will improve productivity and inspire innovation:
1) Question. When Captec opened its first bank branches, the banks in South Africa still closed at 15:30pm because in previous decades banks needed time at the end of the day to process cash transactions and balance their ledgers. Captec realised that digital paper trails mean there’s no longer any reason for banks to close early, and extended their opening hours – a move that made them popular with customers. If you can’t explain why you do something, you probably need to update your strategy.
2) Do hard things. Like IVF clinics, wound-care companies that pursue hard-to-treat applications for their products do better in the long run. The knowledge and experience engineers gain from working on complex projects gives them the insight and knowhow they need to innovate.
3) Stop – as well as start. When it realised its customers were happy to use Tripadvisor to access the best restaurants in the areas surrounding their hotels, Dutch company citizenM hotels cancelled its concierge service. It also looked at what airlines were doing with self-service check-ins and ended queues at reception for good by installing check-in kiosks in their hotels. Asking yourself what you can do to keep up is only one way of dealing with the challenge of disruptive technologies, but don’t forget ask yourself what you need to stop doing too.
Bad habits are like viruses: they persist and spread and can bring down their host. But by adopting an approach that highlights problem practices, you can eradicate poor strategy before it spreads too far.