Terrence Brown Creates Value

Management

Don’t Believe the Hype

Although it may be beneficial to learn from other organizations, it generally is not that helpful. Furthermore, those that pin their hopes on benchmarking and best practices, will be sorely disappointed. The search for the holy grail of best practice must stop. Read this quote from Dennis Pawley as former top executive from Ford Motors.

For decades, Americans traipsed through Toyota’s well-run plants in hopes of learning how to build cars right. Companies in all kinds of industries copied obvious aspects of Toyota’s lean production system. But all that imitation failed to remake companies in Toyota’s image. . . We had all the tools . . . But what I failed to recognize was the way people think is far more important than the tools they use.

I am quite sure that the Toyota’s executives laugh themselves sick watching hundreds of people walking through their plants, studying their processes, and taking notes feverishly. It is quite clear that those managers seeking best practices from Toyota have a schizophrenic view of Toyota’s managers. On one hand they admire them for creating this world-class system, but on the other hand must believe that they are incredibly stupid as well. Huh? Those very systems that make Toyota (any other world-class company) so special are part of its competitive advantage; therefore, (these executives) think that (Toyota) managers must be idiots to allow other companies inside to see them. Those (poor, deluded) managers touring the plant think that they are going to be able to steal those advantages and incorporate them in their organization. So why are the Toyota’s executives laughing?

There are a few reasons. First, as Pawley stated above the value is not in the tools and processes themselves. Although the processes and tools may be better than other more commonly used equivalents, the real value comes from being embedded in the Toyota organization. More specifically, it is Toyota’s history, culture, people, etc. in addition to the tools and processes that allow Toyota to create high value. Copying a system here and there will not bring you even close.

Second, is the idea of causal ambiguity. Causal ambiguity simply means that it is not clear what specific actions lead to what specific results. Causal ambiguity is argued to be critical to the sustainability of competitive advantage. Competitive advantage is what makes one firm earn profits at a rate that is hoped to be higher than its competitors. Consequently, competing firms are always trying to understand, steal or neutralize the others’ advantage. Therefore, if ones’ advantage is able to be stolen, it will be stolen. Simple competitive advantages can be “stolen” in a number of ways ranging from simple observation to hiring staff from competing firms. However, if the reason for a firm’s success is unclear or ambiguous, the advantage may not be able to be understood, let alone copied. This is another reason why Toyota’s executives can laugh. Causal ambiguity can even protect a company when their employees are hired away, because they cannot pinpoint the source of their former employer’s success.

Even if benchmarking would work, copying best practices would only get you to the middle of the pack. The successful organization certainly does not want to be there. Benchmarking would never get you to the front of pack, only distinctive strategies will.

Ok, sorry for that detour, but it was necessary. Successful companies are able to create a balance between OPE (Other Peoples’ Experience), best practices and their own uniqueness to create value. It is very hard. That is why there are so few truly valuable producing companies. It is also the reason that the rewards of success are so great.

 

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