The term “best practice” is a misleading one. “Best” is too often perceived as a universal. The reality is that an organization’s success and/or failure is determined by a number of factors, including the current context, competitive landscape, customer value drivers, internal culture and so on. So when we use the concept of best practice to develop our strategy, we’re assuming all of the aforementioned factors will be the same as the company that developed the best practice. And we’d assume wrong.
A chart in McKinsey Quarterly entitled “Why best practice isn’t the best strategy,” provides quantitative rationale for this very premise. The chart concludes with, “Good strategies therefore emphasize difference–versus direct competitors, potential substitutes and potential entrants–not industry-wide best practices.” In the past month we’ve looked at examples of this lack of differentiation causing financial ruin in companies like Borders. Best practice is fine for improving your operational and logistical activities. But best practices that are not built on rare and difficult to copy capabilities are not the basis of great strategy. You can follow the industry, or you can lead it. Great strategy demands you get off the beaten path. Otherwise, you, and not the path, will be beaten.