By Luke Williams
Luke Williams is the executive director of entrepreneurship and founder of the W.R. Berkley Innovation Lab at New York University’s Stern School of Business. He is the international bestselling author of the second edition of “Disrupt: Think the Unthinkable to Spark Transformation in Your Business.”
Different organizations have different opinions about what kind of leadership behaviors will work best for them, and these opinions are often inherited in prepackaged form. In business, we call them best practices: borrowing a successful way of doing something from another company or industry. (If you’ve ever participated in a brainstorming session, you’ve seen first-hand how the concept of best practices keeps everyone in the room thinking the same way about a particular business or industry.)
At their core, best practices are no more than a proven way of allocating resources within the industry in which they operate. They’re useful, but when you buy prepackaged best practices, you’re buying into a zero-sum game: Putting things together in a certain way for one practice makes it difficult to put them together in a different way for a different practice. For much of the 20th century, the best practice many industries used was some variation of the “razor and blades” concept: If you hook your customers with a free or cheap product below cost (the razor handle), you can charge a lot more over time for the necessary add-ons to that product (the blades). The concept was set in stone, and a lot of leaders still accept it. “We make our money by making desktop computers as inexpensive as possible but getting users to spend big bucks on software licenses.” Or “We make our money by selling our video game consoles for less than what they cost to manufacture, but we get $50 a piece for the games.”
The problem is that many companies become so fixated on maintaining today’s best practices that they don’t see that those practices are actually decaying. There’s no rational reason to look for a better way of doing something if what you’re already doing works just fine. And things get worse with time. The longer we hold a set of assumptions about what success looks like, the more value we attribute to those assumptions and the less likely we are to give them up or change them.
The fast-food industry, which is explicitly designed to increase volume and reduce costs, is a great example. For most of the last quarter of the twentieth century, fast-food chains served enormous amounts of food quickly and cheaply by sourcing their ingredients from industrial suppliers, freezing the goods, and utilizing assembly-line production methods. The trade-off was that choice and freshness were quite limited. Then came the inevitable change in consumer tastes and preferences. The generation of Millennials and self-proclaimed foodies wanted fresh, organic, locally sourced ingredients and were willing to pay extra. Traditional fast-food chains were still doing a great business, but their conceptual competencies (i.e., concepts and practices they think are critical for success) of cheapness, convenience, and mass production were pretty much incompatible with the new emphasis on taste, freshness, and customization.
This led to the rise of restaurants known in the trade as “fast-casual” (think Panera Bread, Shake Shack, Nando’s chicken restaurants, and Chipotle Mexican Grill) that bridge the gap between fast-food outlets and full-service restaurants. The average check is more than 40 percent higher than that of traditional fast-food, and the “sustainable-food” approach is enjoying success across the world. In 2014, America alone, combined sales of fast-casual outlets rose by 10 percent, compared with six percent for fast-food chains. And Chipotle, previously owned by McDonalds, is now opening a new restaurant almost every other day and enjoying 20 percent annual growth.
As this example shows, it’s a mistake for any organization to believe that being successful at one point in time and staying on the same path will guarantee continued success. It’s nearly impossible to capitalize on the opportunities brought about by changes in technology and consumer behavior by simply repeating what you’ve done before, no matter how successful you were. Although there’s nothing wrong with maintaining the status quo when things are good, it’s critical to understand that clinging to outdated concepts and practices makes it hard to change course when things (inevitably) go bad.
Learn More About Disruption and Innovation in Safari
The second edition of my book, “Disrupt: Think the Unthinkable to Spark Transformation in Your Business” is now available for reading on Safari. Topics include pitching innovation, how to be a disruptive leader, and generating disruptive ideas.