"Best Practice" or "Best Fit"?

“Best practice” has been a mantra for over 10 years.  It’s time for a change.

Why?  If something is a best practice, then every other practice is inferior.  But if everyone is doing the same best practice, it leads to conformity.  Do you want to use the same practices as your competition?   No --- you want to use practices that beat them.

Dilbert nails it in this cartoon.

While a handful of best practices might be applicable universally, what’s considered a best practice in one industry, company, country or corporate culture isn’t necessarily a best practice in another.   If something works for a small mom and pop shop, it won't necessarily work for General Motors.

Let’s take a look at a commonly used best practice metric for business:  revenues per employee.  On the surface it seems to make sense to use this metric in comparing to other companies.  The assumption is usually made that the higher the revenue per employee the better. 

Not a good assumption.  Why?  Here are some business circumstances that affect the ratio:

1)    Some industries just naturally have higher ratios than others
2)    Start-ups typically have a lower ratio than mature companies
3)    Labor intensive companies such as manufacturing have a lower ratio than non-manufacturing companies
4)    Ratio is higher for companies that outsource a significant function or have high number of contract employees
5)    Downsizing for financial reasons or because of automation leads to a higher ratio

Without understanding these underlying factors, comparisons can lead to some very faulty conclusions. 

Is Compensation guilty of assumptions when adopting best practices? You bet.  Even if comparisons are confined to companies in the same industry, it’s not safe.  So is there really any way for Compensation to find companies that mirror the same business circumstances in order to adopt best compensation practices?   Maybe so, but it seems like an exhaustive analytic effort for achieving a questionable outcome.

Actually the most important thing to focus on is what works for a company based on internal rather than external analysis.  This means determining the “best fit” and alignment for each individual company given its unique needs, culture and business circumstances.  By focusing internally, Compensation can create practices that are relevant and add value to a specific company. 

My suggestion is to do the internal alignment analysis first.   Then take each current plan, program, process, policy, etc. and examine it with this in mind.  

1)    Why does this practice exist?  What is its purpose?
2)    Who is it meant for?  Does anybody use it?
3)    Is it a help or a hindrance in moving the business forward?
4)    Is it the simplest and most practical way to address an issue?
5)    Does it align with company strategy, needs and culture?

Example of a mismatch:  One company that was a strong proponent of pay for performance was embarrassed when it discovered that several of its business units rewarded employees for their length of service.

Compensation doesn’t have to completely ignore best practices. While they shouldn’t be blindly followed, they should at least be acknowledged and understood.

I view best practices the same way I do market surveys.   The results are reviewed but they’re just one single data point to be considered in reaching a decision. 

Following best practice is tempting because it seems to guarantee success.  And it is a natural tendency and much safer for people to “go along with the pack”.  Even senior executives fall into this trap.

For most CEOs, only one thing is worse than making a huge strategic mistake --- being the only person in the industry to make it.   As Warren Buffett said:  "Failing conventionally is the route to go; as a group, lemmings may have a rotten image, but no individual lemming has ever received bad press. “

Does Compensation in your company engage in “best practice” or “best fit”?   Might be a good idea to check this out in the New Year.

What do you think?

Jacque Vilet, President of Vilet International, has over 20 years’ experience in Global Human Resources with major multinationals such as Intel, National Semiconductor and Seagate Technology. She has managed both local/ in-country national and expatriate programs and has been an expat twice during her career.   Her true love is working with local national issues.  Jacque has the following certifications:  CCP, GPHR, HCS and SWP as well as a B.S. and M.S in Psychology and an MBA.    She belongs to SHRM, Human Capital Institute and World at Work.   Jacque been a speaker in the U.S., Asia and Europe, and is a regular contributor to various HR and talent management publications. 

Comments

[E. James (Jim) Brennan]

Totally agree. A well stated cogent summary of reasons not to instinctively rush into followership. The leader is the one in front of the pack, not one of the mass in the middle or the trailer meekly lagging behind the rest.

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Scary to be a leader, especially a CEO, when the current global business environment is so full of unpredictable pitfalls. So Compensation professionals should take heart. You rarely hear of Compensation people that "mess up" ---- but you always hear of CEO's "messing up"!

[Jay Schuster]

WOW!!! I agree with Jacque so I better check my shoelaces, huh? "Best Practice" was invented by consulting firms who want to sell 'stuff' to organizations and know the 'testimonial system' does that. It is universally prevailing practice and not 'best' unless you want to blindly copy what others do. So if 'best practice' is based on some study that suggests organizations should have everyone wear blue beanies to work I suppose somebody is standing there to sell the beanies.

CEOs are universally interested in doing things that add to better organizational performance mostly in financial terms. Our studies have shown that the whole 'mantra' of 'best practice' advocated by many in HR is causing CEOs to get advice on what to do to align the workforce with organizational performance other than from HR. And that is honestly tragic for our profession.

WorldatWork unfortunately has become a huge advocate of 'best practice' because it is easy to tell us to 'follow the latest leader' because it is the path of least resistance. I think professionals in our business are far better than that and should be talking to their own CEOs and other operational and financial leaders than worrying about copying the practices of other organizations.

I just got back from Antarctica. The penguins are great at doing what other penguins do. A whole bunch of them jumped off some floating ice in unison right into the jaws of a leopard seal who ate them one by one. Are we better than penguins or not?

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Yes Jay it's mine. I don't know about shoelaces -- but you'd better check your tie to make sure it's not so tight it isn't cutting off oxygen to your brain ---- :-)

Yep --- and you need to watch who's doing the survey that results in "best practice". 99% of the time it's consultants and it makes up a large share of their business.

You must know a better class of CEO's than I do because I find that CEO's and CFO's view people as a "cost" --- not an asset that can add value to company performance.

Too bad about the penguins. I like to think that animals are smarter than people --- but then there is the story about the lemmings . . . .

[Jay Schuster]

Maybe an 'opportunity cost' is the best way to look at it?? The way many reward programs are designed CEOs have the right to view them as a 'cost' because they don't see the value in them in terms of aligning folks with what the business must achieve.

If all the CEO gets is a 'copy' of what everyone else does and no help from rewards to make the organization do better then they probably should squeeze the nickel until the Indian rides the buffalo.

The easiest thing to do is follow someone's survey results and park your brain at the door. I just think we are better than that.

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Agree Jay. Ahh.. . . . fodder for another post!