How to Banish Bad Habits from Your Company


    Freek Vermeulen explains why unhelpful practices go unnoticed and suggests how rooting them out can help innovation.

    The idea that companies may unwittingly use inefficient processes and pursue poorly focused strategies is not new. Corporate history is littered with examples of businesses being too slow to spot redundancy and incumbents being put out of business by nimbler new entrants.

    But what if this phenomenon could be explained by a simple concept? Perhaps companies have allowed bad habits to creep in, and just don’t know it. Furthermore, what if bad habits are so ingrained that executives have lost sight of what defines best practices? Or are blind to the possibility of being disrupted?

    Freek Vermeulen, associate professor of strategy and entrepreneurship at the London Business School (LBS), started thinking about these questions 16 years ago, when he was pursuing a Ph.D. at Tilburg University in his native Netherlands. He was analyzing a large temporary employment agency that was looking to expand overseas. In one conversation with the company’s CEO, he heard the words “But everyone in our industry has always done it this way.” That was the first sign of a phenomenon he recognized as significant, but couldn’t quite put his finger on.

    Fast-forward to 2007. Vermeulen was taking a three-month break from LBS to read widely on cultural anthropology, in particular the rituals that had — supposedly — benefited various tribes over human history. With the help of a research assistant, he noticed that the literature often documented anomalies: Some of a tribe’s rituals were clearly harmful, but they persisted. One example was tattooing practices in Polynesia, which, as Vermeulen wrote in his book Breaking Bad Habits: Defy Industry Norms and Reinvigorate Your Business(Harvard Business Review Press, 2017), “often proved fatal for the person receiving the tattoos.”

    Vermeulen remembers realizing that the situation was exactly the same with management practices. Best practices in some companies may have actually become inefficient — even “stupid,” as Vermeulen says in Breaking Bad Habits. He then started working on a simulation model, involving 1,000 companies, with Xu Li (his former student, now an assistant professor at the European School of Management and Technology in Berlin). They found a widespread “perception bias” that led managers to ascribe success disproportionately to particular company strategies. The managers tended to focus too much on the most successful appliers of their preferred strategies — and not on whether those strategies, in the context of the whole set of companies, were successful in aggregate.

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