Why it is best not to rely on best practices, do this instead.
The definitions of “Best Practices” that appear on top of Google Search imply a one-size-fits-all solution that has been “generally” accepted and is prescribed as the “most efficient” course of action for a given situation. In other words, they are guidelines that help managers and executives make better decisions based on others’ experiences.
But that is not always the case!
I want to focus on how “Best Practices,” a generally accepted process for better decision-making, is considered one of several factors impeding enterprise innovation in today’s business world. But, I will provide an alternative and a more effective method of thinking to improve decision-making in modern organizations.
Where Management Started
In a broad sense, the meaning of management practices is defined as working methodologies and innovations used by managers to increase the productivity and effectiveness of their organizations. Management practices include rewarding efforts, engaging workers, and promoting trust between the organization and employees. They originated in the twentieth century when many trade opportunities arose due to British power, which championed the industrial revolution in the 18th Century, resulting in the formation of international cooperations. The formation of markets as the dominant means of organizing the exchange of goods resulted from the continuous development of trade.
Adam Smith, an economist, and moral philosopher was a prominent intellectual figure during this time. In his classic, The Wealth of Nations, Smith suggested specialization and cooperation inside firms as a source of economic growth. Specialization and division of work were two of Smith’s major contributions to management theory. A division of labor workers specialized in a particular task that was part of a wider series of tasks that culminated in manufacturing a product. During the Industrial Revolution, the corporation was born when managers specialized and coordinated work in a factory setting.
The Management World Has Substantially Changed in the 21st Century
Fast forward 100+ years, that is no longer the only case, management is more complex. Welcome to the Information Age, a period marked by rapid technological advancement. The Information Age is being fueled through the Knowledge Economy, which places a top class on problem-solving and crucial questioning over the rote competencies of the Industrial Age.
With ever-increasing storage and computing power, artificial intelligence can enhance the human intellect and enable smarter decision-making, which has the potential to reduce the high cost of bad decisions. As a result, the decision-making process may be sped up.
However, because of digital infrastructures’ complexity and socio-technical ecosystems, complex thinking is relevant to digital innovation research because it operates far from equilibrium and exhibits nonlinearity, self-organization, emergence, and coevolution. Nonlinear systems are made up of many (often heterogeneous) partially connected components that interact with one another via feedback loops. For example, computer algebra systems are adaptive because they are made up of many agents, each behaving according to its local interaction. On a global level, CAS represents systems with nonlinear properties resulting from interactions between the systems’ components in the organizations. As a result of their dynamic interactions with their surroundings, these systems adapt and evolve, and their adaptive behaviors are characterized by self-organization and appearance.
In this modern business world, a company’s ability to innovate quickly improves its chances of surviving and potentially thriving depending on how well this innovation unfolds in the marketplace. This is why customers are becoming more demanding and savvier in today’s highly competitive business environment.
Business decisions in the past were more focused on the company, whereas now, they are more focused on the customer. Compared to previous strategies and plans based on opinion, today’s strategy and plans are more data-driven.
Management Practices Have Not Kept Pace
Organizations in the 21st Century face many new challenges. Some argue that societies and economies have changed so dramatically that the methods and management theories of the past century no longer apply. Now, many factors influence business practices, including the pace of change, technology, globalization, diversity, and social expectations. As a result, management has become more specific, so managers have begun to focus on specific aspects of organizational leadership, resulting in a lag in management practices.
Management has fallen behind because managers are so focused on endowment effects. The endowment effect shows how changes in the status quo can affect the value of an object. According to framing effects, changes in one’s perception of the status quo can influence decisions between otherwise similar options. On the other hand, managers consider Opportunity Costs: the best way to avoid the endowment effect is to recognize that it exists. This can be accomplished by calculating the opportunity cost, which will lead to resuming the practice.
Prospect theory has also had a significant impact on strategic management due to the overt belief that it leads to a relatively simple general hypothesis about performance and risk-taking. However, the theory does not support such a broad hypothesis. Instead, it asserts that decision-making is dependent on choosing between options, which biased judgments can influence. It is also a behavioral model that shows how people choose between risky and unsafe options (for example, the percentage of chance of winning or losing). This indicates that people view the expected utility as reference points (such as current wealth) rather than absolute results.
Keep in mind that being risk-averse works against change management because statistics show that most change management initiatives fail. Risk management identifies, evaluates, and controls threats to an organization’s assets and interests. Managers cannot grasp potential risk factors such as financial instability, liability, technical problems, failure in strategic management, accidents, and natural disasters.
Modern Enterprise Needs New Approaches
The application of complex management has advantages. The method connects known processes in novel ways and enables the transition to complex systems. As a result, uncertainties or probabilities, such as upcoming complexity costs, are accounted for in planning. This method aims to simplify, control, and prevent complex processes.
Change management is a systematic and structured approach to ensuring that changes go smoothly and provide long-term benefits. It focuses on how individuals and teams adapt to the new situation and considers the broader effects of change. So, system thinking is a discipline of management concerned with understanding systems. How? you may be asking. By examining the relationships and interactions between the components that make up a defined overall system. A holistic approach is a systematic view of an organization of its environment.
Systems Thinking as the New Paradigm
The systems thinking paradigm must be aligned with the leadership paradigm for effective performance in the current corporate flux and volatility situation. Systems thinking advocates an all-encompassing and holistic approach based on the premise that the pieces that make up a system cannot be comprehended in isolation. They can only be understood in context, in the relationships they have with each other and with other systems. What is clear from a theoretical standpoint has been verified from the perspective of economic business decisions thanks to the adoption of systems thinking.
Tackling Biases
Since management practices like endowment effects, prospect theory, and changing management are perceived as risky, what’s stopping executives and modern enterprises from adopting new methods? But wait. Before you consider doing so, you should know that it is impossible to “emerge” into this new paradigm without being reborn or metamorphosed. It would be best to break free from the herd and old habits. Breaking bad habits takes time and effort, but most importantly, tenacity. Most people who try to break bad habits fail several times before they succeed. In addition, individuals should learn to go against their instincts when necessary. Your preferences may push you to the wrong side or force you to make biased decisions. It’s important to learn how to assess the situation and make decisions accordingly in such cases.
If you want to learn more about leaving out old habits and practices, and how to apply systems thinking in specific scenarios, you should definitely check out my other article about:
The Unintended Consequences of Competitive Intelligence
References
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Fernández-Cerero, D., Varela-Vaca, Á. J., Fernández-Montes, A., Gómez-López, M. T., & Alvárez-Bermejo, J. A. (2019). Measuring data-centre workflows complexity through process mining: the Google cluster case. The Journal of Supercomputing, 76(4), 2449–2478. https://doi.org/10.1007/s11227-019-02996-2
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McBeath, B., Mosely, J., Hopkins, K., Guerrero, E., Austin, M., & Tropman, J. (2019, April 3). Building Knowledge to Support Human Service Organizational and Management Practice: An Agenda to Address the Research-to-Practice Gap. Oxford Academic. https://academic.oup.com/swr/article-abstract/43/2/115/5426469?redirectedFrom=fulltext
McBeath, B., Mosley, J., Hopkins, K., Guerrero, E., Austin, M., & Tropman, J. (2019, April 3). Building Knowledge to Support Human Service Organizational and Management Practice: An Agenda to Address the Research-to-Practice Gap. Oxford Academic. https://academic.oup.com/swr/article-abstract/43/2/115/5426469
Nazarenko, A., Vishnevskiy, K., Meissner, D., & Daim, T. (2022). Applying digital technologies in technology road mapping to overcome individual biased assessments. Technovation, 110, 102364. https://doi.org/10.1016/j.technovation.2021.102364
Shtudiner, Z., Klein, G., Zwilling, M., & Kantor, J. (2019). The value of souvenirs: Endowment effect and religion. Annals of Tourism Research, 74, 17–32. https://doi.org/10.1016/j.annals.2018.10.003
Wang, Z., & Wang, Y. (2020). Prospect theory-based group decision-making with stochastic uncertainty and 2-tuple aspirations under linguistic assessments. Information Fusion, 56, 81–92. https://doi.org/10.1016/j.inffus.2019.10.001
Nazarenko, A., Vishnevskiy, K., Meissner, D., & Daim, T. (2022). Applying digital technologies in technology road mapping to overcome individual biased assessments. Technovation, 110, 102364. https://doi.org/10.1016/j.technovation.2021.102364
Shtudiner, Z., Klein, G., Zwilling, M., & Kantor, J. (2019). The value of souvenirs: Endowment effect and religion. Annals of Tourism Research, 74, 17–32. https://doi.org/10.1016/j.annals.2018.10.003
Wang, Z., & Wang, Y. (2020). Prospect theory-based group decision-making with stochastic uncertainty and 2-tuple aspirations under linguistic assessments. Information Fusion, 56, 81–92. https://doi.org/10.1016/j.inffus.2019.10.001