Book interview: Freek Vermeulen, ‘Breaking Bad Habits’ - more effective leadership to transform performance
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One of the key strategies for transforming business performance and increasing leadership effectiveness is simply to stop doing what’s always been done, says management guru Freek Vermeulen in his book ‘Breaking Bad Habits’. Could reducing our dependence on paper play a part in refocusing our efforts?
“There is a tendency among managers to assume that if lots of companies are doing something a certain way, then it must be a good way,” says Freek Vermeulen, author of ‘Breaking Bad Habits’. “The first point to bear in mind here,” says Vermeulen, who is a professor of strategy and entrepreneurship at the London Business School, “is that this is not necessarily the case because businesses do things that are outdated. Point one of his ‘Ten Commandments of Business Innovation’, on which his new book is based, reads “cut out the benchmarking. The herd mentality creates and perpetuates bad practices.”
“Companies create processes and procedures, often for all the right reasons and at the right time. But as circumstances change – for instance, the arrival of new technology – they fail to react and continue to do things the same way. But this also represents a starting point for developing better practice in leadership development.” On the other hand, and carrying equal potential for creating stagnation, is adopting new processes simply because we can, without evaluating if they are better in terms of efficiency.
“Technology doesn’t break bad habits. But it can reveal antiquated practices. The reason habits are so hard to break is that they form part of a culture that permeates an organisation.” One example of the mixed blessings of change for its own sake is the conversion of businesses from paper to the virtual environment.
Vermeulen describes his case study of the South African bank Capitec, assessed as the ‘best bank in the world’ in the Lafferty Group’s Global Bank Quality Benchmarking study in 2017. He explains how traditionally in banking charges are based on a percentage of the value of the transaction, while the actual costs of transferring money, be it £1 or £100, are exactly the same. “The only reason for this is that the transactions used to be done on paper by cheque. You would charge more for transacting higher amounts because the risk was higher. Today, when transactions are electronic, there is no reason why the cost of any simple transaction should be more expensive than another. Capitec saw this and changed it, charging a standard fee for a transaction regardless of the amount.”
Vermeulen says that such was the radical redesign in Capitec’s thinking, caused by the realisation that dealing outside the paper environment was so different, they assumed other banks would copy this strategy. “They thought that this wouldn’t be a lasting competitive advantage because within a year everyone would be doing it. But to their pleasant surprise, their competition had trouble imitating this.” The reason was that budgets, headcounts, compensation and incentives are tied to the percentage charged on transactions. “It seems a simple thing to change. But even changing the thought process of moving away from paper transactions is intertwined with the culture of the organisation.”
While Capitec has benefited from breaking away from the tactile world of dealing with paper as a fundamental business technology, making that switch is often difficult, “because it is not just the medium or technology that needs to change. It is a matter of habit and culture.”
What we do know, says Vermeulen, is that there are two types of responses to the perceived need to change. At this point he switches to the world of newspaper publishing, where on the one hand you have publications simply replicating their content online in an effort to save on the cost of paper and distribution, while on the other “there is a second group that, rather than put their existing product online, create a different product. This group tends to adopt the process of writing and visualising content differently, even to the point of covering different topics.” The latter “fared significantly better by managing to adapt to the technology in a way that benefits the consumer”.
“This is the crucial point. It’s not just about switching from paper to digital while everything else stays the same. If you have a different medium, other things will have to change as well. You may have to start with a blank sheet of paper...” says Vermeulen, before realising that it is more appropriate to his argument to use the image of starting with a blank screen. Paper, it seems, even controls the analogies we use when describing how to move away from it.
‘It’s not just about switching from paper to digital while everything else stays the same. If you have a different medium, other things will have to change as well.’
It’s all very well deciding that you need to break the habit, to make the switch from atoms to bits. But what are the psychological factors involved that allow this to happen? “The first thing to be aware of is that if you are an existing company using outdated procedures, you will run up against new organisations that have started from scratch doing things differently. Your new competitors will have started with a blank screen rather than a blank sheet of paper.
“Second, as an established company, you need to work out how to engage in some sort of culture change. This goes directly to one of the points that led me to research this book. When I get to know a company I always analyse their existing processes, and then I always ask ‘why?’. Why do you charge a percentage on transactions, for example, rather than a fixed amount? You would be surprised how often I get the answer that this is how things have always been done, and if you look around that’s how other firms in the industry do it, too.” Counter-intuitively, Vermeulen believes this to be an “excellent starting point”, because “if you can’t come up with something better than that, then you really do need to look at your practices”.
Which is where the newcomer to an organisation can play a major strategic role in effecting change. “What we say in social psychology is that the newcomers fairly quickly get ignored after which they also get fairly quickly socialised into the way the company does things. But you do have to look at what it is these people are challenging. Research shows that as soon as newcomers form sub-groups then we tend not to ignore them so much. Companies would do well to listen on a systematic basis in order to catch some of these outdated habits.”
‘Breaking Bad Habits’ by Freek Vermeulen is published by Harvard Business Review Press, £22
We read it for you
For a long time I was perplexed by the size of newspapers. I couldn’t understand why they were printed in the broadsheet format, which made them big, flimsy and difficult to read. Veterans of the newspaper trade told me that every quality newspaper in the world is big: “customers wouldn’t want a smaller version.” But there had to be a reason for printing in a large format, I thought.
Eventually, I settled on the idea that printing news on large pieces of paper was probably cheaper. So I took the opportunity to ask executives at the Guardian if my cost-cutting theory was correct. To my surprise, they said cost had nothing to do with it. They assured me that it was more expensive to print the news this way. But they had no clue why the large format was the industry’s format of choice.
At the Times, the Financial Times and the Wall Street Journal I received pretty much the same reply: “Don’t know. It’s always been like that.”
I refused to take “I don’t know” for an answer, so I sent my research assistants to the British Library to dig through old books, documents and newspapers. One morning they came into my office and told me that they had discovered that the practice had originated in London in 1712. As it turns out, the English government had started taxing newspapers based on the number of pages they printed. As a consequence, newspaper publishers began printing on larger sheets of paper to avoid paying more taxes.
Although the practice made little economic sense after the tax law was abolished, most newspaper companies continued to use the broadsheet format for no other reason than the unproven belief that customers wouldn’t want it any other way. Here again is how a good practice transforms into a bad one.
Edited extract from ‘Breaking Bad Habits’ by Freek Vermeulen, reproduced with permission