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The Best Practices Debate

The search for best practices is a high-priority trend in the HR field. In fact, a 2006 survey of more than 5,000 HR professionals found that the top HR and administrative goal is to improve the overall quality of the HR function in organizations, and the most widely chosen “area of interest” among companies seeking HR improvement was best practices information, according to outsourcing firm HRAmerica (2006), which sponsored the survey.

Best practices are often associated with another widely used comparison technique: benchmarking. A 2005 survey by Bain & Company found that benchmarking is among the top management tools used by executives all over the world. In North America and Europe, fully 88% of surveyed executives said they use benchmarking. By comparison, in North America, less than two-thirds (64%) of executives use balanced scorecards, half use activity-based management, and 45% use economic value-added analysis (Rigby 2005).

It’s clear why best practices and benchmarking have such appeal. Managers want HR to be as efficient and effective as possible. HR executives feel they need—or are pressured—to gather data that reveals how well their functions stack up against HR in other organizations. They want to know everything from competitors’ revenues per employee to the details of how best to set up specific HR programs.

The appeal of best practices partly explains the popularity of Fortune’s list of “100 Best Companies to Work For,” which is produced by the Great Place to Work ® Institute. Not only do job-seekers want to know where to target their résumés, organizations of all stripes want to gain a better understanding of what it takes to become a preeminent “employer of choice.”

The “100 Best” companies have, of course, been benchmarked. The Benchmark Partners conducted an analysis of the organizations that made the list and discovered that 2005 “Great Places to Work” companies spend a bit more money on HR (though less than 0.2% of gross revenue) and considerably more on HR technology; 11% of HR spending per worker goes to HR technology in those companies, 58% more than in average companies (“Measuring,” 2006). Other studies indicate that, on average, “Great Places to Work” companies outperform major stock indices.

Despite the popularity of best practices and benchmarking, the concepts have many critics. Prof. Robert Kaplan (2006), co-developer of activity-based costing and the balanced scorecard, argues that benchmarking is very useful when it comes to comparing standard or commoditized processes. “For example, it’s useful to compare the cost of producing the same widget, taking the same kind of customer order, or processing the same type of paycheck or benefit claim across multiple companies,” he writes.

It’s different, he argues, when it comes to processes and services that result in highly differentiated products. He uses the example of comparing expenses per transaction at Armani versus Wal-Mart (Kaplan, 2006). The same lesson applies to differentiated HR services, where companies try to gain advantages by leveraging the uniqueness of their strategies, personnel, processes and cultures. Trying to benchmark these kinds of services could result in futile “apples and oranges” comparisons.

Jay Jamrog, senior vice president of research at i4cp, agrees that benchmarks and metrics have to be used wisely and in context. “Ultimately, it’s not about the numbers. It’s about the story they tell. Higher costs can be okay if organizations are getting their money’s worth. Companies should do the ‘So what?’ test, in which they determine if a benchmark has any true meaning in terms of effectiveness and impact.”

Some of the qualms about best practices are similar. “Copying the best practices of others leaves the company always in the position of following,” write professors Jeffrey Pfeffer and Robert Sutton (2006), authors of Hard Facts, Dangerous Half-Truths, and Total Nonsense. They also point out that best practices are often based on anecdotes and stories rather than solid evidence from peer-reviewed studies. Sometimes anecdotes from respected business leaders or management gurus can send organizations chasing wildly in the wrong direction.

Pfeffer and Sutton suggest that leaders think of their organizations as works in progress, places where there’s continuous experimentation to determine what really works. This allows them to avoid the trap of getting stuck with processes that are deemed “best practices” by conventional wisdom.

Other experts view best practices as more of a source of inspiration and good ideas than as solutions that should be exactly imitated (Keeley 2004). Trying to take a best practice from one organization and drop it into another may be like an organ transplant: the organ that worked fine in one body may be completely rejected by another. Part of the problem is that best practices are often viewed as “top-down” solutions that are resented and resisted (McLaughlin 2005).

Of course, best practices and benchmarking aren’t going away. Throughout human history, progress has largely been based on the imitation and diffusion of good—or “good enough”—ideas. But progress also depends on the emergence of innovations. An organization that wants to thrive over the long run must stay abreast of best practices but should also strive to develop the excellent and organizationally specific “next practices” that give it unique advantages for the future.