The Performance Variability Dilemma

Performance variability frustrates managers everywhere. It takes a variety of forms: vastly different sales figures for similar retail stores in similar neighborhoods; significantly varying productivity rates at factories producing the same products; major differences in insurance payments for similar auto accidents. Companies make strenuous efforts to reduce such differences as the financial benefits that result when laggards imitate leaders are often immense. For example, Ford Motor Co. claims to have saved $886 million after four years of sharing best practices throughout its manufacturing sites.1

In their quest to reduce performance variability, however, managers often go too far. By forcing workers to “copy exactly” or “follow instructions exactly” in every situation, they make it far more difficult for people to use their own judgment and knowledge to solve problems that would benefit from a new approach. Hence the dilemma: How can companies reduce performance variability without stifling their employees’ discretion and ability to innovate?

The answer lies in the distinction between processes and practices. Many efforts to reduce variability focus on refining processes as the primary intervention — the enormous success of Six Sigma at General Electric Co. and Motorola Inc., for example, results from the use of established statistical process controls to eliminate deviations in quality. Despite such process change, however, variability often persists because of differences in practice.2 While a process outlines how tasks are to be organized, practice refers to the way those tasks are understood and actually performed. And practice is rarely based on narrow definitions that show how to complete a job from A to Z; more often, it stems from stories, principles, heuristics (rules of thumb) and expertise that emerge over time and combine to create a basis for action.3 The fluid nature of practice, then, generates new approaches to work, while process refinements make existing work approaches more efficient. To get the best of both, managers must find a balance between streamlining processes and allowing employees the freedom to improve practices.

Such balance is difficult to achieve. It has been argued, in fact, that managers have to choose between innovation and replication — they can’t have both — because effective replication does not allow for adaptation.

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References

1. S. Kwiecien and D. Wolford, “Gaining Real Value Through Best-Practice Replication: How Ford Motor Company Counts the Returns on Knowledge Efforts,” Knowledge Management Review 4 (March–April 2001): 12–15.

2. J.S. Brown and P. Duguid, “Balancing Act: How To Capture Knowledge Without Killing It,” Harvard Business Review 78 (May–June 2000): 73–80; and J.S. Brown and P. Duguid, “Creativity Versus Structure: A Useful Tension,” MIT Sloan Management Review 42 (summer 2001): 93–94.

3. E. Wenger, R. McDermott and W.M. Snyder, “Cultivating Communities of Practice” (Boston: Harvard Business School Press, 2002), 38.

4. G. Szulanski and S. Winter, “Getting It Right the Second Time,” Harvard Business Review 80 (January 2002): 62–69. For more details, see G. Szulanski, “Sticky Knowledge: Barriers to Knowing in the Firm” (Thousand Oaks, California: Sage Publications, 2003).

5. M.J. Benner and M. Tushman, “Exploitation, Exploration and Process Management: The Productivity Dilemma Revisited,” Academy of Management Review 28 (April 2003): 238–256; and M. Benner and M. Tushman, “Process Management and Technological Innovation: A Longitudinal Study of the Photography and Paint Industries,” Administrative Science Quarterly 47 (December 2002): 676–706.

6. S.E. Prokesch, “Unleashing the Power of Learning: An Interview With British Petroleum’s John Browne,” Harvard Business Review 75 (September–October 1997): 146–168.

7. It is beyond the scope of this article to discuss the process of benchmarking, but many others have explored that topic in detail. See, for example, F.G. Tucker, S.M. Zivan and R.C. Camp, “How To Measure Yourself Against the Best,” Harvard Business Review 65 (January–February 1987): 8–10; and R.H. Hayes and G.P. Pisano, “Beyond World-Class: The New Manufacturing Strategy,” Harvard Business Review 72 (January–February 1994): 77–86.

8. Kwiecien and Wolford, “Gaining Real Value.”

9. D. Clark, “Inside Intel, It’s All Copying — In Setting Up Its New Plants, Chip Maker Clones Older Ones Down to the Paint on the Wall,” Wall Street Journal, Oct. 28, 2002, p. B1.

10. L. Dorsett, T. O’Driscoll and M.A. Fontaine, “Redefining Manager Interaction at IBM: Leveraging Massive Conversations To Exchange Knowledge,” Knowledge Management Review 5 (September–October 2002): 24–28.

11. T. Davenport and J. Glaser, “Just-in-Time Delivery Comes to Knowledge Management,” Harvard Business Review 80 (July 2002): 107–111.

12. J. March, “Learning from Samples of One or Fewer,” in “The Pursuit of Organizational Intelligence” (Malden, Massachusetts: Blackwell Publishers, 1999): 137–155.

13. Prokesch, “Unleashing the Power of Learning.”

14. T.H. Davenport and L. Prusak, “Working Knowledge” (Boston: Harvard Business School Press, 1997), 21.

15. B. Wysocki, Jr., “Follow the Recipe: Children’s Hospital in San Diego Has Taken the Standardization of Medical Care to an Extreme,” Wall Street Journal, April 22, 2003, p. R4.

16. Wenger, et al., “Cultivating Communities,” 94–95.

17. W.E. Fulmer, “The World Bank and Knowledge Management: The Case of the Urban Services Thematic Group,” Harvard Business School case no. 9-801-157 (Boston: Harvard Business School Publishing, 2001).