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.<