Introduction: Why “Best Practices” Hold You Back
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One day a clever hedgehog came to a wide river and was determined to cross it. Being a clever hedgehog he knew how to build bridges, so he set about building one over this river.
Half-way done he stopped to admire his work. Looking back at the riverbank he saw a little fox standing there. The hedgehog watched the fox for a moment, then returned to work.
After a while the hedgehog heard gentle splashing underneath his bridge. Peering over the side he saw the little fox again leaping from a rock partially submerged under the water onto another.
The hedgehog watched the little fox leap left, then right, then left again — pausing briefly each time, looking for another rock to leap onto.
Reaching the opposite riverbank the fox leapt up, spun around and flashed the hedgehog a smile. And in an instance the little fox was gone, over the riverbank and away.
This book was started when the CoVid pandemic struck and started to challenge many of the certainties organisations were built on, (ex, that people have to go to a place of work and globalised supply chains always benefit economies). As humans have a natural aversion to uncertainty[1] many leaders started looking for new certainties to replace the old ones with. And where there is demand there will be supply. By the time this book is finished there will have been a thousand new business books from a thousand gurus — new and old — informing us: How to Succeed in the Post-CoVid World or Eight Steps For Navigating the New, New Normal. As a wise man[2] once told me: “The reason there are so many gurus is that so few people know how to spell charlatan”.
Although I’m British I’ve been based in Moscow, Russia for a long time (whilst also working in other emerging/advancing economies) therefore I’ve faced more than my fair share of uncertainty. Modern Russia’s turbulence — from the shock of the 1990s and the deep recession of 2008 to the geo-political uncertainty since 2014 — has arguably contributed to an acute sense of uncertainty avoidance[3] in the country (see fig. 1). When people don’t know what the future holds they can become anxious. Institutions respond by creating detailed plans that offer the sense of predicability people crave. But in a volatile and changing world — driven by a complex set of external and internal forces — certainty is beyond the gift of any individual or group.
Fig. 1: Hofstede’s Cultural Dimensions for Russia
The idea for this book came from seeing how Russian businesses struggled when CoVid seemed to suggest that the future would not simply be an extension of the past. As usual, Russian business leaders initially reacted by cutting costs to keep the business upright — but then they seemed at a loss at what to do next except wait and hope that the world would return to normal. But, as the old saying goes, hope is not a strategy[4] — something else is needed. The mission for this book therefore is: to provide something else for those who know the old ways of working are no longer working.
Russian businesses will be my starting point, but the something else I present will also be relevant for other audiences. Therefore, while the rest of this introduction focuses on Russian business, I’ll take a wider focus in the rest of the book. So those who have no interest in Russian business can skip the rest of this introduction and go straight to chapter one. For Russian businesses though here is an outsider’s view on your current situation and what needs to be done.
Private business only became legal in 1988 so Russia’s market economy is still young and is experiencing natural growing pains. In its first, wild decade a new class of entrepreneurs took the risks required to unlock oversized rewards[5]. Then the market stabilised and rewards accrued to those who did things better, (rather than just first). A different generation of business leaders took day-to-day charge: Graduates of the country’s strong STEM[6]-focused education system they’d been trained to look for ‘right answers’ and their gaze turned Westwards in hope. Anyone doing business in Russia will have experienced this obsession with copying Western ‘best practices’ as imitation became the standard operating practice in many Russian businesses.
Of course, wise people learn from the experiences of others but Russian businesses have been using ‘best practices’ as shortcuts to avoid doing the hard thinking about what they should do next. In an effort to reduce uncertainty they have outsourced their thinking to the West, despite the country possessing one of the largest, best-educated populations in the world[7], who should be more than capable of figuring out their next moves themselves. Ichak Adizes, a business consultant and professor, (who is well-regarded in Russia) captured this situation in a joke:
A man looking for a brain transplant visits a surgeon to find out about the options.
“We have this brain” the surgeon says. “An Ivy-league university professor. It costs $5,000”.
“What else do you have?” asks the man.
“We also have this brain” answers the surgeon. “A Nobel prize winning physicist. It costs $10,000”.
“Do you have anything else?” asks the man.
The surgeon thinks for a moment, then suddenly remembers: “Ah! We also have this brain. Mikhail — ordinary Russian man. This costs $50,000”.
Surprised, the man asks, “Why is this brain of an ordinary Russian man so expensive compared to the other two?”
“Ahh” replied the surgeon knowingly — “never been used!”
To their credit Russians I’ve retold this joke to always break out in laughter. But there’s a serious point as well. In the complex world of business ‘right answers’ are an illusion because what worked yesterday, somewhere else, may not work here today. And the continued practice of copying ‘off-the-shelf’ solutions from the West — in order to avoid uncertainty — is holding Russian businesses back today.
The global financial crash in 2008 hit Russia’s economy harder than most due to its lopsided dependence on natural resource exports. In response then President, Dmitry Medvedev, announced that Russia would modernise[8] and become an innovation-led economy. In the now traditional fashion he looked to the West for answers and found Silicon Valley. Soon after massive investment started pouring into the ‘Skolkovo’ project in Moscow: Russia’s attempt at building its very own Silicon Valley. Yet results in the decade since have been underwhelming[9].
Fig. 2: Russian President Dmitry Medvedev and Steve Jobs in 2010
Copying form without understanding substance (ex, imitating what Silicon Valley looks like today, rather than learning how it originally became a driver of innovation) is a trap that many who imitate ‘best practices’ fall into. The physicist Richard Feynman memorably explained this with the story of the South Pacific Sea islanders who watched as industrialised nations (first Japan, then the US) had used their pre-industrial islands as supply chain bases during World War II: “During the war they [the islanders] saw airplanes land with lots of materials, and they want the same thing to happen now [after the war]. So they’ve arranged to make things like runways, to put fires along the sides of the runways, to make a wooden hut for a man to sit in, with two wooden pieces on his head like headphones and bars of bamboo sticking out like antennas — he’s the controller — and they wait for the airplanes to land. They’re doing everything right. The form is perfect. But it doesn’t work. No airplanes land. So I call these things Cargo Cult Science, because they follow all the apparent precepts and forms of scientific investigation, but they’re missing something essential, because the planes don’t land”. Imitating the outcome (the form) of a long development journey without understanding why or how it works (the substance) is Cargo Cult science. Unfortunately, it’s not a practice limited to South Sea Islanders alone — as the Skolkovo initiative showed.
However, even if Russia had focused on substance — learning how Silicon Valley originally drove innovation — results would still have been very different, as the story of Edward Lorenz reveals. In 1960 Lorenz, a meteorologist, was re-running a weather simulation on a computer overnight. The next morning he was surprised to find the simulation had produced vastly different weather patterns from the previous one. On investigation he discovered a small difference between the simulations — he had rounded down a single number on one starting input from 0.506127 to 0.506. This tiny change in starting conditions had been enough to cause a huge variance in results. Lorenz explained this surprising result by pointing out that complex systems like weather patterns, (to which we can also add economies, organisations, Silicon Valley etc) are ‘highly-sensitive to initial conditions’. In other words, if there are any differences in inputs (differences in people, resources, cultures, laws etc.) there’ll be huge, out-sized differences in outcomes as minor variations get amplified over time by feedback loops that shape the system’s development in unpredictable ways. Therefore, as starting conditions in different situations can never be exactly the same copying ‘best practices’ never produces the same results as the original case.
Even if we could overcome these two problems (form over substance and sensitivity to initial conditions) there’s an even bigger problem with copying the “best practices” of others: Those ‘others’ won’t have stood still in the meantime. Therefore, copying what they did in the past means you’re resigning yourself to forever playing catch up with them — like the hare in Tolstoy’s ‘War & Peace’ who can never over-take the tortoise. Businesses in emerging economies may have accepted this second or third rate status as they’ve only been trying to out-compete similarly weak local rivals — but as an economy advances it needs to develop globally-competitive businesses that attract talent and capital from elsewhere to stimulate innovation and drive a level of excellence that spills-over into the rest of the economy. We see that China has developed such business today — Huawei, Haier, AliBaba — but most people outside Russia would struggle to name any of its global national champions outside the energy sector. This is because global players don’t emerge through imitation — they emerge by discovering new sources of value by themselves.
So, why do so many Russian businesses copy ‘best practices’ (or, more accurately, the past practices of others) rather than leveraging their vast resources of educated people to forge new paths for themselves? The answer, again, is the Russian attitude towards uncertainty as copy ‘past practices’ mainly benefits:
- Decision-makers in Russian organisations, who believe they can reduce their risk of failure by imitating what leading Western firms did (and blaming any failure to produce similar results on their staff for poor implementation)
- But it also benefits management consultants, who are selling the same ‘best practices’ to your rivals (thereby diluting any competitive advantage you hoped to gain and making you susceptible to the next ‘big thing’ the now more powerful consultancies will be pitching you)
- And finally, the obsession with copying Western “best practices” benefits the Western organisations themselves, whose reputations as market leaders are further enhanced (enabling them to attract the talent, capital and customers needed to keep them ahead).
So what should Russian business do?
If we look at Chinese businesses in the 1990s we can see that they were also facing many of the same challenges Russian businesses were: An impoverished economy, historical suspicion of private business and inferior technology compared to international rivals. So what was it that Chinese businesses did differently and are there any lessons to learn for other advancing economies? Firstly, it’s instructive to note what Chinese businesses didn’t do: While they actively learned from the West (often with sharp practices the West complained about[10]) they didn’t blindly copy the West. They didn’t need to.
As this book will aim to show the East has its own rich tradition of strategic thinking — one that’s more adept than the Western approach to strategy (that has been emulated in Russia) at producing good outcomes in uncertain conditions. This tradition helped drive the rapid development of Japanese businesses in the chaotic aftermath of World War II in the last century and accelerate the spectacular emergence of Chinese businesses, seemingly from nowhere, this century. However, I’ll not be arguing that Russian businesses should start copying ‘best practices’ from the East (for the reasons given above: form over substance, sensitivity to initial conditions and forever playing catch up). Instead I’ll argue that Russian businesses need to turn their gaze East and start taking the advice of Bruce Lee: “Absorb what is useful, reject what is useless, add what is specifically your own”. For there is much to be learned.
Eastern strategic thinking is so different from Western thinking that it’s been suggested by some[11] that those brought up in the Western tradition will struggle to understand it. Yet Russia’s national emblem — the double-headed eagle — reminds us the country is neither fully Western nor fully Eastern. Therefore, Russians may have less difficulties than Westerners do in absorbing important lessons from the East: Such as cultivating the strategic flexibility needed for dealing with an more uncertain world. If Russian businesses can learn these lessons they may help form the basis of a new source of competitive advantage in the coming century which, as the events of the 2020s have shown us, will be a more unpredictable where change will come fast and we need to adapt effectively in order to survive and thrive. Better paths emerge as we walk them and the Eastern approach to strategy shows us how to take these steps purposefully. That’s what this book is about.
“If your competitor’s boat gets ahead of you at the starting line [of a race], the instinct is to chase it. To tack where it tacks on the same path. But if you do, you will always be behind, because you will be sailing on the same path, subject to the same wind. And in fact for much of the time, you will be sailing in its ‘dirty air’ — i.e. it gets the full wind in its sails, which [diminishes the wind’s] effect on your sails. Your only hope is for the leader to make a terrible blunder. Otherwise, you will race for hours and hours, tacking dutifully behind the leader and crossing the finish line behind … if you want to end up in some place other than last, you need to tack away and plot a different course that will get you to the finish line ahead[12]”.
Introduction to Part One — Why Best Practices Hold You Back
Chapter 1 — Forget Strategic Plans!
Chapter 3 — Pal’chinskii’s Principles
Chapter 4 — Ashby’s Law of Requisite Variety
Chapter 5 — FujiFilm: Innovating Out of a Crisis
Chapter 6 — Honda B: Miscalculations and Mistakes
Chapter 7 — Honda-Yamaha War of Natural Selection
Chapter 8 — The Eastern Approach to Strategy
1 see chapter 1
2 Roger Holdsworth
3 https://www.hofstede-insights.com/country-comparison/russia/
4 Although any choice you make in an attempt to achieve a certain aim can be considered a strategy, hope is just not a very good one (unless you have nothing else you could do).
5 Echoing Jeff Bezos’ famous comment about risk-taking and innovation, which was widespread in 1990s Russia: “We all know that if you swing for the fences, you’re going to strike out a lot, but you’re also going to hit some home runs. The difference between baseball and business, however, is that baseball has a truncated outcome distribution. When you swing, no matter how well you connect with the ball, the most runs you can get is four. In business, every once in awhile, when you step up to the plate, you can score 1,000 runs”. https://www.sec.gov/Archives/edgar/data/1018724/000119312516530910/d168744dex991.htm
6 Science, Technology, Engineering or Mathematics
7 http7s://www.weforum.org/agenda/2017/09/countries-with-best-education-systems/
8 This is a recurring theme in Russian, Soviet and post-Soviet history, occurring every approximately every 30–40 years going all the way back to the time of Peter the Great who founded a new capital — St. Petersburg — in 1703 in an attempt to modernise the Tsarist Russia of the day in order to catch up with other European nations.
9 In 2008 the Global Innovation Index ranked Russia 68th in its list of global innovators https://www.globalinnovationindex.org/userfiles/file/GII-2008-2009-Report.pdf
By 2021 the same publication ranked Russia 45th, behind other ‘upper middle-income economies’ like Bulgaria, Malaysia, Turkey and Thailand https://www.globalinnovationindex.org/userfiles/file/reportpdf/GII-2021/GII_2021_results.pdf
While such reports should be used critically these results do suggest that Russia’s innovativeness is little changed despite the huge investments into Skolkovo.
10 Though much complained about the practice of appropriating ideas from other countries is nothing new https://www.history.com/news/industrial-revolution-spies-europe
11 This appears to be the central hypothesis of Derek Yuen in his book ‘Deciphering Sun Tzu’ which will be explored further in chapter 8.
12 https://medium.com/swlh/the-tragic-futility-of-investing-to-catch-up-aaf4b5c90e0f
