Beyond Best Practice
S P R I N G 2 0 0 5 V O L . 4 6 N O. 3
R E P R I N T N U M B E R 4 6 3 1 1
Lynda Gratton and Sumantra Ghoshal
P l e a s e n o t e t h a t g ra y a re a s re f l e c t a r t w o rk t h a t h a s
b e e n i n t e n t i o n a l l y re m o v e d . T h e s u b s t a n t i v e c o n t e n t
o f t h e a r t i c l e a p p e a rs a s o ri g i n a l l y p u b l i s h e d .
SPRING 2005 MIT SLOAN MANAGEMENT REVIEW 49
avvy executives recognize that a company’s core
organizational and operational processes are cru-
cial to realizing its competitive potential. These organi-
zational processes integrate the goals of the business
into its employees’ day-to-day activities via routines.
Executives also know that a primary route to the devel-
opment of such processes and practices is the study of
best practice. The enterprise’s capacity to flourish
depends in part on their ability to capture and embed
best practices from their own and other companies.
Without mechanisms that facilitate the sharing of best-
practice knowledge — such as visits to exemplar com-
panies, communities of practice and the use of experts
— companies would be consigned to reliving the same
mistakes day after day. Searching for and then articu-
lating, refining and embedding best-practice ideas
brings companies in a sector to a level playing field.
Those companies that fail to adopt best-practice
processes rapidly become complacent laggards.1
But our research into high-performing companies
shows that while the search for and adoption of best-
practice processes is indeed necessary, it is not suffi-
cient. (See “About the Research,” p. 50.) Other types of
processes, which we call “signature processes,” also can be crucial. We find that a unique
bundle of signature processes combined with industry best practice ultimately enables a
company to prosper and compete.
We use signature to describe how these processes embody a company’s character and sig-
nify their idiosyncratic nature. Signature processes arise from passions and interests within
the company; by contrast, concepts of best practice arise outside the company. So while one
task of every executive is to find and adapt best practice, in a sense bringing the outside in,
an added critical task of management is to learn to identify and preserve the company’s sig-
nature processes. This added duty might be thought of as the need to bring the inside out.2
The distinction between a signature process and an industry best practice is not absolute,
however. If a company’s signature processes prove especially advantageous, they may be
imitated by other companies so often that they eventually become known as best practices.
Toyota Motors Corp.’s lean production is an example of a process that began as a signature
for the company. It espoused the values and aspirations of Toyota’s leaders and has brought
Beyond Best Practice
Many companies adopt
industry best practices
to stay competitive.
But high-performing
companies do more:
They also embrace unique
“signature processes”
that reflect their values.
Lynda Gratton and
Sumantra Ghoshal
Lynda Gratton is professor of management practice at the London Business School and a Fellow of
the Advanced Institute of Management. Contact her at [email protected]. Sumantra Ghoshal was
a professor at London Business School and a Fellow of the Advanced Institute of Management. Sadly,
Sumantra Ghoshal passed away in March 2004, while he was working on this research project.
S
50 MIT SLOAN MANAGEMENT REVIEW SPRING 2005
the company significant competitive advantage over a long
period of time. Many other companies have sought, sometimes
with limited success, to adopt the process of lean manufacturing.
In this article, we use the term signature processes to refer to
processes that have evolved internally from executives’ values and
aspirations, and the term best practice for ideas developed outside
the boundaries of a business unit or company.
The subtle but crucial differences between standard best-
practice processes and unique signature processes first became
clear in our research. We found surprising and intriguing prac-
tices and processes in many of the high-performing companies.
Here are three examples:
■ The CEO of a large, fast-moving company requires that all
members of the senior executive team meet every morning of
the workweek between 9:30 and 10:30 Greenwich Mean Time
to discuss the previous day’s events. There are about 10 mem-
bers of this team; those who are not physically present take
part via videoconferencing. The meeting is without a prior
agreed-upon agenda, instead addressing the issues uppermost
in the minds of the executive team.
■ Employees of a second multinational company are part of an
organizational modular structure that is realigned frequently.
These restructurings typically take place over the weekend.
While these realignments result in new business groups, they
leave intact many of the working relationships that take place
within the modular teams.
■ The business unit heads of a third large company are required
to spend considerable amounts of time supporting the per-
formance of their peers in other businesses, particularly those
businesses that are underperforming. A significant pro-
portion of the bonuses of the more successful business unit
heads is dependent on improved results by the underper-
forming businesses.
Each of these processes is highly idiosyncratic. We have not wit-
nessed any of them in scores of other companies we have studied
over the last decade. In fact, these processes fly in the face of what
is generally accepted as best practice. For example, best practice
suggests that the CEO’s role is to meet, perhaps on a weekly or
even monthly basis, with the executive team and proceed through
a previously agreed-upon agenda. So why tie up the whole senior
team in daily morning meetings without set agendas? Similarly,
best practice in organizational restructuring suggests that
restructurings should take place as infrequently as possible in
to create relatively stable organizational structures and
minimize confusion. So why restructure frequently? Finally, best
practice in performance management requires that managers be
responsible for what they can personally affect. So why reward
people on the basis of the performance of others who are outside
their direct line of accountability?
Yet the three companies in which these processes flourish are
not corporate laggards: Each has outperformed many competi-
tors over the last five years. Nor are they clustered in a single sec-
tor known for eccentricities, such as a creative industry or IT. The
companies in question are in retail banking, high-technology
equipment manufacturing and marketing, and oil exploration
and distribution. Nor are these processes and practices that top
executives would like to be rid of. On the contrary, executives in
each company view the practice in question as unique; its idio-
syncrasy is celebrated and seen as a key aspect of the company’s
success. The procedures in question are believed to serve as one
of the crucial links between the processes of the organization and
the vision, values and behaviors of top management. They are
imbued with energy and passion.
The morning meetings take place in the Edinburgh headquar-
ters of the Royal Bank of Scotland Group with group chief exec-
utive Fred Goodwin. Founded by royal charter in 1727, RBS was
This article is based on our case research over the last five
years into how dynamic capabilities lead to competitive
advantage. We focused on companies that had demon-
strated superior performance from 1997 to 2002, com-
pared to their peers. However, superior performance can
be a result of other factors, such as a monopoly, extensive
regulations or heavy use of patents. We chose companies
whose success was not due to those factors. We studied
eight firms and use data from three of them in this article.
We collected data in two stages for each company. First, a
broad array of secondary sources was used to create a pre-
liminary picture of the company and the industry. Next,
we conducted structured interviews with the CEO and 20
to 30 members of the company’s executive committee
and other significant staff. In addition, we interviewed
executives in different functions and at different levels,
including the operating-level managers who actually were
involved in day-to-day activities connected with the focus
area we had chosen.
Both authors were present during all interviews and
were supported by a research assistant. Ours was collabora-
tive and participative research. We engaged in discussions
with managers as competent and trusted co-researchers,
attempting to arrive at a shared interpretation of data.
Having identified the key practices, we sought to build a
historical perspective and discussed this in depth with the
executives.
About the Research
SPRING 2005 MIT SLOAN MANAGEMENT REVIEW 51
a small bank until the early 1990s, even by U.K. standards. By
2003, however, RBS had grown to become the fifth-largest bank
in the world by market capitalization, ahead of such familiar
names as Merrill Lynch, Goldman Sachs and UBS. This was facil-
itated by a spate of acquisitions, including the acquisition of Lon-
don-based National Westminster Bank Plc and Citizens Financial
Group of Rhode Island. RBS’s record organic growth from 1997
to 2002 was the best of all major banks in Europe. At the same
time, its cost-income ratio — perhaps the most widely used
measure of efficiency and productivity in the banking business
— was, at 45%, one of the lowest among comparable companies.
The frequent restructurings occur at Nokia Corp., whose
senior team is led by chairman and CEO Jorma Ollila. The com-
pany’s history stretches back more than 140 years. Until the
early 1990s, Nokia was a conglomerate with businesses as
diverse as rubber products, paper, consumer electronics and
computers. The company transformed itself during the 1990s
into a focused telecommunications business supplying telecom-
munications network equipment and systems and mobile
phones. Nokia’s performance from 1997 to 2003 was superior to
its competitors, and its brand — practically unknown a decade
earlier — has been ranked as one of the 10 most valuable
brands in the world by Interbrand Corp., a global branding
consultancy based in New York.
The “peer assist” policy exists at BP Plc, the United Kingdom’s
largest industrial enterprise, under the guidance of group chief
executive John Browne. In 1992, facing rapidly deteriorating
business results because of rising debts, rising unit costs and
falling oil prices after the Persian Gulf War, BP’s board cut the
company’s dividend and replaced the chief executive. The situa-
tion had changed dramatically by 2003. BP had successfully
acquired and integrated Amoco, Arco and Castrol, and had
achieved the lowest unit cost of operations among comparable
firms and the highest return on capital employed. It delivered
after-tax profits of more than $1 billion per month.
Why did these three highly successful companies adopt
processes that differ significantly from general views of best
practice? And, perhaps even more surprisingly, why do the exec-
utives involved believe these processes are a key part of their
company’s success?
The answers lie in the idiosyncrasy of these signature
processes and their potential to create the energy to drive high
performance. This idiosyncrasy is a direct embodiment, a “signa-
ture,” of each company’s history, values and top executive team.
The combination of values, experiences and passion enables
these idiosyncratic processes to flourish against all odds.
Adopting best-practice processes gets a company to a level
playing field. But the very nature of best practice, drawn as it is
from a common pool of industry knowledge, means that the
adopters of best practice are always susceptible to being copied
by other companies that catch up with them. In contrast, the
signature processes at these three companies are so idiosyn-
cratic and so much a part of their organizational heritage and
values that competitors would have difficulty replicating them.
These signature processes certainly look fascinating to the
observer; for example, the peer groups at BP have been widely
discussed across the multinational best-practice community.
But although they may be the stuff of exciting presentations and
intriguing book chapters, the peer-assist process is apparently
unpalatable to most companies, and we know of none that have
replicated BP’s peer groups.
Signature processes are acceptable within the companies in
which they develop because very often they have grown as the
company grows and are associated with the executive team’s
passion and values. They are part of the fabric, the way of
behaving, the “way we do things around here.” So while the task
of every executive is to find and adapt best-practice processes
from outside the organization to strengthen the company, an
added critical task of management is to be able to articulate the
company’s signature processes.
This is a difficult task. Executives need skills in developing
and encouraging best-practice and signature processes. How-
ever, much of what executives have been schooled to do in devel-
oping conventional best practice flies in the face of the creation
of signature processes. Our recommendations for creating sig-
nature processes actually reverse some of the very prescriptions
of best practice. To nurture signature-process development,
executives should rediscover their company’s heritage and
unlock the treasures that have been languishing half-forgotten
within their organization rather than search externally, as they
do for best-practice processes. Managers should become sensi-
tive to and elaborate on those processes in the company about
which people are passionate and should become more in tune
with the organization’s values and beliefs.
Why did three highly successful companies adopt processes that differ significantly from
general views of best practice? The answers lie in the idiosyncrasy of the processes.
52 MIT SLOAN MANAGEMENT REVIEW SPRING 2005
Signature processes developed internally by Nokia, RBS and
BP stand in contrast with some of their best-practice processes
based on ideas adapted from outside the organization. In all three
companies, best-practice processes and signature processes differ
in their origins, their development mechanisms and their core.
(See “Understanding Best-Practice and Signature Processes.”)
Best-Practice Origins: External Search One important best-practice
process at RBS is the bank’s approach to day-to-day management
of many of its projects. Over the last decade, its teams have devel-
oped their project management approach by an extensive external
and internal search of best practice in project management. They
have exchanged best practices across the bank, they have occasion-
ally engaged external consultants to add to their knowledge and
they have sent executives to external programs on project manage-
ment. From this sharing of external and internal knowledge, they
have developed and documented the RBS way of project manage-
ment. Project management best practice has been carefully
adapted to something more closely aligned with RBS’s business
goals and context, particularly with respect to conducting projects
with increased speed and a larger number of project teams.
This adaptation of project management best practice paid off
in the firm’s 1999 takeover of NatWest. In 2002, the RBS team
announced that the NatWest takeover had been completed and
that the 446 systems within NatWest’s IT platform had migrated
successfully to the RBS platform, which was a quarter of the size.
This was the biggest IT integration project of its kind in the
financial sector. As analysts at one firm put it, “The integration of
NatWest will become a textbook example of how to do deals.”
Best-Practice Development: Adaptation Nokia uses a strategic plan-
ning process that follows many of the elements of best practice in
strategy creation. Every six months, up to 400 people are hand-
picked from across the company and divided into teams. The
teams are asked to explore five
to 15 themes that senior execu-
tives believe are most crucial to
the company’s future. For a
two-month period, the team
members interview a wide
range of internal and external
experts. The team members
then get together for two days
to consolidate their findings
and identify any additional
information they need. At the
end of the second round of
research, the teams prepare a
report and presentation for the
executive board. The informa-
tion from these reports is incorporated into what Nokia call its
“strategy road maps,” which are then shared with key employees.
Widely held beliefs about best practice in strategy creation
suggest that the process should be both top-down and bottom-
up and should include a focus on the short term, as well as con-
sideration of longer-term challenges and scenarios. The plan
should be written down and communicated to those assigned
to implement it. In other words, the basic elements of Nokia’s
strategy creation process can be found in textbooks of business
strategy and in the practices of companies across the world.
Nokia’s strategy creation process has developed and adapted
this external understanding of best practice to the firm’s business
goals. Adaptation has taken place in two key areas, which, as in
the case of RBS, are about speed and involvement. First, the norm
of best-practice strategy creation is an annual cycle. Nokia
adapted this to a six-month cycle because of the fast cycle time of
its industry. Second, the best-practice norm for strategy creation
suggests the involvement of a relatively small group of people.
Nokia involves more than 400 people across the company, an
adaptation to the complexity of its technology, which requires
multiple technological insights.
Best-Practice Core: Shared Knowledge From Across the Sector BP
also has its share of classic best-practice processes. Take, for
example, BP’s leadership development process. Over the last two
decades, BP’s senior team systematically has identified high-
potential employees and placed them in an “Individual Develop-
ment Programme.” Many members of the current senior team,
including Browne, have come through the IDP process. IDP par-
ticipants are given access to exciting and interesting jobs and have
opportunities to develop a broad range of competencies and
extensive networks. Yet, although this leadership process is
important to BP, it is no more than a reflection of industry best
practice. The executives responsible for the leadership process
Companies need both standard best-practice techniques as well as unique signature processes,
which are developed internally. The origin, development and core of the two differ greatly.
Understanding Best-Practice and Signature Processes
Best Practice Signature Processes
Origin “Bringing the outside in”: “Bringing the inside out”:
Starts with external and internal Evolves from a company-specific
search for best-practice processes history
Development Needs careful adaptation and Needs championing by executives
alignment to the business goal
and industry context
Core Shared knowledge from across Values
the sector
SPRING 2005 MIT SLOAN MANAGEMENT REVIEW 53
frequently meet with their colleagues from other multinational
companies. They attend conferences on leadership development
and read some of the books written on the topic. BP has a lead-
ership process that delivers a constant stream of talented young
people, as it is designed to. The process is a classic one, almost
indistinguishable from leadership programs existing at other
large multinational companies.
Good companies abound with best-practice processes. RBS’s
project management process, Nokia’s strategic planning process
and BP’s leadership development process are but single exam-
ples of broad portfolios of best practice that each company has
developed. These best-practice processes are built from tools
and techniques that are valuable in any organization and are
crucial to the engine of competition. But they are not unique,
and they can be easily replicated by others. In other words, they
are not signature processes.
How Signature Processes Evolve
In our research, we have discovered that best-practice processes
and signature processes develop along rather different paths. The
origin of RBS’s project management, Nokia’s strategy maps and
BP’s leadership development are all grounded in an external and
internal search for best practice. In contrast, we found that the
origins of the signature processes — RBS’s morning meetings,
Nokia’s modular structure and BP’s peer-assist process — were
different. Each of these signature processes was firmly embedded
in the history and values of the company and the executives that
lead it. At the core of best practice is shared industry knowledge,
whether about how strategic plans are created, executives devel-
oped or projects managed. At the core of signature processes are
the values of each company.3
Signature processes are not the same as best practice. Signa-
ture processes have the potential to advance the company’s com-
petitive position beyond just a level playing field. But to harness
this potential, executives have to understand the origin, develop-
ment and core of signature processes. Managers need, in fact, to
develop a whole new way of thinking about processes. (See “How
the Signature Processes Evolved,” p. 54.)
Signature Process Origins: A Company-Specific History When execu-
tives at BP, Nokia and RBS described and mapped how their sig-
nature processes developed, the descriptions were deeply rooted
in each company’s heritage and their own beliefs and values.
Take, for example, the origin of the morning meetings at
RBS, which the senior team can trace back to the bank’s found-
ing in 1727. The bank originally was one of many regional
banks serving local citizens, in this case in the Scottish city of
Edinburgh. Banking was a gentlemanly and leisurely business in
the 18th and 19th centuries: Bankers typically met with their
team in the mornings, and the afternoons were reserved for
more leisurely pursuits. The practice of morning meetings died
out in the 1930s at most banks, victim of a faster, more dislo-
cated time. However, the practice remained at RBS and has
evolved into a signature process.
The origin of Nokia’s modular structure can be traced back to
the software technology heritage the firm began to develop in
the 1980s. At that time, Nokia’s software technology was built
from two core elements: the software mantra of reusability, and
standardization through the creation of a shared common plat-
form. Reusability is considered crucial to software development.
When programmers at Nokia built new software programs, up
to 75% of the program typically was built by reconfiguring mod-
ules of previously developed software. This sped up the develop-
ment process, reduced the cost of making new programs and
ensured that knowledge could be rapidly shared. The technolog-
ical leverage Nokia achieved by reusability and reconfiguration
depended on the programmers’ skills in slicing and sequencing
the modules of previous programming.
This competence and philosophy of reusing modules, which
began in the 1980s as an element of its technology, became the
design foundation of the modular architecture of the company
structure. In the software programs, the modular units that were
reconfigured were pieces of written software. In the company
architecture, the modular units that were reconfigured were
modular teams of people with similar competencies and skills.
In the same way that modular reconfigurations ensured that
valuable software was not lost, the modular architecture ensured
that valuable skills, competencies and team relationships that
were held within teams of people were not lost or dissipated. In
effect, the signature process of structural modularity has its
roots in the software production process of reusability through
modularity and reconfiguration.
Nokia’s signature process of structural modularity also has its
roots in a technology philosophy of shared common platforms
The origin of the morning meetings at Royal Bank of Scotland [can be traced] back to the
bank’s founding in 1727, [when] banking was a gentlemanly and leisurely business.
54 MIT SLOAN MANAGEMENT REVIEW SPRING 2005
and standardization. Reconfiguring different modules of soft-
ware requires that each module be developed in a similar way
with a similar underlying architecture. That is, it requires a high
degree of standardization. For more than 20 years, a mindset, dis-
cipline and philosophy of reusability and standardization had
pervaded Nokia. It was well understood that only through com-
mon tools, platforms, technologies and languages could speed be
achieved. This became the backdrop to Nokia’s signature process:
the capacity to build modular corporate structure.
The quality of this signature process was tested in January
2004, when Nokia announced and then implemented what would
represent a fundamental organizational shake-up for most com-
panies. In to focus more closely on changing customer aspi-
rations, Nokia’s nine business units were restructured into four. At
the same time, in to ensure speed of innovation and pro-
duction across the globe, all the customer and market operations,
product development operations, and manufacturing, logistics
and support activities were reorganized on a companywide basis
into three horizontal business units. This organizational change
was made fully effective within one week and involved about 100
people assuming new jobs. The rest of the employees had no such
change because the modular teams to which they belonged were
simply reconfigured. The discipline, philosophy and mindset of
reconfiguration through standardization and shared platforms,
which had initially developed from the company’s technology his-
tory, ensured that Nokia could skillfully and rapidly reconfigure
its human resources to meet changing customer needs.
Signature Process Development: Championing by Executives Signa-
ture processes develop from the heritage and values of the com-
pany and are shaped by the philosophy and wisdom of the
executive team. BP’s peer-assist signature process was not con-
structed from an amalgam of best practices. Instead, it sprang
more than 15 years ago from the mind and philosophy of a young
business-unit head who passionately believed that businesses
could and should be more focused on cooperation and respect
and less on hierarchy and control. This young executive began to
put his ideas into practice over the years — initially in his own
small part of the business, then in a major business area and,
finally, when he became chief executive, across the whole of BP.
The signature process of peer assist has its heritage not in indus-
try best practice but in the values and beliefs of chief executive
Browne and his team.4 Browne explained the three core premises
of his philosophy: “that people worked better in smaller units …
that any organization of scale should create proprietary knowl-
edge through learning … that there is a very different interaction
between people of equal standing.”
Peer groups were created by breaking the monolith of the old
BP into 150 business units, which enabled people to work in
smaller units. The peer-assist process created unprecedented
opportunities for learning, as people from different parts of the
company shared ideas and knowledge. By creating an organiza-
tional structure that was more horizontal than vertical, Browne
was able to transform many previous interactions — which
would predominantly have been from senior executive to middle
manager — to interactions among peers of equal standing.
Browne’s philosophy and passion is clearly evident in BP’s
peer process. The same degree of philosophy and passion is
apparent in how Nokia’s executive team had talked about and
then designed their signature process of structural modularity,
which reflects the personal heritage, knowledge and philosophy
of the company’s senior team.
Unlike best-practice ideas adopted from outside the organization, signature processes are rooted in a company’s history and values.
How the Signature Processes Evolved
Company
Signature Process
Origin
(Company-specific)
Development
(By executive champion)
Core
(Values)
RBS
Morning meetings
Banking tradition dating back
to 1727
■ CEO is rigorous manager
■ Executive team values
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