Also known as past practices, established practices are the activities of business firms that are based on the policies and procedures implemented and utilized by those companies in the past. The general concept can be applied to a wide range of situations outside the business world, including governmental operations or even the medical field. Sometimes expressed in direct terms in legally binding contracts, established practices may also be apparent based on the history of the company and how company officers applied policies and procedures to specific events.
The value of established practices is that everyone involved with the company has some basis for projecting the reaction of company officers to certain events. Drawing on how the business functioned within certain economic situations or dealt with changes in its internal structure, it is easier for employees, investors, and other interested parties to anticipate how the business will respond to a current situation that is under development. Since those past practices may be affirmed in the founding documents of the company or at least widely used in past situations, taking them into consideration can be very helpful in planning to face future events as well as deciding whether to retain an interest in the business.
There are several benefits to established practices. The existence of time-honored ways of doing business helps to provide some degree of stability to the business operation. For those employed by the company, this means a reasonable concept of what to expect from one day to the next. Often, what has gone before can provide a great deal of information on how to deal with anticipated changes in the marketplace. Investors can also look at the past performance and relate that history to the future when deciding whether to buy additional shares, hold onto those already purchased, or sell off all or part of the shares in anticipation of some future movement in the marketplace.
While there are a number of advantages to established practices, there are also a few liabilities to consider. Following past practices without consideration of some new approach can often undermine the ability of a business to adjust to new market situations. The end result can be the loss of business volume and market share, ultimately leading to the failure of the company. A good compromise is to always mine the established practices in order to ascertain the degree or relevance to new challengers, then make adaptations or alterations when and as needed to meet those new circumstances.
