3 Rules for Making a Company Great

successsignThe Harvard Business Review publishes on a range of business topics, and while their content is often good, sometimes one wonders. This is one of those times. In the April 2013 issue they published an article, “3 Rules for Success,” based on the research of two members of Deloitte, one of whom is their Chief Strategy Officer. The article starts with this statement: “Much of the strategy and management advice that business leaders turn to is unreliable or impractical.” I agree.

In the authors’ quest to give valuable advice they undertook “rigorous research …” that involved “…a statistical study of thousands of companies.” Their research found three fundamental rules that make companies great. Before I state the rules, one needs to be clear that their findings are based on the number of companies who achieved superior results using a particular approach, and this therefore determined the “rules.” That is, the more companies that were successful with an approach, the more likely it was to be a “rule.” Turns out they only found three rules that matter.

The rules:

  1. Better before cheaper. That is, compete on a differentiation other than price.
  2. Revenue before cost. That is, focus on increased revenue not lower costs.
  3. There is no rule three, only the first two count.

Amazing findings until you think about the basis of the research and their conclusions. They found more companies were successful with a differentiation strategy than a cheaper price strategy. Big surprise … not.

There are many ways to successfully differentiate a product or service, but there is only one low price leader. So in any given market there will always be more companies than one that are successful with differentiation, so that strategy will always have more successful companies than the one low price leader.

Ditto for revenue before costs. There again can only be one lowest cost producer, while there are many ways to grow revenue by varying price and volume. Again no surprise that there are more successful companies with revenue growth strategies than the one lowest cost producer.

Liars, damn liars, and statisticians comes to mind.

Mitch

 

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