The April 2013 issue of Harvard Business Review featured an article called “Three Rules for Making a Company Truly Great.” The authors, Michael E. Raynor and Mumtaz Ahmed, looked at the 25,000-plus companies that have traded on any U.S. exchange at any time from 1966 to 2010 and identified several hundred companies that have consistently achieved superior return on assets. They then looked for what those superior-performing companies were doing differently from others.
They were mystified to find that the top companies weren’t doing anything differently. No measurable behaviors set them apart; neither customer focus, nor innovation, nor a propensity to make acquisitions, nor any particular action or approach. It all seemed to depend.
By pressing on, however, the researchers eventually discovered the answer: The winning organizations weren’t doing differently; they were thinking differently. Their choices were consistent with three simple rules:
- Better before cheaper
- Revenue before cost
- There are no other rules—so change anything you must to follow Rules 1 and 2
I love this list, because I’ve long believed that good leadership isn’t so much about what one does as it is about how one thinks (which then drives what one does). And now, there’s a massive quantitative study that supports my opinion! Wonderful!
Moreover, Rules 1 and 2, though simple, are undeniably compelling. It’s nice to have confirmation that competing solely on low prices and cost-cutting is not the road to success.
And yet, I can’t help feeling there’s a rule missing. The third rule (“there are no other rules”) feels like a cop-out. Granted, the researchers must have been limited to reviewing written information about the high-performing companies; given the huge size of the sample, they couldn’t do in-depth case studies. Had they been able to interview leaders within each organization, I think they might have discovered a genuine Rule No. 3 to go along with Better before cheaper and Revenue before cost.
That rule would be: People before process.
When my colleagues and I did the research for our book Strategic Speed, we analyzed a number of organizations that execute faster than others. While our research did point to a number of actions companies can take, we—like Raynor and Ahmed—found that success is largely a matter of how leaders think. We discovered that in slower companies, leaders focus mostly on processes, systems, and technologies in the hope of becoming more efficient. In the faster companies, in contrast, leaders focus first on people issues, helping their work force become more clear, unified, and agile.
More on Rule No. 3 in next week’s post. In the meantime, I’m curious: What would be your Rule No. 3?