Much of the strategy and management advice that business leaders turn to is unreliable or impractical. That’s because those who would guide us underestimate the power of chance.Executives speak proudly of corporate achievements that may be only lucky coincidences. Unfortunately, almost no one provides scientifically credible answers to every business leader’s basic questions about superior performance: Which companies are worth studying? What sets them apart? How can we follow their examples?
Frustrated by the lack of rigorous research, they undertook a statistical study of thousands of companies, and eventually identified several hundred among them that have done well enough for a long enough period of time to qualify as truly exceptional. Then they discovered something startling: The many and diverse choices that made certain companies great were consistent with just three seemingly elementary rules:
1. Better before cheaper—in other words, compete on differentiators other than price.
2. Revenue before cost—that is, prioritize increasing revenue over reducing costs.
3. There are no other rules—so change anything you must to follow Rules 1 and 2.
The rules don’t dictate specific behaviors; nor are they even general strategies. They’re foundational concepts on which companies have built greatness over many years.Nevertheless, the rules can be used to help today’s and tomorrow’s leaders increase the chances that their companies, too, will deliver decades of exceptional performance.
Better before cheaper The authors found that Miracle Workers competed mainly by offering superior non-price benefits such as a great brand, exciting style, or excellent functionality, durability, or convenience. “Average Joe” companies, by contrast, competed mainly on price, while the Long Runners showed no clear focus.
Revenue before cost The authors say top-performing companies “garner superior profits by achieving higher revenue than their rivals, through either higher prices or greater volume.” Only rarely was “cost leadership” a driver of superior profitability.
There are no other rules This cheeky rule was developed to underscore the idea that other strategies that supposedly lead to business success, from operational excellence to corporate culture, don’t seem to matter in a statistically consistent way.
