In 2013 Michael Raynor and Mumtaz Ahed delivered a research-based proposition as to “How some companies achieve exceptional performance over the long term”. The Three Rules: How Exceptional Companies Think is a great read and given its clarity of message and ultimate impact on any business, it truly does warrant the time investment.
What constituted exceptional performance was not immediately obvious, but after analysing 45 years of data on more than 25000 companies – they did establish a workable framework. From the 25000 companies, they only found 344 companies that met their exceptional criteria and then of those only 174 companies fell into their “miracle workers” category. This segmentation approach allowed them to compare the exceptional companies to good and then to average.
Through their benchmarking Raynor and Ahed established The Three Rules:
- Better before cheaper. Companies are more successful for longer when they focus on higher performance and high quality. Rather than pushing two offerings at lower prices.
- Revenue before cost. Exceptional companies always focused on increasing profitability by focusing on increasing revenue over decreasing costs – even if this approach incurred higher costs. Because a dollar more of revenue is worth more than a dollar less of cost!
- There are no other rules. Exceptional companies clearly focused on the first two rules and did not cloud their focus.
While these rules appear to be common sense, they are not the focus of most companies.
The ultimate conclusion from their exhaustive research was exceptional performance requires the ability to change to stay the same. Exceptional companies stuck or returned to the Three Rules to delivered superior results (growth, revenue etc) for longer.