4 rules for running a business


Many companies in mature sectors have been known to embrace the latest management thinking (or fad) to help cope with low market growth, margin compression and lack of differentiation. Examples of these “big ideas” include lean management, outsourcing, business process re-engineering, offshoring and, lately, social business and cloud computing. Despite considerable effort and investment, most of these firms have been unable to outperform their peers over the long term, often due to weak strategic fit, poor planning or flawed execution.

In fact, only 344 of 25,000 public companies analyzed in the Harvard Business Review by Michael Raynor and Mumtaz Ahmed of Deloitte consistently produced above average return on assets from 1966 to 2010.

What made these firms special? Two rules identified in the study — noteworthy for their simplicity, reliability and practicality — helped drive the extraordinary business performance. Below them, I’ve included two other rules for achieving exceptional performance well worthy of consideration.

Better before cheaper

Companies need to focus first on service, quality, design or distribution — not on being the lowest-price competitor. Non-price differentiated brands tend to command richer margins, which can support further product and marketing investments, which, over time, further sustain the firm’s competitive position and profitability.

Revenue growth before costs

Leaders should prioritize top-line revenue by driving volume gains, competing in growing categories and taking advantage of every opportunity to maximize pricing. Volume increases also bring other benefits, including scale economies and channel optimization, which help drive down operating costs and block out competition.

Brands matter

“Brand equity might be the only asset that consistently generates differentiation, higher margins and long-term revenue streams,” says Jerry Mancini, president, Dole Packaged Foods Company. “Dole’s focus on value, quality and brand-building has helped deliver almost 100% brand awareness in close to 100 countries. This allows us, for example, to provide transient consumers around the world with the same quality and unique products they are familiar with, wherever they go.” This strong brand equity has enabled Dole to more easily tap new markets and categories — and drive higher volumes.

Maximize human capital

“Competition, technology and customers are never static,” says Paul Bruner, a partner with McCracken Executive Search. “The key to long-term success is attracting and developing leaders of exceptional character, with the brains, passion and resourcefulness to adapt to and lead through changing circumstances.” Organizations need to focus on recruiting and training the right employees and reinforcing positive behaviours through innovative training and compensation programs.

To be clear, the above four rules suggest a direction, not specific strategies and tactics; it is up to management to make the tough strategic choices and back them up with good plans and sufficient investment. Leaders still need to understand where they should compete (i.e., which markets with which value proposition) and what they are especially good at (i.e., organizational and asset fit). They’ll also need to support their mission by assembling the right capabilities and cultivating them through a culture of continuous improvement and adaptability. Finally, the company and shareholders must recognize they are playing the long game — they will need patience and resilience as well as management systems that reinforce long-term thinking.

For more information on our services or work, please visit the Quanta Consulting Inc. web site.

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