The Journey to Exceptional Performance

When it comes to corporate financial performance, we typically think in absolute terms, measuring ROA in percentage points. We are less accustomed to thinking of corporate performance in relative terms, but knowing a company’s relative performance is essential to setting and achieving performance improvement targets and, eventually, exceptional performance.

Rob Del Vicario, Michael E. Raynor, Mumtaz Ahmed

Calculating a company’s relative performance … is not straightforward, and for at least two reasons. First, we wish to capture the performance of the company that is a function of those factors most subject to the company’s control. When it comes to assessing a company’s historical performance, we typically wish to separate out the material impact that year, industry, and company size have on profitability. … [ Read more ]

Michael E. Raynor and Mumtaz Ahmed

Our frustration with most success studies is not that any particular directive is wrong. Rather, somewhat ironically, it is that all too often many researchers offer prescriptions that could never be wrong; that is, their claims cannot be proven to be false.

The Journey to Exceptional Performance

When it comes to corporate financial performance, we typically think in absolute terms, measuring ROA in percentage points. We are less accustomed to thinking of corporate performance in relative terms, but knowing a company’s relative performance is essential to setting and achieving performance improvement targets and, eventually, exceptional performance.

Editor’s Note: another excellent entry in Deloitte’s Three Rules research series; this one offers fairly intuitive … [ Read more ]

Different Temptations, Same Rules

Do the Three Rules of exceptional performance apply to smaller companies? Differences in size and ownership structure, as well as resources and the demands of explosive growth, can make for a very different set of pressures and opportunities.

Found in Translation: The Lingua Franca of Exceptional Performance

The three rules that provided the title for Raynor and Ahmed’s recent book on exceptional performance are based on the large-scale and detailed study of American corporations. But do these findings mean anything outside of the American context? Do they need to be adapted? Are they even relevant?

Three Rules for Exceptional Performance

Maybe it’s time to have a look behind the generally accepted rules for successful, sustained performance. As readers will learn, and as these authors write, the rules that really drive companies to superior performance are quite different than what many of us have been led to believe.

Editor’s Note: an especially good read for the authors’ critical look at the flaws of most popular business … [ Read more ]

Three Rules: How Exceptional Companies Think

In their recently published The Three Rules: How Exceptional Companies Think, the authors suggest that such companies all follow the same recipe but use different ingredients, and that they deliver superior levels of performance for longer than anyone has a right to expect. Is persistent, exceptional performance a function of deep moats and thick ramparts, or agility and flexibility in response to competition?

The Profit Parfait: Exploring the Deeper Layers of Corporate Profitability

In previous articles, the authors established the importance of retaining a differentiated, nonprice position in the market. Exceptional companies face a trade-off between increasing ROA through return on sales (ROS) or through total asset turnover (TAT), and the best performers systematically choose higher ROS. We now focus on the primary driver of superior profitability, ROS, and on its determinants: revenue and cost.

Pulling Ahead vs. Catching Up: Tradeoffs and the Quest for Exceptional Profitability

To pull away from the pack one needs to break performance tradeoffs by getting better in several ways at once. The struggle for greatness, however, is far more complex and subtle. Prevailing over capable adversaries requires accepting and exploiting tradeoffs and very often seeking an advantage in only a very small number of very carefully identified ways, while frequently accepting a performance disadvantage along other … [ Read more ]

To Thine Own Self Be True

Case-based analysis suggests that although each of three types of strategic change—Position, Market and Competency—can succeed, changing Position brings with it the greatest risks, while changing Markets and Competencies are typically more successful paths to enduring performance. These observations can help managers see more clearly both the risks and rewards of the different types of strategic change available to them, and to assess their options … [ Read more ]

Growth’s Triple Crown

Three years ago, Deloitte Consulting LLP launched The Persistence Project to identify the management practices that contribute most to sustained, superior corporate performance. Preliminary results have been published in the Harvard Business Review and the Annals of Applied Statistics. This article is the fourth in a series, providing a preview of the project’s findings.

Editor’s Note: This particular “best practices” research project is especially interesting in … [ Read more ]

Michael Raynor, Mumtaz Ahmed

Exceptional companies all have the same recipe (better before cheaper, revenue before cost) but use different ingredients. In addition to creating superior levels of performance, exceptional companies deliver superior levels of performance for longer than anyone has a right to expect. It seems worth exploring, then, if and how exceptional companies adapt. Is exceptional performance a function of deep moats and thick ramparts, or does … [ Read more ]

Michael Raynor, Mumtaz Ahmed

The conventional wisdom [on mergers and acquisitions] has crystallized into “buyer beware,” which is certainly not bad advice but not particularly helpful. (When would one ever think it is good not to beware?) Research on the topic is largely consistent with this view, observing that acquirers, on average, earn about the going rate of return on their investments but are subject to wide variation, sometimes … [ Read more ]

Michael Raynor, Mumtaz Ahmed

Advice on how to compete successfully is subject to an irony that borders on paradox. If the advice is right, then it will be universally adopted; if it is universally adopted, it does not improve your relative performance; if it does not improve your relative performance, it is wrong. In other words, if the advice is right, then the advice is wrong.

The Three Rules: How Exceptional Companies Think

Finally, an answer to the ultimate business question: How do some companies achieve exceptional performance over the long term?

In every sector, there’s an outlier. How do these exceptional companies deliver superior perfor­mance over the long run despite facing the same constraints as competitors? What are they doing differently? What can we learn from them?

Michael E. Raynor and Mumtaz Ahmed have analyzed data on more than … [ Read more ]

Michael Raynor, Mumtaz Ahmed

[In comparing the performance of companies,] to learn something useful, we must decompose each company’s ROA, which exposes the underlying structure of the relevant profitability advantages. Specifically, ROA is the product of two very different elements of a company’s operations—return on sales (ROS = income/sales) and total asset turnover (TAT = sales/assets). One company’s ROA advantage over another need not be a function of advantages … [ Read more ]

Michael Raynor, Mumtaz Ahmed

Changes in absolute performance can be misleading: Declines might not signal that anything needs fixing, just as increases might not mean you’re doing anything right. Instead, the key to long-term survival seems to lie in knowing when material change is required in order to preserve one’s relative performance position.

Michael Raynor, Ragu Gurumurthy and Mumtaz Ahmed with Jeff schulz and Rajiv Vaidyanathan

These [research] findings are in many ways consistent with both the conventional wisdom and the academic research on M&A. It is not uncommon to hear the refrain that acquisitions—especially larger ones—are systematically associated with lower profitability and lower shareholder returns for the acquiring firm. What we observe is that triple crown winners generate a mere 7 percent, on average, of their lifetime growth from M&A, … [ Read more ]

Rank Ignorance

To get beyond the myths told of champions born of randomness we need an entirely new way to think about corporate performance.