"What Really Works" - Harvard Business Review

It's been a while since I've blogged... actually about six months!! Recently I read an article for my Ivey MBA that I thought would be interesting to share...

Nitin Nohria, William Joyce, and Bruce Roberson selected and studied 160 companies in 40 industries over a span of 10 years. Through the study, they categorized these companies into one of four types - Winners, climbers, tumblers, and losers.

Winners: consistently higher Total Return to Shareholders (TRS) than industry in both first 5-year half, and second 5-year half.
Climbers: lower TRS in first 5-year, higher TRS in last 5-year
You get the idea...

So they found that winners consistently performed better in 4 primary practices and 2 secondary practices (out of 4 possible choices), which they termed the 4+2 formula. It seems that having a 3rd or a 4th secondary practice doesn't necessarily improve their success, so 2 is the magic number.

4 Primary Practices - Strategy, execution, culture, and structure
4 Secondary Practices - talent, innovation, leadership, and M&A

The article goes into good depth on each of the topics, and surprisingly out of the many factors that affect each of these practices, only a few key ones matter.

Strategy - devise and maintain a clearly stated, focused strategy
- clear about your strategy & consistently communicate it to customers, employees & shareholders
- be careful of how to pursue growth, don't be tempted by just any opportunity to expand, being pushed into areas unrelated to the core (strategic drift)

Execution - develop and maintain flawless operational execution
- steady winners increase its productivity by about twice the industry's average
- judge investments by whether or not they significantly lower costs or boost output
- be realistic, understand there is no way they can outperform their competitors in every facet of operations, so determine which processes are most important to meet customers' needs
- be very clear about the standards to meet (1/3 of winners offer only avg product quality)

Culture - develop and maintain a performance-oriented culture
- champion high-level performance and ethical behaviour
- encourages outstanding individual and team contributions, and holds employees responsible for success
- pay-for-performance, set specific goals, raise the bar every year, and enforce benchmarks
- Makes employee's work more interesting, exciting, and rewarding
- Write down values in clear, forceful language and demonstrate them with concrete actions

Structure - build and maintain a fast, flexible, flat organization
- Trim every possible vestige of unnecessary bureaucracy - extra layers of mgmt, an abundance of rules & regulations, outdated formalities
- Make structures and processes as simple as possible
- Winners spent considerable time, money, and energy on programs and technologies designed to force open the boundaries and get divisions & departments to cooperate and exchange information
- Future rests not on brilliance of executives but on dedication and inventiveness of their middle managers and employees
- Don't bog down decision making by lengthy chair of command, so employees are free to create and innovate

Two of four secondary practices
Talent - hold on to talented employees and find more
- winners hire execs from outside half as often as losers did
- much cheaper to develop a star than it is to go out and buy one, continuity & company loyalty important
- offer training & development that can prepare employees for new jobs & encourage enrollment

Innovation - make industry-transforming innovations
- not only new products & service, but also new technologies to internal workings that can transform an industry
- have the ability to foresee and prepare to disruptive events
- ambition to lead the way with major, industry-changing innovations & willingness to cannibalize offerings, resisting the temptation to wring every last cent out of an existing product before introducing another to take its place

Leadership - find leaders who are committed to the business and its people
- CEOs influence 15% of total variance in a company's profitability or TRS
- choice of new CEO is just as important as choice of whether to stay in the same industry or enter a new one
- ability to build relationships with people at all levels of org and inspire the rest of mgmt team to do the same
- ability to spot opportunities and problems early, seizing opportunities before their competitors do and tackling problems before they become troublesome nightmares
- board members should truly understand the business & passionately committed to its success

Mergers & partnerships - seek growth through mergers & partnerships
- frequent (every 2-3 years) and small (<20% of size) deals more successful than large, occasional deals
- acquire to cross-sell, economies of scale, gain market share
- didn't enter into areas far removed from their core business - generally a losing proposition
- only make sense if leverage existing customer relationship or complements both companies' existing strengths

It was definitely a good read in knowing that many things thought to make a difference actually didn't!!