When it comes to improving business performance, managers have no shortage of tools and techniques from which to choose. But what really works? What are the critical factors to ensuring sustainable business achievements? And what’s the best way to measure goal achievement?
In 2003, a five-year study was conducted with more than 50 academics and consultants. The study was subsequently updated for an additional five-years to further test findings. The principals of the study and the authors of What Really Works: the 4+2 Formula for Sustained Business Success were Professor Nitin Nohria, Harvard Business School; Professor William Joyce, Dartmouth’s Amos Tuck School of Business Administration; and Bruce Roberson, then at McKinsey & Company. They subsequently published a book with their detailed findings.
They examined more than 200 well-established management practices as they were employed over a 10-year period by 160 companies from a broad range of sectors. Each company in the study had market capitalization ranging between $150 million and $9 billion. As results were tabulated, companies were grouped into one of four categories: “Winners”, “Tumblers”, “Climbers” and “Losers”.
The findings were as startling as they were unexpected. Most of the management tools and techniques studied had no direct causal relationship to superior business performance. What does matter, it turns out, is having a strong grasp of business basics. And companies that exhibited true basic business prowess saw spectacular returns that outpaced the market handsomely.
Investors in the top 25% of companies, the “Winners”, saw a nearly tenfold increase in their investment, with total returns to shareholders averaging 945% in 10 years. In contrast, the companies in the bottom 25% produced just a 62% total return to shareholders over the same decade.
From 1986 to 2011, these same winning companies saw average share price increases of 1,870% over this 25-year period, versus just 495% for S&P500 companies. During these 25 years, market capitalization grew by 4,040% or an average of 162% per year, and annual revenue growth was up 110% per year! The top tier winning companies in the study included many well known names such as Avery Dennison, Campbell Soup, Cardinal Health, Citigroup, Duke Power, General Electric, Home Depot, Nucor, Procter & Gamble, Target and Walgreens, to name a few.
Without exception, companies that outperformed their industry peers excelled at what is called the four primary management practices, and mastered two of the four secondary practices.
The 4 Primary Practices: (excellence in all 4 required)
1. Strategy – Make your overall direction clear and narrowly focused
2. Execution – Flawless implementation
3. Culture – Build a performance-based organization
4. Structure – Make your organization fast & flat
The 4 Secondary Practices: (excellence in ANY 2 out of 4 required)
1. Talent – Make talent stick around and develop more
2. Leadership – Make your leaders committed to your business
3. Innovation – Make industry-transforming innovations
4. Mergers & Partnerships – Make growth happen with alliances
The eight essential management practices are not new, nor is their importance particularly surprising or counterintuitive. But implementing the 4+2 formula for success is not simple. Companies all too easily forget or ignore the basics. And succeeding at the eight business practices is hard work. Maintaining a laserlike focus on strategy alone, year in and year out, can be grueling. Yet the winning companies in the study were running full tilt on six tracks at once—impressive when you consider that a single misstep on any of the six can be fatal. The research found that less than 5 percent of all publicly traded companies maintain a total return to shareholders greater than their industry peers for more than ten years. And so, it seems, there is value in being reminded from time to time what really works.
What if your organization’s growth was on par with the achievements these companies consistently sustain over long periods? What if you could achieve similar success by modeling what these companies do?
Now you can.
Avidium, You, and 4+2
A company that consistently follows the 4+2 formula has a better than 90% chance of achieving superior performance. We partner with our clients to help identify the best ways to make enormous and sustainable gains in the shortest possible timeframe, using the 4+2 formula as our foundation for Inspired Thinking.
To learn more about how we help clients achieve the most out of the 4+2 formula components, please visit these links: Inspired Strategy, Inspired Execution, Inspired Culture, Inspired Structure, Inspired Talent, Inspired Innovation, Inspired Leadership, and Inspired Alliances.