A Formula For Sustained Success

Eight management practices distinguish the 5% of companies that consistently outperform the market.

What are the elements that contribute to a company’s success? A five-year study called the Evergreen Project analyzed the management practices that directly correlate with superior corporate performance as measured by total return to shareholders.

The study found that just eight practices, four primary and four secondary, make all the difference.  Winning companies achieved excellence in all four of the primary practices, plus two of the secondary ones.  Losing companies failed to do so.  The four primary management practices we identified are: strategy, execution, culture, and structure. The four secondary areas are talent, leadership, innovation, and mergers and partnerships.

Practice 1: Devise and maintain a clearly stated, focused strategy.  Whether the strategy is based on low prices or innovative products, it should double your core business every five years while simultaneously building a related new business to about half that size.  The strategy must be sharply defined, clearly communicated, and well understood by employees, customers, partners, and investors.

One of the key mandates we found among winners was a strategy focused on growing the core business.  Too many leaders, besieged by demands for more support from all segments of the company, allow their resources to be nibbled away.  Winning companies keep their goals firmly in mind and tailor their budgets to fit.

Flawless execution

For managers, the successful pursuit of the strategy practice means following five mandates:

  • build your strategy around a clear value proposition for the customer.
  • develop strategy from the outside in.  Base it on what your customers, partners, and investors have to say.
  • fine-tune the strategy to changes in the marketplace.
  • clearly communicate your strategy within the organization, and among customers and external stakeholders.
  • beware the unfamiliar.  Grow your core business. 

Practice 2:

Develop and maintain flawless operational execution. If you can’t always delight your customers, you must at least never disappoint them.  There’s no question that poor quality hurts.

Superior execution can be achieved only through intense and continuing study and effort. Managers also must be willing to ignore some conventional wisdom.

Practice 3:

Develop and maintain a performance-oriented culture. Corporate-culture advocates sometimes argue that if you can make the work fun, all else will follow.  But the study results suggest that winning corporate cultures put fun second to high performance.  First they do the job well; then they celebrate.

The four mandates for winning corporate cultures are: Inspire all to do their best. Establish and abide by clear company values.  Reward achievement with praise and pay, but keep raising the performance bar.  Create a work environment that’s challenging, satisfying, and fun.

Practice 4:

 

Maintain a fast, flexible, flat organization.  There’s just one kind of structure that really counts: one that reduces bureaucracy and simplifies work.  Procedures and protocols–what bureaucracy is, after all—are absolutely necessary to keep large organizations functioning smoothly.  But an excess of them puts roadblocks in the way of progress and dampens employees’ enthusiasm and energy.  Winners trim away every vestige of bureaucracy.

The mandates for winning corporate structures are: Eliminate redundant organizational layers and bureaucratic structures and behaviors.  Promote cooperation and information exchange across the company.  Keep your best people close to the action and your front-line stars in place.

Beyond the four major management practices that lead to success are four secondary ones:

  1. Hold onto talented employees and find more.  The most important indicator of the depth and quality of your talent is whether you can grow your own stars from within instead of buying talented outsiders in every crisis. 2.     Winning companies promote from within whenever possible, create top-of-the-line training, and design jobs that challenge their best performers.  And their leaders get personally involved in winning the war for talent.
  2. Make industry-transforming innovations.  One might expect that winners would excel at innovation—but only a bare majority did.
  3. Make growth happen with mergers and partnerships. Internally generated growth is essential, but it’s not usually enough.  Best practices in mergers and acquisitions include buying new businesses that leverage your existing customer relationships and complement your strengths, and developing a systematic capability to identify, screen, and close deals.
  4. Keep leaders and directors committed to the business.  Great chief executives communicate their vision so convincingly that others adopt it, and they have great integrity in word and action.  When confronted by moral dilemmas, they don’t hesitate to resolve them fairly and quickly.

(adapted from an article by by William Joyce, Nitin Nohria, and Bruce Roberson, Optimize Magazine,May 2003, Issue 19)

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