THE THREE RULES

A rigorous and lively study of excellence in business performance.

Working from a multiyear database of 25,000 corporations, Deloitte Consulting officers Raynor (The Innovator's Manifesto: Deliberate Disruption for Transformational Growth, 2011, etc.) and Ahmed have narrowed down the data to identify the qualities of three tiers of performance, across nine economic sectors: “miracle workers,” “long runners” and “average Joes.” The authors’ results run counter to the current prevailing wisdom, which favors return-driven, short-term interest over long-term concentration on building a lasting business. They base their three rules—“better before cheaper,” “revenue before cost” and “there are no other rules”—on the performance of the 27 companies that comprise their grid, and their data shows that companies that can build an advantage based on nonprice factors tend to outperform companies that attempt to grab market share by competing on price alone. Businesses that successfully build revenue as a first priority also outperform those that focus mostly on controlling costs. Since there are multiple ways of evaluating both “better” in nonprice terms and the relationship between revenue and costs, based on the particular situation, their first two rules define a substantial area for the application of managerial talent over time. The authors argue for a fundamental shift in point of view, which is more valuable than many other specific recipes for business success. Their rules make possible “a widespread and shared consistency of action that is all but unachievable otherwise” and permit a balance between short-term and longer-term considerations. Raynor and Ahmed provide a way to separate exceptional performance from the noise of day-to-day statistical variation.

A major contribution to the literature of business success.