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The Three Rules: How Exceptional Companies Think

Michael E. Raynor and Mumtaz Ahmed explore the road best traveled

Why do some companies achieve exceptional performance while so many others struggle to survive?

In search of an answer that could be supported with empirical proof, coauthors Michael E. Raynor and Mumtaz Ahmed, along with their team of researchers at Deloitte, embarked on a daunting quest.

From a database of more than 25,000 companies from hundreds of industries covering 45 years, they uncovered 344 companies that qualified as statistically "exceptional." But after five years of research, their attempt to find a consistent pattern of behavior that separated the exceptional companies from the pack led only to humbling dead ends and blind alleys. They were stumped.

It was only when they shifted their emphasis and examined how exceptional companies think, instead of how they act, that they were able to discern the signal in the noise.

The fruits of their quest are revealed in The Three Rules, a book that provides the hard evidence useful to help leaders set their agendas and make critical decisions despite ambiguity and uncertainty. The rules are lodestones that point the way toward profitable paths forward. The rules will show you not the roads less traveled, but help you identify the roads best traveled.

What are The Three Rules?

  • Better before cheaper: Compete on differentiators other than price.
  • Revenue before cost: Drive superior profitability with higher prices or higher volumes, not lower cost.
  • There are no other rules: Change anything/everything in order to abide by the first two rules.

These rules capture how the high-performing outliers deliver superior performance over the long run, despite facing the same constraints as competitors. The Three Rules provides powerful and detailed examples: Merck in the pharmaceutical industry, Abercrombie & Fitch in retail and Maytag in appliances as well as smaller, less headline- grabbing companies like Weis Markets in grocery and Heartland Express in trucking. When faced with difficult decisions — do a deal or build from within?; diversify or stick to the knitting?; take a risk or play it safe? — these three rules can guide business leaders to make the right choices to create and hew to a path to exceptional performance. The more persistently these rules are pursued, the better the chances of beating the competition—and the odds—and becoming truly exceptional.

Featured insights

The profit parfait: Exploring the deeper layers of corporate profitability
In this Deloitte University Press article, the authors investigate the primary driver of superior profitability, return on sales (ROS), and focus on its determinants: revenue and cost.
Pulling ahead vs. catching up: Trade-offs and the quest for exceptional profitability
To pull away from the pack one needs to break performance trade-offs by getting better in several ways at once. The struggle for greatness, however, is far more complex and subtle.
To thine own self be true: Sustaining superior performance
When and how a company must change in order to sustain superior performance is an evergreen topic of the art and science of management.
A random search for excellence: The Persistence Project
Many believe we can learn how to be great by studying greatness. But what is great performance? Read this monograph on how to separate fable from fact in studies of high performance.
Growth's triple crown
When it comes to exceptional performance, the best companies don't make trade-offs: They break them. Find out what does it take to win growth's "triple crown."

 

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