In the hurly-burly of business competition, executives are constantly seeking clarity about which management practices lead to business success. From TQM and Six Sigma to downsizing and reengineering, their tool chest of management options is constantly growing. But which ones really work? How do you separate the fads from those practices that will help you achieve measurable results?
A groundbreaking new study attempts to answer these questions. Conducted over a 10-year period in 160 companies, the study examined the effectiveness of more than 200 established management practices. As you might suspect, most of the techniques were found to have little or no impact on performance. What does matter, the researchers found, is having a strong grasp of the business basics: strategy, execution, culture, and structure. Another finding: Companies that outperform their industry peers augment their skill in these four areas with a strong focus on any two of the following: talent, leadership, innovation, and mergers.
The researchers call this winning combination the “4+2 formula” for business success. “A company that consistently follows this formula,” they claim, “has better than a 90 percent chance of sustaining superior business performance.”
Excel in the Four Basics
The four basic practices identified in the study are certainly not new, but implementing them well can be hard work. This is what the researchers found to be hallmarks of effective management action in each area:
Strategy. Be clear about what your strategy is and consistently communicate it to customers, employees, and shareholders. As you grow, a clear strategy will help you avoid moving into areas unrelated to your core business, which creates strategic drift.
Execution. Disciplined attention to operations really counts. The best companies determine which processes are most important to meeting their customers’ needs, and then focus their energies on making those processes as efficient as possible.
Culture. Work to build a culture that champions high-level performance and holds everyone, not just managers, responsible for results. The best way to maintain high standards: Directly reward achievement, and don’t hand out bonuses if targets aren’t met.
Structure. While structure is always the last change lever you should pull, this study found that it makes little difference whether you reorganize by function or by product. What is critical is that you eliminate bureaucracy and make your structures as simple as possible, not only for your employees but also for your vendors and customers.
Embrace Any Two of These Four
The winning companies in this study complemented their strengths in the four primary practices with superior performance in any two of the following:
Talent. One indication that a company has great talent is the ease with which it can replace executives who are lost to competitors. The best companies promote from within and offer training and development to prepare employees for new jobs in the company.
Leadership. What’s essential to CEO performance is the foresight to identify problems and opportunities early, the desire to build relationships with people at all levels of the organization, and the ability to inspire managers to do the same.
Innovation. Agile companies anticipate disruptive events in their industries, rather than reacting when it’s already too late. They also resist the temptation to wring every last dime out of an existing product before introducing another to take its place.
Mergers. The winners in this study sought mergers for a variety of reasons: to enhance cross-selling opportunities, achieve economies of scale, or simply grow market share. What they didn’t do was enter into mergers in order to diversify into areas far removed from their core business. That’s generally a losing proposition, the researchers found.
For more information, see the July 2003 issue of Harvard Business Review. For a reprint (#R0307C), call 617-783-7500 or email your request to firstname.lastname@example.org