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The 4 + 2 Management Practices Every Great Company Has

Today was the first day of class (see previous post for details as to why I’m spending my spring break in a dorm room on the other side of the country).

Nitin Nohria, the dean of HBS spoke at the close of our first day. Nitin presented some fascinating research he performed. Basically he wanted to test the assumptions of all the business management books on what management practices really lead to great companies.

From 1986-1990 Nitin and his army of students looked at multiple industries and identified the public companies that out preformed their competitors. Then they looked at all those companies (top performing and otherwise)  from the time period of 1990-1996 to see which companies maintained the top spots and which ones didn’t. His research identified 4 categories:

  1. Winners: Companies that outperformed their industry for the full 10 years.
  2. Losers: Companies that underperformed in their industry for the full 10 years.
  3. Tumblers: Companies that held the top spot for the first 5 years but lost it the next 5 years.
  4. Climbers: Companies that underperformed the first 5 years then outperformed the second 5 years.

Only 10-15% of companies in any industry maintain market leader success for ten years It’s really hard.

Then the really interesting thing was that he took all of the best selling business management books over that 10 years period of time and identified 120 claims made in those books as to the keys to business excellence. Taking those 120 claims and looked at which companies in each of the 4 categories exhibited those behaviors in the course of the 10 years.

What Nitin was able to do was identify the 8 managerial practices that result in creating market leaders. There are 4 must haves:

  • A well defined and clearly communicated strategy. The defining is the easy part, it turns out that the communicating was much tougher.
  • Operational execution that consistently meets customer expectations. In fact surprising and delighting your customers is not a necessity and can actually hurt your company if you’re unable to consistently deliver on those high expectations.
  • A culture of high performance and high values. Of course lots of companies claim this but that doesn’t make it true.
  • A structure that simplifies working in and with the organization. It doesn’t really matter what that structure is as long as it’s easy to navigate.

Then Nitins research identified that a company need two more practices:

  • Superior talent at all levels of the company OR a great leader. You don’t necessarily need both.
  • Consistently driving innovation in your industry OR a strong capability in mergers, acquisitions and partnerships.

That’s it. Everything else you read about are good things and can help you differentiate or compete in your market but to truly be a great company you only need 4 + 2 of the above. Of course, that’s a lot easier said than done.

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About Tac

Social media anthropologist. Communications strategist. Business model junkie. Chief blogger here at New Comm Biz.

  • http://timbursch.com timbursch

    Good research that reveals some pretty common-sense principles, but as you said not well done. I wonder what holds more organizations back from practicing these principles. Inertia, status quo, fear of change?
    Keep sharing!

  • http://www.newcommbiz.com tacanderson

    Most companies fail to change because they quit listening to their customers and employees. Complacency is a powerful force that can suck even the best of people in.

    Thanks for the comment Tim.

  • anon

    This article was published in July 2003. I prefer hearing a more in depth reaction in relation to today’s business especially in terms of new business practices, IT development issues, etc.. Do you agree on the author’s formula or you have better ideas?

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