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on August 22, 2013
I stumbled across the paper «A random search for excellence» a few days ago. To my amusement the article put another nail in the coffin on success studies like "In search of excellence" and "Good to great". I googled to find out more and to my disbelief I found that the authors had committed a "success study" themselves and come up with "The three rules". I bought the book to dissect it (just so you know my starting point).

After one read-through I must admit that I love the book BUT (with capital letters), once again, the success recipe has not been proven. Thus, the book is an excellent description of methodology and the book is no more usefull to managers than previous "success studies".

The best part of the book is chapter two. This chapter provides an in-depth description of the method used. I also recommend reading the paper "A random search for excellence" as you will find complementary information on methodology there. I must admit that I had started to list anticipated weaknesses in method already based on the book description. Maybe that is what I love most about the book: that you can read it like a detective story. Where is the error? As the story unfolded I could acquit most of my suspects and add new ones to my list. The book openly discusses strengths and weaknesses in method and why they have chosen the approach they have. The authors argue that the weaknesses are acceptable. I find that some of them are not and to the extent that their conclusions must be rejected.

Below I will list my key objections to the three rules, i.e. not the book but its conclusions. My intention is to contribute to the debate and to further developments. Some or all of my critical remarks might be unjust or wrong. Please add comments if you agree or disagree.

Here are my key objections:

1) The authors criticises other "success studies" for having investigated "false positive" exceptional companies. However, as they point out themselves, setting the statistical limit too high would have excluded all 22,403 companies in their database. Thus the hurdle has been set lower and some of the exceptional companies investigated in this study might just as well be "false positives". More worrisome, in my view and also pointed out by the authors, is that the "Average Joes" used to compare against have not had to pass any hurdle. This might be why so many expected success ingredients could not be proven, as several of the "Joes" might be exceptionally managed but unlucky companies (false negative).

2) Rule 1 is "better before cheaper". The authors seem to define market position as a continuum between non-price and price, i.e. any company charging a seemingly higher price than another company for a comparable product has a non-price position and vice versa. I do not like this definition of market positioning. It is quite analogue with Porter's differentiator vs. cost leader but the continuum dismisses "stuck in the middle"/"no strategy" positions. In my opinion the rule should have been "avoid stuck in the middle" as this is what the authors most probably have tested.

3) Rule 1 and further on definition. In my world and by my definitions, many companies in a given market and industry can have differentiator positions but only one company can be the cost leader. My a priori assumption (and experience) is that most companies in an industry compete for differentiation (or focus) and only a few truly battles for cost leadership. Thus, if you have a bag of many red marbles and a few blue, which colour do you think you will pick? My hypothesis is that luck/bad luck is the reason why only one of the nine exceptional companies investigated where the cost leader of their industry. One look at the list of the richest people on this planet indicates that the position as cost leader can't be all bad. The position might even become more attractive if this book sells well.

4)Rule 1 and on the design of the study. The rule is based on a cause and effect axiom made up by the authors. They claim that companies that have chosen a non-price position (cause) have thrived (effect), and vice versa. I do not accept this logic. In my world, companies develop new products, become more customer centric et cetera (cause) and then, if and when they start to experience increased sales, they might start raising their prices (effect). Companies standardise products and innovate their processes (cause) to be able to underbid their competitors (effect). Companies that do not succeed fully in their efforts can neither charge premium prices nor choose the low-price position for long.

5) Rule 2 "revenue before cost" falls as a consequence and for similar reasons as for rule 1.

6) Rule 3 "there are no other rules" should have been "we have found no other rules". The lack of life on March does not prove that we are alone in the universe.

I recommend the book and encourage comments.

My background is 10+ years as a strategy consultant supporting clients across Europe. My current position is Head of Strategy, Group HR, in banking.
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on December 15, 2013
A fantastic book that explains the 3 rules that all exceptional companies follow.

Clear and concise, the 3 rules are simple enough that you can apply them to real world business decisions, to chart a course towards an exceptional business. Unlike the majority of business books, the rules are not simply designed by the author based on one or two successful situations, but distilled through extensive scientific business research based on 25,000 companies using 45 years of data.

Raynor & Ahmed answer the ultimate business question, “how do a few companies achieve exceptional performance over the long term?” In every industry, there is a stand-out company that delivers exceptional profits and performance. So what makes them different? Data has been analysed on more than 25,000 companies spanning 45 years to uncover what makes a company highly profitable. It has been found that exceptional companies follow 3 rules, “better before cheaper”, “revenue before cost”, and “there are no other rules”.

Here are the 3 rules:
Better before cheaper – Select a non-price position and compete on value, not price.
Revenue before cost – Prioritise increasing revenue over reducing costs.
There are no other rules – Be willing to change anything else to stay aligned with rules 1 and 2.

The book shows many case-studies, examples and explanations that are required reading to be able to apply the rules on the go in business situations. A must read for 2013/2014!
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on October 2, 2013
The clear prose highlights rules so simple that they defy belief, except that extensive data (25,000 companies, 45 years of Compustat) makes a compelling case. The rules make intuitive sense, but have a hidden and powerful message: How you think about your business has enormous leverage........more even than behavior, values or focus. That thinking transcends strategy and implementation, providing a decision frame that seems eminently usable. The rules (Better before Cheaper, Revenue before Cost)
are a maypole around which all other business plans and actions must circle.....say the authors. The book screams for hard work on value proposition.

Jim Grew
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on February 14, 2014
I really enjoiyed reading this book, which avoids many of the pitfalls of vague theorizing in the business reading genre: none of them I've seen has such comprehensive research and empirical scholarship behind it, yet delivers its message with such a light touch and compelling argumentation. Especially those of you in operations who fancy yourselves entrepreneurs, treat yourselves to something different in business reading that you can apply day-to-day (or at least consider whether your company is doing the right things armed with this incisive toolset).
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on September 19, 2014
I thoroughly enjoyed reading this book. While it has, at its core, an impressive arsenal of great research, it is delivered in a very compelling and easy to read manner. Peter Smith, Author, Hiring Squirrels
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on August 24, 2013
This is an excellent book that goes slightly over the top in driving home their point. The points that they drive home are terrific and very well explained. Sometimes, too well explained. Overall, every president, CEO, or anyone in the C-Suite of a company should read this book. Very enlightening and timely.
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on August 11, 2013
The author displays great intellectucal honest, but focus you in on some very important concepts that are supported by strong evidence
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on August 22, 2013
The book is very readable and supported by enough statistics to make it convincing but not dry and boring. Anytime a business leader faces an serious strategic issue in his or her company, read and then re-read this book. The lessons are valuable.
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on May 2, 2014
While probably no one has an absolute market on the truth of exceptional organizations, it is helpful to read all the theories, insights, true stories, and other examples so managers and leaders can continually add new "tools" to their "toolbox."
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on November 5, 2013
The research conducted by authors confirms what most of us suspect are the simple reasons behind any success business. In reality, the big challenge is to keep business focus while you take consistent and coherent decisions based on the three rules.
Celso Ienaga, Managing Partner - Dextron Management Consulting
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