Top positive review
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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.