Up in the Air

Spring 2013

Up in the Air
tcbrPDF normal

How some companies manage to defy gravity.

By Michael E. Raynor & Mumtaz Ahmed

Up in the Air

Michael E. Raynor is a director with Deloitte Services LP, co-author of The Innovator’s Solution, and author of The Strategy Paradox and The Innovator’s Manifesto; he is a contributing editor of TCB Review and writes the “Theory to Practice” column. Mumtaz Ahmed is a principal with Deloitte Consulting LLP and chief strategy officer of Deloitte LLP. Raynor and Ahmed are co-authors of the forthcoming The Three Rules: How Exceptional Companies Think.

Glider pilots, like all airplane pilots, know the expression, “Takeoffs are optional; landings are mandatory.” It means that no matter how high, fast, or far you fly, you are going to come back down. Gravity always wins.

The same can be said of corporate performance. The only certainty for any company doing well is that eventually it will be doing worse. Every company that has ever slipped the surly bonds of earth has eventually proven entirely average—or worse—in the longer run. You might be unable to predict precisely what will bring down any given high-flyer, but it is a sure thing that something will.

Sometimes greatness erodes due to internal failings: Inertia born of complacency might lead you to resist obvious and necessary changes; entropy born of hubris might dilute your focus on key customers or markets. Sometimes external forces undermine performance: Competitors, spurred on by your historical success, emulate your behaviors—or, worse, improve on your original insights—leaving you with no advantage at all; changes in customer preferences or regulatory or legislative constraints can render historical strengths irrelevant or even turn them into encumbrances.

In industries where you might think higher prices were the order of the day, it was superior volume that mattered most.

Whatever the proximate cause, just as no glider can stay aloft forever, no company can remain on top eternally.

Now, the good news: Even if defeating gravity is impossible, we can realistically aim to defy it successfully. Despite the inevitability of a return to earth, some glider pilots do fly higher, faster, and farther than others. Using the same equipment in the same circumstances, some pilots—the exceptional ones—remain airborne far longer, soar far higher, and travel much farther than others. For these pilots, gliding is not a passive experience but, rather, a challenge of their intuition, wit, and skill. They must understand their aircraft, their conditions, and themselves to find lift where others find only the void, to achieve just the right angle of attack or to exploit the paradox of diving earthward to generate lift and head skyward again. Even exceptional pilots must land—but not until long after the rest of us.

Similarly, some companies are exceptional. They are able, for a time and occasionally for a long time, to overcome inertia, resist entropy, and adapt to competitive or environmental changes. They create better performance and sustain it for far longer than anyone has a right to expect. Nothing lasts forever, but then, that is not the goal. The objective is to deliver better performance for longer by bringing out all of the best that is possible.

Exceptional pilots apply, consciously or not, specifiable rules as they ride thermals, exploit ridge lift, and surf lee waves. Anyone wishing to improve their piloting abilities would do well to understand those rules, even if it might yet take years of experience to apply them as deftly, consistently, and intuitively as the very best pilots. Similarly, we can identify the behaviors that have generated exceptional performance in other companies and infer from those behaviors a set of rules that you can apply to your company with a reasonable expectation of performing better and for longer.

Every glider lands eventually. But how long it stays up, how far it flies, and the heights it reaches are all profoundly affected by the pilot’s choices. It is our belief that by consciously adopting the practices of exceptional companies, you can reasonably hope to deny gravity its due.

It Depends . . . on What?

So: What are those practices? What allows a company to achieve truly exceptional performance?

That’s a question that many have tackled in a wide variety of ways, yielding a still more bewildering diversity of answers. Depending on what you read, the answer lies in everything from clear strategy to humble leadership to alliances with market leaders to product superiority to great people to insightful marketing. At first blush, each makes a strong case, but if they’re all correct, then greatness requires doing everything right simultaneously, and that’s not especially helpful advice, especially when the particulars of different frameworks are inconsistent with each other.

That there is not even a hint, not a soupçon, smidgen, dash, or touch of convergence in the prescriptions on offer should leave us deeply troubled. If this were the medical field, it would be as though a patient suffering chest pains were told that better health requires everything from better diet and exercise to aggressive drug therapy to invasive surgical interventions, with no basis for choosing among them or even just setting priorities and choosing what to do first.

A big part of the problem with investigations into the drivers of superior performance is that researchers have tended to focus on behaviors, what companies do. This is only natural, since it speaks to the action-oriented, practical, “getter-done” bias of successful managers. We fell into this very same groove—or should we say “rut”? Having invested over two years in large-scale statistical analysis designed to identify companies that were reliably “better than lucky” (see “Separating Signal From Noise”), we then spun our wheels for another two years trying to find some pattern in how top performers acted.

No joy.

Regardless of what we focused on, just about every behavior we could measure and connect to performance seemed to fall on both sides of the performance divide in about equal measure. Take mergers and acquisitions. The academic literature on this is mixed, with some studies suggesting that in general sellers do better than buyers, which some take to mean M&A is generally a bad idea. Other equally credible studies conclude that although M&A can be risky, in the main it’s as good a mechanism for pursuing profitable growth as the alternatives.air3

We proved unable to add anything to that debate. At first it seemed that avoiding M&A might be a key driver of exceptional results, since in one of the industries we studied, trucking, the top performer did absolutely no deals over a ten-year period while the mediocre company was highly acquisitive. Unfortunately, over the next fifteen years, it was the high-flyer that was on a buying binge. In the candy business, another of nine industries we analyzed in detail, it was top-performing Wrigley and the relative laggard, Rocky Mountain Chocolate Factory, that were focused on organic growth, whereas Tootsie Roll, a middle-tier performer, largely purchased its growth.

Every specific behavior we investigated proved a dead end, every promising lead nothing more than a blind alley. Customer focus? Yes and no. Innovation? Maybe. Risk-taking? On occasion. We were repeatedly reduced to a two-word sentence of surrender: “It depends.”

Maybe, we thought, the lesson was that companies could be successful only if they did the right deals, pursued the right innovations, or took the right risks in the right sorts of ways. But how useful is that to managers making real decisions? About as useful as what is typically on offer in many management books: Get the right people on the bus! (Did anyone ever want the wrong people?) Have a clear strategy! (Does anyone ever set out to create a confusing one?) Give customers what they want! (Who deliberately gives them what they don’t want?) If we couldn’t be any more useful than that, there was no point to continuing.

Share

From
The Conference Board

From the Archives

The Conference Board Review is the quarterly magazine of The Conference Board, the world's preeminent business membership and research organization. Founded in 1976, TCB Review is a magazine of ideas and opinion that raises tough questions about leading-edge issues at the intersection of business and society.