How to Make A Company Great!

April 24, 2013
Harvard Business Review recently looked at top performing companies to reveal what makes a company great.

What does it take to be a truly GREAT Company?

In a recent article in Harvard Business Review, researchers presented their findings for a two year study that identified top-performing companies*. Their data came from 25,000 companies that have traded on U.S. exchanges anytime from 1966 to 2010. They not only identified top performers, but tried to find common reasons why these companies held their status for so long.

The top companies were put into three categories: Miracle Worker, Long Runner and Average Joe according to their competitive positioning. There were a total of 174 Miracle Workers. Miracle Workers were companies that fell in the top 10% of ROA (return on assets) for a significant amount of time. Long Runners included 170 qualifying companies because they fell in the top 20% to 40% long enough that luck was highly unlikely to have been the reason. 

The findings were somewhat startling in that out of the many diverse choices that companies make to become great, there were just three “seemingly elementary rules” that each of the long running companies followed:

  1. Better before cheaper—(compete on differentiators other than price).
  2. Revenues before cost—(prioritize increasing revenue over reducing costs).
  3. There are no other rules—so change anything you must to follow Rules One and Two.

The rules can be translated as great companies understand that putting significant resources, over long periods of time, into creating non-price value and generating higher revenue have proven to show better results than slashing assets and investment to reduce costs when income is declining.