Great Business Lessons Every CEO Must Know
How Great Businesses Fail and What We Can Learn From Them
We all know that there is one constant in the business world: things are always changing. Every day, there are new technologies, legislative decisions and geopolitical events that shape the world around us. The pace of such change continues to accelerate, and throughout it all we see businesses come and go. How, in such a chaotic environment, do some companies seemingly do everything right and rarely struggle? And at the same time, how do renowned names like Kodak and Nokia – companies that seemed invincible – end up failing?
To help answer these questions, we at MRH direct you to an excellent book, Repeatability, by Chris Zook and James Allen. This is a book that every CEO and business leader should own and refer back to on a regular basis. Through a large database of information and in-depth access to names like NIKE, LEGO and Unilever, Zook and Allen identify the principles that have made these businesses stand the test of time. They title these fundamentals as the Great Repeatable Model. The authors also provide classic examples of errors made by other corporate giants who went against the concept of the Great Repeatable Model, an action which eventually led to these firms’ downfall. Repeatability is loaded with excellent business insights, and real-life examples of the decisions CEOs have made and how they impacted their company’s future. We at MRH wanted to share with you some of these insights. Each of the following points are direct statements borrowed from Repeatability, as elements you need to have to create a strong, repeatable business.
1. “An Aligned Organization”
We start with the organization as a whole. Zook and Allen discuss at length the importance of creating an organization that’s focused on the same thing at every level: the customer. After all, it’s the customer who pays your business for your products and services and without customers, there would be no revenue. It may sound like common sense, but there are numerous examples of well-known firms who simply became their own worst enemy and where organizations became a roadblock to themselves. To ensure your company is aligned, Zook and Allen discuss the importance of making a significant investment to ensure your leadership truly understands and can execute to the vision.
2. “Culture Matters”
Your company culture is like it’s DNA. It is the set of norms and natural tendencies that shape the way your company operates, the way your employees interact and the reputation your firm has with the outside world. Culture starts at the top, though, and the way the CEO runs the organization and sets expectations will have a significant effect on the company overall. Shortening the ‘distance’ between the CEO and the front line is a prominent theme throughout the book as this helps prevent internal hurdles and disorganization from forming. The best performing companies are shown to have minimized this gap and to have kept things simple, while the lowest performing firms have a great deal of internal strife that erodes business results. The authors even go so far as to show the effect of company culture on financial performance.
“Many well-documented studies by business historians reveal how business models can breed the seeds of their own … eventual decline through complacency, hubris [and] a lack of willingness to question assumptions…”
-Chris Zook and James Allen, Repeatability
3. “Well-Defined Differentiation”
When thinking about what it is that brings customers to you time and time again, the cause is usually because you offer something to your customers that your competitors cannot. Your core differentiation is rooted in the handful of key assets and competencies of your organization. Zook and Allen cite examples, including that of toy building block company LEGO, of once successful firms who lost sight of what it was that made them special, which eventually led to struggle. It wasn’t until these companies stepped back and placed emphasis on their core differentiation that they were able to regain their footing. A key lesson from Repeatability: identify your source of differentiation, and make sure it’s well understood throughout your organization.
4. “Identify Your Nonnegotiables”
Zook and Allen highlight the importance of your company’s nonnegotiables; that is, the things on which you as a business are unwilling to compromise. Nonnegotiables are the pillars of your core differentiation and help guide decision-making throughout the company. The expansion strategy of U.K. based telecom company Vodaphone is offered as an example of how their nonnegotiables were used to make key decisions. As discussed in Repeatability, infrequent exceptions to these nonnegotiables should be agreed at the executive level, and such exceptions will typically occur only when there is direct conflict to another nonnegotiable element of your business.
5. “Clear, Well-Internalized Values”
In the research conducted by the authors, nearly all of the companies with the greatest repeatable models had a clear set of stated values. At fitness apparel icon, NIKE, their set of values are even given a name: NIKE Maxims. Your company values are “strongly held basic assumptions about how the world works and what it means to do well.” In good times or in bad, your values give purpose to how you operate your business.
6. “Consistent Vocabulary”
The concept of having a consistent vocabulary in your organization we thought was profound. Every business and company has its way of doing things and its own internal terminology. The notion of the consistent vocabulary, though, is rooted in the concept of a Repeatable Model. That is, if your firm is truly focused on creating customer value through its core strengths, your company should spend minimal energy in pursuit of modern business fads and trendy management topics that disappear as fast as they arrive. Rather, you remain consistent in your focus. Your internal vocabulary should be recognized by all employees and remain constant over time.
7. “Appropriate Metrics”
As we all know, metrics drive behavior. So depending on the metrics you create, you will drive your organization to act and behave a certain way. And yet, metrics are simply intended to measure how the business is doing, not to reshape the way in which it operates. Zook and Allen provide examples of how less reporting and fewer metrics have actually been linked to improved business performance as a whole. Why? Because when less time is spent chasing internal metrics, there is more time available to bring value to your customers.
8. “Ability to Adapt”
Though a fundamental aspect of the Great Repeatable Model is consistency and staying focused on your core differentiation, things do change. Your company’s ability – or inability – to adapt to such change can have a profound affect on your long-term strength. The inability to adapt brought down big names like Kodak, Nokia, and the A&P grocery chain. The book analyzes the concept of adaptation; specifically, that is not just about knowing how to adapt, but also when to adapt. Even those CEOs who successfully led change, stated they felt they adapted later than they should have. The authors make an effort to point out that adaptation does not need to be severe; rather, they offer examples of companies that re-evaluate several times a year to make small adjustments based on changes in their market and industry.
“The enemy of adaptation is day-to-day firefights and near-term profit pressures… Great leaders have the courage to change even when the near-term impact is high.”
-Chris Zook and James Allen, Repeatability
It’s About Simplicity…
Whether you’re looking to steer your firm back towards growth, or want to ensure your success continues, Repeatability offers countless lessons and real-life examples that each of us as business leaders can learn from. It’s an easy read and one that offers context that all of us have experienced and understand. We leave you with the main lesson from Zook and Allen: when it comes to running your business, focus on simplicity and remain true to your core.
Repeatability by Chris Zook and James Allen
Repeatability is a book that every CEO and business leader should read in order to help them best run their organizations. Zook and Allen explore things like the affect of your company culture and stated metrics on your actual performance, as well as analyze the decisions made by real companies and how these decisions affected their firms. This is an excellent read loaded with countless business and management lessons based on companies that we all recognize.
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