RSM Resources

Business publishing, where authors trumpet thenext "great idea," has been one of the country’s hottest growthindustries during the past 25 years.

However, researchers evaluating the merits of morethan 200 published theories contend that just a handful of key practices —combined with solid execution — distinguish consistently successful companiesfrom their competition.

"Over the years, it has been hard to keeptrack of all the latest books and buzzwords about how to run a successfulbusiness," says Nitin Nohria, chairman of the organizational behaviordepartment at Harvard Business School."While we didn’t want to dismiss everything that was out there, we didwant to find a more quantifiable way to separate the wheat from thechaff."

That search led Nohria and a team of more than 50academic researchers and business consultants to launch the Evergreen Project,a multiyear study that reviewed key business practices of 160 companies in 40industries from 1986 to 1996. The team’s findings, summarized in the bookWhat Really Works, concluded that four primary practices and at least twosecondary practices were mandatory elements that separated "winners"and "climbers" from "losers" and "tumblers."

How valuable is this "4+2" approach?During the 10-year evaluation period, firms that consistently scored high inall four primary segments — combined with any two secondary elements — sawtotal return to shareholders increase 945 percent, sales rise an average of 415percent, assets increase 358 percent and operating income jump 326 percent.

Conversely, companies that did not follow thesepractices produced just 62 percent in total returns to shareholders throughoutthe decade, while sales rose only 83 percent, assets 97 percent and operatingincome 22 percent.

"Everything that we tested was, at some time,a best-selling idea. But the problem was that most of the ideas were offered inisolation," Nohria says. "For example, in financial management, agreat balance sheet is the outcome of good performance, not an indicatorof performance. A strong brand is also the result of a company that does thesecore things well over time."

In short, the four required practices forsuccessful companies Nohria and his team identified include:

Developing and maintaining a focused strategy. A critical mistake many business leaders make, Nohriasays, is trying to force a popular business strategy into companies where itmay not fit. "Winners," or those firms that regularly attained the4+2 standard each year, have strategies that focus on organizational goals thatare clear, consistent and relevant to the company’s growth objectives. Theleading organizations coordinate these strategies with annualbusiness planning, so that all employees understand the value of staying ontask.

Maintaining flawless operations and customerfocus. In this area, top companiesconsistently seek feedback and use it to meet or exceed customer expectations.These firms frequently give more decision-making authority to front-lineemployees, enabling them to react to changing market conditions. Additionally,strong players in this area regularly seek to reduce waste while makingproductivity improvements about twice as often as their competitors.

Developing and maintaining a performance-orientedculture. Essentially, this means building a culture that is meaningful to allemployees. Leading companies in this area treat workers fairly, reward theircontributions based on performance and help them see how their efforts supportthe success of the greater enterprise. Companies with higher levels of employeeengagement were rewarded with lower turnover, higher productivity and lessfrequent absenteeism.

Building and maintaining a fast, flexible, flatorganization. In their research, Nohria and other researchers found that topcompanies and other businesses on the rise reduced internal bureaucracy andsimplified work practices. In contrast, underperforming businesses wereconsistently saddled with excessive rules, outdated processes and bloatedorganizational units that hindered strategic execution.

In addition to the four required practices, theEvergreen Project found that the highest- performing companies also adopted atleast two of four defined secondary practices. These include:

Keeping and recruiting talented employees. Most winning companies had great internal talentdevelopment systems, which included top-of-the-line training programs and apenchant for promoting from within. At the same time, those firms had theability to assess where an outside hire would add clear value.

Making industry-transforming innovations. Interestingly, the Evergreen Project showed that just aslim majority of top companies excelled at innovation. For that reason, Nohriasays this practice offers entrepreneurial businesses an opportunity to move upby focusing on product, process or technological breakthroughs that would makethem leaders in their industry.

Choosing and retaining top leadership talent. The most effective CEOs in the study had a clear vision forthe company, communicated it in a convincing and open fashion, and demonstratedgreat integrity in words and actions. Top organizations made sure that boardmembers have a substantial stake in the company’s overall success by closelylinking executive pay to performance.

Effectively managing mergers and partnerships. In its study of publicly traded firms, the research teamfound that internal business growth was essential, but often not enough forlong-term financial success. Best practices in mergers and acquisitionsincluded buying new businesses that complemented existing customerrelationships and developing a system for identifying, screening and closingdeals. The study concluded that relatively small deals — those less than 20percent of a company’s own size — done at least once a year provide betterfinancial results than large, less-frequent deals.

By applying this "4+2" methodology, youcan take steps to improve your company’s long-term prospects for success.