The Three Rules: How Exceptional Companies Think

by Michael E. Raynor

Finally, an answer to the ultimate business How do some companies achieve exceptional performance over the long term? In every sector, there’s an outlier. In the phar­maceutical industry, it’s Merck. In discount retail, it’s Family Dollar. It used to be Wrig­ley in candy and Maytag in appliances. Other superstars have been hidden in plain sight, like Heartland Express in trucking or Linear Technology in semiconductors. How do these exceptional companies deliver superior perfor­mance over the long run despite facing the same constraints as competitors? What are they doing differently? What can we learn from them? Michael E. Raynor and Mumtaz Ahmed have analyzed data on more than 25,000 com­panies spanning forty-five years. Their five-year study began with a sophisticated statistical analysis to identify which companies have truly exceptional performance, 344 in all. In collaboration with teams of researchers, Raynor and Ahmed then put a carefully chosen representative sample of twenty-seven com­panies under the microscope to uncover what made the stand-out performers different. They found that exceptional companies, when faced with difficult decisions, follow three The rules provide an indispensable compass that any company can use to chart its own path to greatness. Is it better to keep price down or invest in creating value that commands a higher price? Should you focus on talent and develop­ing the abilities of your people or build processes to extend the capabilities of your organization? How about acquiring a sizable competitor to secure economies of scale—or a small start-up to gain access to new technology? According to Raynor and Ahmed, the right answers to these and just about every other question are the ones most closely aligned with the rules. The Three Rules is built on a powerful combina­tion of large-scale data analysis and in-depth case studies. Its guidance will increase the chance that your organization can become truly exceptional.

Genres: Business, Leadership, Nonfiction, Management

Hardcover

First published May 30, 2013

About the author

Michael E. Raynor is a Canadian writer and an expert on business management practices.

Reviews

[Marks54 · Rating 4 out of 5]

This is an enjoyable but unusual book - a thoughtful business trade book that is short on gimmicks and longer on care and attention to details. It is by intent part of a small but visible literature examining the strategies and results of high performing companies. The motivation for this literature is straightforward. Find a set of "winners". Look at what they do. Then copy what they do and see your performance increase. It is difficult in a short document to raise all of the problems that come with this sort of "research", but most of the issues are related to the problem of "sampling on the dependent variable". These types of issues tend to result in explanations that fit the appearances in the successes but may not separate successes from non-successes that resemble the successes in everything but the results. This is a major problem with this type of study that makes it difficult for their results to be taken seriously.

Raynor and his team attack these problems in a number of ways. They do not sample on the dependent variable - or do so less than other studies. They do not just examine winners but also consider firms with less extreme performance. They pay attention to relative performance but working with triads of firms in different industries. They try to smooth out statistical oddities of extreme performance by using more nonparametric approaches (ranks versus actual values) and by using more extended time series data than are typically used in looking at excellent or great companies. The logic of the analysis is based on fairly straightforward economic concepts -- for example that a firm's profit will be the result of choices made regarding price, cost, and volume and how the managers of the firm think that these factors interact. The book's methodological approach is not without issues, however, since the appropriateness of several of the match trio sets could be questioned (Medtronics (pace makers and related devices) and Invacare (wheelchairs) in the same triad?). The study design is interesting, but what makes this book stand out from the literature is that the authors develop extended context-based explanations for the performance of the firms they study. For each firm, some output and efficiency ratios are presented and analyzed. But then, the authors explain how the components of the various metrics used map onto the strategic choices of the firms of interest. This simple work of providing a detailed examination of the firm's strategic choices raises the quality of the book substantially. What results is a series of profiles of the strategic choices of firms, along with a discussion of whether these choices were successful and why. This leads to a focus on underlying the logic of each firm's strategies - which should be highly specific to the firm's situation -- and a method for keep score of the firm's results to see if the strategies worked as planned. As a result, Raynor and his team present one of the more valuable efforts to study and explain firm strategies that is available in a trade book format.

This approach involves both contextual detail and the analysis of a range of operating and results data. This makes the book less accessible to general readers but there is little here than cannot be worked through by a careful reader with access to Google.

I tend to have low expectations for this sort of book, especially due to past disappointments. This is a delightful and well written exception that greatly exceeded my expectations. It is well worth the effort for someone who likes to think about how firms operate.

[deleted d · Rating 2 out of 5]

The three rules how exceptional companies think
Think better before cheaper
revenue before cost
There's nothing else specific

Mediocre book, didn't learn much. Surprised they wrote an entire book in it lol

[Robert Federline · Rating 4 out of 5]

One of the many formulations of Ockham's Razor is that, of multiple explanations, the simplest is the best. The Three Rules demonstrates this principle very well. In this fascinating study of the differences among businesses which merely survive, and those which thrive, the breakdown of the factors which make the most successful businesses is surprising in its simplicity.

The Three Rules are easy to follow and make much sense. They are simplicity itself. We tend to overthink things in this world, and our system of education encourages such over-analysis. By investigating multiple businesses in a variety of industries, the authors were able to isolate and identify three cogent rules for the success of any business.

These three rules seem, at first glance, to be a gross oversimplification of how to approach business. Nonetheless, the propositions appear to be true across the board.
Better before Cheaper.
Revenue before Cost.
There are no other rules.

Succinct, even if counter-intuitive.

A highly worthy read.

[Chris · Rating 3 out of 5]

Worth the read, but limited by the cases chosen and the criteria used to define what an exceptional company is. In a nice (but annoying) bit of honesty, the authors continually remind you of the limitations of their data and that their "rules" are actually more like guidelines. Probably most helpful for critically looking at success studies generally and as a critique of that genre.

If you're wondering what the rules are, they are as follows:
1. Better before cheaper (i.e., be a leader in non-price value)
2. Revenue before cost (usually due to higher price, but can also be from higher volume)
3. There are no other rules

[Ryan Blanchette · Rating 1 out of 5]

This book was recommended a couple of times and I probably will not take any more recommendations from that source. It was terrible.

I was very suspicious at the start when claiming to analyze multiple successful companies looking for themes, a la Gallup. At least they concluded there were only two. And unfortunately these are really no-brainers.

So in short it is a valuable book. Similar to me advising people if they eat food they will consume calories.

[Wally Bock · Rating 5 out of 5]

The Three Rules: How Exceptional Companies Think gives you a research-backed strategic doctrine that will help you make wise strategic choices in a wide variety of situations. The book explains the research behind them well and gives you concrete suggestions about how to use them.

[Natalia Luneva · Rating 4 out of 5]

havent finished, consider re-reading.

[Bill Nielsen]

Skim the first chapter in 15 min and save yourself the rest. Be better. Get revenue. Simple enough.

[Angharad Sanders · Rating 3 out of 5]

It was good but only got 3 as not all relevant to my setting. My issue not the book's

[Nate · Rating 3 out of 5]

The summation of this book is the companies that are consistently exceptional as measured by a set of criteria established by the authors do so by adhering to three broad rules. The rules are: 1) better before cheaper, 2) revenue before cost, and 3) there are no other rules.

Raynor discusses which companies within industries consistently are top performers relative to their peers and argues that those who maintain this position do so because they build better products or services and aren't worried about competing on price. I found the ideas simple but intriguing in determining how to measure what things matter. He talks a bit about their criteria and how they selected it, but as I was doing the audiobook version, I wasn't able to determine if it was something that could be easily recreated to compare new companies or assess sectors they didn't review. I wonder how various technology companies would fare on his scale and how to determine those. I found it interesting and worth the time.

[Nick · Rating 4 out of 5]

A friend sent me this book, but I have no vested interest in anything beyond the idea itself. And that is so simple that you can get it in a paragraph. The authors studied vast numbers of companies in order to find out what the best-performing companies do to succeed. They boiled that down to 3 rules: better before cheaper, revenue before cost, and there are no other rules. That’s marvelous concision in this time-challenged world, and I thank the authors for doing all the hard work to be able to make success so simple.

[Harold de Groot · Rating 1 out of 5]

Lacking in substance, badly constructed, boring, unoriginal and poorly written. Reads like a freshman student's paper where the goal was writing 300 pages, no matter how thin the premise. 50% utterly random anecdotes, 50% veiled pleading by the authors that the book is based on worthwile research, 100% ignorable.

[Duane Bonifer · Rating 5 out of 5]

Fantastic read. It's like Good to Great on steroids. Recommend it for anyone interested in leading or being part of a successful organization.

[Craig Watson · Rating 5 out of 5]

Great Business Rules to Live By!!