April edition of Harvard Business Review has an interesting article about three rules which makes any company great. Authors have studied many companies and identified companies who followed these rules and stood apart in the long business cycle.
I thought of these rules after I read this article and I felt this can be applied in day-to-day business operation there by gaining from it with immediate effect, or perhaps to change the culture of the company in small steps.
Rule 1: Better Before Cheaper:
Every company faces a choice: It can compete mainly by offering superior nonprice benefits such as great brand, exciting style, an excellent functionality, durability or it can meet some minimal acceptable standards along these dimensions and try to attract the customers with lower price. The long term business players typically choose the former one.
Bear in mind the before in “better before cheaper”. When the competitive landscape changes, you can lower your price and still adhere to the rule. What matters is not where your prices are lower than it used to be but that they remain higher than your competition.
For all its virtues; a nonprice position isn’t without danger. Typically a company that competes on this dimension other than price must constantly battle rivals that have figured out its formula. At least me-too-competitors might confuse customers with exactly similar looking products.
So, companies need to focus on destructive innovation and be in constant pursuit of higher margins through focusing on less-demanding market segments.
Rule 2: Revenue Before Cost:
Companies must not only create value but also capture it in the form of profits. Exceptional companies deliver superior profits by achieving higher revenue than their rivals through either higher prices or greater volume. Very rarely the cost leadership is a driver.
Just as you can lower prices while adhering to better before cheaper, you can drive out inefficiencies and lower your costs while following the revenue-before-the-cost model. But summary is don’t try to achieve a profitability advantage through cost leadership.
Rule 3: There are no other rules:
This rule underscores the uncomfortable truth that in pursuit of exceptional profitability, everything but the first two rules should be put in place.
Here is how we can implement this in to day-to-day life. Next time when we are budgeting among competitive priorities let’s ask the question, which initiatives will contribute most to enhancing the nonprice position of our product/services in question and which will allow us to sell ourselves at much higher price.
If our operational effective program is all about cutting the costs; then let’s focus on innovation of building more for less there by clearly we can attain the required service level agreement with customers while still focusing on building much higher revenue.
Profitable growth is the name of the game.
I thought of these rules after I read this article and I felt this can be applied in day-to-day business operation there by gaining from it with immediate effect, or perhaps to change the culture of the company in small steps.
Rule 1: Better Before Cheaper:
Every company faces a choice: It can compete mainly by offering superior nonprice benefits such as great brand, exciting style, an excellent functionality, durability or it can meet some minimal acceptable standards along these dimensions and try to attract the customers with lower price. The long term business players typically choose the former one.
Bear in mind the before in “better before cheaper”. When the competitive landscape changes, you can lower your price and still adhere to the rule. What matters is not where your prices are lower than it used to be but that they remain higher than your competition.
For all its virtues; a nonprice position isn’t without danger. Typically a company that competes on this dimension other than price must constantly battle rivals that have figured out its formula. At least me-too-competitors might confuse customers with exactly similar looking products.
So, companies need to focus on destructive innovation and be in constant pursuit of higher margins through focusing on less-demanding market segments.
Rule 2: Revenue Before Cost:
Companies must not only create value but also capture it in the form of profits. Exceptional companies deliver superior profits by achieving higher revenue than their rivals through either higher prices or greater volume. Very rarely the cost leadership is a driver.
Just as you can lower prices while adhering to better before cheaper, you can drive out inefficiencies and lower your costs while following the revenue-before-the-cost model. But summary is don’t try to achieve a profitability advantage through cost leadership.
Rule 3: There are no other rules:
This rule underscores the uncomfortable truth that in pursuit of exceptional profitability, everything but the first two rules should be put in place.
Here is how we can implement this in to day-to-day life. Next time when we are budgeting among competitive priorities let’s ask the question, which initiatives will contribute most to enhancing the nonprice position of our product/services in question and which will allow us to sell ourselves at much higher price.
If our operational effective program is all about cutting the costs; then let’s focus on innovation of building more for less there by clearly we can attain the required service level agreement with customers while still focusing on building much higher revenue.
Profitable growth is the name of the game.
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