The election season is in full swing here in the US and politics is dominating the new channels. Thanks to the Olympics, there has been a welcome break from the daily media battles between the Republicans and the Democrats (albeit a short break spanning few hours when the opening ceremony was in progress).
As the opposing parties are digging up dirt on each other, Mitt Romney’s Bain & Company association has come under intense scrutiny. Romney is projecting his association with Bain as testimony to his business acumen while the Democrats see only the negatives. Coincidentally, I stumbled on a podcast from HBR that included an interview with Chris Zook, a partner at Bain, and co-head head of their strategy practice. He’s the co-author, with James Allen, of Repeatability: Build Enduring Businesses for a World of Constant Change.
I haven’t had a chance to read this book myself, but listening to Chris Zook, I was struck by the findings he shared when the authors analyzed why only a fraction of the companies in their portfolio actually managed to meet their business goals for over 10 years or more.
According to Zook, “Well, we began looking a lot more closely at the drivers of enduring success because we found many, many companies– a very large percentage– would have two, or three, or even four good years. But not very many, only 1 in 10, would achieve that on average for 10. And when you got to 15, the odds of success went down even more.”
So what is the secret sauce? Zook lists them as:
1. Well-defined, clear, and measurable differentiation (Example: Ikea with their unique products, brands, store layouts). A key factor being differentiators by the customers as opposed to what you think is your company’s differentiators! The authors asked a whole lot of customers and then their suppliers of a range of products, from cellphones to rental cars, how differentiated they felt the product that they were consuming was. And only 8% of customers for this set of products said that they thought it was very differentiated and unique, versus 80% of the suppliers.
2. Identify and stick to key operating principles and strategies and ensure that every employee is aligned to these principles. According to Zook, Vanguard (which captured 40% of all the free money circulating in the United States during the financial meltdown), has a clear set of principles that includes belief and loyalty to the small investor such that they will even turn down money from others that they feel are hot money, and their belief in the concept that you can’t beat the market in the long run, which caused them to favor and ultimately really develop the science of indexed funds.
3. And now comes the revelation! The last, but not the least, attribute in companies that are consistently successful is having feedback loops and systems for learning in place. Actually, Zook believes that this is the most difficult attribute for companies to embrace. These learning and feedback loops can be around financial as well as non-financial measures such as customer loyalty, number of support requests, or customer satisfaction measures.
Zook elaborates how Enterprise Rent-A-Car has managed to remain on a high growth path consistently in a highly competitive rental market. Quoting from the podcast, “Enterprise is an interesting example of this because they’re the largest hirer of college graduates now in America, amazingly, and the second largest fleet next to the post office in America an and have outgrown, by a factor of two, the rental car market for nearly 20 years. And if you talk to Andy Taylor, Jr., the son of the founder and CEO, until recently, he says that basically the whole company is built around one measurement, one feedback number, which they call Enterprise Service Quality Index. It’s a customer loyalty measure of, would you come back or not? And they actually rank order every single one of 8,000 branches every week, publish the data. And if you’re in the bottom section of that group, there are no promotions and no bonuses. And as a result, the learning of the lower group goes up very fast because they share practices, and they study assiduously the ones that are at the top. And it’s become an enormously powerful source of competitive advantage.”
From my own experience in dealing with training departments in large companies (which is not empirical and limited), I completely agree with the findings from the book. For some strange reason, I find companies hesitating to show the same levels of commitment in identifying key parameters that will drive enterprise wide learning. In the case of Enterprise, every employee knows how their performance will be measured and learning is baked into their day to day work (I will have to do what it takes to get this customer back drives your day at Enterprise Rent-A-Car and any training is seen as a tool to meet this goal). Sadly, its not easy to distill the complexity of running a large enterprise into simple measures and as a result of this complexity, learning and training is seen as a unnatural appendage that is foisted on the employees, resulting in less engaged and disjointed implementation of strategies on the ground.