Three Rules of Making a Company Truly Great

Abstract

In business, it is common to find business leaders adopting the wrong strategies to achieve results. Leaders only thrive on the success of their companies that might be as a result of sheer luck or strategy that might have been influenced by price fluctuations at a certain point in the companies' operations. In this article, Raynor and Ahmed try to provide business with scientific and comparative data that gives the rules business follow for true success that is not based on unreliable and Impractical advice or only sheer lack. After undertaking statistical studies and research on several companies, they discovered three basic rules that explain and make companies higher than others in the business market. These rules include a business considering being "better before cheaper, putting the "revenues before," and the final rule involves repeating rules one and two.

Three Rules of Making a Company Truly Great

Raynor and Ahmed (2013) describe three main reasons that distinguish and marks of true success and great business in the industry. There was a need to fulfill the void of research in defining precisely what makes a company successful. A thorough statistical analysis was carried out to determine the factors and what indeed causes companies to be successful. Three of the rules that were evident from the research were that most companies that eventually success mostly relied on being better rather than being cheaper (Raynor & Ahmed, 2013). By ensuring the best innovations in the industry, taking risks, and, most importantly follow up to provide quality products to the customers, and then the prices will eventually rise. The second rule, on the other hand, relies more on revenues before considering the cost. Revenues mostly entail profitability in the business, and the returns that they get must be high than the price they incur to be successful. The article also offers ways in which the three rules can be followed by business for them to thrive.

Authors Key Points

To begin with, the authors describe what they found to be "Beyond Truisms" in the quest to establish truly exceptional business ventures. They used performance indicators such as the Return on Assets (ROI) to measure the performance of each business to determine the miracle workers and Long runners in the business. The miracle workers are the group that falls on the top 10% for the ROI list in the twenty-five thousand companies that were studied (Raynor & Ahmed, 2013). The long runners, on the other hand, fell under the top 20% to 40% list ROI list for the 25,000 companies' studies and researched on.

The companies being studied were the ones that have traded on the American market from 196 to 2010, which forms on average of forty-four years (Raynor & Ahmed, 2013). The primary tool to measure performance was based on Return on Assets (ROI) for all the companies for there to be uniformity in whatever they used (Raynor & Ahmed, 2013).  The results showed that one hundred and seventy-four companies fell under the category for miracle workers, while 170 of the companies feel in the class for the long runners. The third category and groups that were not much dealt with are the ‘Average Joes’ who were average when it came to performance.

Under the first rule better before cheaper, the research ruled out one specific aspect since it depended on the company. It could not be said that risks, innovation, or customers were the main determinants for a company being better. All these factors were uniform and were dependent on other elements and aspects for them to make a company better. The factors of truisms such as innovations, risk-taking, globalization, and even diversification of products were things that related to what companies did. The strategy that is evident from the first rule is changing how the companies through and how they arrived in their decisions. For companies to follow through with the first rule which entail ensuring that they created a strong brand identity and differentiation on the style of delivery of products and services to drive more performance on the business. Miracle workers rely on gross margins while long runner uses cost advantage for their better performance. Companies should, however, not use value addition alone and ignore the price factor as the two go hand in hand.

The second rule relies more on revenue than the cost of the products and services being offered by a company. When a company has added value to its products, it is evident that more consumers will seek out this product (Raynor & Ahmed, 2013).  Revenues will, therefore, come because of the value created. Another strategy that companies can use is increasing in the volume of products they offer and decreasing the prices. Notice that the price is lower, the sales are in high volumes and therefore, the company and business still get a lot of profit from their sales in the long run. Setting the price also at a certain point can help to derive enough sales but no most of the time. Consumers usually neglect high prices because of their nature of being too costly for the average consumer who earns an average pay. Miracle workers in this category derived most of their performance form profitability and revenues earned through the 44 years of comparative analysis (Raynor & Ahmed, 2013).

The third point is that most companies use the first and second rules that are adding value to their products and services instead of making their products cheaper and also focusing on earning Revenues before the cost that they Incur. Both these rules are mandatory for most, but not all, business ventures. The article gives an example of businesses such as Abercrombie and Fitch, which has remained exceptional by always changing their market, discounts, promotions, creating a brand intensive value, and using higher prices to drive profitability. Therefore it is clear that there are also other factors that can help in making a business exceptional. A company, therefore, has to ensure it has mastered its competition, understand how to add value and maintain it, and also manage prices to relevant in the economy.

Authors Effectiveness

           Raynor and Ahmed ensure that the article is useful by providing evidence and example of business under the three rules presents. In the first rule, the authors give examples of companies such as Werner Enterprises, which is a trucking trio that made its business better by expanding in the provision of services in the continent of America and also providing a wide range of products. Under the second rule of ensuring the company makes revenue, the authors give the example of Dollar Stores, which is a family store that offers high prices because it provides superior selection and convenience in shopping and also discounts on products.

Application to American and Global Business

The article is crucial to the American global business as it can be used to measure the performance of different companies. A company, for instance, with higher revenue, can be seen to be performing better than others. The article can also help with strategies that can be implemented by the business, such as cost leadership and marketing strategies to intensify company performance (Raynor & Ahmed, 2013). The comparative analysis of different companies helps to learn the economic aspect of the country in various industries

Relevance to Class Materials

The article is relevant to class materials pertinent to the functions of management. The business needs to plan strategies and an action plan that can be used to reach the organizational goal and add value to the product. Planning will also entail the costs that should be forgone for business activities. When a business can plan, they will be able to evaluate their competition and know how to overcome the completion to stay on top of the industry. Organizing business activities, how to market a product, and how to boosts sales will also help to earn revenue, which is a critical rule in the article.

Summary Personal Lessons Learnt

I have gained a lot of insights from reading this article. To begin with, I have learned the performance indicators for a business, including profits and revenues, which help a business perform better. I have also learned that setting high prices for an activity will not necessarily ensure that a company gains returns. What is essential is for the company to ensure that it has added value by building on its brand, securing the customer bases, taking risks, and also sorting after innovations to stay ahead of competitors in the business. I have also learned that setting reasonable prices is essential for business success. A company should be able to conform to specific rules and follow a particular pattern to ensure is success and continuity in the industry.

Reference

Raynor, M. E., & Ahmed, M. (2013). Three rules for making a company truly great. Harvard Business Review, 91(4), 108-17.