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A New Approach to Measuring Strategic Best Practices Reveals New Lessons

Apr 18, 2008
Typically, strategic studies look backward to earlier periods for the causes of today's success and then try after the fact to describe all of the elements of creating that best performance. In such backward looks, cause and effect can easily be confused in the process since many changes are only coincidentally associated with each other. Afterwards, memories fade and those who tell their stories may be more interested in enhancing their roles than in accurately describing what worked and what didn't.

Even highly admired studies like those contained in Built to Last and Good to Great are based on such backward looking investigations. It's not surprising that such studies usually reveal so many findings that it's hard to understand what factors made all of the difference.

Such prior strategic studies also unintentionally missed two critical points. First, management effectiveness in outperforming competitors reached a higher level in the 1990s and 2000s than had been seen before through a new, rapidly expanding management practice, continuing business model innovation. As a result, studying what people did prior to the 1990s is of limited usefulness in understanding the current gold standard in creating and improving on lasting competitive advantages.

Second, the management process behind simultaneously improving performance across many company activities was often kept secret by those who practiced continuing business model innovation. Only if you looked in the right places while this innovation was going on could you find how this practice was flourishing.

As a result of these unintended limitations of prior published strategic studies, much of what you have learned about creating competitive advantages is of less value now compared to what you can learn about continuing business model innovation.

In 1992, I began annually identifying and studying 100 CEOs and their companies based on three criteria:

(1) the companies had been publicly held for several years and were above a minimum market capitalization size;

(2) their stock prices grew the fastest during the previous three years within the group that met the first criterion; and

(3) the same CEO was in place throughout the three years.

Our study period began in 1989 and continued through 2002. From 1992 on, I looked at, spoke with, queried, and visited a new group each year that met the criteria, with the minimum size adjusted each year to reflect changes in stock price levels.

Most CEOs and their companies were on the list briefly, but a handful frequently repeated. I paid more attention to the perennial winners, and interviewed many of them every year. Beginning in 1995, I began to notice that they made large changes in their business models. Then I noticed that they did it again. And again. And again.

I began visiting these companies, such as Dell, EMC, Paychex, and Tellabs, for in-depth investigations and expanded my knowledge further. I interviewed others about how their efforts had contributed to their extraordinary success and continually studied the actions and performance of all the most frequent repeaters.

Although the perennially successful CEOs kept practicing business model innovation, each did so differently. When I arrived to task them about continuing business model innovation, however, they knew what I was talking about because that's what they and their companies were consciously doing.

I asked these CEOs who else had come to talk to them about continuing business model innovation. No one had raised the subject until I arrived. Yet, they were routinely visited by most of the best-selling business book authors as part of their studies of what made these companies successful.

I asked the CEOs who else was good was business model innovation outside their industry. They usually could provide no examples. When I mentioned cases I had examined, they were always curious to learn more. From these conversations, I learned that these innovations were the result of intense interest in and study of customer and stakeholder needs, rather than emulating best strategic practices elsewhere.
About the Author
Donald Mitchell is an author of seven books including Adventures of an Optimist, The 2,000 Percent Squared Solution, The 2,000 Percent Solution, The 2,000 Percent Solution Workbook, The Irresistible Growth Enterprise, and The Ultimate Competitive Advantage. Read about creating breakthroughs through 2,000 percent solutions and receive tips by e-mail by registering for free at

http://www.2000percentsolution.com .
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