Why do some succeed while others fail? Author Nitin Nohria says he's found the answer.
Can business success be reduced to a single formula? Nitin Nohria thinks so. The Harvard Business School professor recently concluded an exhaustive study of 160 companies in 40 different industries over two five-year periods in an attempt to answer the most basic question in business: Why do some companies flourish while others fail?
The answer, he found, is as simple as 4+2. Success, Nohria and co-authors William Joyce and Bruce Roberson argue in the new book What Really Works: The 4+2 Formula for Sustained Business Success, requires managers to implement four primary fundamental business practices -- strategy, execution, culture, and organization -- and two of four secondary ones -- talent, leadership, innovation, and mergers and partnerships. It doesn't matter what industry you're in or what macroeconomic circumstances you face: Successful companies, Nohria says, invariably are those that employ the "4+2 formula." He recently spoke with Inc. about what such findings mean for entrepreneurs.
Such exhaustive research was bound to yield some surprises. What was the most unexpected thing you turned up?
We looked at 200 different practices, and we thought that many more would end up coming out as being important. Surprisingly, you end up with just four primary and four secondary practices. You have to do at least six of those things well to be successful. But to do poorly, all it takes is to do badly at one. This asymmetry makes success very hard to sustain, because if you fail on any one thing, it seems to precipitate a slippery slide on multiple processes.
In fact, many popular management techniques seem to do very little to boost a firm's performance. What doesn't work?
Take information technology. We have winners implementing CRM (customer relationship management systems), and losers implementing CRM. What mattered in technology is that the technology actually drives either cost reduction or superior strategy execution. Then there's corporate governance. We looked at almost every one of the things that Sarbanes-Oxley prescribes, like independent directors or whether the board meets without the CEO. None of these things seems to correlate with being a winner.
You also found that the quality of one's product or service isn't that important. That goes against a whole canon of business literature about the "customer experience."
Quality that significantly exceeds the customer's expectations doesn't seem to pay off. This "delight the customer" stuff isn't rewarding. One has to be careful about delighting customers too often, because it sort of reshapes customer expectations. You're better off being extremely reliable in terms of consistency, meeting the sort of expectations that are implicit in whatever value proposition that you have. Customers are enormously punishing when companies don't meet their expectations.
Say a CEO reads your book over the weekend. What's the first thing he or she should do Monday morning?
Ask yourself: "How do I stack up against these six things relative to my major competitors?" Then, if you have even greater courage, send out this scorecard to five randomly chosen employees, customers, or analysts or venture capital providers who actually work with your company and ask them to score you. If you're not good at any one of these things, then figure out a way to fix it.