Excerpts

Companies that keep winning are rare. What maintains their momentum and accounts for their ongoing success? This book compares firms that have achieved long-term success with firms that have experienced persistent failure. It provides four secrets that explain why the winning firms have done so well. From the history of the winners, I extract the critical attributes that contributed to their performance. Each firm had a distinct pattern. Being a big winner means carrying out (i) a well-executed niche strategy that achieves a balance between (ii) agility, (iii) discipline, and (iv) focus. Managing the tension among such attributes is not easy. Big winners bring together opposing traits. Other firms can imitate the individual traits of winning companies, but they cannot match the overall pattern. Similarly, big losers do not fail because of one or two bad qualities. Their poor performance is a consequence of a combination of many bad attributes. Each trait that this book brings to light provides a valuable lesson in itself. Practicing managers have much to learn from this breakdown of the qualities that contribute to the creation of long-term advantage and disadvantage. The main challenge that they face, however, is in managing the tension between contrasting traits--a sweet spot and agility on the one hand, and discipline and focus on the other. The degree to which you can manage this tension influences the extent to which you can achieve long-term success. Being a long-term winner--a dynasty rather than a mere one-time victor--is hard. From 1992 to 2002, few firms hit this mark. Only about 3 percent of the 1,000 largest U.S. corporations outperformed their industry's average market performance. About 6 percent underperformed this average. More firms performed consistently poorly than consistently well. Companies that are big winners generally operate under the radar. They are relatively unknown. They include such firms as Amphenol, Ball, Family Dollar, Brown & Brown, Activision, Dreyer's, Forest Labs, and Fiserv. Their story has yet to be told. In comparison, companies that suffer from sustained competitive disadvantage are better known. They include such familiar names as Goodyear, the Gap, Safeco, Hasbro, and Campbell Soup. This book reveals the secrets of the long-term better-than-industry performance of the winners. It shows distinct patterns in the 1992 to 2002 results. The differences in outcome are not random or a matter of mere chance. The circumstances that the big winners and big losers faced were similar. What explains the differences in performance is that the winners pursued and executed different strategies than the losers. In this book, I reveal how the traits of the big winners came together into larger patterns made up of a sweet spot, agility, discipline, and focus. Firms that achieved advantage wove together these elements into larger wholes. The positive aspects of the separate components supported and reinforced each other. Similarly, the negative traits of the losing firms supported and reinforced each other. The takeaway for managers is to build your advantage one by one in a planned and logical way in which you start by understanding your company's existing traits. But you cannot stop there. You must continue with an awareness of how these separate traits fit together in broader and more comprehensive patterns. Do not lose sight of the fact that the more comprehensive patterns that create advantage and disadvantage bring together contradictory elements. You have to combine a sweet spot, agility, discipline, and focus, and you must avoid a sour spot, rigidity, ineptness, and diffuseness. This book highlights these patterns--on the one hand, a pattern of advantage that consists of a well-defined market niche achieved through agility, discipline, and focus; and, on the other hand, a pattern of disadvantage that rests on a poorly defined market niche sustained by rigidity, ineptness, and diffuseness. How This Book Was Written I enlisted the support of more than 500 practicing managers to write this book. They worked for such well-known multinational companies as Target, Best Buy, Guidant, Cargill, General Mills, Medtronic, Wells Fargo, American Express, 3M, Ecolab, Boston Scientific, Honeywell, U.S. Bancorp, Piper Jaffray, Carlson Companies, West Group, Northwest Airlines, St. Paul Companies, Seagate, ADC, Intel, United Defense, Johnson Controls, Deloitte Touche, Supervalue, Polaris, Rosemount, Eaton, RBC Dain Rauscher, Unisys, Home Depot, Allina, Toro, United Health, Thrivent, Donaldson, and Ernst and Young. 1 The managers had more than seven years of work experience. Teams of five to six managers wrote reports on two firms. They compared characteristics of companies that achieved long-term success and companies that endured long-term failure. One of the companies substantially outperformed the average stock market performance of its industry for 10 years, and the other underperformed the average stock market performance of its industry for the same period. (See below for a list of these firms.) Sector Winner Loser Technology Amphenol LSI Logic Manufacturing/appliance SPX Snap-On Software FiServ Parametric Food Dreyer's Campbell Soup Drugs/chemicals Forest Labs IMC Global Manufacturing/industrial Ball Goodyear Financial Brown & Brown Safeco Retail Family Dollar Gap Entertainment/toys Activision Hasbro The managers explained the reasons for the former company's sustained success and the latter company's sustained failure. To explain this difference, they examined the evolution of the companies' strategies. They obtained information from annual reports--in particular, the first section where executives discuss their strategy--and consulted other sources. A list of the sources on which they drew is found at the end of this book. Five groups of managers were assigned to each of the nine company pairs. They addressed the following questions: What were the external challenges the companies faced? What were the internal strengths and weaknesses the companies had to meet these challenges? What moves did the companies make? Why were the moves of one of the companies more successful than the moves of the other? The managers prepared 42 reports of about 30 pages each on nine company pairs. Following is an outline of a typical report. Typical Report Outline Explaining Sustained Competitive Advantage and Disadvantage: Strategies for Prolonged Business Success The Executive Summary states what you found. What distinguishes the companies? Why has one done so much better than the other? The Introduction should include a brief description of the companies, including details about their history, mission, goals, objectives, location, number of people employed, and main products and markets. Relevant performance statistics should be provided. Relevant is the important word. Identify the critical competitive challenges that the companies faced. How do the challenges differ? Identify the key internal strengths and weaknesses the companies had. How do these differ? Summarize the main moves the companies made. How did the companies choose to respond to the challenges they faced and why? Do an analysis of why, based on the strategies carried out, one company performed so much better than the other. Conclude and speculate on what you think will happen in the future. A reference page is required. Appendixes are permitted. The managers made oral presentations based on initial drafts of their reports. During these sessions, they were subject to criticism. They were challenged to sharpen their conclusions about the traits that contributed to sustained competitive advantage and disadvantage. 2 Their reports were supposed to be analytical, not descriptive. The aim was to develop a theory of why some multinationals thrived in the long term, whereas others did not. This project started in the fall of 2002. By the spring of 2003, I had listened to three rounds of oral reports and felt I was hearing similar themes--that the big winners did much better than the big losers because (i) they occupied sweet spots, (ii) they had the agility to move into these spots, (iii) they had the discipline to protect these spots, and (iv) they had the focus to exploit and extend these spots. The big losers had the opposite characteristics. (i) They were in sour spots, (ii) they were too rigid to move out of these spots, (iii) they were inept at defending positions in which they found themselves, and (iv) they were not able to extend and exploit positions they occupied. I asked the last two groups of managers for challenges to this theory so that I could fine-tune and improve it. The reports the managers wrote were the raw material I used to write this book. I carefully read the reports again and again and searched for consensus views. Recall that for each company pair, I had five reports. 3 I considered the reports the managers wrote to be reliable because they were written by competent practitioners who had been trained in the concepts and methods of strategic management. As a check on the findings, I did not accept information from a single report as valid unless I had additional confirmation. Through these means, I tried to eliminate errors of fact or interpretation. Most of the insights in this book derive from the reports that the managers wrote. Their names and the companies they analyzed are listed in the Acknowledgments. The reports pointed me in certain directions, but I take full responsibility for where I ended up. The conclusions are my own. I presented the results and obtained feedback at a number of venues: Business Policy division sessions at the Academy of Management and seminars at the University of Minnesota, Arizona State University, Hong Kong Technical University, Hebrew University, the Technion, and Tel Aviv University. Both Prentice Hall and Wharton provided detailed critiques of early drafts of this book, to which I responded with substantial rewrites. 4 This book is organized as follows. The first chapter explains why some firms continuously win and others regularly lose. Chapter 2 gives details on how the winning and losing companies were chosen. Chapters 3 through 7 provide an in-depth analysis of the winners--the sweet spots they occupied and the ways in which they exhibited agility, discipline, and focus. Chapters 8 through 12 are a parallel analysis of the losers--the sour spots they found themselves in and how they showed rigidity, ineptness, and diffuseness. Chapter 13 summarizes the main lessons. It is a code of best practices. Chapter 14 is essential reading if you want to achieve a turnaround. It tells you what to do to start a take-off and avoid a nosedive. All along, lessons are learned and specific advice is given on what a company can do to become a big winner and avoid being a big loser. This advice is concrete, specific, and actionable. It is among the most important takeaways you will get from this book. The managers were enrolled in programs at the University of Minnesota--either the part-time MBA program at the Carlson School of Management or the part-time Master's of Technology (MOT) program at the Center for Technology Development and Leadership. They were taking a course in strategic management, where I introduced them to classical analytical techniques used in strategy, such as five-force analysis and product positioning. See Alfred A. Marcus, Management Strategy: Achieving Sustained Competitive Advantage (New York: McGraw Hill-Irwin, 2005). The managers applied the techniques to pairs of companies prior to analyzing the big winners and losers. The companies they analyzed were: Intel and AMD, Barnes and Noble and Amazon.com, Dell and Gateway, Best Buy and Circuit City, Morgan Stanley and Charles Schwab, Time Warner and Disney, Coke and Pepsi, Monsanto and Dupont, and Wal-Mart and Spartan Foods. See Alfred A. Marcus, Winning Moves: A Casebook (Lombard, IL: Marsh Publications, 2005) I also asked for a review and comparison of other books that claimed to have found the secrets of winning and losing companies. (See Appendix A.) I used the reports as the jumping-off point for my observations. I looked for recurring themes and coded and grouped common elements. In the fall of 2004, I validated my findings by having a fresh group of managers analyze 10 new company pairs. Sector Winner Loser Aerospace/defense United Tech Raytheon Chemicals Cytec International Flavors Computer software Veritas Compuware Food production Pilgrim's Pride Tyson Food and drug Whole Foods Winn-Dixie General merchandisers Dollar General Saks Health care Omnicare Magellan Home equipment Fortune Brands Newell Rubbermaid Motor vehicles and parts Thor Exide Wholesalers diversified Watsco Audiovox (c) Copyright Pearson Education. All rights reserved. Excerpted from Big Winners and Big Losers: The 4 Secrets of Long-Term Business Success and Failure by Alfred A. Marcus All rights reserved by the original copyright owners. Excerpts are provided for display purposes only and may not be reproduced, reprinted or distributed without the written permission of the publisher.