The Exceptional Organization – Reality or Myth?

by  on  in Forum Newspaper Articles 2014

This article is part of a series on what causes a firm’s value to increase

Many over the years have described the attributes of an exceptional organization, only to have some of their highly praised example firms falter just a few years later.

What do you think are the attributes of an Exceptional Organization? Do exceptional firms stay that way for long? My opinion is no – periods of sustained performance will be followed by times of trial and tribulation. This sets the seed for improvement or even turnaround before growing again. Thus we can outline what leads to the probability of sustainable superior performance in terms of increasing firm valuation, but cannot guarantee it for any length of time into the future.

The following are examples of some researchers who have offered their formulas for exceptional organizations over the years: Peters and Waterman In Search of Excellence (1982), Jim Collins in Good to Great (2001) and Great by Choice (2011), and Raynor and Ahmed The Three Rules: How Exceptional Companies Think (2013).

In 1982 Peters and Waterman thought the Exceptional Firm included:

  1. A bias for action – Digital Equipment Company (DC)
  2. Closeness to the customer – Frito Lay, Maytag, IBM
  3. Autonomy and entrepreneurship – 3M
  4. Productivity through people – Texas Instruments
  5. Hands-on, values driven – Hewlitt-Packard, McDonalds
  6. Stick to the knitting – Johnson and Johnson, P&G
  7. Simple form, lean staff – Frito Lay, Kodak
  8. Simultaneous loose-tight properties – 3M, DEC

In 2001 Jim Collins thoughts included in Good to Great:

  1. Level 5 Leadership – humble leaders
  2. First who then what – get the right people on the bus
  3. Confrontation of brutal facts
  4. The Hedgehog Concept – simplicity gets results
  5. A culture of discipline
  6. Technology as an accelerator
  7. The Flywheel and the Doom Loop – gain momentum or not

Firms like Circuit City, Fannie Mae, Kimberly-Clark and Walgreens were cited as following all seven attributes.

And in Great by Choice in 2011:

1. Fanatic Discipline

2. Empirical Creativity – mining data for evidence not opinion

3. Productive Paranoia – not debilitating paranoia

Firms like Amgen, Biomet, Intel, Microsoft, Progressive Insurance meet these tests.

Raynor and Ahmed listed in The Three Rules in 2013:

Rule #1. Better Before Cheaper – Differentiate to be able to command premium prices

Rule #2. Revenue Before Cost – Use your differentiated position to charge higher prices and appeal to more customers. Do not try to “cut” your way to greatness

Rule #3. There Are No Other Rules – Whatever changes happen in your industry, do not ever give up on the first two rules

“Miracle Workers” are firms who have outperformed their peers over a ten year period using Return on Assets as the measure and include Abercrombie and Fitch, Merck and Co., Medtronic, Wm. Wrigley Co., Maytag and Weis Markets.

Do these findings resonate with your experience?

My work tries to get at what is underneath these kinds of findings and hopefully adds to them. I have delved into how organizations think, create, do and what they value. In two major studies and ten smaller sized studies over the last thirty years the findings have been remarkably similar in terms of what causes increases in firm valuation. What I keep finding is surprising. A group of “softer” variables comprise the root cause of increases in firm valuation, not “hard” variables. Think of the acronym SPIR:

Speed – Speed in everything is caused by an absence of organizational barriers, penchant for no bureaucracy, and extreme process and process innovation discipline.
People – A ubiquitous understanding and application of what value means – both financial and customer value. This is caused by personal values that give rise to high performance teams (no room for the rank opportunist) and by processes and personal values that give rise to continuous learning.
Intangible assets – Intangible assets are things like a great brand, a string of patents, and a strong culture like Google. These come into being by a complete understanding that time is the only non-renewable resource, personal values that support continuous inquisitiveness and unrest with the status quo, and personal values that give rise to a passion for authentic work.
Recognizing New Opportunities – Is caused by a lack of clutter in organizational and even personal life, and a passion and track record of acquiring and using new emerging knowledge. Clutter zaps the focus to recognize new opportunities.

These attributes lie underneath the findings from the studies above. My seemingly simple list masks a lot of moving parts that must be connected. My findings are a multiplicative function. That is Speed X People X Intangible Assets X Recognizing New Opportunities sets the probability for increases in firm valuation. And in math zero times anything is zero. So your firm must be very good at all of SPIR, or it runs the risk of declining firm valuation.

So what is my list of example firms? I do not have any. As I state above, the Exceptional Firm is a myth from my viewpoint. We can however increase the odds of sustaining superior performance over some period of time with SPIR. What do you think?

Next Up: The Lean Startup

Bill Bigler is Director of MBA Programs and associate professor of strategy at LSU Shreveport. He spent twenty five years in the strategy consulting industry before returning to academia full time at LSUS. He is involved with several global professional strategy organizations and can be reached at bbigler@lsus.edu and www.strategybest.com