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Three Rules for Sustained Growth in the Middle Market

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What I am constantly reminding myself of is that our work is based on the notion of a company's relative position compared to the relevant competition, and both of those “R” words are critically important. Because, again, we speak of this notion of price or differentiation, and revenue or cost.

When we are talking about cost cutting, lots of companies say, well, I have to cut cost all the time. I have to cut cost year on year. I am constantly having to get more efficient and reduce my cost position.

And that's maybe true, but you don't compete with yourself last year, you compete with your competition today. So if you are cutting your cost year on year, that's fine. If you are cutting your cost in order to have relatively lower cost than your relevant competition, that's the kind of cost cutting that we think can get you in trouble. Being more efficient, who is against being more efficient? What we are pointing to is where you invest money in order to have a relative advantage. That's what we are concerned about.

And the second R word here, relevant competition, is something that I find is often easy for companies to get a bit wrapped around the axle, especially smaller companies, because they can get “blinded by the light” because they think that they are competing with a lot of large, high-flying multinational corporations that they actually just wish they were seen as competitors with.

That may sound an unnecessary statement and be obvious, but in my experience it’s often a bit of an eye-opener when you start talking to and examining what customers do and how they behave and what that says about who your competition is versus who you thought it was.

I’lll give you sort of the standard example that’s often trotted out. Ted Levitt, who was a Professor at the Harvard Business School back in the 60s, said that people don’t want a quarter-inch drill, they want a quarter-inch hole, and anything that gives them a quarter-inch hole is competing for the quarter-inch hole market, and that's the right way to think about it.

So if you think about computers and personal electronics, for example, entertainment devices for that matter, the whole notion that the tablet computer or the smartphone competes with the television or the Cineplex is kind of hard to get your head around, but they really are competing for similar ends -- for people’s time and for their entertainment budget and their appetite, if you will, for being entertained.

"Sometimes disruptors are successful and sometimes they are not, and what I found is that the disruptions that were successful were the disruptions that follwed the rules. What do you know?"So although they don't look the same at all in many ways, they are in fact an increasingly close substitute.

Sometimes disruptors are successful and sometimes they are not, and what I found is that the disruptions that were successful were the disruptions that followed the rules. What do you know? 

Michael E. Raynor is coauthor of The Three Rules: How Exceptional Companies Think (Portfolio/Penguin, May 2013). Raynor is a Director at Deloitte Services LP and the Innovation Theme Leader in the firm’s Eminence function. In addition, Raynor is an advisor to senior executives in many of the world's leading corporations across a wide range of industries. His client projects and research focus on questions of strategy and innovation. 


 

 

 

 

 

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