Do You Want to Be Exceptional? Follow the Rules!

Some believe rules are made to be broken; others consider rules mere suggestions for when circumstances call for them. But in business, rules – three of them, in fact – are made to be followed, says innovation and corporate performance expert Michael Raynor. Your company’s long-term profitability most likely depends on it.

The title of Raynor’s latest book and the topic of his recent TEDx talk, “The Three Rules” are easily summarized:

1. Better before cheaper. Differentiate yourself in a meaningful way beyond price.
2. Revenue before cost. Cost-cutting can be an effective short-run strategy, but it doesn’t last.
3. There are no other rules. Anything that goes against the first two rules must be changed.

These prescriptions can seem common sense, and most leaders – and probably you, too – agree with them. After all, the idea that you shouldn’t compete on price and you can’t cut your way to greatness is not new. So why do so few companies actually follow the rules, instead tending to choose the path more traveled (or at least the path that promises a less bumpy ride): slash prices, cut costs?

“The price and cost levers are easy to find… [they’re] easier to execute and results seem more certain,” says Raynor. “That makes it very tempting to do the very opposite of what you probably say is the better course. It turns out that, like most things in life, the more difficult choice is the better choice. Sadly, too many companies turn to cost and price-based solutions at the first hint of adversity.”

It’s a different kind of “dilemma.” Raynor – who partnered with Harvard Business School’s Clayton Christensen a decade ago to co-author “The Innovator’s Solution,” which posits that innovation is indeed predictable – believes rules can help defeat the temptations of false hope and keep leaders focused on the more profitable, if more challenging, route. The three rules overcome the limitations that prevent us from making the right choices; they counter bias, suppress our baser instincts, and keep us on the path to virtue. Following the rules, he says, can make just about any company – good or great – truly exceptional.

Raynor’s assertion isn’t subjective. It’s based on in-depth research and statistical analysis of more than 25,000 public companies, less than 400 of which proved to be truly top performers, that far and away were more likely than not to have followed the rules – even when (perhaps especially when) it wasn’t obviously a good idea.

A director at Deloitte Services LP and the leader of the firm’s Theme Program, Raynor is an articulate and engaging speaker. He makes the rules personal and practical in his TEDx presentation and expounds on them further in his Harvard Business Review article. You might also be interested in his thoughtful and edgy insights on innovation and performance, including “Innovation: A Chimera No More” and “Found in Translation: The Lingua Franca of Exceptional Performance.”

Stern Strategy Group: