How Exceptional Companies Think by Michael Raynor
from Soundview Summaries.com 05 May 13 enhanced by Peter.CXO Wiz4biz
The Three Rules: How Exceptional Companies Think by Michael Raynor is an important book which has applicability mainly to companies that manufacture products. The book spends little or no time on financial companies, derivative products or the inter-market analysis impacting decision-making for the global exchanges.
Three drivers of pPrformance are discussed: 1) value, 2) revenue &3) cost. The book explains how drug-maker Merck produced a compounded annual revenue growth of over 11% for the years 1966-2010. Approximately 25,000 companies were analyzed over a 45 year period to produce 344 truly exceptional companies.
Performance suffers when non-price competition is abandoned. Retailers like Family Dollar have done well by realizing that the needs of the customer are paramount. Furthermore, Return on Assets [RoA] is a good measurement of performance over a wide range of companies. There are times when assets become obsolete and their earning power deteriorates accordingly.
Miracle Workers among the companies was analyzed. A miracle worker relies on gross margin advantages to retain & build upon an ROA lead or competitive advantage. Thomas & Betts [Electrical Component Maufacturer] is one such “miracle worker” with revenue growth from $49 million to $2 billion dollars over the period analyzed.
Revenues before cost, the rule structures employed should give due credit to “innovation” as a driving force for sustaining & growing revenues over time.
Cost is not entirely irrelevant. The technological innovations of the microchip slashed calculator component costs by 90% or more. This dramatic cost-cutting resulted in billions of dollars in new sales to customers who bought calculators for the first time. A similar learning curve happened elsewhere in compact televisions and even net computers.
Recommendation: The Three Rules is a good book which provides some important perspectives for corporate managers, investors and entrepreneurs. The rule structures may not have a universal applicability to every industry like financial services or real estate. Nonetheless, this book does provide important information for entrepreneurs – with regard to the presentation on truly exceptional companies and the emphasis on the value of products & processes to customers everywhere. This book is an important one for Enterepreneurs to read due to the identification of exceptional companies and their long term performance as a guideline.
Comments: Can you make a Recommendation of this book?