The three rules of the king: successful companies have at least the first two

There are a few questions that every successful business leader wants to ask, but few people can give a solid answer from a scientific perspective: Which companies are worth learning? What is different about them? How should we follow them?
We use statistical methods to answer these rigorous research questions, and select hundreds of long-term companies with outstanding performance from thousands of companies as a sample of truly outstanding companies. The results of the study are very surprising: although these companies have a variety of practices, there are only three seemingly simple rules behind the success of the decision:
1. Quality precedes price: Pursue product differentiation, rather than lowering prices and competing with rivals.
2. Income precedes cost: The company's focus is on increasing revenue rather than cutting costs.
3. There are no other rules: all necessary changes must comply with Rules 1 and 2.

During the research process, we divided the companies with outstanding performance into two categories:
"Miracle" - the top 10% of companies with return on assets, which is usually enough to prove that their chances of betting are small;
“Long-distance runners” – companies with a return on assets between 20% and 40%, whose continued good performance stems from the possibility of luck.
We refer to these two types of companies as outstanding performers. At the same time, we also summed up the third type of company, the "pladio", for comparison.
Every company faces the choice of competing through non-price factors such as good brand, unique style or quality features, durability and ease of operation; it can also attract customers at low prices, but only meet the above criteria to a minimum. . The "miracle" chose the former strategy almost without exception. The "moderate" often chose price competition, and the "long-distance runner" did not particularly prefer which option.

Rule 1: Quality precedes price
Note the word "first" in this rule. It's not that companies can completely ignore their low-priced pricing strategy, just as low-cost competitors can't completely ignore the quality of their products or services. We just say that the company's excellence in most cases comes from creating higher value, not by driving down prices. If the company wishes to continue to receive high profits, it should adopt a strategy consistent with this rule.
While non-pricing strategies have many benefits, they are not foolproof. In general, companies that compete through factors other than price must always guard against competitors and prevent them from stealing the company's core competitive advantage. Otherwise, there may be dangerous consequences: even similar companies will confuse customers, causing the company to lose its hard-won Product uniqueness; in the case of competitors, it may find a better way to win.
The company must also be aware of potential disruptive threats. In markets with less demand, higher-priced companies are actually nurturing their own disruptors in order to obtain higher gross margins, which can provide cheaper, quality-qualified products. But subversive strategy research is enough to help companies accurately determine which alternatives have potential subversive possibilities, thus ensuring timely counterattacks. For potential disruptors, our advice is that the most effective and profitable method before subversion is to follow our rules.

Rule 2: Income precedes cost
Companies need to create value not only in the form of profits but also in the form of profits. Compared with competitors, superior and superior companies can obtain overwhelming income through premium or high sales, thus ensuring their profitability. For companies with superior performance, the main reason for achieving high profits is rarely low cost.
Merck, a pharmaceutical company, is one of the companies that have won sales. Compared to the industry's "long-distance runner" Eli Lilly, Merck is internationalized earlier, faster and more successfully. Merck adheres to the "quality before price" rule and refuses to follow the low-cost strategy of rivals in the international market. But the price ceilings in these markets make it difficult for Merck to achieve high gross margins. Therefore, Merck relies on the unique clinical effects of its patented drugs to increase the sales of its products in medical institutions. The high sales volume allows Merck to achieve higher asset turnover than Lilly, and thus higher profits, which is the main reason why Merck can obtain high return on assets.
Just as quality prior to price does not necessarily mean maintaining a high price for the product, you can also reduce inefficient operations and reduce costs when adopting revenue-first-cost rules; but companies must understand that low-cost certainly cannot be profitable. Strategic advantage.

Rule 3: No other rules
This law highlights the fact that one has to face (or relieve) the fact that to obtain high profits, the above two rules must be observed. Other factors such as operational efficiency, talent training, leadership style, corporate culture, and incentive mechanisms play different decisive roles in different types of companies. There is no doubt that many other factors can affect a company's performance, but we can't find a consistent model to explain how they affect company performance.
We also found that many companies remain in a leading position after making strategic adjustments to the factors that determine the company's performance. What is the reason? The answer is that these strategic changes are in line with our first two rules. In other words, companies that excel in performance always adhere to the non-low-cost positioning and the pursuit of high-income profit-making principles, while other matters are in a secondary position.
No other law does not mean that everything is fine. When the competitive environment makes a vicious change, you need to follow these rules in a positive and flexible way. Obeying the first two rules requires a lot of creativity.
It should be pointed out that there is no necessary connection between the way value is created and the way it is profited. While low-cost companies cannot obtain value through high pricing, other combinations of competition and profit-making methods are feasible, at least theoretically. As mentioned earlier, non-price competition usually means high pricing or high sales. In theory, companies that win in price competition can profit from low-cost even if they do not focus on high prices. Unfortunately, we have not found such a company. In terms of numbers, companies with low-price competition (prices prior to quality) can maintain good asset turnover through high sales and obtain higher profits (revenues before costs), but we also have not found such companies. Our research shows that companies that compete at low prices tend to favor the former – reducing costs to make a profit.
Our conclusion is: To ensure that nothing is lost, you should create value by quality before price, and earn profits by income before cost.
In fact, many successful companies are very hard on cost and investment. These companies will spend a lot of resources on long-term areas that increase the price and value of their products. It's important to note that once these successful companies are seen as more insured short-term methods that reduce costs or mislead investments, they are likely to lose the ability they would most like to improve.

Michael E. Raynor (Mumtaz Ahmed) | Michael Reiner is Director of Deloitte Services LP, and Montaz Ahmed is Deloitte Consulting Partner and Chief Strategy Officer of Deloitte Consulting LLP.
Chen Chen | Translated by Li Wei | The school is abridged. The original text is in the Chinese version of Harvard Business Review. April 2013, The Three Rules of the King.

Welding Tools

industrial Welding Machine,Pigeon Welding Machine,Family Quality Welding Machine

YongKang WALMA Tools CO., LTD. , http://www.walmatools.com