Wharton School Publishing
Achieving Consistently Superior Performance: Lessons From the Top 3 Percent

A mere 3 percent of the 1,000 largest American corporations have consistently outperformed their industries for more than a full decade. Companies like Amphenol. Ball. Family Dollar. Dreyer's. Forest Labs. and Brown & Brown. They're rarely the biggest in their industries, or the most widely hyped. But they're sure doing something right.

Strategic management expert Alfred A. Marcus spent 2 years investigating what it might be. He also analyzed the 6 percent who've underperformed year after year — including familiar names like Goodyear, The Gap, Hasbro, and Campbell's Soup. Now, he's bundled all this research into a powerful, important book: Big Winners and Big Losers, from Wharton School Publishing.

To begin with, Marcus confirms that the differences between his winners and losers are no coincidence. He finds four specific patterns that tend to deliver success, and four corresponding "anti-patterns" that usually lead to failure.

First and foremost, highly successful companies are adept at finding market "sweet spots": unique niche positions that are relatively well protected from competition. They choose specialties other firms tend to ignore or avoid. Then, within these clearly defined niches, they provide the best value for the money.

To find your sweet spots, says Marcus, you need to achieve a "special" closeness to your customers: one that goes beyond the "run-of-the-mill" closeness every company claims. For example, Amphenol, SPX, and Ball actively co-designed products and services with their customers. Ball, known in its industry for exceptional R&D, co-designed specialty packaging that helped its customers achieve stronger brand differentiation and loyalty — a benefit worth far more than "commodity" packaging.

Fiserv systematically embedded itself into its customers' infrastructures and provided extensive niche offerings customers couldn't easily find elsewhere. Partly as a result, it earned 80 to 85 percent of its revenue from long-term contracts. Family Dollar embedded itself in its customers' neighborhoods: rural areas, small towns, and poor communities where it's often the only convenient place to buy everyday necessities.

Of Marcus' 28 strategies for finding sweet spots, one more is especially worth mentioning: acting as broker. That's the approach of "big winner" Forest Labs, which leveraged strong U.S. customer relationships to become licensor of choice for foreign drug manufacturers with little experience in U.S. markets.

The weaker performers Marcus studied tended to be stuck in "sour spots." LSI Logic, Snap-On, and Parametric offered products and services that were too expensive for their customers: sometimes due to overdesign or to miscalculating their customers' sophistication. IMC, Goodyear, and Safeco locked themselves into low-price commodity markets, ignoring customers' needs for specialized, higher-margin offerings. Other companies, like Campbell's and The Gap, depended on business models and activities that were too complex for them to execute well.

All this leads to Marcus' remaining three patterns of behavior. First: agility, to move rapidly towards markets that are uncontested or weakly contested (and then move again when the environment shows signs of fundamental change). Next, discipline, to protect sweet spots that are worth defending. Finally: focus, to fully exploit the sweet spots you've found.

Agile companies don't just know where to go. They know how to get there in a hurry — whether that means acquisitions, divestments, organic growth, partnerships, alliances, or all of the above. They're good at identifying promising new markets where customers have specialized needs that few companies can meet. They respond quickly to new threats, whether from overcapacity, industry consolidation, or new market entrants. They're focused on "being the best, not the biggest." They're adept at finding partners to share costs and risks — as Activision does, in licensing and marketing games created by smaller firms.

Once they've found their sweet spots, winning companies demonstrate the discipline required to deliver exceptional value: effective cost reduction and quality programs, strong control over distribution and sourcing, a solid methodology for integrating acquired companies, and a high-involvement culture.

Similarly, they stay focused: deepening and widening their positions without straying from their core competencies. They consistently execute plans for product enhancements, extensions, and sequels. They sell solutions, not just products. And they apply the same focus and discipline to their new global initiatives.

Marcus clearly recognizes that agility, discipline, and focus coexist in uncomfortable tension. "Agility" whispers that it's time to move towards a new niche. "Discipline" and "focus" tell you to stay home and mind your knitting. Winning companies excel in finding the right balance. Thankfully, Marcus offers guidance and diagnostics for doing so. With that final link in place, he's delivered a solid framework for achieving today's most elusive business goal: consistently superior long-term performance.

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