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www.hbrreprints.org Separate the facts from the fads: A groundbreaking, five- What Really Works year study reveals the must- have management practices that truly produce superior by Nitin Nohria, William Joyce, and results. Bruce Roberson Included with this full-text Harvard Business Review article: 1 Article Summary The Idea in Brief—the core idea The Idea in Practice—putting the idea to work 2 What Really Works 13 Further Reading A list of related materials, with annotations to guide further exploration of the article’s ideas and applications Reprint R0307C What Really Works The Idea in Brief The Idea in Practice New management ideas heat up and fizzle PRIMARY PRACTICES SECONDARY PRACTICES out—seemingly overnight. So how can you To excel at the four primary management Excel at any two of these secondary manage- tell which ones are critical for outperform- practices, consider these guidelines: ment practices. ing your competitors? A groundbreaking study of 200 management techniques re- Strategy: Talent: veals surprising results: Most techniques Build your strategy on deep knowledge of Achieve deep bench strength. It’s cheaper have no direct impact on superior business your target customers and company’s capabil- and more reliable to develop stars than to buy performance. What does? Mastery of busi- ities. Clearly and consistently communicate them. Create top-of-the-line training pro- ness basics. that strategy to employees, customers, and grams to retain skilled managers. Give them shareholders. Refine your strategy only in re- challenging, intriguing jobs. To sustain superior performance, you have sponse to marketplace changes—new tech- Leadership: to excel at four primary management prac- nologies or government regulations, for ex- Successful companies’ leaders are committed tices—strategy, execution, culture, and ample. structure—and any two of four secondary to the business. They reach out to front lines, practices—talent, leadership, innovation, Example: forging connections with people at all levels. and mergers and partnerships. Remaining laser-focused on its strategy They seize opportunities before competitors year after year, Dollar General sets rock-bot- do and tackle problems early. Also, such com- The key to this 4 + 2 formula is not which tom prices and selects only merchandise panies’ board members have a financial stake technique you choose within each practice, appealing to its core customers at the low in the firm’s success and a solid understanding but how well and consistently you stick end of the market. of the industry. with it. There’s no recipe to follow. But the most enduringly successful companies in Execution: Innovation: the study—those delivering a 10-fold re- Streamline operational processes essential to Lead your industry with breakthrough innova- turn to investors over a 10-year period— consistently meeting—not exceeding—cus- tions—even if that means cannibalizing exist- clearly demonstrated hallmarks that any tomer expectations. Eliminate waste to in- ing products. Use new technologies to en- company can follow. crease productivity 6% to 7% annually. hance all operations, not just product- development processes. Culture: Hold managers and employees, individuals Mergers and partnerships: and teams to unyielding performance expec- Enter only new businesses that leverage exist- tations. Link pay to specific goals—and raise ing customer relationships and complement the bar every year. Withhold rewards when your core strengths. Forge partnerships that targets are missed. State company values best use both companies’ talents. Develop a clearly and forcefully. systematic way of identifying, screening, and closing such deals. Structure: Create a fast, flexible, and flat structure that re- duces bureaucracy and simplifies work. Shat- ter departmental boundaries that prevent in- formation sharing and cooperation. Look to middle managers’ and employees’ dedication and inventiveness—not executives’ bril- liance—for your company’s future. © 2003 BY HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED. BUSINESS SCHOOL© 2003 BY HARVARD PUBLISHING CORPORATION. page 1 Separate the facts from the fads: A groundbreaking, five-year study reveals the must-have management practices that truly produce superior results. What Really Works by Nitin Nohria, William Joyce, and Bruce Roberson The dot-com boom of the 1990s had changed that outperformed their industry peers ex- the rules of business forever, it seemed; all you celled at what we call the four primary man- needed was a sexy IPO, cold nerve, and the agement practices—strategy, execution, cul- magic carpet of momentum trading. But even ture, and structure. And they supplemented as entrepreneurs and venture capitalists were their great skill in those areas with a mastery dismissing traditional business models as anti- of any two out of four secondary management quated and conventional business wisdom as practices—talent, innovation, leadership, and old school, we found ourselves wondering if mergers and partnerships. they were right. For years we had watched We learned, for example, that it doesn’t re- new management ideas come and go, passion- ally matter if you implement ERP software or a ately embraced one year, abruptly abandoned CRM system; it matters very much, though, the next. “What really works?” we wondered. that whatever technology you choose to imple- Our curiosity prompted us to undertake a ma- ment you execute it flawlessly. Similarly, it jor, multiyear research effort in which we care- matters little whether you centralize or decen- fully examined more than 200 well-estab- tralize your business as long as you pay atten- lished management practices as they were tion to simplifying the way your organization employed over a ten-year period by 160 com- is structured. We call the winning combination panies. the 4+2 formula for business success. A com- Our findings took us quite by surprise. Most pany that consistently follows this formula has of the management tools and techniques we better than a 90% chance of sustaining supe- studied had no direct causal relationship to su- rior business performance. perior business performance. What does mat- The 160 companies in our study—which we ter, it turns out, is having a strong grasp of the call the Evergreen Project—were divided into business basics. Without exception, companies 40 quads, each comprising four companies in a © 2003 BY HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED. BUSINESS SCHOOL© 2003 BY HARVARD PUBLISHING CORPORATION. harvard business review • july 2003 page 2 What Really Works narrowly defined industry. The companies in The eight essential management practices each quad began the study period (1986 to we cite are not new, nor is their importance 1996) in approximately the same fiscal condi- particularly surprising or counterintuitive. But tion. Yet their fortunes differed dramatically implementing our formula for success is not as over the decade. One company in each four- simple as it sounds. Companies can all too eas- some emerged as a winner—it consistently out- ily forget or ignore the basics, as we saw in the performed its peers in the industry throughout waning years of the last century. And succeed- our study period; one a loser—it consistently ing at the eight business practices can be hard underperformed against its competitors; one a work. Maintaining a laserlike focus on strategy climber—it started off poorly but dramatically alone, year in and year out, can be grueling. improved its performance once it applied the Yet the winning companies in our study were 4+2 formula; and one a tumbler—it began the running full tilt on six tracks at once—impres- decade in good shape then fell far behind. sive when you consider that a single misstep Over the ten-year period, investors in the win- on any of the six can be fatal. Indeed, some of ning companies saw their money multiply the companies that were deemed winners dur- nearly tenfold, with total returns to sharehold- ing our ten-year research period have since ers of 945%. By contrast, the average loser pro- stumbled in one dimension or another—for in- duced only 62% in total returns to sharehold- stance, Dollar General lost its focus on the val- ers over the decade. (For more on our ues in its culture and, as a result, recently had methodology, see the sidebar “The Evergreen to restate its earnings. It’s much easier to be a Project: Our Research.”) tumbler than it is to remain a winner. Our re- Winners, losers, climbers, and tumblers— search found that less than 5% of all publicly with startling consistency, their fortunes traded companies maintain a total return to marched in lockstep with how well they per- shareholders greater than their industry peers formed on the 4+2 practices. Consider how for more than ten years. And so, it seems, there Tennessee-based retailer Dollar General, a win- is value in being reminded from time to time ner in our study, fared during our research pe- what really works. riod compared to Kmart. (The other compa- nies in their quad were Target and the Excel at Four Primary Practices Limited.) Both companies were in roughly the The primary management practices—strat- same financial shape in 1986, but Dollar Gen- egy, execution, culture, and structure—repre- eral grew steadily, showing healthy profits year sent the fundamentals of business. But what after year. Meanwhile, Kmart floundered, its does it mean to excel in these areas? There are market share plummeting from 30% to 17% be- myriad tools and techniques available to help tween 1990 and 2000. (We confirmed our find- executives master these practices. To improve ings in the five years following the study pe- execution, for example, leaders can employ riod.) Both companies’ performance was TQM, Kaizen, or Six Sigma, among others. directly linked to whether or not they adhered The conventional wisdom about what works to the 4+2 formula. In the strategy practice, for best shifts with the times.

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