The Three Rules: How Exceptional Companies Think

In their new book, The Three Rules: How Exceptional Companies Think, Michael E. Raynor and Mumtaz Ahmed carefully identified from all publicly listed American firms those firms that performed very highly over long periods of time. When they tried to find out what they had in common, they could not identify concrete behavior. What made the companies different, according to the authors, where their mindsets. This leads Raynor and Ahmed to articulate three rules for success.

  • Better before cheaper: Compete on differentiators other than price.

  • Revenue before cost: Drive superior profitability with higher prices or higher volumes, not lower cost.

  • There are no other rules: Change anything/everything in order to abide by the first two rules.

  • The Economist wrote a very thoughtful review about the entire genre of business books that tries to glean lessons from studying successful players.  I agree with their assessment that in the end,

    The difficult question is how to find that profitable niche and protect it. There, The Three Rules is less useful.

    Flat World Knowledge Provides Textbooks for Free

    Do you need to learn a new subject but you want to do it on your own and not pay for it. Flat World Knowledge publishes free textbooks if you simply want to read them online and not print them. I found it useful to look up a textbook on project management. For a full category of free textbooks, go to flatworldknowledge.com.

    Phil Tetlock Critically Reviews Three Books on Forecasting the Future

    Telock does us the service of giving a close reading of three books that what to overcome the obstacle that Yogi Berra identified in his qib: “Prediction is very hard, especially about the future.”

    The Fat Tail: The Power of Political Knowledge for Strategic Investing by Ian Bremmer and Preston Keat.

    The Predictioneer’s Game: Using the Logic of Brazen Self-Interest to See and Shape the Future by Bruce Bueno de Mesquita

    The Next 100 Years: A Forecast for the 21st Century by George Friedman

    Read Telock’s excellent review at National Interest.

    Three Books on the Origins of the Financial Crisis and its Lessons

    John Lanchester reviews three books on the origins of the financial crisis and its lessons in the New Yorker.  Two of them are useful for the general reader.

    Gillian Tett, “Fool’s Gold” (Free Press)

    Richard A. Posner, “A Failure of Capitalism” (Harvard)

    I personally personally found Fools Gold the most rewarding of all the books and a higly recommend it to anyone who works in the finance industy or simply wants to understand what caused the recent financial crisis.

    Read full review here.

    Management Wisdom Courtesy of Jeff Pfefer

    Jeff Pfeffer has spent the past twenty years figuring out what management ideas have some systematic data behind them and what ideas are make for a good story but are simply wrong. Guy Kawasaki (who wrote a fantastic little book on entreprepreurship, The Art of the Start, which I am using in one of my classes) has sat down with Pfeffer and asked him questions on his book What were they thinking?. Read the interview.

    What Don Quixote Can Teach Managers and Entrepreneurs

    Miguel de Cervantes. 2003. Don Quixote. HarperCollins Publishers, New York. Translated by Edith Grossman.

    When I first encountered Don Quixote, I thought that a manager or entrepreneur could not possibly learn anything from this lunatic Spaniard. But on reflection I realized that Don Quixote provides some valuable insights into leadership and the challenge of dealing emotionally with the uncertainties inherent in any new venture. Let me briefly summarize the book:

     

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    Taming Your Inner Homer Simpson

    My Kellogg students will remember that I asked them to rate their intelligence vis-a-vis the average member of the class. I routinely had 75 percent of all student who rate themselves above average. That is 25% too many. A colleague of mine warned me that 90% academics feel undervalued by their institution. But until now I read Dahlia Lithwick review of Richard Thaler’s and new book Nudge: Improving Decisions About Health, Wealth, and Happiness I did not know that 94 percent of professors at large universities to believe themselves better than the “average professor.” Read Lithwick excellent review of the book.

    The Latest Reasoning about our Irrational Ways

    Elizabeth Kolbert reviews in the New Yorker the latest on findings on how people behave in irrational ways when making economic decisions.  Read her Reviews of two new books.
    “Predictably Irrational: The Hidden Forces That Shape Our Decisions” (Harper; $25.95); by Ariely, Dan;
    “Nudge: Improving Decisions About Health, Wealth, and Happiness” (Yale; $25); by Thaler, Richard H.

    Irrational fear: No good at risk

    The Economists reviews of “Risk: The Science and Politics of Fear” by Dan Gardner
    THE official death toll from the September 11th terrorist attacks in 2001 was 2,974. But in 2002 America’s death toll on the roads grew by more than 1,500—casualties of the terrorism-inspired exodus from safe aeroplanes to dangerous motor cars. A swan washes up on a British shore, dead from bird flu, and the press panics, while the 3,000 people who die every year on the country’s roads (13 times the number of people who have ever died from bird flu) go largely unremarked. Human beings are notoriously bad at dealing with risk. Two new books explore why, and investigate the effects that misunderstanding risks can have on public policy. The first, an excellent work by a Canadian writer, Dan Gardner, is a broad meditation on the nature of risk, beginning with a psychological explanation for why people find it so difficult to cope. Mr Gardner analyses everything from the media’s predilection for irrational scare stories to the cynical use of fear by politicians pushing a particular agenda.

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    What CEOs are Reading

    The common perception is that CEOs are reading the latest popular management books to help them with their difficult job. An article in the New York Times suggests otherwise. I am not sure if the CEOs that Harriet Rubin portrays in here article are representative of all CEOs and I think the title of the article “C.E.O. Libraries Reveal Keys to Success” is an overstatement, but any manager should read what she has to say. 

    Harriet Rubin: Michael Moritz, the venture capitalist who built a personal $1.5 billion fortune discovering the likes of Google, YouTube, Yahoo and PayPal, and taking them public, may seem preternaturally in tune with new media. But it is the imprint of old media — books by the thousands sprawling through his Bay Area house — that occupies his mind. “My wife calls me the Imelda Marcos of books,” Mr. Moritz said in an interview. “As soon as a book enters our home it is guaranteed a permanent place in our lives. Because I have never been able to part with even one, they have gradually accumulated like sediment.” Serious leaders who are serious readers build personal libraries dedicated to how to think, not how to compete. Ken Lopez, a bookseller in Hadley, Mass., says it is impossible to put together a serious library on almost any subject for less than several hundred thousand dollars. Perhaps that is why — more than their sex lives or bank accounts — chief executives keep their libraries private.

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    Who Says Elephants Can’t Dance: Inside IBM’s Historic Turnaround

    In the early 1990s, IBM was in danger of going bankrupt. Loius Gerstner was called in to turn the company around.  Anyone who is trying to change a formerly successful orgazation will benefit from reading Gerstner’s thoughts on change management. Beware: the book starts out slow, turning off many readers. But after the first 20 pages, Gerstner’s training as an organizational consultant provides him the analytic language to lay out what are the key challenges in changing large organizations. Because he was an outsider at IBM, he has no reservations to analyze how IBM got itself into a near death experience.  I highly recommend this book.

    Malcom Gladwell’s Book “Blink” is out!

    In my introductory management class I discuss the how cognitive heuristics (rules of thump) help us navigate our complex daily lives and make decisions before it is too late. Malcom Glawell new book describes this quick decision-making capability with many examples. I will review the book during the next couple of months, but in the meantime you can read excerpts from the book on Gladwell’s website.  David Brooks has written a very thoughtful review of the book in the New York Times that you can read here.

    The Tipping Point

    Defining that precise moment when a trend becomes a trend, Malcolm Gladwell probes the surface of everyday occurrences to reveal some surprising dynamics behind explosive social changes. He examines the power of word-of-mouth and explores how very small changes can directly affect popularity. Perceptive and imaginative, The Tipping Point is a groundbreaking book destined to overturn conventional thinking in business, sociological, and policy-making arenas.

    Overall judgement: This is a superb book and should be read by every student of the social world.

    Bookshelf
    China
    Entrepreneurship
    Innovation
    Economics
    Management
    Psychology