Common to every great company is the ability to create and maintain
a unique combination of business attributes that enable it to outperform its rivals. This competitive essence comprises both a company's ability to succeed in today's markets and its positioning for the future.
By Tim Breene and Paul F. Nunes Outlook Journal, February 2005
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PDF Help   “Happy families are all alike; every unhappy
family is unhappy in its own way.”
—Leo Tolstoy, Anna Karenina
More than a year ago, when
Accenture set out to systematically map high performance, our initial hypothesis was that leading companies—so seemingly different in characteristics and circumstances when compared on their surface—actually share common attributes and behaviors that drive their
superior performance.
Our hypothesis held that these attributes were discoverable, measurable and replicable. The notion of discoverable attributes was the basis of a comprehensive research program involving peer comparisons within specific industries. These attributes were presumed measurable through the application of consistent, transparent, credible financial and alternative performance metrics in the course of our research. (For more on performance measurement, "Measuring High Performance," Outlook, February 2004.) And, once identified, these attributes are believed to be replicable by translating our findings into practical solutions for would-be high-performance organizations.
Competitive Essence
This three-pronged framework of inquiry continues to define our ongoing research into high-performance business, and the overall initiative has begun to yield constructive results. After analyzing the performance of literally hundreds of leading organizations, we are now seeing that at the core of every company's ability to achieve high performance is something we call "competitive essence." This critical yet intangible quality is
the unique combination of all facets of the business that determine a company's ability to outperform its rivals. It comprises both the company's ability to succeed
in today's markets and its positioning for the future—its potential for capturing and profiting from new markets going forward.
Our research and our experience with clients demonstrate that what distinguishes high performers from their competitors is the consistent way they construct and maintain this competitive essence. While many companies compete on the basis of a single point of differentiation, the competitive essence of high performers is almost always achieved through the balance, alignment
and renewal of what we have identified as the three building blocks
of high performance: market focus and position, distinctive capabilities and performance anatomy.
Companies seeking to improve their competitive essence are most apt to fail when they lose the critical sense of balance required for high performance, favoring one building block to the exclusion of the others. Today, for example, many companies appear to be overemphasizing the importance of scale in their business, which amounts to a dangerous overreliance on competitive advantage enabled through market focus and position.
Organizations also put their competitive essence at risk when they fail to refresh and renew the building blocks—for example, by continuing to rely on capabilities that are no longer distinctive, or by resting
on the laurels of a once-celebrated
corporate culture long after it has lost its vitality. We have found that high-performance companies continuously balance, align and renew the building blocks, creating their competitive essence through a careful combination of insight and action. Would-be high performers seek to do the same.
Market Focus and Position
Our first building block reflects a company's capacity for maximizing growth opportunities and structural economic advantages. High performers understand the dynamics
of their industries better than their competitors do, and they successfully manage the creation of value through appropriate strategies. Every company has some level of appreciation for the contribution and value of good strategy. But what sets high performers apart is how they perceive the role of strategy, and what they see as the best means for creating it.
Even in today's complex, dynamic world, where deliberate strategy
is considered less relevant, high-performance businesses take the
art of strategy very seriously.
For these companies, it is not
an ivory tower concept but a living component of their organization, understood and acted upon
at all levels. High performers achieve remarkable clarity when setting strategic direction, especially regarding big decisions.
Yet they approach strategy execution as a series of hills to be surmounted, carefully rethinking their strategy at each hilltop, as the view of the battle and unanticipated opportunities, threats and challenges becomes clearer. Enabling these routine adjustments is
the high performer's possession
of management systems that are geared to producing acute insight.
High performers also maintain a strong capability-based perspective in their strategies, which they demonstrate in their market-maker mindset: They seek not just to
serve markets but to create them. Such strategies ultimately create value by enabling high performers
to identify and forcefully enter attractive markets; to build and manage powerful portfolios; to exploit certain advantages of
positioning in the value chain;
and to achieve optimal scale.
The successful execution of each
of these strategies has created
powerful advantages for any
number of leading companies. However, like a chess grand
master who is able to see many moves ahead, high performers
recognize not only the advantages
of such strategies but also their ultimate limitations.
One of the first lessons to come out of our research and observations was that many of today's companies have been blinded by a lust for scale, mistakenly believing that this strategy, by itself, can enhance their long-term performance. Yet our studies of the relationship between scale and business performance across several sectors, with particular attention to post M&A performance, have shown this is not the case (see "Is Bigger Always Better?," Outlook, October 2004).
 These studies show that endgame strategies of dominant scale are
not the sole drivers of high performance, even if they sometimes appear to be in the short term.
And high performers—even large-scale ones—know it, bringing more to the table than just good market strategies. Their advantage is almost always based on a well
balanced competitive essence they began to shape when they were much smaller.
In the interest of maintaining this balance and protecting their competitive essence from disruption, high performers are much more likely to pursue small and midsized deals than mega-mergers. This is
one reason high performers like Cisco Systems and Johnson & Johnson place such value on a series of manageable acquisitions made over the long term.
In addition, we have seen in high performers a constant emphasis on organic growth, at every level of scale and industry maturity, as we found in automotive industry leaders BMW and Honda Motor Co.,
for example (see "Life in the Fast Lane," Outlook, October 2004). Many of the high performers across industries outperform their competitors in organic growth even as they create substantial additional growth through acquisition.
Distinctive Capabilities
The desire to understand this unflagging ability to generate sustained organic growth led us to the second of our building blocks. We have observed that high performers balance their focus on market strategy with a commitment to creating and exploiting a set of distinctive, hard-to-replicate capabilities that deliver the promised customer experience, while simultaneously driving the most efficient utilization of assets.
For capabilities to be truly distinctive, these two objectives must be synchronized. While many companies have mastered either the customer experience or excellent asset utilization, high performers create capabilities that are totally aligned with, and that most efficiently serve, a clearly defined customer experience. High-performance businesses understand the need to build such distinctive capabilities—ones that are demonstrably better than their competitors' and, in the short term at least, inimitable.
They also know how to manage those capabilities effectively over time, first by rapidly driving them down the learning curve, and later by transferring them into new areas. Microsoft Corporation, for example, has been highly successful at applying across eras its distinctive capabilities in the creation and mass merchandising of software, moving from operating systems to office products to Internet browsers and services to online gaming. In each shift, the company made a significant investment early, ensuring rapid attainment of world-class knowledge and capability in the area.
Distinctiveness, as we define it, arises not through excellence in a single functional silo but through the
combination of mastery in a large number of individual capabilities.
Accenture recently created a number of diagnostic tools to measure capability mastery in five areas: information technology; human and organizational development; marketing; finance and performance management; and supply chain management. Our early research results show that high performers have attained mastery in a large number and broad range of capabilities in each of these areas. We have found that many high performers, for their part, consider a portfolio
of mastered capabilities the cost of entry; their sights are already set on an even higher mark, the mastery of
a unique cluster of capabilities around which they can build a distinctive capability and business model. (For a related article, see "The Art and Practice of Mastery," Outlook, June 2004.)
Dell is perhaps the best example of how a broad set of capabilities can be tied to a differentiated customer experience to create a distinctive capability. Generic component
suppliers, limited yet differentiating configuration options and a world-class order-to-delivery service are combined in Dell with the company's distinct direct-to-customer business model. Together they create a "negative cash-to-cash cycle time": Dell pays its suppliers for components only after customers have purchased those components through Dell, so the company has no inventory carrying costs. This is the kind of asset utilization advantage, tied to the customer experience, that makes a capability distinctive, and that competitors find very hard to beat. Dell's
distinctive capabilities not only enable it to achieve sustained leadership in the personal computer market, but the same set of capabilities also enable the company to enter new markets, as it has done recently, with innovation that
disrupts the incumbents.
Performance Anatomy
The third essential building block
of competitive essence is a focus on the creation of a high-performance anatomy. Distinct from culture and organization design, high-performance anatomy comprises a set of organizational "mindsets." These mindsets drive important differences in behavior—by individual employees on up to those of the company itself—that lead to better business outcomes. Significantly, these mindsets are immediately actionable
by an organization's leadership.
We believe it is these mindsets that empower companies in their goal
of out-executing the competition.
Our research indicates that the following mindsets are crucial to creating a high-performance anatomy.
- Execution excellence and successful market creation must be balanced.
- IT is viewed as a strategic asset.
- Talent and its impact can be
multiplied, making workforce
productivity a key execution
differentiator.
- Performance measurement must
be broadly inclusive yet highly selective in its focus and metrics.
- Continuous renewal is a real and permanent necessity within a high-performance business.
Whether or not these mindsets are pervasive within a company has a profound impact on its performance. Take, for instance, Wilmington, Delaware-based MBNA Corporation, which today issues credit cards to more than 50 million customers
and manages assets worth more than $100 billion. From the beginning, the company set out to target upscale customers as part of "affinity groups" like dentists or alumni association members, and to provide them with a superior customer service experience. The company's entire performance anatomy supports this mission and is driven
into every detail of how MBNA
does business.
The company's talent multiplier mindset can be seen in its careful recruiting of people who like people, which it accomplishes through an intensive process that includes peer interviews to ensure fit, both within the organization and during customer interactions. The mindset is further evidenced by the company's generous benefits and by its selection by Fortune magazine for five years in a row as one of the best companies to work for.
MBNA's continuous renewal mindset is driven by its requirement that all employees spend at least four hours per month "customer listening," which ensures the company is informed at every level about what it needs to be successful. Customer satisfaction scores are posted daily, and individual incentives are built around customer satisfaction, keeping the focus on ongoing, value-
creating change. Even employee pay stubs are inscribed with the words "Brought to you by the customer."
Successfully establishing all of these mindsets requires alignment, both across the various mindsets as well as across the other building blocks. How do high performers achieve this elevated degree of alignment?
We've observed at least three
successful approaches. Sometimes companies create alignment through the force of a strong and capable leader. But high performers also achieve it through longtime collaboration within a core leadership team, such as those at Nokia and Walgreen Co. Alignment can also be created by infusing the organization with a shared sense
of purpose—not by creating largely abstract mission and vision statements but through leaders training leaders; active stewardship on the part of all levels of management, including interaction with and accessibility to frontline employees; and the obligation that all employees personify the company's values in their daily work.
Just as important, high performers tenaciously defend the alignment they have achieved. One way they do this is by mastering the art of integrating acquired companies without diluting competitive advantages. Think here of the much-trumpeted "mergers of equals" of recent years and the serious challenges they have encountered.
Contrast this with BP's successful integration of its Amoco acquisition, which bore out BP CEO Lord John Browne's early pledge that Amoco would be run the BP way. (For
a related article, see "In Search of Performance Anatomy," Outlook, October 2004.)
Intellectual Journey
Earlier, we touched on three concepts that, taken together, form the philosophical framework for Accenture's High Performance Business initiative. "Discoverability" and "measurability" have been the launching points
for several in-depth studies, which have helped us refine or even revise our thinking, an intellectual journey that has been chronicled in the pages of Outlook.
We entered this past year, for example, knowing that industry specificity was important; we have
amply substantiated that premise but have learned in the meantime that industry lifecycle is also an important determinant of high
performance. We knew innovation—both breakthrough and continuous—was important to high-performing companies but have come to appreciate the increasingly important
role of "open innovation" as a high-performance model.
Now we have a new set of questions, informed by our emerging understanding of competitive essence, that will constitute the basis of further specialized inquiries. These investigations will be additions to our basic High Performance Business initiative. We will continue to roll out a program of follow-on research for each of the 18 industries in our high-performance business universe. (For our latest Industry Reports, see "Big Thinkers,"
"Market Leaders, Market Makers" and "Driven to Differentiate".) We will refine our metrics and analytics, particularly those that support the analysis of a company's future growth value; that is, the portion
of its value not explained by today's earnings and book value.
Most of all, our operating groups
and industry teams will continue
to develop and launch methodologies, applications tools and infrastructure solutions that make high performance an operational reality in companies not currently among the ranks of high performers. To
that end, we will continue to strive to determine precisely how high
performance can be made replicable. This, after all, is our journey’s
ultimate end.  About the Authors
Tim Breene is Accenture's group
chief executive of the Management Consulting capability group and is
the company's chief strategy officer.
He is also a member of the company's Executive Leadership Team, and he chairs Accenture's Innovation Council. Since joining Accenture in 1995, Mr. Breene has held a number of senior positions, including managing partner of Accenture Strategic Services and managing partner of the company's global service lines. Mr. Breene is
based in Boston.
Paul F. Nunes is an executive research fellow at the Accenture Institute for High Performance Business in Wellesley, Massachusetts, where he directs studies of business and marketing strategy. In addition to his frequent contributions
to Outlook, his work has appeared regularly in Harvard Business Review as
well as in numerous other publications and newspapers. His most recent book,
coauthored with Brian Johnson, is Mass Affluence: Seven New Rules of Marketing to Today’s Consumers (Harvard Business School Press, 2004). For more information, please
contact us.
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