Many companies believe that constant reinvention is the key to remaining competitive in today's ever-changing market. But Chris Zook and James Allen, the leaders of Bain & Company's global strategy practice and authors of the new book, Repeatability: Build Enduring Businesses for a World of Constant Change, argue that companies should look first at what they are doing right. Their multiyear study of hundreds of organizations has led them to the belief that the best-performing companies maintain a simple, repeatable business model.
In the following excerpt from their book, Zook and Allen cite three successes that represent their model of repeatability -- India's tiffin tin, Ikea's Billy bookcase and Nike's swoosh.
What do a tiffin tin, a Billy bookcase, and Michael Jordan have in common?
Each is central to a business success story that transformed its market. Each is emblematic of a company that learned to replicate and adapt its early successes over and over, often for decades, in a world of constant change.
It is an uncommon message, perhaps, in a world so dominated by change, where siren-like voices of gurus, analysts, and pundits preach "reinvention" on the part of companies. We find the opposite. Our data shows that simplicity, focus, and mastering the art of continuous change nearly always trump strategies of radical change or constant reinvention. The complexity and disruption that result are the great "silent killers" of growth and can even lead to "binge and purge" cycles that ultimately weaken the core of businesses.
We find in our research that enduring success is not about the choice of market, but about the essential design of a company (a much more controllable variable) and about harnessing the power of continuous improvement and adaptation -- driving learning and competitive advantage deeper and deeper into the fabric of a business. Our book is dedicated to pinpointing the essential nature of those companies in tough and dynamic competitive arenas that have been able to change continuously in order to repeat their successes again and again. We call them the Great Repeatable Models.
Let us illustrate with three quick examples and then begin our journey in search of the secrets of the Great Repeatable Models.
The Dabbawallas of Mumbai
Visitors to Mumbai can be easily overwhelmed by the scale and pace of India's most densely populated city. Yet every day, amid the noise, traffic, and bustle, the 5,000 dabbawallas of the Nutan Mumbai Tiffin Box Suppliers' Charity Trust deliver 200,000 boxed lunches, cooked the same morning in people's homes or by special caterers, to the right people on time. At night, the system reverses, and the dabbawallas return the color-coded lunch boxes -- called dabbas -- to where they came from. The average box travels 60 kilometers on bikes, on trains, on pushcarts, and on foot and is handled by six different people.
Despite the complexity of this supply chain, the dabbawallas perform so well that the odds of delivering the wrong lunch to a customer are less than one in 6 million, a statistic that has drawn attention from operations specialists across the world and that conforms to Six Sigma quality levels. The distinctive deliverymen, dressed in white cotton uniforms and white caps, pride themselves on making deliveries in the severest conditions.
The service ethos is so strong, in fact, that when Britain's Prince Charles asked whether he could meet some dabbawallas, they insisted he schedule the meeting between delivery cycles. The association would look little changed to a time traveler from the 1890s, when Mahadeo Havaji Bacche founded it. The service ethos has certainly been there from the start. The lunch boxes and uniforms are largely the same. The bicycles, trains, and pushcarts haven't changed a lot either. But the barefoot dabbawallas don't ignore the march of progress; they have always been ready to take advantage of innovations. Today they all carry mobile phones and use them to coordinate deliveries and alert each other to problems. Orders are now taken on the Internet and by text messaging. The trust even tracks customer satisfaction levels through online customer polling. This careful blend of the old and the new has translated into enduring success. In the nearly 125 years since its creation, the association has become a constant fixture in Mumbai's food delivery business and is growing profitably at between 5 percent and 10 percent a year. It is a simple example of a repeatable success formula that has had to constantly adapt to change, but has driven the art of continuous improvement in its core to a high level. The combination has repelled every competitor in sight for over a century.
IKEA and the Billy Bookcase
From its iconic blue-and-yellow stores to its ubiquitous customer-assembled Billy bookcase, IKEA is one of the most recognizable and admired companies in the world. It turns over 23 billion euros from 626 million visitors to its 280 stores in more than 25 countries. In Europe, it is at least 12 times as large as its nearest competitor.
The core features of this hugely successful company have changed only incrementally since Ingvar Kamprad opened the first IKEA furniture stores in Sweden during the 1950s. Since those early years, all wooden furniture sold in the stores has been sold in flat packs for self-assembly by the customer, all stores have been built around a flow that encourages cross-selling, all products have been designed to hit a target selling price, and the company has carefully maintained an extremely egalitarian corporate culture. IKEA has not attempted to diversify into businesses that would require a different model, nor has it ever reinvented itself.
Instead, it has focused on maintaining those differentiations, making its economics more efficient and improving product design, on the one hand, and, on the other hand, carefully selecting new product categories and geographies where the model can work. Its ability to do this is based on the fact that everyone in the company has internalized a long-held set of relatively simple, transparent rules and principles -- so all decisions in the organization across all levels of employees tend to reinforce and improve the model. IKEA, therefore, is not a story of a search for hot markets -- furniture has been around for a long time -- it is a story of the development of a hot business model.
Some might view IKEA as a bit retro in a world of constant change -- furniture, retail, low technology. Yet, the truth is that this is a market with an enormous number of new entrants in each region of the world, lots of technology in supply chain and materials, new Internet sales models, and constant change in consumer needs. The IKEA repeatable model -- as with the dabbawallas -- has adapted and endured and constantly learned and improved, while others have failed to do so. The business has mastered the art of continual change and continual improvement.
The Swoosh of Nike
Nike, Inc. defines athletic innovation, speed, and constant change. It is one of the cases that started us on our path to repeatable models. In twenty-five years, from 1986 to 2011, Nike, Inc. has grown from less than a billion dollars in size to nearly $21 billion, with EBIT of $2.8 billion. Nike has averaged a 20 percent annual total return to shareholders over the entire twenty-five-year period. If you had invested $100 in Nike in 1984, it would be worth more than $10,000 today. Not bad performance in a market that is time and time again defined as low growth and commodity-based. Nike's repeatable model is built on four core interlocking capabilities: (1) brand management (the ubiquitous swoosh), (2) athlete partnerships, (3) award-winning design and use of new materials, and (4) an efficient supply chain to Asia (it owns no manufacturing assets). In 1989, Nike and its main rival, Reebok, were comparable in size, product line, brand recognition, and profitability. Yet, Reebok never found a repeatable formula -- careening from Ralph Lauren footwear to Boston Whaler boats, to Western boots, to golf clothing. As a result, Reebok did not create a learning organization as it jumped from one idée du jour to another, and it created virtually no economic value in the stock market for two decades until it was sold in 2006 to Adidas. Meanwhile, Nike posted a record-setting performance, redefined the rules of the game of its industry, and reshaped and enlarged the global profit pool that supports it.
What is especially interesting about the Nike example is the direct head-to-head comparison with a rival. Reports at the time were referring to the pair with phrases like "Coke vs. Pepsi," "in an intense race for America's footwear," "neck and neck," and so on. Yet, the repeatable model of Nike, and its relentless ability to innovate and improve year after year, prevailed over one that was not so, while fending off new challengers in a dynamic market that has seen monumental changes in the economics of sports, dramatic shifts in media, channel evolution, and the Internet, and the advent of new materials technology and supply chain patterns.
Three companies on three continents in three very different markets. Each -- furniture, athletic shoes, food delivery -- looks like a commodity on the surface, yet a closer look shows that each actually has had enormous change to deal with on many dimensions, from customer needs to channel shifts to technology to the Internet. Yet, each has managed to adapt, to continuously improve, and to fend off a constantly changing onslaught of competitors. On the surface, businesses like IKEA do not look that mysterious, but no competitor has come close.
Only IKEA, it seems, knows how to imitate IKEA. On the face of it, this is a paradox. Yet ... long-term success actually requires a foundation of enduring and stable core principles. Without the stabilizing effect of a set of core strategic and organizational principles, companies can fall prey to a form of "corporate ADD" (attention deficit disorder) that dooms them to cycles of destruction and reinvention and the endless search for the hot market that will propel them miraculously to a better world. In their quest for some kind of silver bullet, many companies have not built up the muscles of constant improvement and focus. The extremes of such behavior are not that common -- how could they be? -- but the more subtle and pernicious versions of it are everywhere.
[In Repeatability,] you will encounter companies that took the road less traveled and created Great Repeatable Models to achieve sustained performance in a wide range of circumstances. Some, like Nike, IKEA, Tetra Pak, and Olam, have been developing and refining their Great Repeatable Model from the very beginning. Others, like LEGO, are classic cases of management teams that prematurely abandoned their repeatable model, only to discover that their best hope was to return to it with new vigor and renewal. And still others, like DaVita, used these ideas to take a near-bankrupt company, yet one with strong underlying assets and a history of a repeatable model, and renew its growth and vitality.
Let's begin with the research.
The Search for Profitable Growth
Sustained and profitable growth is rare and becoming increasingly so. A decade ago, we found that only about 13 percent of companies in the world had achieved, on average, even a modest rate of profitable growth (5.5 percent in real terms) over the decade while also earning their cost of capital. In the last decade, ending in 2010, the percentage had dropped to only 9 percent -- this despite the fact that well over 90 percent of companies aspire to this level of performance in their strategic plans.
Our work on repeatable models caps a ten-year project that we have undertaken at Bain & Company on the changing origins of profitable growth and the methods for capturing it. We are finding that it is much less about the choice of hot market than about the how and the why of strategy and the business model that translates it into action. Moreover, we find that strategy is becoming less and less about a rigid plan to pursue growth markets than about developing a general direction built around deep and uniquely strong capabilities that constantly learn, continuously improve, test, and adjust in manageable increments to the changing market (as opposed to hesitancy followed by an anxious rush to make up for lost time).
Reprinted by permission of Harvard Business Review Press. Excerpted from Repeatability: Build Enduring Businesses for a World of Constant Change by Chris Zook and James Allen. Copyright 2012 Bain & Company, Inc.