The Three Rules

TheThreeRules250I groaned when I first heard about The Three Rules, a book by Michael Raynor and Mumtaz Ahmed.  Based solely on the title, I guessed it would be yet another popular business book that would rise quickly on the bestsellers list only to be replaced by the next such book off a never-ending assembly line of popular business books.  The book certainly has the typical features of a best-seller toss-away, including a pithy title that suggests a prescriptive solution for companies that want to achieve “exceptional performance.”

Having read The Three Rules, however, I have a new perspective on the work.  Chapter and verse reviews are available at Amazon (http://amzn.to/1dh0UyF) and elsewhere, so my comments below focus more on why I feel that this is an important book to add to your collection.

Contrary to its title, The Three Rules is not a sure-fire formula that will fix all your problems and make your firm exceptional.  While offering an eye-catching title on the front of the book jacket, the authors note right on the back of the same cover jacket the bad news: “No advice can come with a credible promise of perpetual superiority.  As every glider pilot knows, takeoffs are optional, landings are mandatory.”  The authors aren’t out to give you THE answer, but hope to help you understand how they arrived at their three rules and why these rules may help “deliver the best possible performance for as long as possible.”

The book is composed of two parts: the body of the book that contains the narrative of the work, and the Appendices and notes that provide the supporting detail for the work.  The detail is substantial with about 1/3rd of the book devoted to the Appendices and notes.

If you want an experience closer to reading a toss-away best-seller, then stick to the front narrative and ignore the Appendices.  You’ll learn about the three rules and get a sense of how the authors arrived at the rules.  But know that you won’t fully appreciate the message if you try to breeze through the book without a certain amount of focus on the supporting details.

I found myself turning to the Appendices shortly after starting the book and then returning to the body afterwards.  It is in the Appendices where the authors pull back the curtain so you can see the guts of their work, including discussions on the methodology selected, calculations used and comparison of selected firms.  Is ROA really a reliable performance index?  Does a comparison of ROA, ROS and TAT provide insight?  It’s up to you to decide and there are ample examples of analyses in the Appendices.  If you aren’t the type to plough through model-building and data analyses, then consider buying The Three Rules for that wonky associate of yours and have her tell you what she makes of it all.

The greatest strength of The Three Rules may be that the rules are based on thoughtful analysis and modeling of data, not just a subjective opinion, draped in the veil of a “success study” where success is poorly defined and written around hand-selected firms over a narrow period of time.  The rules may strike you as common-sense, and they may well be, but the book makes a Herculean effort to show you the reasons why the rules should make business-sense.

One nit I have with The Three Rules is the book tagline that suggests the authors figured out “how exceptional companies think.”  The authors do characterize this phrase in the book as a set of hypotheses – assumptions about the underlying thinking at the firms considered – rather than the bold claim of the tag-line.

Complex systems like large firms move for a multitude of reasons, both thoughtful and thoughtless.  I think that any experienced manager would agree that trying to understand all the moving parts of a company in real-time is near impossible, and retrospective analysis on the thinking that may have gone into decisions falls into the trap of connecting-dots to form the conclusion you want.  The authors note this common thinking problem in their chapter on signal-to-noise, and the absence of this tag line would not impact the veracity of the authors’ analyses or their defense of the rules.  Another book I would recommend on this broad subject of critical thinking is The Believing Brain by Michael Shermer (http://amzn.to/12wZ6gB).

The challenge you will likely face after finishing The Three Rules is knowing when and how to apply the three rules.  If your firm is experiencing pressure from lower-priced competitors, for example, then you may very well slash prices and engage in the race to the bottom, fearful that you will lose sales and market share if you don’t.  The Three Rules caution you that, based on the data the authors analyzed, succumbing to such pressure will likely keep your firm from becoming the leader in your industry.

One thought on “The Three Rules

  1. Makes me want to read it. I was one of the “wonky associates” for a long time. Maybe this will help me distill that type of analysis into something that sound more like (grounded) common sense.

    Like

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