Studying even the right tail of a distribution doesn’t tell you how to break free of the distribution. In short, if you want to use inferential methods to get outside the box, you have to look at someone who is outside the box!

To see the importance of this step in the analysis, ask yourself this question: If two firms in the same industry had differences in shareholder returns (or sales growth or return on assets…it doesn’t really matter) of 0.1 percent over one year, would you think they were behaving in fundamentally different ways? What about 1 percent? 5 percent? 10 percent? Over two years? Or ten? How much of a difference do you need, and for how long, before the performance differences are marked enough that you’re willing to believe that the two firms behaved differently? In every success study we’ve reviewed, what constitutes great performance is simply asserted. Wouldn’t it be useful instead to know – really know – which companies have delivered truly great performances?

Most organizations have discrete formal groups and processes that use different lenses for evaluating ideas: Marketing represents the customers, finance evaluates the economics, and engineering determines feasibility for launch. They answer the questions in series, and then “throw the problem over the wall” to the next team. They may not even be aware of one another’s findings.

The principles of focused accountability or clear decision rights provide a purported rationale for this fragmented approach. Breaking up the innovation process often seems like the easiest way to make progress. However, it ignores the fact that truly effective innovation needs to integrate choices about customers, finance, and technology; without buy-in at the outset from all these groups, choices made upstream may be undone downstream. When the final decisions about launching the product must be made, the groups often find themselves at cross-purposes; either one group wins and the others lose, or they reach a rapid but weak compromise for the sake of consensus that satisfies nobody, including the customers.

More often than not, the wisest upstream choices are enabled by a timely combination of formal and informal interactions. Right at the start, convene disparate perspectives for rigorous and synchronized debate — a seemingly messy and difficult process that actually makes things easier in the long run. The answers to three major questions should determine whether an idea should be developed or not: (1) will customers want it? (2) can we produce it? and (3) will we be able to make money from it? If you are organizing this process, set up ways to bring the necessary people into one room — or, at least, on one long conference call — to talk through all these questions together. Bring different perspectives to the surface, have productive fights (substantive and candid debates), and come to the best answer. This is the only way to resolve the natural tensions between formal groups without forcing them to compromise. (As management thinkers dating back to Mary Parker Follett have noted, compromise is more likely to water down the result than get the best from conflicting ideas.) When they arrive at joint decisions, different functions feel mutually accountable for results, which inherently improves the chances for success in any process that requires handoffs and coordination later.

A minor but pervasive frustration that seems to be unique to management as a profession is the rapid obsolescence of its jargon. As soon as a new management concept emerges, it becomes popularized as a buzzword, generalized, overused, and misused until its underlying substance has been blunted past recognition.

When we ask, “What works in all companies?” we’re looking for an absolute formula in a field — competition in a marketplace setting — that is inherently relative. The answer is, “There isn’t one formula.” If everybody in the industry follows the same prescription, they won’t all be successful. Once we accept this, we’re in the realm of making judgments under uncertainty that are different from the judgments our rivals make. If everybody knew how to be different from their rivals in the best way and everybody did it, they would no longer be different from their rivals.

Organizational learning efforts typically emphasize drawing lessons from a firm’s own or other high-profile firms’ successes, with a focus on ‘best practices’ and ‘getting things right.’ Rarely does management endeavor to learn from failure.While corporate leaders often participate in task forces to uncover the causes and lessons of highly-visible failures such as the Enron or Parmelat scandals, they rarely attend to mounting problems that, if detected and addressed, might avoid such catastrophies.

In fields like engineering and science, it has long been recognized that failure can be far more valuable for learning than success. This is because causal inference requires the opportunity to link actions to both positive and negative results. A firm that experiences only success will be unable to infer the causes responsible for it. In the absence of failure, the learning that follows success can transform from a source of further success into a source of failure.

In Toyota’s view, you don’t have a problem without a standard. Someone might tell his or her boss, “We’re not meeting our delivery date” or “Our meetings are not happening on time.” And the boss would say, “What is the standard? What would be acceptable lateness?” or “Why is lateness a problem? What is the result of lateness?” As long as the standards are clear, the organization can focus on continuous improvement and ultimately raise those standards. A company that wants to learn from Toyota has to learn an equally robust type of problem solving. It’s hard to imagine a company thriving that doesn’t have a good problem-solving process.

Benchmarking is very popular today -- but companies benchmark the wrong thing. They benchmark what other companies do, when they should be benchmarking how those companies think.

Over the past few decades, many companies have become obsessed with benchmarking-comparing their performance with rivals on industry-wide standard metrics. But benchmarking pulls companies in exactly the wrong direction, because it leaves them looking more similar to their rivals, rather than more different.

Great companies first build a culture of disciplineÂ…and create a business model that fits squarely in the intersection of three circles: what they can be best in the world at, a deep understanding of their economic engine, and the core values they hold with deep passion.

In order to discover radical innovation opportunities, a company should not only acquire the competencies of the future but also weed out those of the past. In particular, it needs to overrule so-called "best practices" with "next practices." This is not easy when leaders have blessed best practices as knowledge jewels that shall be protected and handed down to new generations of professionals and managers. Promoting "next practices" is first and foremost a job of communication and persuasion. Leaders should combine an inspiring vision of the future, a realistic portrayal of the present and a selective depiction of the past to make people rise to the challenge of transformation.

We benchmarked 15 companies that had grown organically for a decade at three times the GDP. We looked at who their people were and what they did. By the end of 2004, we came up with five growth traits. The first is external focus. Then there's imagination and creativity. And a growth leader must be especially decisive and capable of clear thinking. Inclusiveness is also vital. Finally, leaders in these high-growth companies tend to have deep domain expertise.

Many "best practices", though useful for illustrative reasons, are not ultimately implemented, because they don't come with sufficient context to be successfully applied.

While benchmarking works well for bringing inside the best practices of others, it often amounts to strategy by mimicry. It's not very good for devising an original "best practice" that doesn't already exist. Cross-functional teams are good at pooling existing knowledge, breaking down barriers, and finding new ways to work inside the existing game. But these same teams often shy away from more speculative data gathering, "blue sky" brainstorming and going "outside the box" to change the rules of the game itself.

The race to change the rules of the game in an industry has two distinct legs. First, the company works toward perfection of its complex business system - learning to achieve industry-leading levels of performance, tuning its value proposition and developing a viable economic model. In our sample, the first leg required an average of 4.5 years. That was the time it took FedEx to refocus its business system on next-day delivery of papers. McDonald's spent an equivalent period developing a replicable model for operating restaurants, learning what sort of franchisees were most desirable and anchoring its economics in royalties and rent overrides from successful outlets.

Once the business system is perfected, a breakout company must run the second leg: explosive growth through replication of the business system.

Sustained growth in earnings in excess of 20 percent per year - typical of companies changing the rules of the game - requires disciplined reproduction of a powerful business system along one of three tracks: acquisitions, geographic expansion, or expansion into new market segments. During this second leg, the business system is extended to include the capability to grow rapidly along the selected track (to acquire and assimilate companies, for example, or to open a large number of new outlets). But to consistently perform at these levels, a company can manage only one of these three growth tracks. When Home Depot departed from its track of opening outlets in new geographies and tried to grow by acquisition, it stumbled. So do most companies that experiment with a second track.

It was interesting to note that these good to great companies spent no time 'motivating' people as such - it just wasn't something they wasted time and energy on. The very idea of motivating people doesn't make any sense if you have self-motivated people.