Three design principles

Each of these companies have what we call a "Great Repeatable Model.℠" Think of IKEA in furniture, NIKE in sports apparel and footwear, the Vanguard Group in financial services. There are examples in nearly every industry.

When we studied the factors that distinguish these companies from competitors, we found three fundamental principles that were central to all (see figure).

A well-differentiated core

Closed-loop learningClear nonnegotiables

Principle 1: A strong, well-differentiated core

Differentiation is the essence of strategy, the source of competitive advantage and a major driver of profitability. Repeatable Models® are sharply, almost obviously, differentiated, with unique assets and deep capabilities that rivals can't match. For example, IKEA has built up unparalleled expertise in flat-pack furniture design, cost management and merchandising techniques. Nike has developed peerless abilities in branding, developing athletic partnerships and managing supply chains.

Principle 2: Clear nonnegotiables

Everyone who works for a company with a Great Repeatable Model understands the core values and criteria that translate strategy into decisions and actions. We call these values and criteria the nonnegotiables. Clear nonnegotiables maintain focus and simplicity by establishing practical behavioral rules and prohibitions. Vanguard's activities and decisions, for instance, all reflect a set of statements the company calls "Simple Truths," which have been remarkably consistent since the business's founding. Among them: "Low expense ratios drive high returns."

Principle 3: Systems for closed-loop learning

Great repeatable models continually adapt themselves to new conditions. They create systems to ensure constant direct feedback from customers and frontline employees. They learn how to identify disruptive threats early and to respond forcefully. The Liechtenstein-based toolmaker Hilti, for instance, fields a direct salesforce of more than 12,000 representatives, unique in the industry. Hilti knows exactly what its customers need because its reps are talking to those customers on jobsites every day.

Our research indicates that more than three quarters of long-lasting business success stories had at their core a Great Repeatable Model adhering to these three design principles.

First principle: A well-differentiated core