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Manage the Fundamentals

Stocks in this article: WMT IBM TGT

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( TheStreet) -- In the movie City Slickers, Curly the old cowboy gives advice to a visitor, "The secret to life is one thing," he says. When asked what that one thing is, Curly answers, "That's what you've got to figure out."

Could there be one thing that accounts for business success? There may be. That one thing is flawlessly executing the fundamentals. Every athlete has heard it from his/her coach. But it is also true in business.

There is good research to support this assertion. Some of the most compelling come from a massive, multi-year study called The Evergreen Project.

Project members included 50 faculty members from 10 of America's leading business schools. Their objective was to use hard data and causal modeling to determine why some companies consistently outperform their peers. This project has a different approach than the type of studies found in the book Good to Great, which focuses on high-performing companies and then describes several management practices. It is not clear whether those practices caused the success or whether those practices will be effective in other industries.

Here are the Evergreen findings in a nutshell: When compared with average companies, executives of winning companies proactively measure and manage the fundamentals. Using a sports analogy, all coaches are obsessed with winning, but the most successful build a highly disciplined approach for improving capabilities. They believe that if they manage the fundamentals well, the score will take care of itself.

There are four fundamentals:
1. Managing a Business Strategy
2. Maintaining a Nimble Organization
3. Cultivating a High-Performance Culture
4. Executing With Discipline

For example, take Kmart and Wal-Mart (WMT). These two companies were financially similar at the start of the study. But 10 years later, Kmart was considered a loser.

During the study period, Kmart executives focused on managing quarterly financial results. Again and again, executives tried to "manage the score" by cutting headcount and slashing prices.

Wal-Mart, a winner, chose a different path. It focused on improving its fundamentals in purchasing, supply chain and data-driven merchandising. This allowed Wal-Mart to build muscle for future price fights. If it strengthened its fundamentals, financial results would follow.

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