Companies with a Great Repeatable Model℠ adhere to three Design Principles:
These principles don't operate in isolation. On the contrary, they create a virtuous reinforcing cycle. A repeatable differentiation (principle 1) makes common measures and beliefs easier to create and use (principle 2). That, in turn, drives more transparency, learning and adaptation (principle 3). The combination of the three pushes the entire company down an experience curve faster than less repeatable competitors.
The mutual fund company Vanguard is a great example of this virtuous dynamic (see figure). Vanguard’s strong differentiation and leadership in the area of indexed funds—mutual funds constructed to track market averages—both informs and reflects its investment philosophy. The company's policy of not paying for distribution and its commitment to a mutual ownership structure (with investors sharing in the profits) reinforce its low-cost position in the industry.
Finally, Vanguard's heavy investment in telephone representatives and customer advisers reflects its core beliefs in the value of loyalty and the key role of employees as the customer’s interface with Vanguard. It also enables the company to obtain direct customer feedback in ways that competitors who lack the same frontline service have trouble matching.
Reflecting on the company's stellar performance over the years, CEO Bill McNabb told us, "The secret to our success is how we have managed our repeatable model to get better and better every year, while still adapting and adhering to the deep business principles that were set in place at the time of [founder] John Bogle. This discipline has not only led us in the right direction, it also often prevented us from going astray."