(FORTUNE Magazine) – William Davidson has spent six years studying some 70 businesses that have achieved major business breakthroughs--spectacular gains in growth, speed, service, efficiency, or product development. A professor of management at the University of Southern California and consultant at MESA Partners, Davidson is writing a book, Breakthroughs of Champions, that culls the lessons from their experiences. He spoke with FORTUNE's Strat Sherman.

What do you mean you can have it all? Popular books like The Discipline of Market Leaders say that's nonsense--you have to focus on one kind of competence.

Managers who accept such artificial restrictions are limiting their own potential. There is no inherent tradeoff between, say, cost leadership and customer service. You can have simultaneous improvements in both--as well as in quality, cycle time, and precision, which is the tailoring of your products to individual customers. It's possible to do this and support business growth at the same time. And there does not have to be a zero-sum tug of war between groups within the enterprise. We often see suppliers being abused to support cost benefits to customers, for instance. Wal-Mart has proved that suppliers and customers can both benefit from breakthrough thinking.

You're selling heroin here!

No, technology. This stuff is technology-intensive. We're moving into a whole new market structure, where the leap is so great that the old model of diminishing returns is replaced by a totally open-ended opportunity. So in a familiar area like velocity--or cycle time--you'll often see a tenfold improvement, but in precision you might get a millionfold increase simply because it hasn't been done before.

To see how precision works, look at Royal Bank of Canada. The essence of their breakthrough was creating a comprehensive customer database available online to all branches and offices. When you request a loan, the bank can now respond instantly, but that's the least of it. The information in their database revealed enormous opportunities to serve their customers better. Their average customer--and they have nine million--buys roughly three financial services from the Royal Bank and over l4 from other sources. Using this newfound customer knowledge, bank executives refocused their marketing efforts so completely on existing customers that they no longer have much interest in new ones. And the profitability of their existing relationships has soared.

C.R. England, a private trucking company in Utah, is the best example I know of using technology to make information the main driver of business results. They measure everything from cargo temperature to the speed at which invoices are processed--and use the numbers to turbocharge results. Every worker has a customized set of performance measures, depending on what he or she does. All employees get a customized performance report each week, and the results show up vividly in their paychecks. This is perhaps the best-managed company we have encountered--managed within an inch of its life. And highly profitable: C.R. England has increased its truck fleet sevenfold in seven years, while revenues per truck are up by one-quarter.

Great--but how is it that your companies manage to kill two birds with one stone?

These are organizations that discard existing structures and redefine the game. That gives them first shot at opportunities competitors may not even see. Look at Vons, the West Coast grocery chain. They were among the first to install scanners at the checkout counter. Initially, their only goals were to cut labor costs and better manage inventory. Well, they got so focused on speeding up the checkout transaction that they started to address the sources of delay. One was payment by check, so Vons became, I believe, the first grocery chain to offer a check-writing-privilege card that you could just swipe at the counter for automatic approval.

Eventually they realized that this technology could capture the identity of their customers and what they were buying. So Vons started to use the data in targeted ways, and they're now a major force in the direct-marketing information-services business. When you swipe that card, you get special discounts, credits toward free prizes, and more. Every month targeted customers receive a package from Vons with custom-tailored coupons and promotions. If you're a heavy purchaser of Coca-Cola and potato chips, you might get a special promotion from Pepsi that gives you a free bag of potato chips when you buy a six-pack of Pepsi.

The insurer USAA is another example of a breakthrough company. A decade ago they set a goal of completing almost every customer transaction in the first conversation with the customer. An outrageous goal. They set up a new customer-service organization and gave all the service reps online access to an enterprisewide information infrastructure. They aligned everything in the organization to feed into that system. The program was a smashing success. Their overhead costs on some key policies are 75% below competitors', and their customer-service and satisfaction levels are the envy of the industry.

Is there a guiding principle at work here?

One premise that emerges from the research is that the enlightened pursuit of operational excellence can be a substitute for strategy or vision. Lots of wonderful strategies and visions are meaningless in the real world. These breakthroughs are happening because senior management is obsessed with core infrastructure, core operations, and core businesses.

The other key principle is the focus on one big enterprisewide initiative that can contribute to current operating results while helping build the infrastructure needed for the future. It's very important to meet both those criteria month after month to create momentum and win employee commitment.

One of my clients is Times Mirror's educational publishing division. The CEO's objective was to get his books to market twice as fast at half the cost. We said that was too conservative: Half the cost is fine, but let's shoot for a 90% reduction in time. They put the first brick in the wall by purchasing a flexible new technology for short-cycle printing. They used to spend 15 months moving from manuscript to printed book; now the cycle can be considerably shorter. Suddenly, costs go down, inventory goes down, and market responsiveness goes way up. Now that they can publish on demand, they can add lines of timely, customized educational products. The next brick is to connect this on-demand publishing capability with multimedia--CD-ROMs and so on. So, you see, they're simultaneously making dramatic improvements in current results while preparing for dramatic growth in the future. That's the standard any large-scale business initiative should meet.

What are the key attributes of breakthrough companies?

Aggressive use of advanced technology. An orientation to outrageous objectives rather than continuous improvement. Strong customer focus. Singleness of purpose. The discipline to do enterprisewide initiatives rather than local ones. And a mindset that recognizes unexpected new opportunities that appear along the way.

Sounds like fun for the CEO. How about the employees?

When you focus on one project, you have to postpone or integrate or kill a lot of others. These big programs are the antithesis of autonomy and decentralization. If everybody's out doing his own thing, you can't get that enterprise focus. So tremendous discipline is required up front before employee empowerment becomes possible.

This is starting to sound more like real life. And hey, I just finished reengineering. Do I have to start from scratch again?

That depends. If you did your reengineering on a local basis, you probably will have to throw it out, because the next step is innovation on the enterprise level.

REPORTER ASSOCIATE Tim Carvell