How Lululemon quintupled its stock price

At $70.61, Lululemon Athletica (LULU) shares are up 51% in the past year. They've more than quintupled in the past three years.

So what is CEO Christine Day doing right?

Day, who arrived at the yoga-gear retailer from Starbucks (SBUX) in 2008 and talks about her work (and workout) routine in the current issue of Fortune, knows how to build communities.

I mean communities of loyal customers, loyal employees, and everyday fans of a corporate culture that you feel when you walk into a Lululemon store.

My colleague Jennifer Reingold interviewed Day at the 2012 Fortune Most Powerful Women Summit, and the session was one of the highest-rated by our participants. That's because Day, who is No. 45 on Fortune's international MPW list, shared take-home ideas that can be applied to any business--if a CEO is free-thinking enough to, as she says, "turn the management model upside down."

Here's what the Lululemon chief does differently from the typical boss:

1. Teach judgement, not process or rules. Day and her executive team give store managers and other employees unusual leeway to be creative and "own" their area of the business. She says she wants to provide "jobs big enough for people"--so that employees feel stretched, not squandered, and believe that they can make meaningful contributions.

2. Be authentically local. "I'm not the big brain making all the decisions," Day notes. Store managers create their own Facebook (FB) pages, decorate their stores as they wish (no plan-o-grams!), and do what they want to build their community. Of course, entrepreneurialism involves risk, but if the CEO carries the culture properly, the company benefits.

3. Success is about being best to market, not first to market. Lululemon has expanded cautiously—resulting in steady growth and healthy profit margins. Before opening a new store,  management spends two years laying the local groundwork, such as helping exercise-minded locals build businesses alongside Lululemon to create yoga ecosystems.

Watch the interview with Day at the Fortune MPW Summit.