Good to Great

Reader Steve McLaughlin writes with this review: "'Built to Last' was one of the most significant business books of the nineties, but the book didn't leave much hope for companies that got off to a less-than-ideal start. What if your company wasn't lucky enough to be founded by the likes of David Packard, Sam Walton, or George Merck? Jim Collins throws these businesses a life raft in his new book 'Good to Great: Why Some Companies Make the Leap ... and Others Don't'. Read on for the rest of Steve's take on the book.

Good to Great: Why Some Companies Make the Leap ... And Others Don't author Jim Collins pages 320 publisher HarperCollins rating 8 reviewer Steve MacLaughlin ISBN 0066620996 summary Tracking down the elusive factors that make a business do more than succeed.

Good to Great is the result of an intensive five-year project that took Collins and his team of researchers more than 15,000 hours of work to complete. The team read and coded 6,000 articles, generated more than 2,000 pages of interview transcripts, and created 384 megabytes of computer data in the process. Their findings are presented in a thought provoking book that answers the one question Built to Last never tackled: "Can a good company become a great company and, if so, how?"

From this perspective, Good to Great can really be seen as a prequel to Built to Last. It's about how good companies can become great ones whereas Built to Last is a book about how already great companies built an enduring "iconic stature." Collins and his team of researchers began their search by sorting through a list of 1,435 Fortune 500 companies and applied rigorous criteria to find businesses that made the leap from good to great.

At the core of Collins's criteria was that a good-to-great company had to have "fifteen-year cumulative stock returns at or below the general stock market, punctuated by a transition point, then cumulative returns at least three times the market over the next fifteen years." The screening process cut the 1,435 down to 126, then 19, and finally these 11 companies: Abbott, Circuit City, Fannie Mae, Gillette, Kimberly-Clarke, Kroger, Nucor, Philip Morris, Pitney Bowes, Walgreens, and Wells Fargo.

What, no General Electric? Where's 3M or Hewlett Packard? These stalwarts of Built to Last didn't even come close to making the final cut. Consider, for example, that from "December 31, 1975, to January 1, 2000, $1 invested in Walgreens beat $1 invested in technology superstar Intel by nearly two times, General Electric by nearly five times, and Coca-Cola by nearly eight times." Good to Great then goes beyond the numbers to explain why these companies were able to make the leap to greatness.

Good to Great does an excellent job of diagramming the framework of how these companies were able to make the good-to-great leap. Essentially all of these companies experienced a period of buildup followed by breakthrough, and all of this was fueled by something Collins calls "The Flywheel Effect." The Flywheel Effect reflects a "cumulative process -- step by step, action by action, decision by decision, turn by turn of the flywheel -- that add up to sustained and spectacular results." These companies got knocked around now and then, but they always got back up and opened for business the next day.

Eventually these good-to-great companies picked up enough forward momentum to make the leap. Collins and his team were able to find six disciplines that each of these companies shared that helped them make the leap. Rather than use their oftentimes buzzword-ish terms I thought I would translate them into plain English.

During the buildup phase the people that led these companies were more like Lincoln and Socrates than Patton or Caesar. Collins dismisses the notion that only companies led by dictators and hard-asses could succeed, and that to be successful leaders need to check their egos at the door. Employees, partners, shareholders, and customers prefer leaders that are "more plow horse than show horse." Is Larry Ellison listening?

Collins and his team also found that these good-to-great companies made sure they had their ducks in a row before making a move. These companies "first got the right people on the bus, the wrong people off the bus, and the right people in the right seats and then they figured out where to drive it." Again, this flies in the face of how a lot of companies behave. Many companies make the mistake of putting their master plan together, and then finding the right people to execute the plan. Hiring bright people is pointless if you've already done the thinking for them.

Good to Great also notes that during the buildup period not everything is going to go your way, but you need to keep the faith. This is probably the key discipline to keep that flywheel going, and at the same time the most nebulous. Collins explains how these companies were able to face the brutal facts of their situation and trudge on, but I'm not so sure this isn't a suicide mission for some companies.

Confront the Brutal Facts (Yet Never Lose Faith) means facing the reality of your current situation and keeping the faith at the same time. The Stockdale Paradox (named after former POW Admiral Jim Stockdale) is used to illustrate the need for companies to face the facts and simultaneously keep the faith. Good to Great stresses the importance of asking the tough questions and creating an environment where the truth can be heard.

Once the good-to-great companies made the leap, they learned some new tricks that kept them on top. One of the most important is doing what you do best, and avoiding the things you don't. This sounds obvious, but we all know companies that took their eyes off the ball and then failed. Collins makes the important point that "stop doing" lists are more important than "to do" lists. Stop paying people to do things half-assed. Stop offering services in markets you know nothing about. And stop buying into every new fad technology that hits the market.

This leads to Good to Great's take on technology. Collins and his team found that "technology by itself is never a primary root cause of either greatness or decline." Great companies avoid technology fads and only use it to increase (not create) their momentum. I found the following passage to be one of the more memorable passages from the book:

"No technology, no matter how amazing -- not computers, not telecommunications, not robotics, not the Internet -- can by itself ignite a shift from good to great. ... No technology can instill the simple inner belief that leaving unrealized potential on the table -- letting something remain good when it can become great -- is a secular sin."

Good to Great wraps up by giving readers plenty of detailed explanations, diagrams, and examples straight from the companies themselves. And if you're one of those people who like to see the data, then don't worry about that either. Collins has included a comprehensive appendix to the book that includes answers to common questions, charts, an explanation of the selection process, and data uncovered during the research for the book.

Built to Last was an excellent book, but I think Good to Great does it one better. The question it tackles applies to a wider audience, and its findings are something every business can use. The language is clear and if you get off track or need a refresher then just flip to the chapter summaries for guidance.

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Comments

Artificial Criteria

[john@iastate.edu]

At the core of Collins's criteria was that a good-to-great company had to have "fifteen-year cumulative stock returns at or below the general stock market, punctuated by a transition point, then cumulative returns at least three times the market over the next fifteen years.

Ok, so this immediately disqualifies any business started in the last 30 years.

And it also disqualifies any company where the startup period took less than 15 years.

And it also disqualifies any company where the rise was less sudden or less dramatic.

Is it any wonder that very few companies fit this particular mold? And is it the right mold?

And which is the better company, one that sucked for 15 years, then got the right break and performed 3x the market for 15 years, or one that say, has merely done 1.5x the market for 100 years? And which is likely to have just as sudden a decline?

As near as I can see these are all questions left unanswered...

Re:Artificial Criteria

[Dr. Cam]

Don't confuse the tools with the product. The findings themselves, and their consistency across organizations, are the important results.

In order to do a study like this, you have to set some clear and strict criteria, just to get a manageable data set. You also need to establish a good baseline, and as someone has pointed out in another thread, you have to watch the results for a comparable period of time to ensure that the changes in the organization's culture and processes are effective.

Microsoft and Oracle, for example, may not exist in twenty years, successful as they are now. If you look at the Fortune 500 for 1981, you'll see very few of those organizations that exist now. Twenty years in a business sense is nothing, when there are commercial organizations that have been around for several hundred years (I can think of one - HBC - whose charter was granted in 1670).

One point glossed over in the review:

[DerekLyons]

In both Built to Last and in Good to Great the authors show the long term effects of a *slow start*. It takes months and years to build a team from scratch, develop your corporate culture, and battle-test yourself in the real world. (Actually, several battles, learning from each one.) Many of these companines started with rather small enterprises and capital investment. (Even when corrected for inflation.)

Another interesting point is that it's not always the founders that make the leap. Quite often it's the second or third generation of management that take a good company, and makes it great based on the foundations built before. Sometimes by taking the company in a new direction, sometimes by adding synergistic business activites, sometimes just adding the critical refining touches to an existing business. There is no sure route.

Most interesting to me, both of these conflict directly with the current paradigm, grab a visionary, throw money at him, stand back and watch the pile grow. Visionaries may not have the management [1] experience to lead a company, and the market today insists that you must start big and grow bigger.

[1]Yes, I know the standard /. take on 'management', but it's brutal fact that few companies grow without some from of management. Even /. relies on it's 'authors' to choose which stories will best match the theme of the site and interest it's users. That's management folks..

The problem of course being:

[Pointed Stick]

The problem with most of these books is that the right people never read them. Back in the days, when I was stuck working in "the cube" every time one of these books would come along, the company would purchase a copy for all of it's employees. The problem of course being: I'm only in charge of pushing around my pencil, the people who are truly capable of making changes never really do.

Cheers!

-Pointed Stick