Book Review: “Good To Great”, Jim Collins

How does a company achieve lasting success? Is it simply a matter of being blessed by circumstance – maybe like Microsoft – of being at the right place at the right time? Is it a matter of having the right connections or relationships? Maybe it is a matter of leadership. Get the right leader on board and great things will happen.

Jim Collins set out to answer these questions. His approach was unique, interesting and compelling. In his first book, the renowned Built to Last, Collins profiled great, enduring companies and revealed how over time, these companies achieved their sustained success. But many argued that these companies were born into greatness. How then, can we learn from them if our task is to take our company from mediocrity to greatness?

To address these claims, Collins devised a study that would address this issue head-on. He would study companies that logged year upon year of dismal performance and then, suddenly, began overachieving year in and year out. If he could find such companies, he would try to find out what enabled the change. What did these companies begin doing, or stop doing, that made the metamorphosis possible?

In short, Collins did, indeed, find companies that made such a transformation. He studied them and found remarkable similarities. The results are published in Good to Great, and I agree with the mainstream press – it’s a “must read.”

To begin, Collins and his team established qualifying criteria. To qualify for the study, a company had to meet the following requirements:

• It must be publicly traded (so that good data was available).
• It must have 15 years of cumulative stock returns at or below the general market followed by 15 years in which the cumulative return was at least three times the overall market.
• If a company met the first two criteria, it was eliminated if the improved performance could be attributed to the industry. In other words, if the industry in which an initial qualifier occupied outperformed the overall market, the company was disqualified.

Only 11 companies met the criteria – Abbott, Circuit City, Fannie Mae, Gillette, Kimberly-Clark, Kroger, Nucor, Philip Morris, Pitney Bowes, Walgreens and Wells Fargo. A comprehensive study of each company ensued to determine what changes enabled the transition. Sources included articles, studies, public filings, executive interviews and any other source that might offer insight. Once every company was studied and its information gathered, the team huddled to discuss the findings. Here is what they found:

Qualities of the Leader: The good-to-great companies were all led, through transition, by the antithesis of what we have come to see as the enlightened leader. In fact, Collins concluded that larger-than-life celebrity leaders who ride in from the outside are negatively correlated with taking a company from good to great. 10 of the 11 transition CEOs came from within the company and all were quiet, reserved, self-effacing and seemingly lacking heroism.

Get the Right People on the Bus (and the wrong ones off): Collins found that good-to-great transitions began not with a new strategy or vision set by the leader, but by “getting the wrong people off the bus and the right people on the bus.” Get the right players on board and they will set a course for success.

A “Face the Brutal Truth” Culture: To go from good to great, things must change. One is that the organization must begin to address reality, every day and in every place, and then develop a realistic strategy that will enable success. Critical is that reality must be faced in all its brutality and humility, but there must also be unwavering faith that success will be found and sustained.

The Hedgehog Concept: In summary, a company cannot achieve greatness without being the best in the world at something. To find out what you can be the best in the world at, utilize what Collins calls the “Three Circles”:

Culture of Discipline: “All companies have a culture, some have discipline, but few companies have a culture of discipline. When you have disciplined people you don’t need hierarchy. When you have disciplined thought, you don’t need bureaucracy. When you have disciplined action, you don’t need excessive controls. When you combine a culture of discipline with an ethic of entrepreneurism you get the magical alchemy of great performance.”

Type of Compensation: There appeared to be no correlation between the type of compensation and performance. In other words, Collins did not find that the high-performing companies tended to use stock or stock options as incentive, as has been the conventional wisdom of many.

Strategic Planning: Collins did not find that the good-to-great companies spent more time on long-range planning. He did find that the winners tended to spend as much time deciding what not to do, or stop doing, as they did on what to do.

Technology: There was no correlation between the adoption or use of technology and transition from good to great. Collins concluded that technology could be used to accelerate a transformation, but it was never the cause of a transformation.

Acquisitions: Acquiring or merging with other companies did not play a role in any transition from good to great.

Signals and Single Events: None of the good-to-great companies had a new name, tag line, launch event or “program” to signify the beginning of the transition. None that sustained long-term success did so by a single lucky break, breakthrough development or sure-fire leader. It occurred, rather, one step after another – quietly, over time.