Good to Great: Why Some Companies Make the Leap… and Others Don’t
by Jim Collins
Jim Collins previously co-authored Built to Last, which studied common attributes of enduringly great companies. Good to Great studies companies which made a transition to greatness: 15 years of lagging stock performance followed by 15 years of cumulative stock returns 3 times the overall market.
Only 11 companies met the criteria. An example is Walgreens, whose stock performance from 12-31-75 to 1-1-00 outperformed Intel by 2x, General Electric by 5x, and the overall stock market by 15x. Eleven competitors were also studied for comparison.
The research identified seven commonalities among the good-to-great companies, which the comparison companies did not have:
- Level 5 Leaders. Good-to-great CEOs are comparable to plow horses rather than show horses.
- First Who… Then What. “If we get the right people on the bus, the right people in the right seats, and the wrong people off the bus, then we’ll figure out how to take it someplace great.”
- The Stockdale Paradox. Confront the brutal facts, yet never lose faith. (James Stockdale was a U.S. Navy officer held as a prisoner of war in North Vietnam from 1965-1973.)
- The Hedgehog Concept. Find your focus. What can you be the best in the world at—even if you are not already in that business? What drives your economic engine? “It took four years on average for good-to-great companies to clarify their Hedgehog Concepts.” Many of the comparison companies had a “mindless pursuit growth… Growth is not a Hedgehog Concept.”
- A Culture of Discipline. “The purpose of bureaucracy is to compensate for incompetence and lack of discipline—a problem that largely goes away if you have the right people in the first place.”
- Technology Accelerators. “When used right, technology becomes the accelerator of momentum, not a creator of it.”
- The Flywheel and the Doom Loop. Consistent effort builds momentum. Frequently changing strategies destroys momentum.
Here are a couple of notable of quotes from the book.
“Consensus decisions are often at odds with intelligent decisions.”
On acquisitions: “Two big mediocrities joined together never make one great company.”
In the epilogue, the author makes an interesting point about the role of the board of directors with regard to managing a company for enduring success. “Boards at corporations should distinguish between share value and share price. Boards have no responsibility to… shareflippers; they should refocus their energies on creating great companies that build value for the [long-term] shareholders.”
This book was published in 2001. It seems odd to find Fannie Mae and Circuit City in an elite set of top performing companies. However, the author does emphasize that the only way to stay great is to continue to apply the principles.
Collins, James C. Good to Great: Why Some Companies Make the Leap–and Others Don’t. New York, NY: HarperBusiness, 2001. Buy from Amazon.com