This study was stimulated by Mr. Bill Meehan's (head of McKinsey in San Francisco) observation that Built to Last wasn't very helpful to companies, because the firms studied had always been great. Most companies have been good, and never great. What should these firms do?
Jim Collins and his team have done an enormous amount of interesting work to determine whether a good company can be come a great company, and how. The answer to the former question is "yes," assuming that the 11 of 1435 Fortune 500 companies did not make it there by accident. The answer to the latter is less clear. The study group identified a number of characteristics that their 11 companies had in common, which were much less frequently present in comparison companies. However, the study inexplicably fails to look at these same characteristics to see how often they succeed in the general population of companies. If these characteristics work 100 percent of the time, you really have something. If they work 5 percent of the time, then not too much is proven.
How were the 11 study companies selected? The criteria take pages to explain in an appendix. Let me simplify by saying that their stock price growth had to be in a range from somewhat lower than to not much higher than the market averages for 15 years. Then, in the next 15 years the stocks had to soar versus the market averages and comparison companies while remaining independent. That's hard to do. The selected companies are Abbott Laboratories, Circuit City, Fannie Mae, Gillette, Kimberly-Clark, Kroger, Nucor, Philip Morris, Pitney Bowes, Walgreen, and Wells Fargo.
As to the "how," attention was focused on what happened before and during the transition from average performance to high performance. Interviews, quantitative analyses, and business press reports were studied. Clearly, there's a tendency to see things a little bit with 20-20 hindsight in such a situation. Since this study started in 1996, it was dealing with facts that were already quite old while they were being examined. Bias is likely.
The key conclusions as to "how" included the following:
(1) a series of CEOs (promoted from within) who combined "personal humility and professional will" focused on making a great company;
(2) an initial focus on eliminating weak people, adding top performing ones, and establishing a culture of top talent putting out extraordinary effort;
(3) then shifting attention to staring at and thinking unceasingly about the hardest facts about the company's situation;
(4) using facts to develop a simple concept that is iteratively reconsidered to focus action on improving performance;
(5) establishing and maintaining a corporate culture of discipline built around commitments, with freedom about how to meet those promises;
(6) using technology to accelerate progress when it fits the company's concept of what it wants to become; and
(7) the company builds momentum from consistent efforts behind its concept that are reinforced by success.
Then, a connection is made to how these 7 conditions can provide the foundation for establishing a Built to Last type of company that can outperform the competition over many decades.
One potential criticism of the study is that its conclusions could be dated. Former Stanford professor Collins argues that he has uncovered basic facts about human organizations that will be unchanging.
I compared the conclusions in this book with my own studies of top performing CEOs and companies in the 1988-2001 time period. I noticed two major differences that suggest a shift in "best practice" standards. First, those who outperform now have developed processes that create major improvements in their operating business models every 2-5 years. Second, senior management development is focused around improving a culture for defining and implementing such improvements. I suspect that item (4) above was an embryonic predecessor to these new dimensions, which occur much more frequently now than in this study.
Next, I compared the list of 7 items to what I had observed in companies. The biggest point that hit me is how few CEOs have been interested in creating long-term outperformance that lasts past their own tenure in an industry. You also have to be a CEO for a long time with that focus before you have a chance to make a lasting impact. Founders have a special advantage here. Perpetuating outperformance may help fill a psychological need for immortality that fits with founders especially well.
Finally, I thought about what I knew about the companies studied from personal contacts during the study years. My sense is that their stories are far more complex than is captured here. So, I think the data have probably been "scrunched" to fit together in some cases. In particular, I wonder whether these companies will greatly outperform in the next 15 years. In many cases, they expanded to meet an unfilled need that is now largely fulfilled. Can they develop a new concept for (4) that will carry them forward as successfully in the future? My guess is that most will not. If that turns out to be the case, we must conclude that the items on this list may be necessary . . . but may not be sufficient to go permanently from good to great. Time will tell.
Before closing, let me observe that if the research team had also looked at the rate by which their principles succeeded among companies that employed them, this would have been one of the very finest research studies on best practices that I have seen. A book like this will provoke much discussion and thought for years to come. Perhaps that information can be included in a future edition or printing. Then, we will have something magnificent to consider!
Do you want to be the best permanently? Why? Or, why not? Mr. Collins points out that it probably takes no more effort, but a lot more discipline and focus.
on April 20, 2004
This book is a fascinating read! A study taken over five years began with twenty-eight corporations and revealed eleven that had made the leap from Good to Great. From this study, I gained an instant understanding of the role of humility in leadership. The primary ambition of great leaders is focused on the success of their company, not on themselves.
Collins advocates the Hedgehog Concept - a combination of discovering what you can be best in the world at (Optimal Thinking), what you are passionate about, and what drives your economic engine. Collins states that sustained disciplined action is primarily achieved by "fanatical adherence to the Hedgehog Concept and the willingness to shun opportunities that fall outside the three circles." So my question is: How do you identify the best? I recommend Optimal Thinking: How To Be Your Best Self by Dr. Rosalene Glickman as an adjunct to this powerful book to provide the mental resource to identify the best, optimize emotional and financial intelligence and create a corporate culture of optimization. From Good to Greatest to Best!"
on July 30, 2008
This book by Jim Collins is one of the most successful books to be found in the "Business" section of your local megabookstore, and given how it purports to tell you how to take a merely good company and make it great, it's not difficult to see why that might be so. Collins and his crack team of researchers say they swam through stacks of business literature in search of info on how to pull this feat off, and came up with a list of great companies that illustrate some concepts central to the puzzle. They also present for each great company what they call a "comparison company," which is kind of that company with a goatee and a much less impressive earnings record. The balance of the book is spent expanding on pithy catch phrases that describe the great companies, like "First Who, Then What" or "Be a Hedgehog" or "Grasp the Flywheel, not the Doom Loop." No, no, I'm totally serious.
I've got several problems with this book, the biggest of which stem from fundamentally viewpoints on how to do research. Collin's brand of research is not my kind. It's not systematic, it's not replicable, it's not generalizable, it's not systematic, it's not free of bias, it's not model driven, and it's not collaborative. It's not, in short, scientific in any way. That's not to say that other methods of inquiry are without merit --the Harvard Business Review makes pretty darn good use of case studies, for example-- but way too often Collins's great truths seemed like square pegs crammed into round holes, because a round hole is what he wants. For example, there's no reported search for information that disconfirms his hypotheses. Are there other companies that don't make use of a Culture of Discipline (Chapter 6, natch) but yet are still great according to Collins's definition? Are there great companies that fail to do some of the things he says should make them great? The way that the book focuses strictly on pairs of great/comparison companies smacks of confirmatory information bias, which is a kink in the human mind that drives us to seek out and pay attention to information that confirms our pre-existing suppositions and ignore information that fails to support them.
Relatedly, a lot of the book's themes and platitudes strike me as owing their popularity to the same factors that make the horoscope or certain personality tests like the Myers-Briggs Type Indicator so popular: they're so general and loosely defined that almost anyone can look at that and not only say that wow, that make sense, and I've always felt the same way! This guy and me? We're geniuses! The chapter about "getting the right people on the bus" that extols the virtue of hiring really super people is perhaps the most obvious example. Really, did anyone read this part and think "Oh, man. I've been hiring half retarded chimps. THAT'S my problem! I should hire GOOD people!" Probably not, and given that Collins doesn't go into any detail about HOW to do this or any of his other good to great pro tips, I'm not really sure where the value is supposed to be.
It also irked me that Good to Great seems to try and exist in a vacuum, failing to relate its findings to any other body of research except Collins's other book, Built to Last. The most egregious example of this is early on in Chapter 2 where Collins talks about his concept of "Level 5 Leadership," which characterizes those very special folks who perch atop a supposed leadership hierarchy. The author actually goes into some detail describing Level 5 leaders, but toward the end of the chapter he just shrugs his figurative shoulders and says "But we don't know how people get to be better leaders. Some people just are." Wait, what? People in fields like Industrial-Organizational Psychology and Organizational Development have been studying, scientifically, what great leaders do and how to do it for decades. We know TONS about how to become a better leader. There are entire industries built around it. You would think that somebody on the Good to Great research team may have done a cursory Google search on this.
So while Good to Great does have some interesting thoughts and a handful of amusing or even fascinating stories to tell about the companies it profiles (I liked, for example, learning about why Walgreens opens so many shops in the same area, even to the point of having stores across the street from each other in some cities), ultimately it strikes me as vague generalities and little to no practical information about how to actually DO anything to make your company great.
on May 21, 2004
Unwavering resolve to do what must be done! Ah -- a characteristic of the Level 5 (Good to Great) leader, described in this well researched book that shows the reader what it takes to take a good company to greatness. Personal humility fortified with professional will gives Good to Great leaders the edge on their ego-driven counterparts. Collins makes many marvellous points, the first being that the RIGHT people are your most important asset. By rising above unrealistic optimism, confronting brutal facts and asking questions that lead to the greatest insights (optimal thinking), the leader moves his company to greatness. Good to Great leaders focus on the few things that have the greatest impact (optimal thinking). Collins won me when he said "One of the primary ways to de-motivate people is to ignore the brutal facts of reality." Good to Great leaders create a culture where the truth is heard, and where negative thinking is not degraded or scorned (optimal thinking). This book is a must read!
on February 13, 2003
Good to Great is a comphrehensive research project, well written
and entertaining to read, Good to Great is a worthy successor to, and in the tradition of, Built to Last.
on June 22, 2013
"Good to Great" introduces readers to the concept of an enduring great company, one that sustains tremendous growth for at least 15 years from the so called "turning point".
Published in 2001, the book gives us a great opportunity to analyze how much endurance there is in a great enduring company.
Since many of the graphs in the book end in 1998, let's see how the eleven example companies listed in the book did in the next 15 years, from 1998 to 2013.
If a convinced reader of the book bought $1 worth of stock of each company back in 1998, the total return on the portfolio in 2013 would be $19.72.
In comparison, the Dow Jones went from 8,000 to 15,000, so the return on investment of $11 in general market would be $20.62.
It turns out, on average, the "great enduring companies" performed slightly worse than general market in the next 15 years after their big sustained successes.
After the author's praise to the great management teams at the companies which target for sustained long-term growth and build a lasting corporate culture to support the growth, these results are disappointing. In the timelines presented in book, the same portfolio does 8x better than the general market, not 5% worse.
Conclusion: The book is well-written and full of interesting notions and quotes. But its main value today is seeing what happened next to superstar companies scientifically and elaborately picked as examples by a group led by a Stanford scholar. There is no way around a feeling that even these highly educated individuals fell under the spell of success and started to find patterns and laws where there were none. One thing is clear though - the subsequent failures of the great enduring companies can be explained in another book, based on an even better scientific study.
I have put together a list of company name, stock price in 1998, stock price in 2013 and calculated returns on investing $1 in the companies' stock for that period.
For companies that went under, I assumed the investor held on the stock until it fell to $1.
Abbott Laboratories $21 $36 $1.71 nyse:abt
Circuit City $18 $1 $0.05 nyse:cc
Delisted. Filed for bankruptcy on November 10, 2008.
Fannie Mae $58 $1 $0.02 nyse:fnma
Delisted. Mismanagement of the institution is widely cited as one of causes of US subprime mortgages crisis that shook the world economy in 2008. The government bailout of Fannie Mae and Freddie Mac is estimated to cost US taxpayers $224-360 billion in total, with over $150 billion already provided.
Gillette $100 $78 $0.78 nyse:g, nyse:pg
Gillette was acquired by Procter & Gamble in 2005 for $57B in stock deal. The stock prices of the two companies were roughly equal in 2005, at around $50.
Kimberly-Clark $38 $100 $2.63 nyse:kmb
Kroger $25 $34 $1.36 nyse:kr
Nucor $9 $45 $5 nyse:nue
Altria (Philip Morris) $10 $36 $3.6 nyse:mo
Philip Morris International (nyse:pm) was spun off the Altria group in 2008. Its stock has gone from $51 in 2008 to to $92 in 2013.
Pitney Bowes $54 $15 $0.28 nyse:pbi
Walgreen $23 $50 $2.17 nyse:wag
Wells Fargo $18 $38 $2.11 nyse:wfc
on April 24, 2004
The company I work for has made a 180-degree turn around since reading and applying the advice in Good to Great. We also r ecommend Turbo Strategy by Brian Tracy to move from Good>Great>Turbo Charged.
on October 23, 2001
Jim Collins, co-author of Built To Last, has done it again! This time he spent 5 years trying to find out what differentiates good companies from great companies. This study can be applied to entrepreneurial ventures and to current corporate America. After reading this book you may see your company from a much different perspective than in the past and it may have you thinking about the effectiveness of senior managers within your company. I believe it is a book that business executives will read and keep handy for reference.
This book is a study of companies that exceed their industry, the overall stock market and produce PHENOMENAL returns over a 15-year period (15 of them are very "normal" years and the next 15 years are full of explosive growth). Some key points you will take away from this book include:
1) Growth in most companies came after years and years of trying to adapt / mold a concept into something the company truly believed in. Once this happened the growth engine got going.
2) Great managers worry more about getting the right people on board and the wrong people off board BEFORE they establish a corporate stategy.
3) Most great CEOs came from within their own ranks and weren't recruited from the outside.
4) Executive compensation didn't appear to be a key driver of corporate performance
5) The respective great companies exceeded the overall stock market in creating shareholder value by at least 3x during their 15 year run measured (some for many more years). While some may say this is not much think about the steel industry and how many are filing for bankruptcy. Nucor Steel still managed to beat the S&P by more than 3x.
6) The great companies in this book blew away their comparable peer group. Wells Fargo vs. Bank of America, Kroger vs. other grocery chains, Walgreens vs. Eckerd, etc.
7) Collins describes a Level 5 leader. After reading this section I was amazed at how many CEOs I recognized as not being Level 5 leaders. This may, in the near future, shake up executive compensation plans, CEO searches and potentially affect corporate governance.
8) Technology accelerated a transformation but was regarded as a tool. It didn't define the company.
9) M&A activity played virtually no role in going from good to great.
That is all I will write about the book. I could write on and on about how good this book is. Read it. It will change the way you think about business. Other very good books on the principles of business and entrepreneurship are Leading at the Speed of Growth by Catlin and Mathews and The 22 Immutable Laws of Marketing by Jack Trout and Al Ries.
on December 19, 2003
This book is a refreshing change from the leadership books which expound various flashy leadership skills as the determinant for corporate greatness. Clearly disciplined execution and focusing on the key profitability ratio produce a shift from mediocrity to greatness. This book is a definite read for the business leader. To move beyond greatness and achieve optimization, read Optimal Thinking: How To Be Your Best Self, then infuse Optimal Thinking into every facet of your corporation.
on July 21, 2003
This fluently written book aims to offer insight into what makes the top companies tick and reach that level above and beyond being simply "good". Eleven such superstar companies are singled out according to 5 years worth of research -- Abbot Labs, Circuit City, Fannie Mae, Gillette, Kimberly-Clark, Kroger, Nucor, Philip Morris, Pitney Bowes, Walgreens, and Wells Fargo -- on the basis of 15-year stock returns.
Which is one metric. It may be instructive to note that Gillette, one of the Great firms, is trading at the same stock price as it was in 1995, and went through a pretty lame patch of 4-5 years just recently until it was saved by a doyen CEO. Wells Fargo, despite its Norwest acquisition still remains no.5 in its category.
We are offered the following insights about most effective leaders:
- Best leaders are not high profile folk but subdued, humble yet focused people who get results. Sure, but same could also be said of the oppposite personality. Examples of vivacious/outspoken yet successful CEOs abound: Lee Iacocca, Steve Jobs, Larry Ellison, Jack Welch etc.
- Great leaders are supposed to believe in teamwork (Nokia's boss, Jorma Ollila, and his preachings of putting teamwork before individual effort are cited). Excuse me if this hackneyed mantra fails to tickle my fancies.
Apart from the above insightful analysis, we are taken through a whole text of redundant spin on how companies need to focus on their "key profitability ratio" and hone it down to succeed. Advice of this nature that asks companies to focus sounds quite ordinary and unimaginative, so a parable from Aesop's Fables is thrown in -- the "HedgeHog versus Fox" -- a hedgehog knows ONE thing well and excels at it, while a fox runs around seeking many targets but never learns. We should of course be like the hedgehog.
Firstly, this swansong of "focus" is painfully cliche. Secondly, it assumes that business context is stagnant, which is anything but the reality. What happens when Kentucky Fried Chicken runs out of favor with a populace that is becoming health conscious? Or, what happens when a new generation requires MORE than one type of jeans? (This put Levis into its deep market share woes as recently as the late 90s while Lee Cooper and Calvin Klein made significant inroads into the teen denim markets, Levis was caught sleeping with its errant strategy to focus on its 501s).
I have difficulty believing that the book stands up to all its rave reviews. At best, this is just ONE perspective about SOME companies based on ONE statistic, the data for which were collected and analyzed POST-HOC (known as "posthoc bias" to those in the know). If you are expecting to come away with any pearls of wisdom about effective leadership or corporate success, you may be disappointed.