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Customer Review

65 of 76 people found the following review helpful
3.0 out of 5 stars Cum Graino Salis - (to be taken with a grain of salt), October 30, 2011
This review is from: Great by Choice: Uncertainty, Chaos, and Luck--Why Some Thrive Despite Them All (Hardcover)
'Great by Choice' is the outgrowth of nine years of research. The authors studied high-performing firms that had beat their industry index by at least 10X for at least 15 years between 12/31/1972 - 12/31/2002. The resulting list, along with their paired less successful competitors, included: Amgen (77.2X its industry, less successful competitor Genentech), Biomet (11.2X, Kirschner), Intel (46.3X, AMD), Microsoft (118.8X, Apple), Progressive Insurance (11.3X, Safeco), SouthWest Airlines - SWA (550.4X, PSA), and Stryker (10.9X, U.S. Surgical Corp.). These most successful firms did not have visionary ability to predict the future, were not necessarily more innovative nor faster moving than their comparison firms.

They were, however, paranoid. Bill Gates ('I consider failure on a regular basis') worried about competitors, technology, legal cases, customer support problems - per a 6/1991 memo, while Apple's Sculley instead took a nine week vacation in 1988, a good year for Apple. Its ROE, however, began falling from 40% in 1988 to 13% in 1994, and went negative in 1996. Similarly, they credit SWA's Kelleher with 'predicting eight of the last three recessions,' and Microsoft with keeping expenses low even in good years, in preparation for the bad years.

Another finding - 10X leaders were incredibly ambitious for their company and cause, but not themselves. The less successful comparison cases pursued much more aggressive growth and took big-leap radical change adventures to a much greater degree. So much for 'big, hairy, audacious goals - BHAG, per Collins and Porras in 'Built to Last' and 'In Search of Excellence' by Peters and Waterman. And that provides a healthy warning against literally taking the content of 'Great by Choice' and similarly books seriously.

Continuing, the most successful firms committed to high-performance, even in difficult conditions - eg. SWA pursued annual profits every year and obtained them even though the entire industry had a profit in just 6 of 14 years during 1990 - 2003. Progressive Insurance only grew at rates it could achieve with a combined ratio of 96% (losses + overhead no more than 96% of income), and did so 27 out of 30 years. Stryker committed to 20% growth in net income/year, and accomplished that 90% of the time. Intel committed to following Moore's Law (doubling the complexity of chips every 18 - 24 months), and Microsoft made continuous iterations of software products, often buggy at first and sometimes merely vaporware. Finally, Amgen pursued incremental product innovation and extending existing products to new treatments. The authors also contend that the most successful pursued steady growth, not big bang leaps. SWA expanded slowly - four new cities in 1996, out of the 100 or so requesting SWA to enter, and took eight years just to expand outside Texas. Similarly, Intel limited its growth between 1981 - 1984, allowing AMD to gain ground; then came the 1985 recession, and AMD's rapid debt growth made it unable to recover quickly enough to again challenge Intel.

The preceding is credible, especially the overly-subdued warning about excess debt; however, the 'finding' is not infallible nor always easy to recognize in practice. For example, the drug industry has a dark reputation for minor molecule manipulation to extend patent lives and fend off generics, managing research findings to give the appearance of greater value than reality merits, and trying to skate around FDA marketing limitations. Sometimes this suffices, other times not. Intel would not have succeeded to the degree it did had it not first gotten out of the overly competitive memory market it began in. New businesses in China repeatedly leap to the forefront through fast growth and maximizing scale economies. And SWA would not have succeeded to the degree it did without also bringing a radically new business model to a senescent industry. Thus, a second warning against taking 'Great by Choice' too literally.

And what about Apple? The butt of Collins' comparison vs. Microsoft, it has since become the world's most valuable company! Yet, Jobs' focus was on implementing product innovation, simplification and superb aesthetics - always immediately or within seeming impossible time-frames, and never on steady financial, product development, or growth. Microsoft, during this more recent time period, despite its paranoia fell behind as it missed out on the social media craze, seriously lagged Google in Internet search, and was a clunky also-ran vs. Apple in phones, pads, and music. Then there's Facebook - suddenly appearing out of nowhere and without any business plan, now seriously threatening Google's advertising revenues. Oops - that would be the third warning.

Genentech outpaced Amgen in patent productivity by > 2X and was named by 'Science' magazine as having an unmatched record in the industry for creating major new breakthroughs. Overall, the authors found 3 instances where 10X firms were more innovative and 4 where their less successful competitors were. They concluded that the 10X companies were not more innovative than their counterparts; that conclusion, however, would never pass any valid test of statistical validity, nor most people's test of common sense validity. Thus, a fourth reason not to take their conclusions literally.

Bottom-Line: 'Great by Choice' has some good material for leaders to be aware of; however, they should not make it their only diet.
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