The NUS MBA Consulting Club

I will keep coming with my book reviews. Hope you find it interesting. I would strongly encourage all of you to use the comments to share your thoughts.

Introduction: Faced with the question – Can a good company become great and if so, how? (Probed by Bill Meehan, Managing Director of McKinsey & Company, San Francisco), Jim Collins embarked on a five year research effort, a journey to explore the inner workings of good to great.

Phase 1: The Search

A 21 member team formed by Jim Collins, working on the project, started the daunting task of sifting the Fortune 500 companies from 1965 to 1995.

Criteria for selection:

• The company shows a pattern of good performance (a cumulative total stock return no better than 1.25 times the general stock market for the fifteen years prior to the point of transition) punctuated by a transition point, after which it shifts to a great performance (a cumulative total stock return of at least 3 times the general stock market for fifteen years from the point of transition)
• It should be a company shift and not industry shift
• The company should have operations for at least 25 years prior to the transition point
• Transition had to occur before 1985 (so that 15 years cumulative returns can be calculated. This is where GE could not make it)
• Company should still be good enough (It should appear in 1995 Fortune 500) and having an upward trend in stock returns.

Several other criteria were applied and the screening was done at 4 stages.

Cut 1
1435 Companies
Fortune 500 1965-95
Cut 2
126 Companies
Stock Prices
Cut 3
19 Companies
11 more criteria
Cut 4
11 Companies
Industry Analysis

Phase 2: Compared to what?

After 11 companies were selected for the research, “comparison companies” were also selected to facilitate comparisons. There were 2 sets of comparison companies. The first set consisted of “direct comparison” – companies that were in the same industry as the G-G companies with the same opportunities and similar resources, but did not show the leap from good to great.

The second set consisted of “unsustained comparisons” – companies that made a short term shift from good to great but failed to maintain the trajectory. In all, this gave a set of 28 companies: 11 good-to-great companies, 11 direct comparisons, and 6 unsustained comparisons.

Good-to-Great Companies ________Direct Comparisons
Abbott _________ Upjohn
Circuit City _________ Silo
Fannie Mae ________ Great Western
Gillette ________ Warner-Lambert
Kimberly-Clark ________ Scott Paper
Kroger _________ A&P
Nucor __________ Bethlehem Steel
Philip Morris __________ R.J. Reynolds
Pitney Bowes __________ Addressograph
Walgreens ___________ Eckerd
Wells Fargo _________ Bank of America

Unsustained Comparisons
Burroughs
Chrysler
Harris
Hasbro
Rubbermaid
Teledyne


Phase 3: The research (What’s inside the BLACK BOX?)

Once the companies were selected, the deep research began. 6000 articles dating 50 years or more, 2000 pages of interview transcript (with the business leaders of these companies), analysis, strategy study, acquisition analysis, executive compensation research et al became the became the back bone of the study and consumed 10.5 people years of effort

Phase 4: The Concept

Level 5 Leadership:

Compared to high-profile leaders with big personalities who make headlines and become celebrities, the good-to-great leaders seem to be totally different. Self-effacing, quiet, reserved, even shy – these leaders are a paradoxical blend of personal humility and professional will.

First Who….Then What:

Good-to-great leaders DO NOT begin by setting a new vision and strategy. Instead, they first get the right people on the bus, the wrong people off the bus, and the right people in the right seats – and then they figure out where to drive it.

Confront the brutal facts (Yet Never Lose Faith):

Every Good-to-great company embraced what we came to call the Stockdale Paradox: You must maintain unwavering faith that you can and will prevail in the end, regardless of the difficulties, AND at the same time have the discipline to confront the most brutal facts of your current reality, whatever they might be.

The Hedgehog Concept (Simplicity within the Three Circles):

Good-to-great companies do things which fit their hedgehog concept, the intersection of the three circles.

What are you deeply passionate about?
What you can be the best in the world at?
What drives your economic engine?

A Culture of Discipline:

All companies have a culture, some companies 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 entrepreneurship, you get the magical alchemy of great performance.

Technology Accelerators:

Don’t use technology as the primary means of igniting a transformation. Technology was used as a catalyst but not as a reactant.

The Flywheel and the Doom Loop:

Those who launch revolutions, dramatic change programs, and wrenching restructurings will almost certainly fail to make the leap from good to great. Good-to-great transformations never happened in one fell swoop. There was no single defining action, no grand program, no one killer innovation, no solitary lucky break, no miracle moment. The process resembles pushing a giant flywheel in one direction, turn upon turn, building momentum until a period of breakthrough, and beyond