Book Review: Good to Great


As a young guy interested in business and wanting to start my own, I found Good to Great interesting and the ideas, although not new, to be thought provoking. C.S. Lewis once wrote that the best teachers are the ones that are able to remind you rather than try and teach you new things.


Good To Great: Why Some Companies Make the Leap… and Other Don’t

As a young guy interested in business and wanting to start my own, I found Good to Great interesting and the ideas, although not new, to be thought provoking. C.S. Lewis once wrote that the best teachers are the ones that are able to remind you rather than try and teach you new things. If this is true, Jim Collins has done an excellent job of reminding the reader of the necessities of what is required for a business to be great.

Although the book is not a investment book, the principles and ideas can equally be applied to investment decisions.

A group of 20 people and research spanning 5 years filtered out 11 companies from 1435 public Fortune 500 companies that had been operating for 15 years with stock price performance on par with the benchmark but then beat the market exponentially for the following 15 years. The book then provides a case for the compelling factors that all 11 companies exhibited as its stock price performance went from average to outstanding.

The selected 11 companies are Abbott Laboratories, Circuit City, Fannie Mae, Gillette, Kimberly-Clark, Kroger, Nucor, Philip Morris, Pitney Bowes, Walgreen, and Wells Fargo.

On a side note, looking at the names today reveals that some of the companies lost their way significantly. Even “great” companies can fall but we all know about that.

The 5 Concepts

The 5 concepts exhibited by the researched companies are as follows.

Level 5 Leadership: Great companies have a CEO where they love what they do with determination and humility and a will to succeed. They commit to the long term vision of the company and understand the company does not revolve around them. The great companies internally promote and train great management who then continue the tradition beyond the tenure of the first “great” CEO.

First Who…Then What: People are not the most important asset of the company. The right people are and then get them in the right positions.

Control the Brutal Facts: Be brutally honest objectively. Identify your core competencies. I’m sure Lehman and Citigroup would have benefited from this.

Hedgehog Concept: Based upon an ancient Greek parable: “The fox knows many things, but the hedgehog knows one big thing.”

Identify your core competency, focus on it and boil it down to a single, simple and clear concept. Those companies that never made it tend to be foxes. Disorganised and diversified beyond their means.

Culture of Discipline: Disciplined thinking leads to disciplined action. One example I thought of is how as investors, we all want to see a company cut its spending on useless things such as high quality furniture and company jets. Yet, how many people would wish that happens to their own company?

How many companies are like Google, where mostly every employee from the top all the way to the bottom love their job and what the company stands for and goes all out to achieve that purpose?

Summary

Good to Great is a well structured book that describes the 5 concepts mentioned above and looks at how each of the good to great companies portrayed such characteristics. The content is interesting not just because of the 5 concepts but the history and stories of the companies themselves provides an interesting read. People with an MBA probably wouldn’t find anything new, but aspiring businessmen and leaders as well as investors would do well to read it.

My Argument For Liking and Recommending the Book

As with all books there are pros and cons, but it seems this is one of those books subject to analysis and additional research and “tests” by third parties trying to disprove the thesis of the book. I assume it’s because of the popularity of the book (#48 rank in Amazon) and because it is a required text in many business schools.

The main gripe that people have with the book is that the 5 key points the author highlights is far too generic to prove anything true. It is true that many companies applied or have tried to apply the same principles and ideas yet still failed, however, I don’t agree with this argument, simply because I never believe that a book will be able to provide a complete and true step by step guide. That’s what procedures and manuals are for.

It is also true that the qualities of successful companies are so diverse that it would be impossible to write about and satisfy anyone in 200-300 pages without being quite broad and generic. My argument to this is to relate it to great people from history. Great people are also diverse in so many ways. If you had to categorise a great person, it would be be impossible. Great people consisted of missionaries, soldiers, artists, religious leaders, inventors, scientists etc all with varying degrees of kindness, humility, bravery, publicity, intellect, skills and eloquence. I could populate a list of names from history and try to come up with a theory of why such people were considered great, but that would also require me to be “broad”.

On the other hand, if you look at the people that brought disaster to countries and companies, they are always too similar. Pride, greed, selfishness and power are all qualities exhibited by such people. The same can be said for companies such as Enron, Worldcom, Tyco and now Bear Stearns, Lehman and Wamu.

Given the complexity of the task, Collins has done an excellent job.

 

 

 

  • Phil

    Your arguments in the end are a bunch of chicken hay. Dude, take a look at the stock performance today of each of the 11 good to great companies. Horrible.

  • MKL

    Phil, even though alot of us might not know, please do not tell us what is chicken hay. JJ was never recommending those stocks. JJ was reading Good to Great and recommending it as an interesting, insightful way of looking at companies. Though, we have all in many ways examined and re-examined our ways of looking at companies and economies since late October of 2008, I’m sure it is still an interesting and insightful read.

  • @ Phil,
    Thanks for taking the time to leave your comment. I must admit chicken hay did make me laugh :)

    Good to Great is about aspects of companies that went from mediocre to great, but the book Built to Last, also by Jim Collins, is what great companies should do to sustain their position.

    I assume most of the companies didn’t do what was required in Built to Last. Walgreen and Nucor on the other hand are still doing exceptionally well. But as MKL mentioned, I’ve never recommended the stocks. I recommend you to read the book.

    @ MKL,
    Thanks for putting it so eloquently.

  • Jim

    Phil, the key to what you said was “take a look at the stock performance today of each of the 11 good to great companies. Horrible.”. Value Investors know this simple truth; that a company’s performance cannot be measured rationally in one day.

  • MKL

    I think he meant “take a look today” 6 months after the post, not just on the one day. I think he was accurately pointing out that even a buoyant assessment of a company’s goodness or greatness is not a science, but an art, and that only time and events can put the proof in the pudding. As has been said elsewhere on this site valuing a company is as much an art form, a gut feeling (an emotion) as a science, a mathematical exercise. Even which calculations and valuations go into the mathematical exercise is a matter of personal preference.

    But it is valuable to explore and examine as many different thoughts as one might in order to find and evolve one’s own “gut feeling”. That’s why these different books and opinions and events are fodder. It’s interesting to keep in mind what happened to these and other companies from October ’08 to April ’09. It’s interesting what happened to each of our own ways and means of valuing and feeling certainty.

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