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?
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.