By: David M. Sutton
What makes one company mediocre or just 'good' and another company *great*? A team of business researchers decided to conduct a study to see if they could find consistent characteristics in really great companies. If so, any company who knew those characteristics could strive to develop them in order to become a great company.
This article is really more of a 'cliff notes' on a book entitled 'Good to Great', written by a business management consultant 'Jim Collins' and published by HarperCollins Publishers Inc., in 2001. Jim Collins is a former faculty member at the Stanford University Graduate School of Business and now runs his own business research laboratory in Boulder Colorado.
Before writing 'Good to Great', Jim assembled a research team to study companies that quickly went from good (or even mediocre) to great and compare them with competitors who were only 'good' companies. The study lasted five years and the team studied 28 companies in all. The criteria for determining a great company was that the great companies generated cumulative stock returns that were at least 7 times higher than the general stock market average, over a period of 15 years.
The companies studied that went from good to great were: Abbott; Circuit City; Fannie Mae; Gillette; Kimberly-Clark; Kroger; Nucor; Philip Morris; Pitney Bowes; Walgreens and Wells Fargo.
For each of these companies the team compared them to carefully selected 'good' competitors. Those companies, in order, were: Upjonhn, Silo, Great Western, Warner-Lambert, Scott Paper, A&P, Bethlehem Steel, R.J. Reynolds, Addressograph, Eckerd and Bank of America.
Other companies were studied as well but those were the main companies that were compared. The team didn't concentrate so much on what the great companies had in common with each other but on what they had in common that they did *not* have in common with the 'merely good' companies. The team was looking specifically for the factors that distinguished the great companies from the merely good companies.
So what did they learn? What makes a mediocre company become great?
Jim points out that they were as surprised as much by what they expected and did *not* find as what they didn't expect and did find.
• High profile executives (like movie stars) did not help companies go from good to great. 9 of the 10 CEOs were hired from within the company and were largely quiet, low profile leaders.
• High executive compensation was not a factor in causing a company to go from good to great.
• No specific Strategies or structures showed any significant impact on the growth of these great companies.
• Mergers and Acquisitions showed no significant effect on the change from good to great.
• Technology at best accelerated growth but did not cause it.
• The good to great companies did not spend great effort on motivating their employees to do better work.
• No significant event occurred causing a 'natural' growth spurt, such as an industry boom.
• The great companies did not suddenly become great but gradually grew over a span of about 10 to 25 years.
So what did make the difference? Jim's team came up with 7 basic concepts that were clearly seen in all of the great companies but not at all clearly (less than 30%) in their competitive companies. The following concept names have been copied from pages 12-14 of the book 'Good to Great'.
Level 5 Leadership: Rather than a 'take the bull by the horns', General Patton type leader, the Level 5 leaders that led their companies to greatness were humble and mild mannered, to the point of being somewhat insecure in their position. This characteristic was consistently coupled with a tremendous will or drive to do the best job possible. They worked hard to look closely at their industries and make bold moves to change their companies' positions. Jim Collins points out that Darwin E. Smith, CEO for Kimberly-Clark was asked after he retired, what he attributed his great success to. He simply replied 'I never stopped trying to become qualified for the job.'(pg 20 w/ footnote 14)
First Who . . . Then What: The executive teams for the great companies did not concern themselves with a detailed business plan and then try to get the right people to fill the positions. They concentrated first on getting the right people on board, in the right positions and getting rid of all the wrong people. So who were the 'right' people. Generally they looked for people who were naturally driven, who had a passion for the product(s) and/or service(s) the company offered and who had alot of natural intelligence and talent. Quite often they hired people without even knowing what job they were going to do. They just knew that the person had talent, intelligence, a positive attitude, drive and a passion for what they were doing in general.
Confront the Brutal Facts (Yet Never Lose Faith): The people of the great companies had an unwavering faith that no matter how hard it was, no matter what problems they encountered, in the end they would prevail. They would become a 'great' company. At the same time, they never looked away from the cold hard facts concerning their industries. Jim Collins calls this 'the stockdale paradox'(pg 83). For example: Going into the 70's, both A&P and Kroger were long standing grocery stores. A&P was far and away the dominant company. The economy was changing. Americans had more money to spend and want more convenience. They want a lot more variety in their stores and want to buy more than just groceries. They wanted big, clean *super* markets that had everything under the sun, even banks and pharmacies. The difference between Kroger (a small struggling company) and A&P was that Kroger looked the changes in the face and began to methodically restructure their stores to accommodate the new customer demand, while A&P remained in their comfort zone, refusing to acknowledge the change. Between 1985 and 1998 Kroger's stock soared to well over 10 times the general stock market average while A&P's stock fell below the average.
The Hedgehog Concept (Simplicity within the Three Circles): The leaders who caused the great companies to become great asked and answered 3 basic questions: 1. What are we deeply passionate about? 2. What drives our economic engine? 3. What can we be the best in the World at?(pg. 118) They threw away any preconcieved notions of what their company was supposed to provide. They were not compelled to continue doing what the company was originally formed to do or even what it was currently doing. They strived to find something that could honestly be the answer to all three questions and then they went out and did it.
A Culture of Discipline: Most companies of any size have a hierarchy of authority from the CEO through upper management down to lower management to foremen and line leaders, etc. Each superior being responsible for lording it over their subordinates. But what do you (as a lording over superior) do with a person who is so naturally disciplined that you never get a chance to reprimand them? In fact don't have to watch or supervise them at all? What if your entire team of subordinates was like that? As mentioned in the above concept 'First Who . . . Then What' Jim pointed out that the leaders of the great companies took great care when selecting people to work for them. So much so that they would hire people even before knowing how they were going to fit in. By doing this they were establishing a *culture* of discipline. At their companies, being disciplined in your job was the order of the day. People who weren't naturally diciplined didn't fit in and didn't end up staying with the company long. Superiors (also naturally disciplined) were free to do their own jobs and were free to accomplish alot more themselves rather than just supervising others.
Technology Accelerators: The leaders of the great companies did not see technology as an end but rather as potential tools to accomplish their goals. They were not inclined to find ways to incorporate every new technology into their work processes. Instead they focussed on finding the most effective ways to accomplish their goals. If a certain technology helped them do a better job they used it. If not they simply didn't use it.
The Flywheel and the Doom Loop: None of the great companies became great as a result of one dramatic revolutionary change or event. No grand program was invented to revolutionize the company. In every case it was a gradual relentless heavy *push* toward greatness. Jim Collins likened it to a group of people pushing a giant heavy steel flywheel. At first they can't move it. With relentless dogged determination they eventually get it to just budge. By continuing to push without letting up they slowly get it to start turning. On and on they push the giant flywheel, day after day. Each day it turns just a little faster until after years the giant flywheel is spinning along at a high speed. Note that at this point the team would have just as much trouble stopping it as they did getting it to spin.
So there you have it: a list of 8 characteristics that you may have thought would contribute to a great company but do not and 7 basic characteristics or concepts that do make up a great company.
You can buy the book 'Good To Great', written by Jim Collins and published by HarperCollins Publishers, Inc. - 2001 on Amazon.com or in most major book stores.
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