Good to Great: Why Some Companies Make the Leap... and Others Don't

The Challenge
Built to Last, the defining management study of the nineties, showed how great companies triumph over time and how long-term sustained performance can be engineered into the DNA of an enterprise from the verybeginning.

But what about the company that is not born with great DNA? How can good companies, mediocre companies, even bad companies achieve enduring greatness?

The Study
For years, this question preyed on the mind of Jim Collins. Are there companies that defy gravity and convert long-term mediocrity or worse into long-term superiority? And if so, what are the universal distinguishing characteristics that cause a company to go from good to great?

The Standards
Using tough benchmarks, Collins and his research team identified a set of elite companies that made the leap to great results and sustained those results for at least fifteen years. How great? After the leap, the good-to-great companies generated cumulative stock returns that beat the general stock market by an average of seven times in fifteen years, better than twice the results delivered by a composite index of the world's greatest companies, including Coca-Cola, Intel, General Electric, and Merck.

The Comparisons
The research team contrasted the good-to-great companies with a carefully selected set of comparison companies that failed to make the leap from good to great. What was different? Why did one set of companies become truly great performers while the other set remained only good?

Over five years, the team analyzed the histories of all twenty-eight companies in the study. After sifting through mountains of data and thousands of pages of interviews, Collins and his crew discovered the key determinants of greatness -- why some companies make the leap and others don't.

The Findings
The findings of the Good to Great study will surprise many readers and shed light on virtually every area of management strategy and practice. The findings include:

• Level 5 Leaders: The research team was shocked to discover the type of leadership required to achieve greatness.
• The Hedgehog Concept (Simplicity within the Three Circles): To go from good to great requires transcending the curse of competence.
• A Culture of Discipline: When you combine a culture of discipline with an ethic of entrepreneurship, you get the magical alchemy of great results. Technology Accelerators: Good-to-great companies think differently about the role of technology.
• The Flywheel and the Doom Loop: Those who launch radical change programs and wrenching restructurings will almost certainly fail to make the leap.

“Some of the key concepts discerned in the study,” comments Jim Collins, "fly in the face of our modern business culture and will, quite frankly, upset some people.”

Perhaps, but who can afford to ignore these findings?

Jim Collins and his team have done an enormous amount of interesting work to determine whether a good company can be come a great company, and how. The answer to the former question is "yes," assuming that the 11 of 1435 Fortune 500 companies did not make it there by accident. The answer to the latter is less clear. The study group identified a number of characteristics that their 11 companies had in common, which were much less frequently present in comparison companies. However, the study inexplicably fails to look at these same characteristics to see how often they succeed in the general population of companies. If these characteristics work 100 percent of the time, you really have something. If they work 5 percent of the time, then not too much is proven.

How were the 11 study companies selected? The criteria take pages to explain in an appendix. Let me simplify by saying that their stock price growth had to be in a range from somewhat lower than to not much higher than the market averages for 15 years. Then, in the next 15 years the stocks had to soar versus the market averages and comparison companies while remaining independent. That's hard to do. The selected companies are Abbott Laboratories, Circuit City, Fannie Mae, Gillette, Kimberly-Clark, Kroger, Nucor, Philip Morris, Pitney Bowes, Walgreen, and Wells Fargo.

As to the "how," attention was focused on what happened before and during the transition from average performance to high performance. Interviews, quantitative analyses, and business press reports were studied. Clearly, there's a tendency to see things a little bit with 20-20 hindsight in such a situation. Since this study started in 1996, it was dealing with facts that were already quite old while they were being examined. Bias is likely.

The key conclusions as to "how" included the following:

(1) a series of CEOs (promoted from within) who combined "personal humility and professional will" focused on making a great company;

(2) an initial focus on eliminating weak people, adding top performing ones, and establishing a culture of top talent putting out extraordinary effort;

(3) then shifting attention to staring at and thinking unceasingly about the hardest facts about the company's situation;

(4) using facts to develop a simple concept that is iteratively reconsidered to focus action on improving performance;

(5) establishing and maintaining a corporate culture of discipline built around commitments, with freedom about how to meet those promises;

(6) using technology to accelerate progress when it fits the company's concept of what it wants to become; and

(7) the company builds momentum from consistent efforts behind its concept that are reinforced by success.

Then, a connection is made to how these 7 conditions can provide the foundation for establishing a Built to Last type of company that can outperform the competition over many decades.

One potential criticism of the study is that its conclusions could be dated. Former Stanford professor Collins argues that he has uncovered basic facts about human organizations that will be unchanging.

I compared the conclusions in this book with my own studies of top performing CEOs and companies in the 1988-2001 time period. I noticed two major differences that suggest a shift in "best practice" standards. First, those who outperform now have developed processes that create major improvements in their operating business models every 2-5 years. Second, senior management development is focused around improving a culture for defining and implementing such improvements. I suspect that item (4) above was an embryonic predecessor to these new dimensions, which occur much more frequently now than in this study.

Next, I compared the list of 7 items to what I had observed in companies. The biggest point that hit me is how few CEOs have been interested in creating long-term outperformance that lasts past their own tenure in an industry. You also have to be a CEO for a long time with that focus before you have a chance to make a lasting impact. Founders have a special advantage here. Perpetuating outperformance may help fill a psychological need for immortality that fits with founders especially well.

Finally, I thought about what I knew about the companies studied from personal contacts during the study years. My sense is that their stories are far more complex than is captured here. So, I think the data have probably been "scrunched" to fit together in some cases. In particular, I wonder whether these companies will greatly outperform in the next 15 years. In many cases, they expanded to meet an unfilled need that is now largely fulfilled. Can they develop a new concept for (4) that will carry them forward as successfully in the future? My guess is that most will not. If that turns out to be the case, we must conclude that the items on this list may be necessary . . . but may not be sufficient to go permanently from good to great. Time will tell.

Before closing, let me observe that if the research team had also looked at the rate by which their principles succeeded among companies that employed them, this would have been one of the very finest research studies on best practices that I have seen. A book like this will provoke much discussion and thought for years to come. Perhaps that information can be included in a future edition or printing. Then, we will have something magnificent to consider!

Do you want to be the best permanently? Why? Or, why not? Mr. Collins points out that it probably takes no more effort, but a lot more discipline and focus.

Good to Great.....   May 29, 2003
 163 out of 194 found this review helpful

Why do some companies have continuing, sustained growth in excess of those companies around them? What is it that makes them different? Is it charismatic leadership? Right place, right time? Unique product?

This is the question that Jim Collins attempts to answer in Good to Great.

He and a team of 20 researchers spent five years and more than 15,000 manhours researching the question, Why Some Companies Make the Leap, Good to Great...and Others Don't.

They reviewed thousands of books, articles, and annual reports; conducted financial analyses on records that totaled 980 years of combined business records. They interviewed 84 senior executives and board members, scrutinized the personal and professional records of 56 of the CEO's, and researched the executive compensation plans.

They analyzed the patterns in layoffs, how media exposure affected the financial results, and finally, how technology was used and it's effect, if any on the financial performance of the companies. The team researched every aspect that could be quantified, codified, analyzed or compared.

The study begins with 1,435 Fortune 500 companies and narrows the list down to 11 that made the transition from good-to-great companies.

These are companies that stand out as being different from their direct competition.This book shows you objectively what it was that made these companies financial returns 3,4, to 18 times better than stock market averages for 15 years. And, it tells you
how to apply these findings to your business.

Level 5 Leadership: Moving from good to great starts with leadership, with the will and drive to succeed. Not on a personal level, but for the company to succeed.

First Who...Then What: Next find the right people to manage and run the business.

Control the Brutal Facts: Then look at the facts objectively. What are your core competencies?

Hedgehog Concept: Then take action based on being the best at what you can be the best at.

Culture of Discipline: Implement the resulting plan rigorously, with discipline and focus.

Good to Great is a textbook on how to run a successful organization. It includes extensive appendices detailing the methodologies of the research and comphrehensive notes and references.

Good to Great is a must-read for anyone building or leading a business or group. And it challenges a lot of the current hype
about makes a company successful. Whether it be the charismatic CEO, to the hype of IT, or merger mania, none of these contributed to the success of the top 11 companies covered in Good-to-Great.

At 300 pages, Good-to-Great is a comphrehensive research project, well written and entertaining too. If you enjoyed Built to Last, you will love Good-to-Great.


Well written and entertaining too   February 13, 2003
 153 out of 161 found this review helpful

Good to Great is a comphrehensive research project, well written
and entertaining to read, Good to Great is a worthy successor to, and in the tradition of, Built to Last.


A book for the ages! Excellent for managers and start-ups   October 24, 2001
 101 out of 108 found this review helpful

Jim Collins, co-author of Built To Last, has done it again! This time he spent 5 years trying to find out what differentiates good companies from great companies. This study can be applied to entrepreneurial ventures and to current corporate America. After reading this book you may see your company from a much different perspective than in the past and it may have you thinking about the effectiveness of senior managers within your company. I believe it is a book that business executives will read and keep handy for reference.

This book is a study of companies that exceed their industry, the overall stock market and produce PHENOMENAL returns over a 15-year period (15 of them are very "normal" years and the next 15 years are full of explosive growth). Some key points you will take away from this book include:

1)Growth in most companies came after years and years of trying to adapt / mold a concept into something the company truly believed in. Once this happened the growth engine got going.
2)Great managers worry more about getting the right people on board and the wrong people off board BEFORE they establish a corporate stategy.
3)Most great CEOs came from within their own ranks and weren't recruited from the outside.
4)Executive compensation didn't appear to be a key driver of corporate performance
5)The respective great companies exceeded the overall stock market in creating shareholder value by at least 3x during their 15 year run measured (some for many more years). While some may say this is not much think about the steel industry and how many are filing for bankruptcy. Nucor Steel still managed to beat the S&P by more than 3x.
6)The great companies in this book blew away their comparable peer group. Wells Fargo vs. Bank of America, Kroger vs. other grocery chains, Walgreens vs. Eckerd, etc.
7)Collins describes a Level 5 leader. After reading this section I was amazed at how many CEOs I recognized as not being Level 5 leaders. This may, in the near future, shake up executive compensation plans, CEO searches and potentially affect corporate governance.
8)Technology accelerated a transformation but was regarded as a tool. It didn't define the company.
9)M&A activity played virtually no role in going from good to great.

That is all I will write about the book. I could write on and on about how good this book is. Read it. It will change the way you think about business. Other very good books on the principles of business and entrepreneurship are Leading at the Speed of Growth by Catlin and Mathews and The 22 Immutable Laws of Marketing by Jack Trout and Al Ries.