Tue 6 Nov 2012
I’d been aware of this book for a while, but it still seems to be available only in expensive hardback format, so I was waiting until it got cheaper. Recently I found it for $15 (still hardback) and this was enough for me to give it a go.
Research-based guidance for established companies to excel in their markets.
I came to this book by Jim Collins with some interest in reading about a new research-based attempt to find a winning corporate formula, but also scepticism due to the unsuccessful attempts that have come before. Perhaps the most infamous was In Search of Excellence which purported to find the recipe for excellence, but gave Atari (had to sell key assets in 1984) and Wang Labs (filed for bankruptcy in 1992) as examples of excellent corporations. Although, that book identified 43 “excellent” companies, so it’s probably not too bad for only a couple of bad apples to end up in their list.
Collins improves his odds by identifying only 11 “good to great” companies. But this is perhaps an uncharitable comparison, as his team appears to have done an extensive job in analysing these companies, and there are only 11 because only 11 companies out of the 1,435 US-based “Fortune 500″ companies from 1965-1995 met their criteria. Then to identify the features that relate to being “good to great”, these had to be possessed by all “good to great” companies and lacked by all 17 close-but-not-quite-good-to-great companies also identified by the team.
The book explains the basis for these features, and is engaging and well-written. For me, the most surprising was the feature of “first who.. then what” which is basically the idea that hiring well becomes foundation for all corporate strategy, and not, say an analysis of competitors, technology, financials, or other market fundamentals. I do like this idea, despite its fuzziness, as it says that people aren’t fungible and that they can make a big difference. There are five other features, making six in all, but none were as counter-intuitive as this one. In any case, I will now be paying attention to these features in my workplace and future employers.
However, I can’t bring myself to adopt them as fundamental tenets since despite the rigorous research, the conclusions remain essentially unproven. From my point of view, there are three weaknesses in the research: the set of “good to great” companies is arbitrary, the set is small, and the conclusions are untested.
Taking the first problem, “good to great” companies were defined as having a transition to “great” performance of at least three times the general market (from a point of transition). If, instead of three times, it had been five times or even two times, a different set of companies would’ve been found. Since the features needed to be possessed by all “good to great” companies, a different set would’ve produced a different set of features, e.g. potentially larger or smaller. Hence, perhaps the features found are sufficient for a good-to-great transition but some weren’t actually necessary.
The problem of a small sample is tackled in the book, referencing “two leading professors” who think the sample of 11 companies wasn’t small. Unfortunately, this is not convincing. For example, one professor says that the 11 companies wasn’t a sample as it was 100% of companies that met the criteria – although I would respond that the book promises that these principles are universal, so there will be more such companies in the US-market in the future, and they should also apply to non-US-based companies, hence the 11 companies don’t represent 100% of all possible “good to great” companies.
Lastly, the conclusions are untested. The research team could’ve, say, looked for a couple of companies outside the US that met their “good to great” criteria and then checked that those companies possessed all of the six features. Except they didn’t. The only companies examined as part of the study were those that informed the conclusion. The use of comparison companies gives me a level of faith in the conclusions, but these can’t be validly re-used in testing that conclusion. So, really the conclusion remains a hypothesis for now.
My grumblings notwithstanding, I was impressed with the analysis in the book and the methodology that used comparison companies to filter out features that were shared by both the “good to great” companies and also those that didn’t perform so well. It has shifted my thinking about what a successful business can look like.