t eam 2 c aitlin c lark s tephen m assimi w ill m ayrath m att v atankhah k atie t revino
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GOOD TO GREATBY JIM COLLINS
CHAPTER 1
TEAM 2CAITLIN CLARK
STEPHEN MASSIMI
WILL MAYRATH
MATT VATANKHAH
KATIE TREVINO
Overview While presenting his first book, Bill Meehan,
the managing director of the San Francisco office of McKinsey & Company, told Jim Collins,“You know, Jim, we love Built to Last around
here. You and your coauthor did a very fine job on the research and writing. Unfortunately, it’s useless.”
This was the spark of curiosity that began five years of research and resulted in Good to Great.
Overview, continued
The five-year research effort yielded many insights, but one conclusion stands out above the others Most any organization can substantially
improve its stature and performance, perhaps even become great, if it conscientiously applies the framework of ideas we’ve uncovered
Phase 1: The Search First task was to find companies that
showed the good-to-great pattern (Table 1) Launched a six-month “death march of
financial analysis,” looking for companies that showed the following basic pattern:Fifteen-year cumulative stock returns at or below
the general stock market, punctuated by a transition point, then cumulative returns at least three times the market over the next fifteen years
Phase 1: The Search, continuedCompany Results from Transition
Point to 15 Years beyond Transition
Point*
T Year to T Year + 15
Abbot 3.98 times the market 1974 – 1989
Circuit City 18.50 times the market 1982 – 1997
Fannie Mae 7.56 times the market 1984 - 1999
Gillette 7.39 times the market 1980 - 1995
Kimberly-Clark 3.42 times the market 1972 – 1987
Kroger 4.17 times the market 1973 – 1988
Nucor 5.16 times the market 1975 – 1990
Philip Morris 7.06 times the market 1964 – 1979
Pitney Bowes 7.16 times the market 1973 – 1988
Walgreens 7.34 times the market 1975 – 1990
Wells Fargo 3.99 times the market 1983 – 1998
*Ratio of cumulative stock returns relative to the general stock market
Phase 1: The Search, continued
Criteria for Selection as a Good-to-Great CompanyCompany shows a pattern of “good” performance
punctuated by a transition point, after which it shifts to “great” performance
Good-to-great shift must be a company shift, not an industry event
At the transition point, the company must have been an established, ongoing company, not a start-up
Phase 1: The Search, continued
Criteria for Selection as a Good-to-Great Company, continued The transition point had to occur before 1985
so that there would be enough data to assess the sustainability of the transition
Whatever the year of transition, the company still had to be a significant, ongoing, stand-alone company at the time of selection
At the time of selection, the company should still show an upward trend
Phase 1: The Search, continued
The Good-to-Great Screening and Selection ProcessCut 1: From the Universe of Companies to 1,435
Companies ○ Selected from the Fortune 500, 1965 – 1995
Cut 2: From 1,435 Companies to 126 Companies○ Selected into full CRSP data pattern analysis
Cut 3: From 126 Companies to 19 Companies ○ Selected into Industry Analysis
Cut 4: From 19 Companies to 11 Good-to-Great Companies ○ Selected into Good-to-Great Set
Phase 2: Compared to What?
Two types of comparison companiesDirect comparisons
○ Companies that were in the same industry as the good-to-great opportunities and similar resources at the time of transition, but showed no leap from good to great
Unsustained comparisons○ Companies that made a short-term shift from good
to great but failed to maintain the trajectory○ Intended to address the question of sustainability○ Comparisons are displayed in Appendix 1.C, page
234
Phase 2: Compared to What, continued Direct Comparisons
Purpose of direct comparison analysis is to create as close to a “historical controlled experiment” as possible
Helped in identifying distinguishing variables that account for the transition from good to great
Performed a systematic and methodical collection and scoring of all obvious comparison candidates for each good-to-great company
Phase 2: Compared to What?, continued Direct Comparison Criteria
Business Fit○ At the time of transition, the comparison candidate
had similar products and services as the good-to-great company
Size Fit ○ At the time of transition, the comparison candidate
was the same basic size as the good-to-great company
Age Fit○ The comparison candidate was founded in the
same era as the good-to-great company
Phase 2: Compared to What?, continued Direct Comparison Criteria, continued
Stock Chart Fit○ The cumulative stock returns to market chart of the
comparison candidate roughly tracks the pattern of the good-to-great company until the point of transition
Conservative Test○ At the time of transition, the comparison candidate was
more successful than the good-to-great company Face Validity
○ Takes into account two factorsComparison candidate is in a similar line of business at the time of
selectionComparison candidate is less successful than the good-to-great
company at the time of selection
Phase 2: Compared to What?, continued Direct Comparison Scoring
Scored each comparison candidate on each of the six criteria on a scale of 1 to 4: ○ 4 = comparison candidate fits the criteria
extremely well—there are no issues or qualifiers○ 3 = comparison candidate fits the criteria
reasonably well—there are minor issues or qualifiers
○ 2 = comparison candidate fits the criteria poorly—there are major issues and concerns
○ 1 = comparison candidate fails the criteria
Phase 2: Compared to What?, continued
The Entire Study Set
Good-to-Great Companies
Comparison Companies
Abbot Upjohn
Circuit City Silo
Fannie Mae Great Western
Gillette Warner-Lambert
Kimberly-Clark Scott Paper
Kroger A&P
Nucor Bethlehem Steel
Philip Morris R.J. Reynolds
Pitney Bowes Addressograph
Walgreens Eckerd
Wells Fargo Bank of America
Unsustained Companies
Burroughs
Chrysler
Harris
Hasbro
Rubbermaid
Teledyne
Phase 3: Inside the Black Box Research Phase
Systematically coded all materials into categories, conducted interviews, and initiated a wide range of analyses
Project began with the goal of building a
theory from the ground up
Phase 3: Inside the Black Box, continued In the study, what they didn’t find turned
out to be some of the best clues to the inner workings of good to great
Good Results
What’s Inside the
BLACK BOX?
Great Results
Phase 3: Inside the Black Box, continued Company Coding Documents Collected
All major articles published on the company over its entire history
Materials obtained directly from companies Books written about the industry, company, and/or
its leaders Business school case studies and industry
analyses Business and industry reference materials Annual reports, proxy statements, analyst reports,
and any other materials available on the company, especially during the transition era
Phase 3: Inside the Black Box, continued Coding System Categories
Category 1: Organizing ArrangementsCategory 2: Social FactorsCategory 3: Business Strategy, Strategic
ProcessesCategory 4: Markets, Competitors, and
EnvironmentCategory 5: Leadership Category 6: Products and Services
Phase 3: Inside the Black Box, continued Coding System Categories, continued
Category 7: Physical Setting and Location Category 8: Use of TechnologyCategory 9: Vision: Core Values, Purpose, and
BHAGsCategory 10
○ A: Change/Transition Activities during Transition Era of Corresponding Good-to-Great Company (Direct Comparisons Only)
○ B: Attempted Transition Era (Unsustained Comparisons Only)
Category 11: Posttransition Decline (Unsustained Comparisons Only)
Phase 3: Inside the Black Box, continued Other Research Elements
Financial Spreadsheet Analysis ○ Examined all financial variables for 980 combined
years of data (35 years on average per company)○ Comprised gathering raw income and balance
sheet data and examining variables in both the pre- and posttransition decades
Executive Interviews○ Conducted interviews of senior management and
board members, focusing on those in office during the transition era
Phase 3: Inside the Black Box, continued Special Analysis Units
Acquisitions and Divestitures ○ Sought to understand the role of acquisitions and
divestments in the transition from good to greatIndustry Performance Analysis
○ Looked at the performance of the companies versus the performance of the industries
Executive Churn Analysis ○ Looked at the extent to which the executive teams
changed during the crucial points in companies’ historiesCEO Analysis
○ Performed a qualitative examination of each set of CEOs during the transition eras in all three sets of companies
Phase 3: Inside the Black Box, continued Special Analysis Units, continued
Executive Compensation ○ Examined across the twenty-eight companies studied, from ten
years before the transition point to 1998Role of Layoffs
○ Sought to examine all companies for evidence of layoffs as a conscious tactic to improve company performance
Corporate Ownership Analysis○ Aimed to determine if there were any significant differences
between companiesMedia Hype Analysis
○ Looked at the degree of “media hype” surrounding the companiesTechnology Analysis
○ Examined the role of technology, drawing largely upon executive interviews and written source materials
Phase 3: Inside the Black Box, continued Comparative Analysis Frameworks
Performed throughout the research effortWhile less detailed than the other portions of
the research effort, all were derived directly from research evidence
Included topics such as ○ The use of bold corporate moves○ Executive class versus egalitarianism ○ Three-circle analysis and fit with core values
and purpose
Phase 4: Chaos to Concept Every primary concept in the final
framework showed up as a change variable in 100 percent of the good-to-great companies and in less than 30 percent of the comparison companies during the pivotal years
The Flywheel captures the gestalt of the entire process of going from good to great
Phase 4: Chaos to Concept, continued
DISCIPLINED PEOPLE
DISCIPLINED THOUGHT
DISCIPLINED ACTION
FIRST WHO.. THEN WHAT
LEVEL 5 LEADERSHI
P
TECHNOLOGY ACCELERATOR
S
HEDGEHOG
CONCEPT
BUILDUP…
BREAKTHRO
UGH!
FLYWHEEL
CULTURE OF
DISCIPLINE
CONFRONT THE BRUTAL FACTS
Phase 4: Chaos to Concept, continued The Flywheel—Disciplined People
Level 5 Leadership○ Good-to-great leaders are self-effacing, reserved,
even shy—a paradoxical blend of personal humility and professional will
First Who…Then What○ Good-to-great leaders first got the right people on
the bus, the wrong people off the bus, and the right people in the right seats
○ Then they figured out where to drive it ○ People are not your most important asset. The right
people are.
Phase 4: Chaos to Concept, continued The Flywheel—Disciplined Thought
Confront the Brutal Facts (Yet Never Lose Faith)○ Every good-to-great company embraced what came to
be called the Stockdale ParadoxMust maintain unwavering faith that you can and will prevail in
the end, regardless of the difficulties, AND at the same time have the discipline to confront the most brutal facts of your current reality, whatever they might be
The Hedgehog Concept (Simplicity within the Three Circles)○ To go from good to great requires transcending the
curse of competence○ If you cannot be the best in the world at your core
business, then your core business absolutely cannot form the basis of a great company It must be replaced with a simple concept that reflects deep
understanding of three intersecting circles
Phase 4: Chaos to Concept, continued The Flywheel—Disciplined Action
A Culture of Discipline○ When you have disciplined people, you don’t
need hierarchy○ When you have disciplined thought, you don’t
need bureaucracy○ When you have disciplined action, you don’t
need excessive controls○ When you combine a culture of discipline with
an ethic of entrepreneurship, you get the alchemy of great performance
Phase 4: Chaos to Concept, continued The Flywheel—Disciplined Action,
ContinuedTechnology Accelerators
○ Good-to-great companies think differently about the role of technologyThey never use technology as the primary means of
igniting a transformation
○ Paradoxically, they are pioneers in the application of carefully selected technologies
○ Technology by itself is never a primary, root cause of either greatness or decline
Phase 4: Chaos to Concept, continued The Flywheel and the Doom Loop
Those who launch revolutions, dramatic change programs, and wrenching restructurings will almost certainly fail to make the leap from good to great○ Good-to-great transformations never
happened in one fell swoopRather, the process resembled relentlessly
pushing a giant heavy flywheel in one direction, building momentum until a point of breakthrough
Phase 4: Chaos to Concept, continued From Good to Great to Built to Last
Built to Last is about how you take a company with great results and turn it into an enduring great company of iconic stature ○ To make that shift requires core values and a
purpose beyond just making money combined with the key dynamic of preserve the core / stimulate progress
Good to Great Concepts
Sustained Great Results
Built to Last Concepts
Enduring Great Company
The Timeless “Physics” of Good to Great This book is ultimately about one thing:
The timeless principles of good to great○ It’s about how you take a good organization of any
type and turn it into one that produces sustained great results, using whatever definition of results best applies to your organization
That good is the enemy of great is not just a business problem—it is a human problem If we have cracked the code on the question of
good to great, we should have something of value to any type of organization
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