good is the enemy of great team 2. jim collins – author “you know, jim, we love built to last...

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GOOD IS THE ENEMY OF GREAT Team 2 Slide 2 Jim Collins Author 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, its useless. Bill Meehan Curious, he obviously wanted an explanation. Bill went on to explain that the companies written about in Jims previous book were, for the most part, always great. They never had to turn themselves from good companies into great ones. Slide 3 Can a good company become a great company and, if so, how? A vast majority of good companies remain just that good, but not great. So began the journey. Slide 4 People often asked Jim, What motivates you to undertake these huge research projects? His reply was: Curiosity. Its deeply satisfying to climb into the boat, like Lewis and Clark, and head West saying, We dont know what well find when we get there, but well be sure to let you know when we get back. Slide 5 21 people (teams of 4-6 at a time) 5 years We identified companies that made the leap from good results to great results and sustained those results for at least 15 years. Most companies never achieve greatness. Slide 6 If you invested $1 in a mutual fund of the good-to-great companies in 1965, holding each company at the general market rate until the date of transition, and simultaneously invested $1 in the good-to-great fund taken out on January 1, 2000, would have multiplied 471 times, compared to a 56 fold increase in the market. Slide 7 Performance over fifteen years Three times the market Leader in the industry Should something other than returns be used? Slide 8 Cut 1 Fortune rankings 1965,1975,1985,1995 Cut 2 University of Chicago Center for Research in Security Prices. Cut 3 Continuous growth Cut 4 Companies not industries that made a transition Slide 9 Fannie Mae beat GE and Coca-Cola Walgreens beat Intel Slide 10 CompanyTimes the markettime frame Abbott3.981974-1989 Circuit City18.51982-1997 Fannie Mae7.561984-1999 Gillette7.391980-1995 Kimberly-Clark3.421972-1987 Kroger4.171973-1988 Nucor5.161975-1990 Philip Morris7.061964-1979 Pitney Bowes7.161973-1988 Walgreens7.341975-1990 Wells Fargo3.991983-1998 Slide 11 Clock ticking for Circuit City's survival Bankrupt electronics seller says it has until next week to reach deal with 'potential' buyers for its business or else it may have to start liquidating. (cnn money 1/9/2009) Fannie Mae Bail out Slide 12 Comparison - Contrasting good-to-great companies to a carefully selected set of comparison companies. Crucial Question - What did the good-to-great companies share in common? OR -What did the good-to-great companies share in common that distinguished them from the comparison companies? Slide 13 Selected two sets of comparison companies. Set 1 Consisted of direct comparisons companies that were in the same industry as the good-to-great companies with the same opportunities and similar resources at the time of transition, but showed no leap from good to great. Slide 14 The teams performed a systematic and methodical collection and scoring of all obvious comparison candidates for each good-to-great company, using the following six criteria. 1.Business Fit: Had similar products and services as the good-to-great company. 2.Size Fit: Was the same basic size as the good-to great company. Slide 15 3. Age Fit: Was founded in the same era as the good- to-great companies. 4. 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. 5. Conservative Test: At the time of transition, the comparison candidate was more successful than the good-to-great company larger and more profitable with a stronger market position and reputation. Slide 16 6.Face Validity: Takes into account two different factors: First, the comparison candidate is in a similar line of business at the time of selection into the study. Second, the comparison candidate is less successful than the good-to-great company at the time of selection into the study. Face validity and conservative test work together. Conservative test ensures that the comparison company was stronger than good-to-great company at the year of the good- to-great companys transition and face validity ensures the comparison company was weaker that the good-to-great company at the time of selection into the study. Companies scored on scale of 1 4. Slide 17 Unsustained comparison were companies that made a short-term shift from good-to-great but failed to maintain the trajectory-to address the question of sustainability. After all of this the team came up with twenty-eight companies: eleven good-to great, eleven direct comparison, and six unsustained comparisons. Slide 18 Good-to-Great Companies Direct Comparisons Abbot Circuit City Fannie Mae Gillette Kimberly-Clark Kroger Nucor Philip Morris Pitney Bowes Walgreens Wells Fargo Upjohn Silo Great Western Warner-Lambert Scott Paper A&P Bethlehem Steel R.J. Reynolds Addressograph Eckerd Bank of America Unsustained Comparisons Burroughs Chrysler Harris Hasbro Rubbermaid Teledyne Slide 19 Collected articles on 28 companies, dating back 50+ years Coded material into categories (600 articles) Strategy, leadership, technology, etc. Conducted interviews with good-to-great executives (2000 pages) The total project consumed people years of effort. Held Weekly Debates over each of the 28 companies to draw conclusions and ask questions to what it all means Slide 20 Built the theory from the ground up, not to test or prove any theory. Noticed the case that dogs that DID NOT bark which is the opposite of what we expect Examples of Key facts noticed between good to great companies Celebrity CEOs are negative, but happens 6x more often. Most Good CEOs come from Inside the company. Executive compensation means nothing & does not drive performance. There is no evidence that good-to-great companies spent more time on strategy. Good-to-great companies focused on what NOT to do and what to STOP doing to become great, instead of what to do Slide 21 More examples. Good-to-great companies focused on what NOT to do and what to STOP doing to become great, instead of what to do Technology has nothing to do with the transformation of good to great (it can help but not cause) Mergers play no role. 2 wrongs never make 1 right. Good-to-Great companies paid NO attention to managing change, motivating people, and creating alignment. These problems solve themselves in transition. These companies did not set up a process for transformation, but focused on the results. It all became clear in the end. You dont have to be a great industry to begin with. (Many were actually terrible) It is a matter of conscious choice. Slide 22 What was required to go from all the data, analyses, debates, and dogs that did not bark to the final findings in this book? The best answer I can give is that is was an iterative process of looping back and forth, developing ideas and testing them against the data, revising the ideas, building a framework, seeing it break under the weight of evidence, and rebuilding it yet again. That process was repeated over and over, until everything was a coherent framework of concepts. Slide 23 He reiterates many times that the concepts in the final framework of this book were not my opinions! While he cannot extract his own psychology and biases entirely, each and every finding in the book met a rigorous standard before the research teams deemed it significant. Every primary concept in the final framework showed up as a change variable in 100% of the good-to-great companies and in less than 30% of the comparison companies during pivotal years. Slide 24 Concept used to describe the break through when these companies transitioned from good to great. Think of the transformation as a process of buildup followed by breakthrough, broken into three broad stages: disciplined people, disciplined thought, and disciplined action. Slide 25 The leaders that take companies from good to great do not share the personalities of high profile leaders Instead they are self effacing, quiet, reserved and sometimes even shy They are a blend of personal humility and professional will Slide 26 Good-to-great leaders do not set a new vision and strategy first Instead they get the right people on the bus, the wrong people off the bus, and then the right people in the right seats After this is accomplished then they figure out where to drive it Most importantly, people are not the most important asset, the right people are Slide 27 You must 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. Slide 28 To go from good-to-great requires transcending the curse of competence Just because something is a core business doesnt mean that you can be the best at it. If you cant be the best at the core business, then it cant be the foundation for a great company Slide 29 All companies have a culture, some have discipline, but few have culture of discipline: When there is disciplined people, you dont need hierarchy Disciplined thought, you dont need bureaucracy Disciplined action, you dont need excessive controls Combine culture of discipline with entrepreneurship you get a great performance Slide 30 Good-to-great companies use technology as the primary means of igniting transformation However, they are pioneers in the application of carefully selected technologies Slide 31 Good to great concepts + sustained great results + built to last concepts = enduring great company Slide 32 While the world economy is constantly changing, the principles involving good to great companies never changes. For example: During the early 1980s the banking industry was completely transformed in about 3 years. One company applied the principles of good to great and produced great results making them one of the strongest banks in the United States. The bank was Wells Fargo. Slide 33 Good is the enemy of great. What is systematically different between the good and the great companies? Leaders are more like Lincoln and Socrates than Patton or Caesar. Any questions?