good to great

GOOD TO GREAT

“Why some companies make the leap and others don’t”

Introduction

The idea that sparked this book was to answer questions about how some companies become great, and how they went about doing so?

The study looks at companies ranging from 1965 to 1995, looking for those that, for 15 years, either tracked or underperformed the stock market, followed by a transition, and returning at least three times the stock market for 15 years.

“Good to Great Companies”

Good-to-Great1. Abbot

2. Circuit City

3. Fannie Mae

4. Gillette

5. Kimberly Clark

6. Kroger

7. Nucor

8. Philip Morris

9. Pitney Bowes

10. Walgreens

11. Wells Fargo

Direct Comparisons1. Upjohn

2. Silo

3. Great Western

4. Warner Lambert

5. Scott Paper

6. A&P

7. Bethlehem Steel

8. R.J Reynolds

9. Addressograph

10. Eckerd

11. Bank of America

GOOD TO GREAT STATS!

Results from transition point to 15 years beyond transition point

* * Ratio of cumulative stock returns relative to the general stock marketRatio of cumulative stock returns relative to the general stock market

Company:1. Abbott

2. Circuit City

3. Fannie Mae

4. Gillette

5. Kimberly Clark

6. Kroger

7. Nucor

8. Philip Morris

9. Pitney Bowes

10. Walgreens

11. Wells Fargo

Results:1. 3.98 times the market

2. 18.5 times the market










“The Study”

What separated the Good-to-Great companies from their competitors?

Jim Collins, author of Good to Great and built to last, explains how these companies used several methodologies to make the leap.

These methodologies included:1. Level 5 Leadership

2. First Who – Then What

3. Confront the brutal facts

4. The Hedgehog Concept

5. Culture of Discipline

6. Technology

7. Flywheel and the doomloop

LEVEL 5 LEADERSHIP

Jim Collins points out that of 1,435 companies that appeared on the Fortune 500 in the initial candidate list, only eleven of the previously mentioned companies made the cut into the study. In those eleven, all of them had level 5 leadership in key positions during pivotal transition times

LEVEL 5 LEADERSHIP CHARACTERISTICS

You will likely find level 5 leadership in situations where extraordinary results exist, but where no individual steps forth to claim excess credit.

Displaying a compelling modesty Fanatically driven Set aside personal egos and look out the window to attribute

success to factors other than themselves Possess a great deal of drive and desire to succeed Success is not personal, but defined by creating something

great that will outlast their time at the helm.

FIRST WHO – THEN WHAT

Good to great leaders understood three simple truths:

1. Begin with “who”, rather than “what”.

2. If you have the right people on the bus, the problem of how to motivate and manage people largely goes away.

3. If you have the wrong people on the bus, it doesn’t matter whether you discover the right direction, you still won’t have a great company.

First Who – Then What Case Study Continued

During the 1970’s, CEO Dick Cooley of Wells Fargo foresaw that the banking industry would undergo drastic change, but he did not pretend to know what form that change would be.

Instead of mapping out a strategy, he focused on “injecting a stream” of talent directly into the company (First Who – then What)

He hired outstanding people whenever and wherever he found them, often without any specific job in mind. “That’s how you build the future,” Cooley said.

CONFRONT THE BRUTAL FACTS

One of the key factors in the success of the great companies was a series of good decisions. The good decisions flowed from the fact that they all made a consistent effort to confront reality, internalizing the facts relative to their market.

CONFRONT THE BRUTAL FACTS - CONTINUED

KROGER vs. A&P

Kroger generated cumulative returns ten times the market and eighty times better than A&P. How did such a dramatic reversal happen?

A&P did not confront the brutal facts of a changing economy. They instilled marketing models that were of the first half of the twentieth century.

During the time of transition, Americans decided they wanted Superstores instead of regular grocery chains (everything under one roof.

Kroger confronted the brutal facts of reality head on and completely changed its entire system in response; while the A&P stuck it’s head in the sand.

HEDGEHOG CONCEPT

Good to Great companies are more like “hedgehogs”, simple and dowdy creatures that know one big thing and stick to it.

The comparison companies are more like “foxes”, crafty and cunning creatures that know many things, yet lack consistency.

To go from good to great requires a deep understanding of the three intersecting circles translated as the “Hedgehog concept”.

HEDGEHOG CONCEPT MODEL“Simplicity within the three circles”

What are you deeply passionate about?

What drives youreconomic engine?

What can you bethe best in the

world at?

HEDGEHOG CONCEPT CASE STUDY

WALGREENS VS ECKERD

During the time of transition, Walgreen’s exceeded the market by over 15 times during 1975 to 2000.

Walgreen’s focused on building the most convenient drug stores, with high profit per customer visit.

Walgreen’s took this simple concept and implemented with consistency.

Eckerd’s got all tripped up by their snazzy strategies for growth. They focused too much on opportunities to acquire clumps of stores, with no obvious unifying theme.

BUILDING A CULTURE OF DISCIPLINE

Sustained great results depend upon building a culture full of self disciplined people who take disciplined action, fanatically consistent with the three circles.

Unexpected Findings:

1. The more an organization has the discipline to stay within the three circles with consistency, the more it will have opportunities for growth.

2. The fact that something is a once in a lifetime opportunity is irrelevant, unless it fits within the three circles.

3. Stop doing list are more important than to do list.

TECHNOLOGY

Great companies adapt and endure to technology. Great companies use technology to further increase their

leverage, in a conscious, directed way, rather than rushing to embrace it for the sake of newness.

Technology is an enabler of change, not the cause of it.

TECHNOLOGY –CASE STUDYwww.drugstore.com vs. Walgreen’s

In the Spring of 2000, Walgreen’s stock suffered from the invasion of the dotcoms, losing 40 percent of its price in the months leading up to the drugstore.com public offering.

Analyst downgraded Walgreen’s stock, and the pressure was on Walgreen’s to react to the internet threat as nearly $15 billion in the market value evaporated.

WALGREEN’S REACTION TO TECHNOLOGY

“Crawl, Walk, Run”.

Instead of reacting like chicken little to the external pressures of the internet, Walgreen’s executives did something quite unusual for the times. They decided to use their brains. They decided to think!

Slow at first (crawl), Walgreen’s began experimenting with a Web Site while engaging in intense internal debate about it’s implications – all within the context of it’s own Hedgehog Concept.

TECHNOLOGY CONTINUED

“WALGREEN’S BEGINS TO WALK”

Walgreens began to find ways to tie the internet directly to it’s sophisticated inventory-and-distribution model and ultimately – its convenience concept.

Fill your prescription online, hop in your car and go to your local Walgreen’s drive through, zoom past the window with hardly a moments pause picking up your bottle of whatever.

TECHNOLOGY CONTINUED

“WALGREEN’S BEGINS TO RUN”

Walgreen’s bet big, launching an internet site as sophistacated and well designed as most pure dot-coms.

From it’s low point in 1999 at the depths of the dot.com scare, Walgreen’s stock price nearly doubled within a year.

And what about drugstore.com? Continuing to accumulate massive losses, it announced a layoff to conserve cash.

Walgreen’s went from crawl, walk, to run while drugstore.com went from run to walk to crawl.

Build Up

Breakthrough

Level 5 leadership

First who – then what

Confront the brutal facts

Hedgehog Concept

Discipline

Technology

Disciplined People Disciplined Thought Disciplined Action

good to great

Business