Topics of Interest

Insights on Strategy

A Monthly Newsletter published by Strategy Development Group, Inc. January 2003

Why Settle for Good When You Could Be Great?

One of the better business books I read in 2002 was Jim Collins’ new book, Good to Great. This book draws a number of interesting conclusions from an in-depth analysis of eleven unremarkable companies that transformed into great companies over a 15-year period (1985-2000). These great companies as a group outperformed the market 6.9 times. To get a sense of how Incredible that is, Collins compares these results to that of a fictitious mutual fund containing all of the “marquis” companies of our time, like Coca-Cola, GE, HP, Intel Johnson & Johnson, Wal-Mart, etc., which beat the market by only 2.5 times during that same 15 year period. These eleven companies are Abbot Labs, Circuit City, Fannie Mae, Gillette, Kimberly-Clark, Kroger, Nucor, Philip Morris, Pitney Bowes, Walgreens and Wells Fargo.

Through an extensive series of interviews with key executives from these eleven companies as well as from their not-so-successful competitors, Collins and his team came up with these insights:

Discover what your organization can be the best in the world at and at the same time have a great passion for.
Identify the fundamental measurement of economic success that moves you towards your vision.
Face reality honestly, finding out what’s not working and dealing with it.
Build a methodical strategy around your vision, which Collins calls the “Hedgehog concept”.
Have or be a “Level 5” leader; that is, one who embodies team-based qualities like personal humility and professional will, is results driven and is able to channel a strong ego towards the betterment of others in the organization.
Be “ruthless” in finding the right people for your organization, not settling for what you already have or what seems to be available.
Instill a disciplined corporate culture - disciplined people, thought and action - with freedom of action but full accountability.
Use technology to accelerate performance and not as an end in itself.
Gain momentum through persistent concentrated effort in a single direction over a long period of time (the “flywheel” effect).

With the exception of the first, all of their insights are operational in nature. Although strategy is downplayed in this book, it is clear that each of these companies had successful business strategies (i.e., the way they differentiated themselves in their markets), which were implemented effectively as a result of many of business practices listed above.

These strategies were not clearly distinguished in the book; however, parts of their strategies were mentioned primarily to support some of their conclusions. Here are two examples:

Well Fargo’s business strategy was to become the dominant bank in the Western U.S. by focusing exclusively on that market, utilizing technology to improve efficiency and service, and running the bank “like a business”.

Nucor’s business strategy was to be the lowest cost steel producer by applying technology to its mini-mills and by developing Incentive plans for all workers to promote a performance-based culture.

Having a great team and a disciplined organization is very important, but without a clearly defined strategy to develop that competitive advantage, greatness may never come.

So what can we learn from this book?

What can we learn from this book? First, commit to being or becoming the “best in the world” at something in your market. You do this by developing over a period of time characteristics that will differentiate you in your market. Caryn Spain, who created the “Chart Your Own Course” methodology, calls this your “Business Strategy”. Make sure your vision, a picture of what your company will become by pursuing your Business Strategy, and your personal goals are aligned. With alignment comes passion, which creates the desire and motivation needed to achieve that vision.

Second, spend as much time as necessary to find the quality people for your organization. Don’t settle for less. Retaining poor performers undermines the effectiveness of an organization and weakens the sense of urgency to find replacements. All eleven CEO’s considered their number one job was to surround themselves with the best people available at every level of the organization and committed a significant portion of their time to recruiting these people.

Third, bring a disciplined structure or process into your organization that will develop and implement your Business Strategy through a process of assessment, goal setting and tracking specific measurable results over time.

Fourth, realize that becoming great didn’t happen overnight for these eleven companies. It took time to get the right teams in place and to fine-tune their business strategies. It took many years of focused hard work, Including successes and failures along the way, to create the momentum these companies demonstrated 15 years later.

I strongly urge you to read this book.