Good to great - a good book, not a great one.

#blog/draft #book/review #strategy

This is a book review of good to great by Jim Collins. https://en.wikipedia.org/wiki/Good_to_Great

My one sentence review - this book is good, but not great.

In this book the author looks at 11 companies that have substantially out performed the stock market over a reasonable time period, relative to their competitors. It identifies traits that we can learn from them. These traits are the keys to going from good to great.

There are a lot of things I like about this book, at the same time there are aspects of what constitutes greatness, and whether it’s sustainable, that need to be questioned.

General comments.

Ok, let’s get the critical bits out of the way first.

The Wikipedia article about this book contains one of the most important comments about it

Steven D. Levitt notes that some of the companies selected as "great" have since gotten into serious trouble, such as Circuit City, while only Nucor had "dramatically outperformed the stock market" and "Abbott Labs and Wells Fargo have done okay". He further states that investing in the portfolio of the 11 companies covered by the book, in the year of 2001, would actually result in underperforming the S&P 500[6] Levitt concludes that books like this are "mostly backward-looking" and can't offer a guide for the future.

At least three of the chosen companies are morally corrupt. This does not prevent them from doing well in stock market measures, but I think it disqualifies them from being great.
- Fannie Mae sold junk mortgages, helping to cause the global financial meltdown.
- Phillip Morris sells tobacco.
- Wells Fargo has systematically defrauded their customers for many years.

On a more general note, we have not seen if they have applied an analysis to see if there are companies that also had the same conditions as the good to great cohort, but that didn’t make the stock market transition that their companies had. That is to say whether the behaviours described are sufficient, whether they are necessary but require something else, or whether they are merely contingent.

It’s been over 10 years since this book came out. Have any companies successfully managed to implement changes outlined in the book with similar success? Does it have predictive as well as descriptive power?

Ok, all that aside, here are the things that I really like about the book. These are strategic ideas or leadership practices that are truthy - in that they strongly appeal to a sense of coherence when you read them. They sound simple, but at the same time are actually very hard to do.

Let’s run through them.

Level 5 leadership.

In a nutshell - have leadership that creates great leaders in the organisation.

Some of the advice in this chapter is not new, it was outlined in the call for a renovation of management practice in “out of the fire” by Edward Demming.

I’m not a fan of the way that level 5 leadership is described in an almost mystical way in this chapter. I would prefer some more concrete articulation of practice that follows from this kind of leadership. From the chapter I can see some concrete things:

Build up a solid team with autonomy so that one person is not a bottleneck.
Hold fast to strong beliefs about big bets (this is almost Popperian in approach and perhaps this is the one that leads many companies to fail and not to appear in this list).
Spread credit around.
Face the facts of the situation and don’t make up excuses, or put another way, act on what is in your control, and plan against things that you cannot control.

This is all fairly solid advice.

Who first, then what.

In a nutshell - who is in your company, and their alignment, is more important that the goals that are being set.

I think there is some solid advice in this chapter, but there is one area that is not discussed, the area around diversity of teams.

I liked the advice to keep looking for the right candidate rather than hiring in haste. This is a mistake that I have done in the past. I liked the idea of trying to find the right fit for a person before getting rid of the person. I liked the questions that you should ask about a hire to determine if the hire is a good one:

Would you hire this person again? Would you be sad to see this person leave if they quit, or would that feel more of a relief?

The finding that there is no connection between success and compensation structure is an important one.

The book deals with the issue of hiring and firing in the context of the US job market where it is fairly easy to fire people.

In the UK context it’s harder to fire people than in the US. I think that means we have a duty as employees and managers to work together to align our interests, talents and challenges, rather than having everything slotted into place for us. There is a lot more that could be written on this, but I’ll just leave that there for now.

One thing that this chapter did make me think about is whether I’m a good employee or not? In reflecting on the people that I’ve worked with in the past I look back and see a stream of amazing people who have almost always been better than I am at what they do. It’s easy for me to lapse into thinking that as a result I’m not all that good, but when I think about the projects hat I have contributed to my contribution has usually brought something specific and different to what was otherwise available in the organisation at the time. So there is something here in thinking about how diversity of experience within teams can lead to success.

That understanding of the importance of diversity is really not touched on at all by this book, so I think it’s an example of where the advice here may be necessary but is certainly not sufficient. This talk https://www.infoq.com/presentations/variety-scale/ is a good starting point on the importance of diversity.

Confront the brutal facts

In a nutshell: operate in a reality based way.

I like the core message of this chapter, to face the facts as they are in front of you, and to work with those facts as the basis where you move toward your goal. The world is as it is, deal with it, accept it, decide given where you are, what you need to do to move forward.

There are a couple of things in the chapter that I am less sold on. The story about how Wells Fargo prospered was about creating new kinds of financial instruments. We know in hindsight that those instruments ended up tanking the world economy.

Another issue is that the good to great companies are described as not losing faith, but at the same time not being optimistic, rather being realistic. This seems like a necessary condition to me, but it is far from being a sufficient condition. I am sure there are plenty of companies that met this criteria but that nevertheless failed.

The hedgehog concept.

In a nutshell: focus.

The title of this chapter comes from the aphorism

“the fox knows many truths, the hedgehog knows but one”.

Find one core idea, and execute on that idea. That said, some of the ideas presented in the book are composite e.g. Walgreens; the best most continent drugstores, with the highest profit per customer visit.

I do like the analysis of taking about having three core components to the strategy

what can we be the best in the world at?
what drives your economic engine?
what are you deeply passionate about?

I like the example of the ex-Pharma company Abbott who pivoted from being a Pharma company to being a medical nutrition and medical devices company. That speaks to the power of a close pivot, and I suspect that the area they were pivoting into were economically fresh field areas. It’s almost like the blue ocean strategy.

The big elephant in this chapter is that fannie may was going to be the best at analysing mortgage backed securities, but their failure to do this well contributed to the tanking of the world economy.

In terms of driving the economic engine the book has the concept of the one key denominator that drives the economic engine of the organisation.

When thinking about the cost denominator we have examples in the book like profit per employee, profit per ton of finished material, profit per customer visit.

What each of these denominators does is try to identify the core unit within the ecosystem. A focus on that unit will give the best return, given the correct strategy for that company at that moment in that market.

What might that look like for a scholarly publisher? For an OA publisher?

We have available as our denominators the following kinds of things:

Employees
Editors
Published pages
Articles / books
Authors
Readers
Customers
Ideas
Citations

What might be the effect of putting any of these things into the denominator — what decisions should the one make and how would those decisions affect strategy?

There is an interesting aside on the topic of passion.

Most of the top executives of Phillip Morris were passionate consumers of their own products.

There is another fascinating comment on growth. Basically, growth is not a hedgehog concept, if you find your hedgehog concept, then growth will follow, and not the other way around.

Another key point in this chapter is that it can take upward of four years to find that concept for a company, and to do it you need to get the right people engaged in a vigorous dialog and debate, with the facts in front of them and guided by questions from the three elements above.

There is an interesting aside on the topic of passion.

Most of the top executives of Phillip Morris were passionate consumers of their own products.

There is another fascinating comment on growth. Basically, growth is not a hedgehog concept, if you find your hedgehog concept, then growth will follow, and not the other way around.

A culture of discipline.

In a nutshell: culture eats process

If you install a culture of discipline you can avoid having to put into place too much bureaucracy into an organisation. The latter is often out there to manage undisciplined people.

Key recommendations are to have a culture of accountability, and to continue to have everyone focus on the drivers of success of the company.

Discipline also means saying no as well as saying yes, but this is a truism that is needed in all endeavours as our ability to imagine will always exceed our capacity, and in so doing provide us with the gift of choice.

One concrete piece of advice is to have a stop doing list.

There is a claim in this chapter that the differentiation between good companies and good to great companies is that the latter cultivated disciple while the former imposed discipline.

At the heart of the chapter is having the discipline to stay within the tree circles outlined in the hedgehog concept chapter.

Technology accelerators.

The main insight offered in this chapter is that technology should only play a role to serve the mission. It can accelerate that mission, but it should not act as a replacement for having a mission or a strategy. I’ve always strongly believed this myself.

Perhaps one argument that could be drawn out is the argument around the role of disruption. What of the Silicon Valley startups that adopted or developed some new technology or platform to replace an incumbent, and what of the role that pivots took in their evolution? Granted, there have been a few examples of great pivots, but most pivots are about execution and not vision.

The flywheel and the doom loop.

In a nutshell: incremental gains build in a compounding fashion, so long as there is alignment.

This chapter can be summed up by saying that it is all about the power of compound interest. There are no true breakthrough moments, just an ongoing accumulation of small iterative successes that build on top of each other. Where people try to jump around trying to find a breakthrough they often end up wrecking the cumulative improvements of previous efforts.

From good to great to built to last.

I took two messages from the last chapter.

The importance of having guiding values.
The assertion that we should find meaning in our work and do work that is meaningful.

The author suggests that attempting to built great companies can provide meaning.

Book review - good to great.