CHAPTER 1 OF GOOD TO GREAT

1. Good To Great
Chapter 1
GOOD IS THE ENEMY OF GREAT

2. Good is the enemy of great.
 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, it’s useless.” – Bill Meehan
 Curious, he obviously wanted an explanation. Bill went on to
explain that the companies written about in Jim’s previous book
were, for the most part, always great. They never had to turn
themselves from good companies into great ones.

3. Undaunted curiosity
 People often asked Jim, “What motivates you to undertake these
huge research projects?”
 His reply was: “Curiosity. It’s deeply satisfying to climb into
the boat, like Lewis and Clark, and head West saying, “We
don’t know what we’ll find when we get there, but we’ll be
sure to let you know when we get back.””
 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.

4. To put that into perspective…
 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.
 Performance over fifteen years
 Three times the market
 Leader in the industry
 Should something other than returns be used?

5. From 1,435 to 11 companies
 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
 Fannie Mae beat GE and Coca-Cola
 Walgreens beat Intel

6. Good-to-Great
Company Times the market time frame
Abbott 3.98 1974-1989
Circuit City 18.5 1982-1997
Fannie Mae 7.56 1984-1999
Gillette 7.39 1980-1995
Kimberly-Clark 3.42 1972-1987
Kroger 4.17 1973-1988
Nucor 5.16 1975-1990
Philip Morris 7.06 1964-1979
Pitney Bowes 7.16 1973-1988
Walgreens 7.34 1975-1990
Wells Fargo 3.99 1983-1998

7. Current news
 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

8. Phase 2: Compared to What?
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?

9. Phase 2: continued
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.

10. Direct Comparison Selection
Process
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.

11. Direct Comparison Selection
Process cont.
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.

12. Direct Comparison Selection
Process cont.
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 company’s 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.

13. Unsustained Comparison
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.

14. Phase 3: Inside the Black Box
 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”.

15. Phase 3 Continued….
 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 CEO’s are negative, but happens 6x more often. Most
Good CEO’s 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.

16. Phase 3 Continued….
 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 don’t have to be a great industry to begin with. (Many were actually
terrible) It is a matter of conscious choice.

17. Phase 4 – Chaos to Concept
 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.

18. Opinions?
 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.

19. The Flywheel
 Concept used to describe the break through when these
companies transitioned from good to great.
Think of the transformation as process of
buildup followed by breakthrough, broken into
three broad stages: disciplined people,
disciplined thought, and disciplined action.
 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

20. First who…then what
 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”
 “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.”

21. The Hedgehog Concept
To go from good-to-great requires transcending the
curse of competence
Just because something is a core business doesn’t
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
All companies have a culture, some have discipline, but few have
culture of discipline:
When there is disciplined people, you don’t need hierarchy
Disciplined thought, you don’t need bureaucracy
Disciplined action, you don’t need excessive controls
Combine culture of discipline with entrepreneurship you get a great
performance

22. Technology Accelerators
 Good-to-great companies use technology as the primary means of
igniting transformation
 However, they are pioneers in the application of “carefully
selected technologies”
 Good to great concepts + sustained great results +
built to last concepts = enduring great company

23. Timeless Physics
 While the world economy is constantly changing, the principles
involving good to great companies never changes.
 For example: During the early 1980’s 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.