Great by Choice
By Jim Collins and Morten Hansen
(Harper Business, 304 pages, $33.99)
If we are in an era of economic turbulence, it would help to know which factors help businesses to thrive in chaos. Jim Collins, author of the bestseller Good to Great, and Morten Hansen, a professor of management at the University of California, have spent much of the past decade researching that issue, and have just produced a timely book that provides actionable advice and demolishes a few myths that lead us astray.
The book sticks to the pattern Mr. Collins has long followed, of finding companies that are successful over a period of time and comparing them with companies with similar characteristics that were not particularly successful. "We cannot claim that the concepts we uncover 'cause' greatness (no one in social sciences can ever claim causality) but we can claim correlations rooted in the evidence. If you apply our findings with discipline, your chances of building an enduring great company will be higher than if you behave like a comparison case," the authors write in Great by Choice.
They began the research in 2002 seeking companies that started from a position of vulnerability – startups or small ventures – and rose to become great companies with spectacular performance despite an unstable environment in their industry or the economy as a whole. The companies were dubbed 10X, because they beat their industry stock market index by at least 10 times for a period of at least 15 years.
A prime example was Southwest Airlines, which despite fuel shocks, deregulation and crippling recessions thrived in an industry where many airlines went bankrupt, garnering a stock-market return 63 times the market as a whole, even beating Wal-Mart and General Electric. The other six companies on the 10X list were: Amgen Inc. (biotech), Biomet (medical devices), Intel Corp. (digital technology), Microsoft (software), Progressive Insurance and Stryker (surgical equipment). "We didn't begin our journey with a theory to test or prove; we love being surprised by the evidence and changed by what we discover," the authors say write.
Here are some of the myths that were challenged:
Successful leaders in a turbulent world are bold, risk-taking visionaries: In fact, the 10X leaders were more disciplined, more empirical, and more paranoid than their comparators. They studied what worked, figured out why it worked, and then put ideas into effect.
Innovation is the key to success in a fast-changing, uncertain world: The 10X companies were generally innovative, but not necessarily more innovative than the less-successful companies. In some cases, the 10X companies were less innovative than the comparators.
A threat-filled world favours the speedy: The 10X leaders did not routinely make fast decisions and take speedy action. In some cases they did; in other cases, they waited to be sure.
Radical change in the outside environment requires radical change on the inside of a company: The 10X companies changed less in reaction to the turbulence around them than the comparators. "Just because your environment is rocked by dramatic change does not mean that you should inflict radical change upon yourself," the authors advise .
Great enterprise have a lot of good luck: Both sets of companies had good and bad luck. The successful ventures capitalized more effectively on their luck.
Once you clear you head of such myths, you can focus more easily on the behaviours the researchers found distinguished the 10X companies:
The 10X leaders were relentless, sticking to their plan, and building their companies steadily. Unlike the comparators, they often ignored chances to grow more quickly, through acquisitions or rapid expansion, preferring a steady, but still highly challenging pace. They stuck to their values and hit their goals consistently.
They didn't look to other people, conventional wisdom, authority figures, or peers amid uncertainty. Instead, they looked at the evidence. They experimented, and followed up on successes. "They make their bold, creative moves from a sound empirical base," the authors observe.
The 10X leaders were hyper-vigilant, convinced that conditions would turn against them. They prepared contingency plans and built buffers so they had a margin of safety.
LEVEL 5 AMBITION
In Good to Great, Mr. Collins outlined five levels of leadership, the top being those people who are humble but extremely determined. The leaders of 10X companies were similar. "They have egos, but their egos are channelled into their companies and their purposes, not personal aggrandizement," the authors note.
The authors reviewed the companies through 2002, a time at which Microsoft's natural comparator was Apple, which suffered through some disastrous years in the 1980s and 1990s, before Steve Jobs returned to the helm and in the past decade surpassed Microsoft. But the authors note that studying the reasons for success in a sports dynasty doesn't become invalid if the team later is less successful. If you ponder the parameters for success, Mr. Jobs displayed many of them .
Great by Choice is well-organized and clearly written, with helpful metaphors to drive home the concepts. Even if this were not, as the authors acknowledge, a guidebook to success, it offers many helpful clues from a foundation of research.
In studying the power of luck, the authors of Great by Choice happened to poke some holes in a study of hockey players popularized by Malcolm Gladwell in his book Outliers. That analysis found a correlation between birth date and hockey success: Canadian-born NHLers were more likely to come from individuals born in the early months of the year rather than the end of the year, since with an age cut-off of Jan. 1 for youth leagues those slightly older players were likely to be bigger than their teammates and carry that advantage into the game in their formative years.
But looking at Canadian-born Hockey Hall of Fame inductees, the Great by Choice authors found no disproportionate number born between January and March; indeed, there may be a slightly disproportionate number born from October to December. Those stars managed to overcome the bad luck of their birth date, the authors say, in accord with Nietzsche's prescription, "What does not kill me makes me stronger."
Harvey Schachter is a Battersea, Ont.-based writer who writes Monday Morning Manager for The Globe and Mail's T.G.I.M. page, management book reviews on Wednesdays and an online work-life balance column on Fridays.