Good to Great Critique

Summary

In 1996 Jim Collins asked the question, "Can a good company become a great company and if so, how?" (Collins, p195) Collins and a dedicated band of 22 researchers set out to discover what transforms good companies into truly great companies. Their criteria for greatness was tough: The researchers sought companies that had underperformed the general stock market for at least 15 years, then went through a transition, and subsequently outperformed the general stock market by at least three times for the next 15 years.

Starting with 1,435 companies that appeared on the Fortune 500 list from 1965 to 1995, the researchers eventually identified only 11 that made the cut. The companies that were selected were Abbott Laboratories, Circuit City, Federal Home Loan Mortgage, Gillette, Kimberly-Clark, Kroger, Nucor, Philip Morris, Pitney Bowes, Walgreens, and Wells Fargo.

Although there are other factors involved for taking a company from 'good to great', what these great companies turned out to have in common was a particular kind of leader during the transition period, but it wasn't a headline-grabber like Chrysler's Lee Iacocca or GE's Jack Welch. On the contrary, the leaders of the long-term success stories were people like Kimberly-Clark's Darwin Smith. Called Level 5 leaders, these top executives "possess a paradoxical mixture of personal humility and professional will" (Collins, p195).

In Good to Great Collins classifies leaders into five levels. A level 1 leader is a highly capable individual. He plays an important role in the success of his organization through his own talent, knowledge, skills, and good work habits. A level 2 leader is a contributing team member. He is very good at working with his team members and ensures that his team meets its assigned objectives, and fulfills the core purpose. A Level 3 leader is a competent manager. He is skilled at organizing people and resources towards the effective pursuit of company objectives. A Level 4 leader is an effective leader. He sets high level performance standards. He is remarkable at motivating his people and leading them single-mindedly towards realizing his vision for the organization. A Level 5 leader transforms the organization into a great institution. As mentioned earlier, he epitomizes personal humility and professional will. Leaders do not need to work sequentially through each level to reach the top, but each higher level requires the capabilities of all the lower levels.

The other key findings that were used to separate the 'good to great' firms from the merely good ones included:

* A focus on who before what--Leaders concentrated on getting the right people in place before they pursued a new vision or strategy.

* A willingness to confront the brutal truth--Every 'good to great' company admitted its difficulties, yet believed it would win in the end.

* The hedgehog concept--If you cannot be the best in the world at your core competence, it cannot form the basis of a great company.

* A culture of discipline--When you have disciplined people, you don't need a hierarchy, a bureaucracy, or excessive controls.

* Technology accelerators--'Good to great' companies don't use technology to ignite a transformation, but they find new uses for widely-available technology.

* The flywheel--Momentum for greatness is built slowly, rather than in a single moment.

The author's research also raised an interesting question. Although Level 1 through Level 5 are clearly defined, is it possible for a leader to migrate to the fifth level? The author admits that either you have the seed within or you don't, but he advises to practice the other factors which will help you move in the right direction.

Criticism

I believe that the research performed by Collins and his team is insufficient or completely lacking in some critical areas leading to unreliable conclusions.

Supporting Arguments

Collins' only initial measure of performance is share price performance. The stock market is not a measure of how a company is doing, but of how the market thinks it is doing. Anyone who thought these were necessarily the same thing has suffered a rude awakening in the last few years.

Collins ignores shareholder value. Great returns are the basis for selection, though the interviews apparently missed capturing how companies think about shareholders. Can a company be great without delivering good returns to shareholders? I don't think so.

The research team failed to consider other critical factors that are important to a company's greatness. Factors such as impact on society, people issues, competitive edge, and customer value are not analyzed.

No research was done on the 'good to great' company's impact on society, on the environment, in the workplace, and community. Management of a company's impact on society and the environment is important and adds value to the company. Does Kimberly-Clark recycle? Does Nucor filter pollution and dispose of waste properly? Critical people issues, including staffing, communication, rewards, talent management, and culture are not analyzed. Most companies communicate their competitive advantage well, going to great lengths to research new products and new markets, but they do poorly in explaining how they will sustain their lead, failing to account adequately for changes in competitor power and technology life-cycle disruptions. Collins fails to discuss any of these issues.

Since this study started in 1996, it was dealing with facts that were already quite old while they were still being examined. With dated conclusions, bias is likely. In today's world, business practices are changing at alarming speeds in order to stay current with the changing, global markets and to remain competitive.

During the team's research, attention was focused on what happened before and during the transition point from average performance to high performance. Interviews, quantitative analyses, and business press reports were studied. Clearly, there's a tendency to see things a little bit with 20-20 hindsight in such a situation.

Collins maintains that the Level 5 leader who blends "extreme personal humility with intense personal will," (Collins, p195) is the type who best succeeds in leading a good company to greatness. Darwin Smith was the paragon of Level 5 leaders. His personality traits were worlds