What (really) makes some companies great?

Over twenty years ago, a management book called “Good to Great: Why Some Companies Make the Leap... and Others Don't” by Jim Collins was released based on extensive qualitative and quantitative data from twenty-eight companies including interviews with executives of good-to-great companies, 6,000 published articles across their respective strategy, leadership and technology over a fifty-year span.

This generated 2,000 pages of interview transcripts and created over 384 million bytes of computer data and consumed 10.5 years of effort by him and his entire team.

In reading the book, I looked at what their key findings were that made companies transform from good to great but more, importantly, I naturally looked at what they considered good & great.

Among the twenty-eight companies, 11 (including Abbott, Kroger, Walgreens & Wells Fargo, etc.) were categorized as the companies that made the leap from good to great while 11 other companies were in the set of direct comparison (good companies) such as Upjohn, Bank of America & Great Western, etc.

The remaining six companies were in the unsustained comparison set of companies that made a good to great leap in a short time but failed to sustain their trajectory therefore acting a control group and they were key to answering the sustainability question. These included Hasbro, Chrysler & Teledyne among others.

Most of the emphasis was placed on how the companies performed on the stock market in comparison to the S&P500 to assess whether they were good or great for example, between 1975 – 2000, Walgreens stock performance beat Intel’s stock performance by x2 times, General Electric by x5 times and Coca-Cola by x8 times!

It beat the overall market (including the NASDAQ) performance by over x15 times!

How? Before 1975, Walgreens’s stock performance was somewhat unremarkably but, somehow, they rose above to beat some of the biggest companies on the market.

The research zeroedin on eight key insights that distinguished great companies from good one which I think may play a role in shaping the next great companies of the 21st century. These included;

1. Over 90% of the good-to-great companies’ CEOs (leaders) came from within as compared to the direct comparison companies which hired “larger-than-life” CEOs from outside six times more often.
2. The data did not find any correlation between executive compensation & the corporate’s performance therefore, it was not a key driver of transform from good to great.
3. Long-range strategic planning did not separate the good from great companies per se therefore, no evidence in their data showed that one good-to-great companies spent more time on strategy.
4. Good-to-great companies did not only focus on what they do but also what not to do and what to stop doing.
5. Technology only accelerates a transformation but, it cannot cause the transformation itself.
6. Mergers & acquisition had no role in transforming good-to-great companies and as they aptly put it in the book, “two big mediocrities joined together never make one great company.”
7. Great-to-great companies produced revolutionary leap in results but, not by some revolutionary process. They went about doing what they do, the best way they knew how and the transformation was retrospectively discovered.
8. Greatness is not a function of circumstance. Greatness is largely a matter of conscious choice. Great-to-great companies were not in the greatest industries, neither were they just sitting back waiting to strike it lucky.

These insights allowed them to analyze the data for the factors that contributed to the transformation of good-to-great companies such as;

• Leadership: In particular Level 5 leadership. This rare breed of leaders were categorized with quiet, reserved and even shy characteristics. These paradoxical creatures had the balance of personal humility and professional will to transform good companies into great companies.
• The right people: Good-to-great leaders did not start with vision setting and all that stuff. They started with getting the right on the bus and the wrong people off and then getting the right people in the right seats then figured out how to drive. People are not the most important resource for a company, the right people are.

• Face the brutal facts: The good-to-great companies had to maintain unwavering faith that they would prevail despite the circumstance and have the discipline to confront the brutal facts of their current situation.
• Transcend mere competency: Good-to-great companies figured out what their core business was and if they were at the best at it. If not, you cannot build a great company on a core competency you’re not great at.
• A culture of discipline: In the last article, I dived into the need for a work culture reboot and this book further drills in on the need for a culture of discipline. This eliminates the need for hierarchy, bureaucracy and excessive controls.

There are plenty more lessons to pick on how to build a great company and a common thread starts at leadership, the right people and processes. If a great company emerges in the 21st century, chances are they will share more factors in common as the team discovered in their research.

The next article will look at the place of strategy and the strategist in positioning a company for success.