Review: Good to Great by Jim Collins

The good: interesting research, useful advice, great writing.
The not so good: the findings are not nearly as scientific, timeless, or widely applicable as the book claims.

The idea behind this book is that Collins and his team researched a large number of public companies, came up with a list of 11 that made a jump from “good performance” to “great performance” (i.e., significantly out-performed the market) over a sustained period of time, compared those 11 companies with 17 similar companies that never made the jump to “great” (or made the jump but couldn’t sustain it), and based on this comparison, came up with a list of 7 “timeless principles” that it takes to go from good to great. Those 7 principles are:

1. Level 5 Leadership: Leaders who are humble, but driven to do what’s best for the company. This concept reminded of the type of leader described in the book, “The Captain Class.” That is, good leadership is not about charisma, but about “carrying the water.”

2. First Who, Then What: Get the right people on the bus, then figure out where to go. Find the right people and try them out in different seats on the bus (different positions in the company). One interesting tidbit I found was that bigger compensation does NOT incentivize better performance (similar to what is argued in the book “Drive”). Instead, compensation is there to get the right people on the bus—that is, the key point of compensation is to hire and retain talent.

3. Confront the Brutal Facts: The Stockdale paradox—Confront the brutal truth of the situation, yet at the same time, never give up hope. I especially liked the idea of turn information into “information you can’t ignore.” For example, don’t just do surveys of how customers feel about the product; instead, let a customer decide how much to pay for your product (or not pay at all!) based on how happy they are. That is information you won’t be able to ignore!

4. Hedgehog Concept: Three overlapping circles: What lights your fire (“passion”)? What could you be best in the world at (“best at”)—and what can you not be the best in the world at? What makes you money (“driving resource”)?

5. Culture of Discipline: Rinsing the cottage cheese. The idea is not to be a strict, harsh ruler, but to offer employees “freedom and responsibility within a framework.” That is, you should hire self-disciplined people who don’t need to be managed and instead, focus all your time on managing the system.

6. Technology Accelerators: Using technology to accelerate growth, within the three circles of the hedgehog concept.

7. The Flywheel: The additive effect of many small initiatives; they act on each other like compound interest. Alignment and motivation follows from results—not the other way around. So don’t bother spending time on team building exercises or trying to motivate people; instead, manage the system, get results, and that will get the team to bond and be motivated.

While I agree with many of these principles, I don’t find the research convincing that (a) it is precisely these characteristics that are necessary to go from good to great or (b) that even if these are the right characteristics, that they apply to the vast majority of companies.

For one thing, the sample size—just 11 companies out of the millions that are out there—is way too small. Maybe it’s because I just finished reading “Fooled by Randomness,” but 11 wild successes out of a pool of millions strikes me as far more likely to be due to luck (and path dependence!) than strategy. The book tries to reduce the effect of luck by picking a long time timeline (15+ years), but if we had millions of monkeys picking stocks completely at random for a 15 year period, at the end of that period, it would not surprise me if a small number of those monkeys (say, 11) were wildly successful, simply through dumb luck. If this book had identified principles that were present in thousands of companies that were successful and absent in thousands of companies that failed, the argument might have been more convincing, but as it is, I have to more or less dismiss the book’s claims that their results are “scientific” (and that’s without even getting into the causation vs correlation debate!).

Lending more evidence to this argument of randomness is that the 11 “great” companies are not all paragons of success nowadays:

• Circuit City: filed for bankruptcy in 2008
• Fannie Mae: the book touts their “creative” mortgage practices which, as it turns out, played a major role in the 2008 mortgage crisis
• Gillette: touted as an example of refusing acquisition, but was then acquired by Procter & Gamble in 2005
• Philip Morris: I have no desire to follow practices from cigarette companies
• Wells Fargo: touted as a shining example of great leadership, but lawsuits have revealed a vast array of illegal practices, including massive account fraud in 2016 that implicated the CEO.

So nearly half of the 11 companies this book is based on are questionable, at best. Collins takes this issue heads on, saying that if some of the 11 companies struggle after the book is published, it just means that they are no longer following the 7 timeless principles. But to me, this is just a tautological “No true Scotsman” argument.

Finally, perhaps what bothers me most is that these 7 timeless principles come from research of gigantic public companies. I understand the book focuses on public companies because there’s far more data available on public companies than private, but I’m not convinced that the findings from a handful of gigantic, publicly-traded corporations can be applied to 99.9% of business out there, and even less convinced by the book’s argument that these learnings apply to other types of organizations too (e.g., churches, sports teams, etc).

Having said all that, I still think the 7 principles are useful. The team that wrote this book is smart, talked with a lot of successful companies, and did find some useful insights. But the key thing to understand is that what they found are tools, not underlying principles. These are not laws of physics that have explanatory or predictive power, but merely observations of a few techniques that can be useful when trying to build a great company. If you think of this book as something to add to your toolbelt, you can get something useful out of it. If you think of it as a bible of how to build a great company, you may be disappointed.

As always, I’ve saved some of my favorite quotes:

“Good is the enemy of great. And that is one of the key reasons why we have so little that becomes great. We don’t have great schools, principally because we have good schools. We don’t have great government, principally because we have good government. Few people attain great lives, in large part because it is just so easy to settle for a good life.”

“The purpose of bureaucracy is to compensate for incompetence and lack of discipline.”

“You can accomplish anything in life, provided that you do not mind who gets the credit. —HARRY S. TRUMAN”

“It is no harder to build something great than to build something good. It might be statistically more rare, it but does not require more suffering than perpetuating mediocrity. It involves less suffering, and perhaps even less work.” <— I especially like this. Building something great does not require more suffering, but is vastly more satisfying.

Rating: 3 stars