November’s top business book
Friday, November 4, 2011/
Great by Choice by Jim Collins and Morten T Hansen
(Random House, RRP$45)
Here we go again. Another management blockbuster from the Jim Collins camp. Few business writers have sold as many books as Collins. The titles are almost biblical: Built to Last; Good to Great; How the Mighty Fall. The sales are of a similar proportion. Good to Great has done over four millions copies to date.
So it’s no surprise that this is a good read. You don’t sell that many books if your prose is turgid. This is not like struggling through The Odyssey and The Iliad.
The messages, though, are somewhat the same: the struggle against the odds, the persistence despite adversity and ultimately, the triumph – in this case, a decent share price.
Collin’s examples of companies that are great by choice are called 10Xers – firms that have seen their market capitalisation outperform the relevant index by a factor of 10 or more.
Stars include Intel, Southwest Airlines, Stryker and even Microsoft. If the last one is a surprise, it’s because the research behind the analysis ended in 2002. Up until then, say the authors, Microsoft displayed all the characteristics of a 10X firm.
What are those characteristics? The book lists three: fanatic discipline, empirical creativity and productive paranoia. As usual, catchy stuff.
Fanatic discipline is pretty much the hare and the tortoise retold in modern management speak. It’s about sticking rigidly to self-imposed performance markers and constraints. It works both ways. Stryker, a medical device company, outperformed its industry by 10.9 times between 1977 and 2002. It targeted 20% growth per annum, but also tried to keep growth within that limit. The more erratic comparison company, USSC, posted some spectacular years but ultimately crashed and burned after over-extending itself.
Empirical creativity means don’t bet the farm. Test great ideas thoroughly and in manageable proportions before making the big investment decision. In Collins-speak: first fire bullets, then cannonballs.
Productive paranoia is being aware that the worst can happen. We cannot predict the future, so be constantly alert to the big shift that comes out of leftfield. Leave some options open.
Most 10Xers display all three – like a fanatically disciplined Bill Gates keeping the out-of-favour Windows project ticking over while Microsoft collaborated with IBM on the in-favour OS/2 platform. When the door closed for OS/2, it opened for Windows. We all know the rest.
There’s plenty of narrative to keep you engaged, not all of it directly drawn from business. The underlying case study is Scott versus Amundsen attempting to reach the South Pole. Scott managed to get there but was late. Amundsen, a regular 10Xer, not only got there first. He also got back. It’s a well told, if tragic, story of two leaders diametrically opposed in their approach to the task.
The surprising, and perhaps sobering, findings of the research are that 10X companies are rarely more innovative than their peers. Many were significantly less so, reflecting their preference to empirically testing their best ideas and taking the time to do so.
Nor were they great risk takers. Paranoid people rarely are. And very few could be characterised as creative, visionary or charismatic.
Fanatics however, can stick doggedly to their agenda. That’s where the discipline comes in. If you got a template that works, stick with it and make other decisions accordingly. Southwest made fast gate turnaround a key priority. That informed other business decisions like “no food” – not because of “no frills” but because food takes so long to load. Fast turnaround was the earnings driver, delivering the most efficient use of aircraft, which in turn allowed competitive pricing.
Great by Choice will probably attract the same criticisms as Collins’ earlier work. That is, the analysis simply chronicles the characteristics of 10X firms. Whether those characteristics were causal in making those firms great will remain subject to debate.
Plenty of case studies in his earlier works haven’t turned out to be that great over the long-term. This book suggests that had they been managed by paranoid fanatics who were carefully creative, they might have stayed great.
The book is not hard work. You can digest it at one sitting. As the nearest things to a management page-turner, Great by Choice is in the must-read category. Partly because most of your colleagues will read it – so you had better know what it’s on about – and partly because it will make you seriously reflect on your management style.
4 out of 5 stars.