Good to Great: Why Some Companies Make the Leap... and Others Don't is a management book by Jim C. Collins that describes how companies transition from being good companies to great companies, and how most companies fail to make the transition. The book was a bestseller, selling four million copies and going far beyond the traditional audience of business books. The book was published on October 16, 2001.
What is a "Great" company?
"Greatness" is defined by Collins by a company that achieves financial performance several multiples better than the market average, over a sustained period. Collins and his research team identified a set of elite companies that had made the transition from good to great - and sustained that performance for at least fifteen years.
Performance of Good to Great companies
After the leap, the good-to-great companies generated cumulative stock returns that beat the general stock market by an average of seven times in fifteen years, better than twice the results delivered by a composite index of the world's greatest companies, including Coca-Cola, Intel, General Electric, and Merck.
Methodology
Collins used a large team of researchers who studied "6,000 articles, generated more than 2,000 pages of interview transcripts and created 384 megabytes of computer data in a five-year project".
Seven characteristics of "Good to Great" companies
Collins identified several key characteristics in companies that made the leap from good to great.
Level 5 Leadership: Leaders who are humble, but driven to do what's best for the company.
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.
Confront the Brutal Facts: The Stockdale paradox—Confront the brutal truth of the situation, yet at the same time, never give up hope.
Hedgehog Concept: Three overlapping circles: What lights your fire ? What could you be best in the world at ? What makes you money ?
Culture of Discipline: Rinsing the cottage cheese.
Technology Accelerators: Using technology to accelerate growth, within the three circles of the hedgehog concept.
The Flywheel: The additive effect of many small initiatives; they act on each other like compound interest.
Collins found that the main reason certain companies become great is they narrowly focus the company's resources on their field of key competence.
Collins finds eleven examples of "great companies" and comparators, similar in industry-type and opportunity, but which failed to achieve the good-to-great growth shown in the great companies:
Unsustained companies
Collins includes 6 examples of companies that did not sustain their change to greatness. These companies, "... are looked at separately as a clump":
Response
Praise
The book was "cited by several members of The Wall Street Journal's CEO Council as the best management book they've read." Publishers Weekly called it "worthwhile", although "many of Collins' perspectives on running a business are amazingly simple and commonsense".
Criticism
Holt and Cameron state the book provides a "generic business recipe" that ignores "particular strategic opportunities and challenges." Steven D. Levitt noted that some of the companies selected as "great" have since gotten into serious trouble, such as Circuit City and Fannie Mae, while only Nucor had "dramatically outperformed the stock market" and "Abbott Labs and Wells Fargo have done okay". He further states that investing in the portfolio of the 11 companies covered by the book, in the year of 2001, would actually result in underperforming the S&P 500. Levitt concludes that books like this are "mostly backward-looking" and can't offer a guide for the future." Collins reaffirmed that "The books never promised that these companies would always be great, just that they were once great."
