Good to Great: Why Some Companies Make the Leap and Others Don't

Good to Great was written right after the peak of dot com mania. There were many questions at the time of the validity of the book. (After all, wouldn't the new economy overthrow all the rules.) Alas, it didn't, and much of the work shown in the book is still applicable today. In the research project, they looked at companies that managed to go from good results to sustaine great results (measured by stock market returns). They were looking at long term results, thus most new tech companies did not have the decades of data to make the cut. The companies that achieved greatness were compared to those in the same industry that remained good, or that flamed out quickly. This left a small list of companies that included some still seen as great as well as others that have since managed to fall after the sustained greatness (Circuit City is a prime example.) The falls help to validate some of the precepts of the hypothesis. Even companies that manage sustained greatness cannot rest on their laurels or they will find themselves falling away.

To achieve greatness, companies had to do a a great deal of slow, behind the scenes work. By the time the companies were getting press coverage for the "turnaround", the process had already been well underway. The great companies were often lead by internal leaders who possessed "Level 5" leadership skills. These leaders were humble, yet strong. They were willing to listen to others and do what is best for the organization rather than what is best for them personally. The companies that rose to greatness focussed on building powerful teams, with people that were willing to be loyal and put in the the hard work needed to do what is best. Hiring the best people and then having them work was a better strategy than trying to create a quick change or bring in management consultants.

The leadership skills they found seem to be applicable to other aspects of life as well. A larger than life leader may be able to get things done with his shear will. However, when he is gone, a void is left. A level 5 leader can help create a culture of success that can continue to be replicated even after he is gone. They set the standard and freely acknowledge contributions of the team, while also taking responsibility for the results. They have high standards and principals, love what they are doing and inspire others to also achieve. A great leader seems like the top of boss that you would love working for and feel the need to work hard.

How the Mighty Fall

This is a business book that attempts to unify the behavior of a disparate businesses into a few "rules". The fall of a big business from greatness usually takes place as they go through these steps. The phases include Hubris, Undisciplined Growth, Denial of Risk, Grasping and Capitulation. The book uses anecdotes to describe various companies that have following into the trap.

I was intrigued by the stories of Ames Department Stores and Adressograph. These were a couple companies that I had never heard of before, but that once had dominant positions in their market. Competitors (Walmart and Pitney Bowes) are still thriving in the same markets, yet these earlier goliaths failed.

One of the key points the author had was that great companies often fail by overreaching. The companies introduce too many new products, strive for too much growth, all while their core market drifts away.

Some companies have drifted down the steps to extinction, only to revive themselves. Often it is a more humble leader rather than a superstar (IBM vs. HP) that helps them make it.

The conclusions seem to work out well with the sample size mentioned, but would they apply generally?