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How firms stay great

DO ANY companies thrive through uncertainty, chaos and bad luck? If any do, is there something that they all do which explains why they thrive, when others fail? If there is, is it a set of actions or decisions that are replicable for your business?

Here is the surprising answer to these three questions: yes, yes and yes.

Jim Collins has used his signature research methodology once again to produce a profoundly useful book that should be read by all. The approach is to take a huge body of information on large and well-known companies which have all thrived through a 30-year period which included booms, busts, changes in the regulatory environment, new competitors, viable alternatives and more.

Then Collins and his team compare them to companies with very similar profiles in the same industries, which were inconsistent in their success or simply failed.

Finally, they identify what the companies that thrived all had in common, that the comparison companies did not. The result is a reliable body of practical information which forms the basis of this book.

What makes Jim Collins' work exceptional is that all his books are written in a very accessible and popular style, despite the academic rigour behind them - a quality rarely found in business books.

The seven companies that form the basis of the book include Intel, Amgen and Microsoft. If you had invested $10 000 in any of them in 1972 and held them until 2002, your investment in the lowest performer of the seven (Biomet) would have been worth $3.4m and your investment in the highest performer (Southwest Airlines) $12m.

Biomet outperformed the market for the period by 18.1 times and Southwest by 63.4 times. Compared to their own industries, Biomet outperformed the medical instruments industry by 11.2 times and Southwest outperformed the airline industry by 550.4 times.

In the same industries, same economies, same business environment they produced staggeringly different results. Jim Collins calls these companies 10X-ers, more than 10 times better than the comparative companies.

That companies with this performance record exist is surprising, but what is more surprising is why they performed this way. They were not more creative, not more visionary, not more charismatic, not more ambitious, not blessed with more luck, not more risk seeking, not more heroic and not more prone to making big, bold moves.

Three secrets for success

They all shared three characteristics: fanatical discipline, productive paranoia and empirical creativity.

Each of the three characteristics is encapsulated by the authors in a metaphor that cleverly gets to the heart of the matter and is substantiated by examples from the companies selected.

You are trekking to the South Pole; your team intends to be the first people in modern history to get there. To succeed, you have to travel 20 miles a day.

Some days are favourable and you can probably do 40 miles; others are extremely difficult with wind and driving snow making progress excruciating. You could take advantage of the good days and sit out the bad ones, but then your progress would be uncertain and others could reach the pole before you, making your journey a wasted effort.

The 10X-ers all chose to march their 20 miles each day, painfully when the weather was against them and easily when it wasn't.  

They kept to the 20 miles when it was hard and no more than 20 miles when it was easy, using this time to rest and regain strength.

What the 10X-ers chose as their "20-mile marches" were all specific to their contexts, and all essential to the attainment of their goals. And they pursued them with fanatical discipline.

When it comes to the future, 10X-ers know that they cannot reliably and consistently predict it, and so they prepare themselves ahead of time. They assume a series of negative events in quick succession could kill their companies, and prepare obsessively to protect themselves against what they cannot predict.

They plan and ensure that they stay above the "Death Line". Far from being risk takers, in an analysis of the risks taken by the 10x-ers in contrast to the comparison companies the 10x-ers were a third less likely to take risks.

They also held 3:10 times the ratio of cash to assets compared to a median of 87 117 companies analysed by the Journal of Financial Economics. Such is their "productive paranoia".

The "empirical creativity" demonstrated by the 10x-ers is most easily demonstrated by Apple in its rebirth under Steve Jobs, round two.

When they decided to go into retail they had a blitz roll-out of 40 stores; they "shot lots of bullets before firing a cannonball". First, they hired the CEO of The Gap, a chain of highly successful retail stores, and had him design a prototype store in a warehouse.

After a number of iterations and adjustments they rolled out the stores – all two of them. Only when those were tweaked in real world conditions and proved successful did they launch the nationwide roll-out. The cannonball was fired only after many bullets had found the right spot.

Great by Choice is a major contribution to our understanding of a key business issue – how to thrive in uncertainty and chaos.

Readability       Light ---+- Serious
Insights    High  +---- Low
Practical    High  -+--- Low

* Ian Mann of Gateways consults internationally on leadership and strategy.
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