TEAM 2
CAITLIN CLARK
STEPHEN MASSIMI
WILL MAYRATH
MATT VATANKHAH
KATIE TREVINO
Overview

While presenting his first book, Bill
Meehan, the managing director of the San
Francisco office of McKinsey & Company,
told Jim Collins,
 “You know, Jim, we love Built to Last around
here. You and your coauthor did a very fine job
on the research and writing. Unfortunately, it’s
useless.”

This was the spark of curiosity that began
five years of research and resulted in Good
to Great.
Overview, continued

The five-year research effort yielded
many insights, but one conclusion
stands out above the others
 Most any organization can substantially
improve its stature and performance,
perhaps even become great, if it
conscientiously applies the framework of
ideas we’ve uncovered
Phase 1: The Search
First task was to find companies that
showed the good-to-great pattern (Table 1)
 Launched a six-month “death march of
financial analysis,” looking for companies
that showed the following basic pattern:

 Fifteen-year cumulative stock returns at or
below the general stock market, punctuated by a
transition point, then cumulative returns at least
three times the market over the next fifteen
years
Phase 1: The Search, continued
Company
Results from Transition
Point to 15 Years
beyond Transition
Point*
T Year to T Year + 15
Abbot
3.98 times the market
1974 – 1989
Circuit City
18.50 times the market
1982 – 1997
Fannie Mae
7.56 times the market
1984 - 1999
Gillette
7.39 times the market
1980 - 1995
Kimberly-Clark
3.42 times the market
1972 – 1987
Kroger
4.17 times the market
1973 – 1988
Nucor
5.16 times the market
1975 – 1990
Philip Morris
7.06 times the market
1964 – 1979
Pitney Bowes
7.16 times the market
1973 – 1988
Walgreens
7.34 times the market
1975 – 1990
Wells Fargo
3.99 times the market
1983 – 1998
*Ratio of cumulative stock returns relative to the general stock market
Phase 1: The Search, continued

Criteria for Selection as a Good-to-Great
Company
 Company shows a pattern of “good” performance
punctuated by a transition point, after which it
shifts to “great” performance
 Good-to-great shift must be a company shift, not
an industry event
 At the transition point, the company must have
been an established, ongoing company, not a
start-up
Phase 1: The Search, continued

Criteria for Selection as a Good-to-Great
Company, continued
 The transition point had to occur before 1985
so that there would be enough data to assess
the sustainability of the transition
 Whatever the year of transition, the company
still had to be a significant, ongoing, stand-alone
company at the time of selection
 At the time of selection, the company should
still show an upward trend
Phase 1: The Search, continued

The Good-to-Great Screening and Selection
Process
 Cut 1: From the Universe of Companies to 1,435
Companies
○ Selected from the Fortune 500, 1965 – 1995
 Cut 2: From 1,435 Companies to 126 Companies
○ Selected into full CRSP data pattern analysis
 Cut 3: From 126 Companies to 19 Companies
○ Selected into Industry Analysis
 Cut 4: From 19 Companies to 11 Good-to-Great
Companies
○ Selected into Good-to-Great Set
Phase 2: Compared to What?

Two types of comparison companies
 Direct comparisons
○ Companies that were in the same industry as the
good-to-great opportunities and similar resources
at the time of transition, but showed no leap from
good to great
 Unsustained comparisons
○ Companies that made a short-term shift from good
to great but failed to maintain the trajectory
○ Intended to address the question of sustainability
○ Comparisons are displayed in Appendix 1.C, page
234
Phase 2: Compared to What,
continued

Direct Comparisons
 Purpose of direct comparison analysis is to
create as close to a “historical controlled
experiment” as possible
 Helped in identifying distinguishing variables
that account for the transition from good to
great
 Performed a systematic and methodical
collection and scoring of all obvious
comparison candidates for each good-togreat company
Phase 2: Compared to What?,
continued

Direct Comparison Criteria
 Business Fit
○ At the time of transition, the comparison candidate
had similar products and services as the good-togreat company
 Size Fit
○ At the time of transition, the comparison candidate
was the same basic size as the good-to-great
company
 Age Fit
○ The comparison candidate was founded in the
same era as the good-to-great company
Phase 2: Compared to What?,
continued

Direct Comparison Criteria, continued
 Stock Chart Fit
○ The cumulative stock returns to market chart of the
comparison candidate roughly tracks the pattern of the
good-to-great company until the point of transition
 Conservative Test
○ At the time of transition, the comparison candidate was
more successful than the good-to-great company
 Face Validity
○ Takes into account two factors
 Comparison candidate is in a similar line of business at the
time of selection
 Comparison candidate is less successful than the good-togreat company at the time of selection
Phase 2: Compared to What?,
continued

Direct Comparison Scoring
 Scored each comparison candidate on each of
the six criteria on a scale of 1 to 4:
○ 4 = comparison candidate fits the criteria
extremely well—there are no issues or qualifiers
○ 3 = comparison candidate fits the criteria
reasonably well—there are minor issues or
qualifiers
○ 2 = comparison candidate fits the criteria poorly—
there are major issues and concerns
○ 1 = comparison candidate fails the criteria
Phase 2: Compared to What?, continued
The Entire Study Set
Good-to-Great
Companies
Comparison
Companies
Abbot
Upjohn
Circuit City
Silo
Fannie Mae
Great Western
Gillette
Warner-Lambert
Kimberly-Clark
Scott Paper
Kroger
A&P
Nucor
Bethlehem Steel
Philip Morris
R.J. Reynolds
Pitney Bowes
Addressograph
Walgreens
Eckerd
Wells Fargo
Bank of America
Unsustained Companies
Burroughs
Chrysler
Harris
Hasbro
Rubbermaid
Teledyne
Phase 3: Inside the Black Box

Research Phase
 Systematically coded all materials into
categories, conducted interviews, and
initiated a wide range of analyses

Project began with the goal of building a
theory from the ground up
Phase 3: Inside the Black Box,
continued

In the study, what they didn’t find turned
out to be some of the best clues to the
inner workings of good to great
Great
Results
Good
Results
What’s
Inside the
BLACK BOX?
Phase 3: Inside the Black Box,
continued

Company Coding Documents Collected
 All major articles published on the company over its





entire history
Materials obtained directly from companies
Books written about the industry, company, and/or its
leaders
Business school case studies and industry analyses
Business and industry reference materials
Annual reports, proxy statements, analyst reports, and
any other materials available on the company,
especially during the transition era
Phase 3: Inside the Black Box,
continued

Coding System Categories
 Category 1: Organizing Arrangements
 Category 2: Social Factors
 Category 3: Business Strategy, Strategic
Processes
 Category 4: Markets, Competitors, and
Environment
 Category 5: Leadership
 Category 6: Products and Services
Phase 3: Inside the Black Box,
continued

Coding System Categories, continued
 Category 7: Physical Setting and Location
 Category 8: Use of Technology
 Category 9: Vision: Core Values, Purpose, and
BHAGs
 Category 10
○ A: Change/Transition Activities during Transition Era
of Corresponding Good-to-Great Company (Direct
Comparisons Only)
○ B: Attempted Transition Era (Unsustained
Comparisons Only)
 Category 11: Posttransition Decline (Unsustained
Comparisons Only)
Phase 3: Inside the Black Box,
continued

Other Research Elements
 Financial Spreadsheet Analysis
○ Examined all financial variables for 980 combined
years of data (35 years on average per company)
○ Comprised gathering raw income and balance
sheet data and examining variables in both the preand posttransition decades
 Executive Interviews
○ Conducted interviews of senior management and
board members, focusing on those in office during
the transition era
Phase 3: Inside the Black Box,
continued

Special Analysis Units
 Acquisitions and Divestitures
○ Sought to understand the role of acquisitions and
divestments in the transition from good to great
 Industry Performance Analysis
○ Looked at the performance of the companies versus the
performance of the industries
 Executive Churn Analysis
○ Looked at the extent to which the executive teams
changed during the crucial points in companies’ histories
 CEO Analysis
○ Performed a qualitative examination of each set of
CEOs during the transition eras in all three sets of
Phase 3: Inside the Black Box,
continued

Special Analysis Units, continued
 Executive Compensation
○ Examined across the twenty-eight companies studied, from
ten years before the transition point to 1998
 Role of Layoffs
○ Sought to examine all companies for evidence of layoffs as a
conscious tactic to improve company performance
 Corporate Ownership Analysis
○ Aimed to determine if there were any significant differences
between companies
 Media Hype Analysis
○ Looked at the degree of “media hype” surrounding the
companies
 Technology Analysis
○ Examined the role of technology, drawing largely upon
executive interviews and written source materials
Phase 3: Inside the Black Box,
continued

Comparative Analysis Frameworks
 Performed throughout the research effort
 While less detailed than the other portions of
the research effort, all were derived directly
from research evidence
 Included topics such as
○ The use of bold corporate moves
○ Executive class versus egalitarianism
○ Three-circle analysis and fit with core values
and purpose
Phase 4: Chaos to Concept

Every primary concept in the final
framework showed up as a change
variable in 100 percent of the good-togreat companies and in less than 30
percent of the comparison companies
during the pivotal years

The Flywheel captures the gestalt of the
entire process of going from good to
great
Phase 4: Chaos to Concept,
continued
BUILDUP…
LEVEL 5
LEADERSHIP
FIRST WHO..
THEN WHAT
DISCIPLINED PEOPLE
CONFRONT THE
BRUTAL FACTS
HEDGEHOG
CONCEPT
DISCIPLINED THOUGHT
FLYWHEEL
CULTURE OF
DISCIPLINE
TECHNOLOGY
ACCELERATORS
DISCIPLINED ACTION
Phase 4: Chaos to Concept,
continued

The Flywheel—Disciplined People
 Level 5 Leadership
○ Good-to-great leaders are self-effacing, reserved,
even shy—a paradoxical blend of personal humility
and professional will
 First Who…Then What
○ Good-to-great leaders first got the right people on
the bus, the wrong people off the bus, and the right
people in the right seats
○ Then they figured out where to drive it
○ People are not your most important asset. The right
people are.
Phase 4: Chaos to Concept,
continued

The Flywheel—Disciplined Thought
 Confront the Brutal Facts (Yet Never Lose Faith)
○ Every good-to-great company embraced what came to
be called the Stockdale Paradox
 Must maintain unwavering faith that you can and will prevail in
the end, regardless of the difficulties, AND at the same time
have the discipline to confront the most brutal facts of your
current reality, whatever they might be
 The Hedgehog Concept (Simplicity within the Three
Circles)
○ To go from good to great requires transcending the
curse of competence
○ If you cannot be the best in the world at your core
business, then your core business absolutely cannot
form the basis of a great company
 It must be replaced with a simple concept that reflects deep
understanding of three intersecting circles
Phase 4: Chaos to Concept,
continued

The Flywheel—Disciplined Action
 A Culture of Discipline
○ When you have disciplined people, you don’t
need hierarchy
○ When you have disciplined thought, you don’t
need bureaucracy
○ When you have disciplined action, you don’t
need excessive controls
○ When you combine a culture of discipline with
an ethic of entrepreneurship, you get the
alchemy of great performance
Phase 4: Chaos to Concept,
continued

The Flywheel—Disciplined Action,
Continued
 Technology Accelerators
○ Good-to-great companies think differently
about the role of technology
 They never use technology as the primary means of
igniting a transformation
○ Paradoxically, they are pioneers in the
application of carefully selected technologies
○ Technology by itself is never a primary, root
cause of either greatness or decline
Phase 4: Chaos to Concept,
continued

The Flywheel and the Doom Loop
 Those who launch revolutions, dramatic
change programs, and wrenching
restructurings will almost certainly fail to
make the leap from good to great
○ Good-to-great transformations never
happened in one fell swoop
 Rather, the process resembled relentlessly
pushing a giant heavy flywheel in one
direction, building momentum until a point of
breakthrough
Phase 4: Chaos to Concept,
continued

From Good to Great to Built to Last
 Built to Last is about how you take a
company with great results and turn it into
an enduring great company of iconic stature
○ To make that shift requires core values and a
purpose beyond just making money combined
with the key dynamic of preserve the core /
stimulate progress
Good to
Great
Concepts
Sustained
Great
Results
Built to
Last
Concepts
Enduring
Great
Company
The Timeless “Physics” of Good
to Great

This book is ultimately about one thing:
 The timeless principles of good to great
○ It’s about how you take a good organization of any
type and turn it into one that produces sustained
great results, using whatever definition of results
best applies to your organization

That good is the enemy of great is not just a
business problem—it is a human problem
 If we have cracked the code on the question of
good to great, we should have something of value
to any type of organization