GOOD TO GREAT
By Jim Collins
Introduction/Concept Research
 Why is Greatness so Uncommon
 Epiphany of 1996 & Research
 Analysis of corporations
transitioning from good to great
Can a Good Company Become a Great
Company? and if so, How?
List of “Great”
Companies Chosen
Company
Result from Transition
Point to 15 years beyond
Transition
T Years to 1
Year + 15
Abbott
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
Circuit City Then & Now
Best Buy vs. Circuit City
Asset to
Liability Ratio
Best if Under
36%, higher
than this
percentage is
considered a
high risk.
Debt Comparison 2005-2009
100.0%
80.0%
60.0%
38.8% 43.8%
52.0%
45.5%
44.9% 44.9%
55.3%
40.0%
35.7%
59.9%
32.6%
20.0%
0.0%
2005
2006
2007
Circuit City
2008
2009
Best Buy
Best Buy
Circuit City
Period Ending
2008
2007
Period Ending
2008
2007
Total Revenue
$40,023,000
$35,934,000
Total Revenue
Cost of Revenue
$30,477,000
$27,165,000
Cost of Revenue
$9,318,174 $9,501,438
Gross Profit
$9,546,000
$8,769,000
Gross Profit
$2,425,517 $2,928,316
Net Income
$1,407,000
$1,377,000
Net Income
($319,897)
$11,743,691 $12,429,754
($8,281)
Phase 1: The Search
To find companies that showed the good-to-great pattern
The Basic Pattern:
• 15 year cumulative stock at or below the general stock market
• Punctuated by a transition point
• Cumulative returns at least three times the market over the next 15
years
Why 15 years?
• It would transcend one-hit wonders and lucky breaks.
• It would exceed the average tenure of most CEO’s. Helping to
separate the great companies from the companies that just happened
to have a single great leader.
Why three times the market?
• It exceeds the performance of most widely acknowledged great
companies.
Criteria for Selection as a Good-to-Great
Company
“The focus of this particular research effort is on the very specific question of how
to turn a good organization into one that produces sustained great results.”
Jim Collins
1. Company shows a pattern of “good” performance punctuated by a
transition point, after which shifts to “great” performance.
2. The good-to-great performance pattern must be a company shift,
not an industry event.
3. At the transition point, the company must have been an
established ongoing company, not a start-up. Also it had to have
been publicly traded with stock return data available at least ten
years prior to the transition point.
4. Transition point had to occur before 1985
5. The company had to appear in the 1995 Fortune 500 rankings,
published in 1996
6. Finally, at time of selection, the company should still show an
upward trend.
Good-to-Great Selection Process
Cut 1
1,435 companies
Selected from Fortune 500
1965 - 1995
Cut 2
126 companies
Selected from full CRSP data
pattern analysis
Cut 3
19 companies
Selected into industry analysis
Cut 4
11 companies
Selected into goodto-great set
The Entire Study Set
Good-to-Great
Companies
Abbott
Circuit City
Fannie Mae
Gillette
Kimberly-Clark
Kroger
Nucor
Philip Morris
Pitney Bowes
Walgreens
Wells Fargo
Direct Comparison
Companies
Upjohn
Silo
Great Western
Warner-Lambert
Scott Paper
A&P
Bethlehem Steel
R.J. Reynolds
Addressograph
Eckerd
Bank of America
Unsustained
Comparison Companies
Burroughs
Chrysler
Harris
Hasbro
Rubbermaid
Teledyne
Phase 2: Compared to What?
 Goal: To
find what the good-to-great companies
shared in common and how they were
distinguished from their industry.
 Process: Compare the good-to-great companies
against “direct” comparison companies and
“unsustained” comparison companies.
• Direct Comparison Company- a company who is in
the same industry and has the same resources and
similar opportunities as a great company, but did not
transition
• Unsustained Comparison Company-a company who
did transition to greatness but was unable to sustain
it for 15 years
Direct Comparisons
Tried
to create a “historical controlled
experiment” to conduct a direct
comparative analysis, in order to find the
distinguishing variables that account for
the transition from good to great.
Why
did the direct comparison
companies fail?
What
was different?
Direct Comparison Selection
Method
 Six
Criteria:
1. Business Fit- similar products and services
2. Size Fit- same basic size based on a revenue ratio
3. Age Fit- founded in the same era
4. Stock Chart Fit- the cumulative stock returns to
the market of the comparison company should
roughly track the pattern of the good-to-great
company, until the point of transition, and then is
outperformed.
• 5. Conservative Test- at time of transition is more
successful
• 6. Face Validity- in a similar line of business and at
the time of selection into the study, is less successful
than the good-to-great company
•
•
•
•
Scoring Scale and Example




Kroger
Score
A&P
3.17
Safeway
2.58
Winn-Dixie
2.5
American Stores
2.42
Giant Foods, Inc.
2.33
Jewel
2.25
Albertson’s
2.08
Food Fair
1.5
Grand Union
1.0
4= fits the criteria extremely well
3= fits the criteria reasonable well
2= fits the criteria poorly
1= does not fit the criteria
“Unsustained” Comparisons
To
determine how a company can sustain
great results and why these comparison
companies failed to.
Question
of Sustainability
• Resnick and Smunt Critique
“Unsustained” Comparison Example
Good-to-Great
Companies
Transition
Point
Harris
Corporation
“Great” Companies 2009 Status
Good-to-Great Companies
Revenues
Profits
Abbott
$ 59,034.00
$
2,157.0
Circuit City
$ 11,743.70
$
(319.9)
Fannie Mae
$ 22,652.00
$
(58,707.0)
Gillette/Procter & Gamble
$ 83,503.00
$
12,075.0
Kimberly-Clark
$ 19,415.00
$
1,690.0
Kroger
$ 76,000.00
$
1,249.4
Nucor
$ 23,663.30
$
1,831.0
Philip Morris International
$ 25,705.00
$
6,890.0
Pitney Bowes
$ 6,262.30
$
419.8
Walgreens
$ 59,034.00
$
2,157.0
Wells Fargo
$ 51,652.00
$
2,655.0
-cnn.money.com Fortune 500 2009 list
Phase 3: Inside the Black Box
Great Results
Good Results
What’s
Inside The
Black Box
Phase 3: Inside the Black Box
Good
to Great …a process
• All concepts were derived directly from the
evidence
“Core Method was a systematic process of
contrasting the good to great examples to
the comparisons, always asking, “What’s the
difference?”
The dog that did not bark
Dogs that were expected to bark but
didn’t, turned out to be some of the best
clues.

•
•
•
•
Famous CEO
Well defined strategy
Technology
No launch event
Phase 4:Chaos to Concept








Looping back and forth
Developing ideas and testing them against the data
Revising the ideas
Building a framework
Seeing it break under the weight of evidence
Rebuilding it yet again
Repeating until everything hangs together in a
coherent framework of concepts
Taking lumps of unorganized info, seeing patterns, and
extracting order from the mess (Focus on strengths)
Meeting the Concept Criteria
Each
concept met a rigorous standard
before it was deemed significant
Each
concept was a change variable in
100% of the good to great companies and
only 30% of comparison companies
Any
insight that failed did not make it into
the book as a chapter level concept
A process built on humility
DON’T
SETTLE, you could be wrong!
If
you’re not wrong frequently, you’re not
trying hard enough.
We’re
smart.
smart only if we admit we’re not so
From good to great: The Flywheel
Chaos to Concept Example: Gillette
Chaos: Gillette
didn’t track success of
most promotional programs (didn’t know
how each in store piece was used or
how many made it into stores)
Gillette needed to focus strategy on
placement rather than quantity
What was the most cost effective way to
do this?
Gillette cont.
 “Each
piece needs to meet our objective
now, if it doesn’t, we need to look at what
we’re doing.” Leslie Palmer (Gillette
Communications Manager)
 Responsible for communication between
300 sales reps and marketing groups
 No communication
 “Sending in bulk”
 ½ of promotion displays not being used
Gillette’s solution
 Palmer
found info from sales reps, rather than
using her position to make an uneducated
decision
 Because reps price and promote products,
and talk to store management, Palmer found
through surveys that promotion material was
sent, “to late, heavy, much, and often.”
 The decision led to an improved company
approach, and provided detailed product
placement information (what was most
popular and where) and generated new ideas
for promotion products
Level 5: Leadership
•According to Jim Collins, leaders:
•Were thought to be:
•Celebrities
•High profile company leaders
•Are actually:
•Quiet
•Reserved
•Humble
Image found at:
http://images.google.com/imgres?imgurl=http://www.paperhall.org/inductees/photos/2004pix/d_smith.jpg&imgrefurl=http://www.paperhall.org/inductees/bios/2004/darwin_smith.
php&usg=__2IKzVENxeZGLIxjMoqCItFLPcZU=&h=460&w=356&sz=76&hl=en&start=1&um=1&tbnid=OruVp1yVRjG0uM:&tbnh=128&tbnw=99&prev=/images%3Fq%3Ddarwin
%2Be.%2Bsmith%26hl%3Den%26rls%3Dcom.microsoft:en-us%26sa%3DX%26um%3D1
Darwin E. Smith
Chairman and CEO
Kimberly-Clark
Corporation
Leadership in Strategic Management…
Coulter
states:
• Strategic leadership is the ability to:
Anticipate
Envision
Maintain flexibility
Think strategically
Initiate changes to ensure a valuable future for the
organization
 “Great” leaders have both the attributes described by
Collins and Coulter
•
•
•
•
•
First Who…then What.
“The
right people are your most
important asset.”
• Great leaders:
•
•
•
•
“First got the right people on the bus”
“The wrong people off the bus”
“The right people in the right seats”
“And then they figure out where to drive it.”
Confront the Brutal Facts
(Yet Never Lose Faith).
“Stockdale Paradox:”
• “Maintain faith that you can prevail, regardless
of the difficulties”
• “Have the discipline to confront the facts of
your reality”
“Understand
your company’s situation”
“Listen for the truth”
The Hedgehog Concept
(Simplicity within the Three Circles).
Image found at: http://www.emeraldinsight.com/fig/2610300502001.png
Phase 4 Cont. Part III: A Culture of
Discipline
 “All
companies have a culture but few have a
culture of discipline.”
• Southwest Airline employees willing to
take pay cuts.
• Wal-mart makes sure suppliers add value
while still contributing to achieve low cost
Technology Accelerators
“…pioneers
in the application of
carefully selected technologies.”
• Scanners, RFID, Self Checkout, etc….
The Flywheel and the Doom Loop
“No
matter how dramatic the end result,
the good-to-great transformations never
happened in one fell swoop.”
• Large emphasis on developing good
relationships internally and externally
From Good to Great to
Built to Last
“This
Book is about how to turn a good
organization into one that produces
sustained great results.”
 Laying the groundwork for an Enduring
Great Company.
Good to
Great
Concepts
Sustained
Great
Results
Build to
Last
Concepts
Enduring
Great
Company
The Timeless “Physics” of
Good to Great
 Sustaining In a New Economy
 Law of Organized Human Performance
 Good to Great is a Choice
 Good Company Becoming Great?
Key Points to Take Away
 Good
companies become accustom to being
mediocre and so therefore do not become
great.
 Jim Collins and his research team’s overall
goal are to discover if and how a company
can transition from a good company to a
great company with sustained results.
 According to Jim Collins great companies
did not transition in one fell swoop instead it
was a combination of disciplined people,
disciplined thought, and disciplined action.
References

Bowersox, Donald J., David J. Closs, and M. B. Cooper. Supply Chain
Logistics Management. 3rd ed. New York: McGraw-Hill Irwin, 2010. Print.

Collins, Jim. Good To Great. New York: HarperCollins, 2001. Print.

Coulter, Mary. Strategic Management In Action. 5th ed. New Jersey:
Prentice Hall, 2010. Print.

Paper Industry International Hall of Fame, Inc. "Darwin E. Smith."
Paperhall.org. Paper Industry International Hall of Fame, Inc. Web. 22 Jan.
2010. <http://www.paperhall.org/inductees/bios/2004/darwin_smith.php>.

Pausch, Randy. The Last Lecture. New York: Hyperion, 2008. Print.

Website, (2009) Best Buy Financials,
http://finance.yahoo.com/q/is?s=BBY&annual. Retrieved January 19, 2009.

Website, (2009) Circuit City Financials,
http://finance.yahoo.com/q?s=CCTYQ.PK. Retried January 19, 2009.

Website, (2009) Circuit City Downfall, http://gizmodo.com/5133179/thedownfall-of-circuit-city-in-convenient-graph-form

Website, (2009) Fortune 500 List for 2009.
http://money.cnn.com/magazines/fortune/fortune500/2009/full_list/index.ht
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