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Chapter 1: Good is the Enemy of Great Team 2 Presenters: Gabriel Gamez Chris Flockerzy Nancy Nguyen Sarah Doyle Raquel Vasquez Lydia Herschap Quintin Jordan Monica Del Bosque GOOD TO GREAT By Jim Collins

Chapter 1: Good is the Enemy of Great

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GOOD TO GREAT By Jim Collins. Chapter 1: Good is the Enemy of Great. Team 2 Presenters: Gabriel Gamez Chris Flockerzy Nancy Nguyen Sarah Doyle Raquel VasquezLydia Herschap Quintin Jordan Monica Del Bosque. Introduction/Concept Research. - PowerPoint PPT Presentation

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Chapter 1: Good is the Enemy of Great

Team 2 Presenters:

Gabriel Gamez Chris Flockerzy Nancy Nguyen Sarah Doyle

Raquel Vasquez Lydia Herschap Quintin Jordan Monica Del

Bosque

GOOD TO GREATBy 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 ChosenCompany 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

2005 2006 2007 2008 20090.0%

20.0%

40.0%

60.0%

80.0%

100.0%

38.8% 44.9%

52.0% 55.3% 59.9%

43.8% 44.9% 45.5%35.7% 32.6%

Debt Comparison 2005-2009

Circuit City Best Buy

Asset to Liability Ratio Best if Under 36%, higher than this percentage is considered a high risk.

Best Buy Circuit City

Period Ending 2008 2007 Period Ending 2008 2007Total Revenue $40,023,000 $35,934,000 Total Revenue $11,743,691 $12,429,754Cost of Revenue $30,477,000 $27,165,000 Cost of Revenue $9,318,174 $9,501,438Gross 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) ($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 Collins1. 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 19855. The company had to appear in the 1995 Fortune 500

rankings, published in 19966. Finally, at time of selection, the company should still

show an upward trend.

Good-to-Great Selection Process

Cut 11,435 companies

Selected from Fortune 5001965 - 1995

Cut 2126 companies

Selected from full CRSP data pattern analysis

Cut 319 companies

Selected into industry analysisCut 4

11 companiesSelected into

good-to-great set

The Entire Study Set

AbbottCircuit CityFannie MaeGilletteKimberly-ClarkKrogerNucorPhilip MorrisPitney BowesWalgreensWells Fargo

Good-to-Great Companies

UpjohnSilo Great WesternWarner-LambertScott PaperA&PBethlehem SteelR.J. ReynoldsAddressographEckerdBank of America

Direct Comparison Companies

BurroughsChryslerHarrisHasbroRubbermaidTeledyne

Unsustained Comparison Companies

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 ComparisonsTried 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 MethodSix 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

4= fits the criteria extremely well3= fits the criteria reasonable well2= fits the criteria poorly1= does not fit the criteria

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

“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

Transition Point

Harris Corporati

on

Good-to-Great Companies

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

“Great” Companies 2009 Status

-cnn.money.com Fortune 500 2009 list

Phase 3: Inside the Black Box

What’s Inside The

Black Box

Good Results

Great Results

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 ConceptLooping back and forthDeveloping ideas and testing them against the dataRevising the ideasBuilding a frameworkSeeing it break under the weight of evidenceRebuilding it yet againRepeating until everything hangs together in a

coherent framework of conceptsTaking 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 only if we admit we’re not so smart.

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

Chairman and CEO

Kimberly-Clark Corporation

Darwin E. Smith

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 Sustained Build to Enduring Great Great LastGreat Concepts Results ConceptsCompany

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 AwayGood 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/the-downfall-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.html