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Chapter 1: Good is the Enemy of Great

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 Vasquez Lydia Herschap Quintin Jordan Monica Del Bosque . Introduction/Concept Research.

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Chapter 1: Good is the Enemy of Great

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  1. 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 Vasquez Lydia Herschap Quintin Jordan Monica Del Bosque

  2. 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?

  3. List of “Great” Companies Chosen

  4. Circuit City Then & Now

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

  6. Phase 1: The Search • To find companies that showed the good-to-great pattern • TheBasic 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.

  7. 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 Company shows a pattern of “good” performance punctuated by a transition point, after which shifts to “great” performance. The good-to-great performance pattern 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. Also it had to have been publicly traded with stock return data available at least ten years prior to the transition point. Transition point had to occur before 1985 The company had to appear in the 1995 Fortune 500 rankings, published in 1996 Finally, at time of selection, the company should still show an upward trend.

  8. 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 good-to-great set

  9. The Entire Study Set Good-to-Great Companies Direct Comparison Companies Unsustained Comparison Companies Abbott Circuit City Fannie Mae Gillette Kimberly-Clark Kroger Nucor Philip Morris Pitney Bowes Walgreens Wells Fargo Upjohn Silo Great Western Warner-Lambert Scott Paper A&P Bethlehem Steel R.J. Reynolds Addressograph Eckerd Bank of America Burroughs Chrysler Harris Hasbro Rubbermaid Teledyne

  10. 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

  11. 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?

  12. 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

  13. Scoring Scale and Example • 4= fits the criteria extremely well • 3= fits the criteria reasonable well • 2= fits the criteria poorly • 1= does not fit the criteria

  14. “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

  15. “Unsustained” Comparison Example Good-to-Great Companies Transition Point Harris Corporation

  16. “Great” Companies 2009 Status -cnn.money.com Fortune 500 2009 list

  17. Phase 3: Inside the Black Box Great Results What’s Inside The Black Box Good Results

  18. 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?”

  19. 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

  20. 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 • Repeatinguntil 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)

  21. 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

  22. 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.

  23. From good to great: The Flywheel

  24. 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?

  25. 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

  26. 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

  27. 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 CEOKimberly-Clark Corporation

  28. 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

  29. 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.”

  30. 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”

  31. The Hedgehog Concept (Simplicity within the Three Circles). Image found at: http://www.emeraldinsight.com/fig/2610300502001.png

  32. 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

  33. Technology Accelerators • “…pioneers in the application of carefully selected technologies.” • Scanners, RFID, Self Checkout, etc….

  34. 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

  35. 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 Last Great Concepts Results Concepts Company

  36. 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?

  37. 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.

  38. 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

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