Must Reads: Great by Choice: Choose to Build a Great Company
Great by Choice: A business management book explores the key behaviors and actions that separated great companies from average companies.
By DeAnna Stephens Baker
Date Posted: 2/1/2013
Have you ever wondered why some companies thrive and even grow in the midst of chaotic and uncertain market conditions while others fail or just barely survive? The authors of Great by Choice: Uncertainty, Chaos, and Luck – Why Some Thrive Despite Them All, Jim Collins and Morten T. Hansen, asked themselves this very question and set out to find the answer.
A unique aspect of this book is that the authors did not just study successful companies. They studied highly successful companies, average companies and unsuccessful companies to find the differences between them and see what it took to really make a company great. Collins and Hansen found companies that rose to become great companies with dramatic performance in the midst of unstable and chaotic environments. They then compared these with other companies that were in the same industries, during the same era, with the same or similar opportunities, yet failed to become highly successful. They labeled the high performance companies “10X” because they did not just become successful, but were highly successful, beating their industry index by at least 10 times.
Before looking at what distinguished truly great companies from average companies, it is important to know what they found were not distinguishing factors. Their research results contradict many deeply held ideas about what makes great leaders and companies. They found that the leaders of 10X companies were not more creative, visionary, charismatic, ambitious, blessed by luck or prone to making big bold moves. They pointed out that this did not mean that the 10X companies lacked these characteristics, but rather that they were not distinguishing factors as average companies displayed them as well. The first thing that did separate the 10X companies was their realization that outside forces would not determine their success even though there are many things that are beyond their control.
Beyond this attitude, Collins and Hansen focused on three core behaviors that their research found to correlate with achieving 10X results in chaotic and uncertain environments. They are:
• fanatic discipline, which helps keep 10X enterprises on track,
• empirical creativity, which keeps 10X enterprises vibrant, and
• productive paranoia, which keeps 10X enterprises alive.
A distinguishing factor of fanatic discipline is what they termed the 20 Mile March concept, “hitting stepwise performance markets with great consistency over a long period of time.” To explain this concept, the authors gave the example of two people who journey by foot from California to Maine. One set the goal of marching 20 miles each day. On the days when the weather is bad or the path is steep, he forces himself to keep moving until he meets his 20 mile goal. And on the days when the path is easy, he forces himself to stop after reaching 20 mile daily goal. This keeps him moving on the bad days and prevents him from wearing himself out on the easier days. In contrast, the other person maintains an irregular pattern of some long days where they make a lot of progress because the path is easy and some days where they don’t even try because the weather is bad. Because of his consistency, the first person makes it to Maine around the same time that the second one staggers into Kansas City after spending the winter holed up in a tent in the Colorado mountains waiting out the snow.
The point is that consistency and discipline – to keep going during the hard times and to hold back in good times to prevent extending the ability to preserve profitability - is the key. A company that follows the 20 Mile March concept uses performance markers to establish what is the lowest level of acceptable achievement while also having self-imposed restraints that place a limit on how far to go when facing good conditions and opportunities. Both of which can be uncomfortable at times.
“The 20 Mile March creates two types of self-imposed discomfort: the discomfort of unwavering commitment to high performance in difficult conditions, and the discomfort of holding back in good conditions,” wrote Collins and Hansen.
A 20 Mile March can be a financial goal, a performance goal, a service goal or an innovation goal. Whatever is chosen as a 20 Mile March, the authors stress that it include clear performance markers and constraints. It also must be designed specifically for, be self-imposed by and within the company’s control to achieve. The company set a reasonable timeframe to achieve the goals all the while stressing consistency in the process.
The reason they believe this concept works is that it builds confidence in a company’s ability to perform well in unfavorable circumstances, reduces the chances of catastrophe in the case of disruptive events, and it helps a company have some self-control in the midst of an out-of-control environment.
“The 20 Mile March imposes order amidst disorder, consistency amidst swirling inconsistency,” the authors wrote. “But it works only if you actually achieve your march year after year. If you set a 20 Mile March and then fail to achieve it – or worse, abandon fanatic discipline altogether – you may well get crushed by events.”
But discipline alone is not enough. Creativity, the second core behavior, must be added to it. The way these two worked together to provide success for the 10X companies was not the popular mantra of “innovate or die” but rather what the authors termed “fire bullets, then fire cannonballs.” This is a simple idea that means that they tried many different innovative ideas, but put only small amounts of resources behind them until they found one that succeeded. A bullet is a test designed to learn what works that is low cost, low risk and a low distraction to the overall company.
Collins and Hansen noted that looking back, only the really successful attempts, the big cannonballs, are usually remembered. This gives the false impression that 10X achievements were only reached by companies willing to try big risks. In sharp contrast, they had many small failures intermixed with their successes.
“First, you fire bullets to figure out what’ll work,” they wrote. “Then once you have empirical confidence based on the bullets, you concentrate your resources and fire a cannonball. After the cannonball hits, you keep 20 Mile Marching to make the most of your big success.”
The last core behavior, productive paranoia, is what the authors believe ensures that companies are prepared for any possible worst-case scenarios and keeps them alive when they encounter them.
“10Xers understand that they cannot reliably and consistently predict future events, so they prepare obsessively – ahead of time, all the time – for what they cannot possibly predict,” Collins and Hansen wrote. “They assume that a series of bad events can wallop them in quick succession, unexpectedly and at any time.”
Collins and Hansen identified three key dimensions of productive paranoia. They are:
• Building cash reserves and buffers to prepare for unexpected events before they happen. Collins and Hansen wrote, “When it comes to building financial buffers and shock absorbers, the 10X cases were paranoid, neurotic freaks!” They found that they managed their balance sheets more conservatively and carried higher cash-to-assets and cash-to-liabilities ratios than others.
• Bounding and managing risk: The research found that the 10X companies were very prudent about how they approached risk. Compared to other companies, they took lower amounts of risks that could severely damage the company, where the potential downsides were greater than the potential benefits, or that would expose the company to forces that it could not control. “In short, we found that the 10X companies took less risk than the comparison cases,” the authors wrote.
• Remaining obsessively focused on objectives and hyper-vigilant about changes in the environment at the same time. It is easy for companies to become so focused on what is happening within – meeting goals and completing projects – that they forget to be aware of what is going on in the overall market. The authors found that 10X companies remembered to be aware of changes in the environment. When they saw that conditions were changing, they would take a step back and look at the bigger picture to determine if their plans needed to change as a result. They then refocused on the details of executing their plan. This kept them from pushing forward with a plan that was no longer appropriate to the market conditions.
One of the benefits of this book is that many of the concepts it explores can be utilized by companies of all sizes. Regardless of what their current practices are, a company can begin to implement these concepts because they are easy to understand and not industry specific. It is a good resource for company owners and managers who want to build a company that remains successful over time.
Top Quotes from Great by Choice
“We cannot predict the future. But we can create it.”
“The best leaders we studied did not have a visionary ability to predict the future. They observed what worked, figured out why it worked and built upon proven foundations. They were not more risk taking, more bold, more visionary and more creative than the comparisons. They were more disciplined, more empirical and more paranoid.”
“We live in a modern culture that reveres that Next Big Thing...Yet the pursuit of the Next Big Thing can be quite dangerous if it becomes an excuse for failing to 20 Mile March. If you always search for the Next Big Thing, that’s largely what you’ll end up doing – always searching for the Next Big Thing.”
“10Xers use difficulty as a catalyst to deepen purpose, recommit to values, increase discipline, respond with creativity and heighten productive paranoia. Resilience, not luck, is the signature of greatness.”
— Jim Collins and Morten T. Hansen, Authors of Great by Choice
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