Jim Collins and Morten T. Hansen, Great by Choice: Uncertainty, Chaos, and Luck -- Why Some Thrive Despite Them All. Harper Business, 2011.
His books have also contributed several new expressions and buzzwords to the managerial vocabulary: We now talk about "getting the right people on the bus," "BHAGS" (big hairy audacious goals) and "level-five leaders."
In Great by Choice, he has teamed up with Morten Hansen - a professor at the University of California, Berkeley and INSEAD - to examine what distinguishes companies that perform exceptionally well in periods of turbulence and uncertainty from those who don't. The authors see this as a particularly valuable exercise given the general consensus that the competitive environment faced by most companies will remain volatile for some time.
This book is classic Collins. It is both data-rich and contains several new metaphors and buzzwords that we are likely to hear frequently in future years. These include the "20-mile march," "level-five ambition" and "firing bullets, then cannonballs," among others. As with his previous books, it also turns a lot of conventional business wisdom on its head.
His work is also always characterized by methodological rigour. This one is the result of a nine-year study using the same paired-comparison methodology and detailed historical research (7,000 historical documents examined) that we have seen in his earlier books.
The authors first looked for companies that demonstrated spectacular performance in unstable environments. The seven companies eventually selected from an initial list of more than 20,000 beat industry index by at least 10 times for at least 15 years between 1972 and 2002. Labeled "10xers," they included Amgen, Biomet, Intel, Microsoft, Progressive Insurance, Southwest Airlines and Stryker. These 10xers were then compared with a control group of industry peers that failed to become great in the same environment, to identify the key differentiators.
What they found was that 10x companies displayed three core behaviours that in combination clearly distinguished them from their less successful peers: fantastic discipline, empirical creativity and productive paranoia.
The strongest distinguishing factor in the study was the 10Xers' disciplined approach to growth. These companies had performance markers that they were committed to hitting in good times and bad. At the same time, they were willing to hold back on maximizing growth beyond a pre-established level, recognizing that it could make them vulnerable down the road. The authors used the metaphor of the 20-mile march - rigorously pursued and steady performance - to describe this behaviour.
They were surprised, however, that their initial expectation of significant pioneering innovation being one of the key differentiators was not supported by the evidence. While they found 10xers to be innovative, they were not more innovative than their control peers. Rather, they were more empirically creative, experimenting intelligently everywhere and then exploiting areas that they identified to have the highest prospect of success. In the authors' terminology, they "fired bullets before firing cannonballs."
10xers were also distinguished by hyper-vigilance and what the authors describe as a productive paranoia. Knowing that they couldn't predict disruptive events, they prepared for them in advance by building cash reserves and establishing other buffers. For example, they were far more conservative in how they managed their balance sheets, carrying higher cash-to-assets and higher cash-to-liabilities ratios than their peers.
On top of these key differentiators, the leaders of 10x companies were distinguished by what the authors' labelled "level-five ambition," meaning they channelled their ego and intensity into something larger and more enduring than themselves - a trait shared with level-five leaders.
The book also has an interesting chapter on creating durable operating procedures and on what the authors call ROL (return on luck), along with 70 pages of appendices on its research foundations.
The writers also weave throughout the text the fascinating story of Roald Amundsen and Robert Falcon Scott and their 1911 race to become the first explorers to reach the South Pole as a supporting metaphor for their conclusions.
If you are a Jim Collins fan, you will want to add Great by Choice to your collection.
Micheal Kelly is a professor and former dean at the University of Ottawa's Telfer School of Management.