Jim Collins From Good to Great

Can good companies become great ones?? That was what Jim Collins hoped to discover when he began his 5 year research project in 1996

For his study, Jim Collin's wanted to see was it possible to turn a company from a good one, into a great one. So from the beginning he excluded companies that have always been great, for example MSFT GOOG and APPL. He looked at companies that have been around a while and specifically ones that had average stock market performance for 15 years, but then went through a transition and had 3 times the stock market performance for the next 15 years. This Shift had to be distinct from industry, so if an entire industry shifted the company was dropped. Out of 1,435 companies on the Fortune 500 between 1965 and 1995 only 11 made the study. Jim tried to discover any similarities between these 11 companies. One fact stood out above all the rest. They all had great leaders, but not in the traditional sense. They had what Jim called level 5 leadership. When we think of great leaders, particularly in business, we automatically think of people like Michael O'Leary and Jack Welch. Businessmen with great charisma and flair. Yet these men would only be considerd Level 4 leaders

Jim dissected leadership into 5 levels.

1. Highly Capable Individual (skilled)

2. Contributing Team Member (productive in team)

3. Competent Manager (organisation)

4. Effective Leader (vision, performance)

5. Executive

Level 5 builds enduring greatness through a paradoxical combination of personality humility and intense professional will.

The CEO's of the eleven companies all had level 5 leaders. People who shunned personal accolades but were extremely ambitious for the company. A good example is Kimberley Clark. You might recognise them as the makers of Kleenex and similar products. In 1971 a quiet lawyer named Darwin E. Smith was appointed CEO. His first comment was that he wasn't sure if he was qualified. But that did not stop him from making bold decisions. At the time Kimberly Clark's main business was paper mills. But Darwin did not see a future there and his first act was to sell all the paper mills and focus on consumer paper products. He reasoned that better economics and world class competition such as Proctor & Gamble would force it to achieve greatness or perish. And so like the general who burned his boats upon landing on enemy soil, leaving his troops to succeed or die Darwin sold the mills and relied on the ability to conquer new markets for the company to succeed. Over the next 20 years Kimberly Clark out performed the stock market by 400%.

How great were they?

When Ronald Perelman was in charge of Gillette in the 1980's He had to rebuff a number of takeover bids. At the time if shareholders had accepted the deal they would have received an immediate 44% premium on their investment. But Perelman was so successful at Gillette that when he left the shares were worth 64% more than the takeover price. And if you take the 11 companies as a whole, your returns would of been even more astonishing.

If you invested 1$ in the general stock market in 1965 until 2000, you would of had $65 dollars. Now that sounds pretty good, but if you had invested 1$ in these 11 companies, you would of gotten back $470. That is how great these companies were