In Defense of Good To Great, Part 1

Coaches As Managers
I’m fascinated by the managerial applications found in good coaching. Each blog, I’ll highlight innovative coaches, some of whom you may have never heard.

This blog’s featured coach is John McGraw.

A member of the Baseball Hall of Fame, McGraw achieved great recognition as an innovative field manager. In 31 years at the helm of the New York Giants, McGraw’s teams won 10 pennants, finished second 11 times, & won three World Series trophies. He ranks second all-time with 2,840 wins. As a player, he was credited with helping to develop the hit-and-run, the Baltimore chop, the squeeze play and other strategic moves.

I’m an unabashed fan of the 2001 book Good To Great: Why Some Companies Make The Leap…And Others Don’t, by Jim Collins.

The more I think, study, and teach about managerial practices, the more I trace effective examples and strategies back to its core principles.

“Good is the enemy of great”… “Level 5 Leaders”… “First Who, Then What”… “Confront the Brutal Facts”… “The Hedgehog Concept”… “A Culture of Discipline”… “The Flywheel and the Doom Loop”…I’m forever connecting these dots and relating current issues/examples to its concepts.

I know I’m not alone as a G2G (my abbreviation) fan. As of this writing, the book rated 4.5 of 5 stars based on 863 customer reviews on Amazon.com. Some 10 years after its publication, I still see it in airport bookstores across the U.S. I’ve even found it to be a useful piece of social currency in breaking the ice with complete strangers.

Nevertheless, I find this book to be heavily critiqued. It’s been called “gushy,” full of “fluff,” and “backward looking.” However, the critiques I’ve read don’t seem to hold much water and appear quite capricious, random, and persnickety.

This is Part 1 of a two-part series in defense of G2G. Part 2 will include the findings of a brief analysis I did on current performances of the G2G companies. For this blog entry, I sifted through several articles that critique G2G and lifted several objections that I don’t think hold water. Feel free to read the articles to crosscheck my objectivity.

ARGUMENT 1: POOR METHODOLOGY

In a 2003 blog, Dr. Henry Farrell, an associate professor of political science and international affairs at The George Washington University, maintains that Collins’ work fell victim to selection bias by selecting a small sample of companies, studying their characteristics, then casually associating those characteristics with their success.

Farrell says, “The problem is that studies which concentrate on successful firms can’t tell us anything very useful about the differences between successful and unsuccessful firms, because they haven’t looked at the latter at all. We don’t know whether or not other companies, which also endured a long time, had below average performance.”

(Farrell also says he hadn’t read G2G as of his writing. Draw your own conclusions.)

Entrepreneur and business pundit Rob May similarly skewered G2G in 2006, citing the “huge mistake” of not providing disconfirming research that might prove the principles to be false, thereby creating results with a confirmation bias.

May says, “I’ve read all the notes in the book about how the research was done, and I think Collins and his team made a huge mistake. The good-to-great qualities, once determined, were never used to search for counterexamples. What I mean is that Collins and his team never said, ‘Are there any companies that have all of our good-to-great qualities that weren’t good-to-great?’”

In the first of two 2008 articles examining G2G, Galuszka also expressed objections to Collins’ methodology and therefore the solidity of its principles, which he dismisses as “‘success’ stories told in simple, masculine, sports-writing terms.”

My Rebuttal:

Collins didn’t just randomly choose the 11 G2G companies or just look at their stock returns alone. G2G resulted from a thorough, rigorous four-step research process that involved loads of quantitative and qualitative analyses.

A quick review of Collins’ G2G methodology:

To start, Collins began with all 1435 publicly traded companies that appeared on the Fortune 500 listings from 1965-1995. Accordingly, this does not constitute a sample; instead, it examines an entire population. To me, that addresses Farrell’s (and Galuszka’s weaker) complaint that the sample was small and arbitrary.

Second, Collins selected 126 companies from the initial pool based on data from the University of Chicago’s Center for Research in Security Prices, as well as Fortune Magazine’s rates-of-return data; these companies were subjected to four different tests, of which they had to pass at least one before they made this second cut.

Third, CRSP data were again used on 19 companies with 11 criteria; failure to meet any ONE of these 11 criteria would exclude the company from further consideration.

Fourth, sets of complex industry cumulative returns indices were used, with some companies being subjected to more than one, to get to the final 11 G2G companies.

With such multiple, stringent criteria in steps 2-4, I’d challenge May to describe what further exclusionary/opposing standards he’d have preferred Collins to use, because they seem pretty exclusive to me. Either the companies did or didn’t have the desired qualities, thereby making comparisons of “any companies that have all of our good-to-great qualities that weren’t good-to-great” pretty much impossible.

Collins also regularly refers to companies that didn’t make cuts as “direct comparison companies” and “unsustained comparison companies” throughout the work for points of contrast to the G2G companies.

And call me crazy, but as a journalism minor with an extensive sportswriting background and now a business professor, this sounds like a bit more than just sportswriting to me.

ARGUMENT 2: THE CORPORATE BARNUM EFFECT

May also argues that G2G principles are fairly generic and thus applicable to any viewpoint to make them true, citing the Barnum Effect (i.e., “We’ve got something for everyone”) that makes them ambiguous and open to interpretation, decreasing their usefulness. He even likens them to a horoscope for good measure.

My Rebuttal:

In my opinion, May entirely misses the beauty of the G2G principles with this criticism.

To illustrate, let’s consider the Fiedler Contingency Model, developed circa 1967 by Fred Fiedler, one of the leading researchers in industrial and organizational psychology of the 20th Century.

Before Fiedler’s work, management researchers were looking for a single magic bullet set of managerial principles that could be universally applied to organizations. Instead, Fiedler said, no single universally applicable set of management rules by which to manage organizations could exist because organizations differ in nature, face different situations (including situational variables like size, task technology routineness, environmental uncertainty, and differences in individuals), and thus require different ways of managing.

That simple notion sounds painfully obvious to us today, but apparently it wasn’t so obvious until 1967, and that’s exactly why Collins’ principles become so powerful: he refuses to recommend a specific paint-by-numbers approach to organizational success that may or may not work in a given organization, industry, or environment. Instead, he describes common traits of successful organizations that are broad enough to be individually tailored to a given system.

Mr. May, with all due respect, you’re correct in this sense: tools alone never built a house. Materials and labor are also required. However, materials and labor are completely useless without the proper tools, and that’s what Collins does: he provides tools of thought to be laboriously applied to the materials in a specific systematic environment to successfully build a house.

And I’d hardly equate the product of the aforementioned research process to that of Ms. Cleo’s fortune telling.

ARGUMENT 3: SURVIVORSHIP BIAS

May further condemns Collins by theorizing that G2G companies could’ve simply been winners by default: “Somebody has to win. Somebody has to be the best. And being the winner does not always mean you have some skill.”

My rebuttal:

This straw-grab premise might be applicable in a very small pool (like a first-grade art contest), but with as much competition as exists in the markets represented by the G2G companies, I believe it means that a successful organization has/had more legitimate business acumen than the rest. No organization in these industries that perform(ed) to the severe standard of excellence invoked by Collins was a fluke, nor simply stunk it up a little less than its competitors. That’s questionable logic.

ARGUMENT 4: FAILURE TO ADDRESS THE UNKNOWN

May’s final straw-grasp goes like this: “Collins also doesn’t know what he doesn’t know. In other words, maybe there were causes that he and his research team were not aware of. Perhaps executives at the good-to-great companies better understood the economics of their industry. Or maybe they were more financially savvy and understood how money flowed through the company and where their profit really came from. It is common for companies not to really understand these things fully.”

My rebuttal:

Apparently, THE core conceptual piece of G2G completely escaped Mr. May, because at this juncture, I can’t explain any other reason for his lack of acknowledgment of Collins’ Hedgehog Concept, a Venn diagram with three overlapping circles that represent what Collins calls “a single, crystalline concept” that is “not a goal, strategy, or intention; it is an understanding” (his emphasis, not mine) of:

  • What are we passionate about?
  • What can we be the best in the world at?
  • What drives our economic engine?

The G2G companies absolutely, unequivocally understand/understood the recipes for their success (any later choices to deviate from them notwithstanding). While Collins doesn’t directly identify the contents of each of these three circles for the G2G companies, they can be fairly well identified or surmised with the collective examination of several tables throughout the text.

And let’s be honest: no organization can perform at the levels achieved by these 11 companies for as long as they did (30 years) without clearly knowing their recipe for success, slipping this final straw through Mr. May’s grasp.

ARGUMENT 5: LEADERSHIP OVER TENURESHIP

Finally, Gettler (2003) cites G2G criticism from Tom Peters, who essentially created the management guru industry with his first book In Search of Excellence, written with fellow Rob Waterman.

According to Peters, “…companies that Jim calls great have performed well. I wouldn’t deny that for a minute, but they haven’t led anybody anywhere. I don’t give a damn whether Microsoft is around 50 years from now. Microsoft set the agenda in the world’s most important industry at a critical period of time, and that to me is leadership, not the fact that you are able to stay alive until your beard is 200 feet long.”

Mr. Peters is obviously a giant in management thought with an impeccable pedigree, and I wouldn’t begin to challenge him with a nuclear arsenal. But I do question whether one can say that some of the G2G companies haven’t led the marketplace anywhere. I’ll cite some specific numbers in Part 2, but let’s briefly examine five anecdotal instances that I think could counter Mr. Peters’ claim.

Hasn’t Walgreens led a revolution in the drugstore retail industry? Look how its rising tide lifted the boats of CVS and Rite Aid, thereby essentially shifting that market away from local mom-and-pop pharmacies to nationally branded drugstore chains or big-box retailers.

Can we say that Abbott Laboratories’ products in pharmaceuticals, nutrition, diagnostics, medical and surgical devices, animal health, and vision technologies haven’t helped us live better lives (price and affordability notwithstanding)?

Despite my utter disdain for tobacco, couldn’t we say that Philip Morris’ strong global performance (cited in Part 2) in the face of its core product’s evolving status as the lone socially incorrect vice in America is (cough, cough) a form of leadership?

Would we have Best Buy as we know it if not for Circuit City? I doubt it, and I base that claim on several pieces of logic found in The 22 Immutable Laws Of Branding by Al Ries and Laura Ries. To stay on point, we will examine this premise in detail in a future posting (but not in Part 2!).

And Mr. Peters, are we really better off with Microsoft in the lead? Since switching to a Mac in 2007, I can count on one hand the unexpected shutdowns I’ve had on the same machine, and I’d still have enough fingers to snap. I’d have at least one unexpected crash per week on a PC, and they still give me hell in the workplace.

And besides, Microsoft didn’t even appear on the Fortune 500 list until 1995, the final year of the range of Collins’ study (remember G2G’s 2001 publication date and the length of time needed to complete such a hefty study).

And that’s NOT good, much less great!

In the next installment of this blog, I’ll present some findings I collected that I think further underscore my defense of G2G.

Until then, thanks for reading, and remember:

Management doesn’t need to be made more complicated to be made better!

References

Collins, J. (2001). Good to Great: Why Some Companies Make the Leap… and Others Don’t. New York: HarperBusiness.

Farrell, H. (2003, July 13). Selection bias. Retrieved January 9, 2011, from: http://crookedtimber.org/2003/07/13/selection-bias/

Galuszka, P. (2008, November 22). Circuit City and the “Good to Great” business book conundrum. Retrieved January 9, 2011, from: http://www.bnet.com/blog/ceo/circuit-city-and-the-good-to-great-business-book-conundrum/1518?tag=mantle_skin;content

Gettler, L. (2003, November 21). Guru Peters still taking no prisoners. Retrieved January 9, 2011, from: http://www.theage.com.au/articles/2003/11/20/1069027253087.html

May, R. (2006, January 31). Why “Good to Great” isn’t very good. Retrieved January 9, 2011, from: http://www.businesspundit.com/why-good-to-great-isnt-very-good/

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