In Defense of Good To Great, Part 2

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 Don Meyer.

Meyer is the winningest basketball coach in any division in NCAA history. Meyer accumulated 922 career victories in 38 seasons while coaching at Hamline University, David Lipscomb University, and Northern State in Aberdeen, S.D. He overcame a near-fatal car accident that eventually cost him much of his left leg, as well as carcinoid cancer, discovered the night of his accident. Meyer was honored at the 2009 ESPYS with the Jimmy V. Perseverance Award.

In my previous post to this blog, I cross-examined five arguments against the validity of Jim Collins’ book Good To Great. Some of these arguments were better constructed than others, but I still found fault in their logic that claimed that the premises of Collins’ work were flawed and therefore of little or no value.

One thing that seems to slip past each of the G2G critics (my abbreviation) is the timeline of events surrounding the book.

First, Collins and his Stanford University research team spent five years researching and writing the work, which was published in 2001. That would place their project starting date sometime in 1996.

Second, their research examined the performance of companies from 1965-1995, which, while certainly containing some general economic low points, contained mostly periods of steady growth and prosperity (particularly the latter half), arguably some of the greatest in human history.

This generally prosperous period was then followed by several key events that individually and collectively set in motion a severe economic tailspin and generated a new age of commerce and a new breed of customer.

First came the bursting of the Internet bubble in the late 1990’s when investors finally figured out that .com wasn’t simply a license to print money, and that companies actually had to offer products of value to be profitable (what a novel concept, huh?).

Then came the collapse of several major companies that fell in an ethical vacuum created by corporate greed scandals of epic proportions: Enron, Arthur Andersen, MCI Worldcom, Tyco…the list goes on. Untold others were forced to restate earnings and open their books, revealing that many of them had only feigned success with smoke and mirrors.

By bilking individual, institutional, and portfolio investors of untold billions, combined with some other factors, these implosions and restatements created far-reaching ripple effects that eventually pushed some countries to or past the brink of economic collapse and brought about the onset of the worst financial season since the Great Depression.

The criticisms I highlighted in Part 1 were written in 2003, 2006, 2008, and 2008, all during or after one of the landscape-shifting factors just mentioned, and they didn’t fail to point out the fallibility of some of the G2G companies that were mowed down by the economic landslide of the past decade.

Yes, I know that Circuit City went out of business, and I know Fannie Mae erupted in a cloud of scandal, but what about the other nine G2G companies Collins identified?

In another 2008 article lambasting G2G, Levitt singles out the performances of Circuit City and Fannie Mae to measure G2G principles, but in a quick layperson’s snapshot examination of their stock returns over the past five years from 2006-2010 (which, granted, is only a single—yet quite important—performance metric), here’s what I found.

  • Only three of the companies posted negative 5-year stock returns.
  1. Pitney Bowes (PBI), whose main business is postage meters, mailing equipment, and other shipping-related services, drew a -41.89% 5-year return. Obviously, the withering postal industry is the wrong business model for the 21st Century (akin to being in the ice business at the North Pole), and going head-to-head in the shipping industry with FedEx and UPS isn’t a wise move, either. However, PBI was the only bad news/bad news scenario I found.
  2. Walgreens (WAG), the juggernaut drugstore company, posted a -10.88% 5-year return. However, keep the following factors in mind. First, the pharmacy store market fostered stiff competition in the last five years between drugstore companies like WAG, CVS, and Rite Aid, along with retail titans Walmart and Costco. Second, WAG now operates more than 7000 stores in all 50 states, and new ones can still be seen popping up on corners everywhere (fostering new Jeff Foxworthy material, e.g., “If you can’t shoot your rifle and hit a Walgreens store, you might be a redneck!”). Third, WAG posted explosive growth in the last half of 2010, taking the company’s stock returns back to pre-recession 2007 levels.
  3. Wells Fargo (WFC), the fourth largest bank in the U.S. by assets and the largest bank by market capitalization, posted a -1.19% 5-year return. However, this return is neck-in-neck percentage-wise with peers J.P. Morgan Chase and Citigroup, and its share price is much higher than shares of Citigroup and Bank of America Corporation. In addition to the perspective brought to this performance by the increases in federal oversight of the banking/lending industry, WFC appears to be in good shape when considering its status as the second largest U.S. bank in deposits, home mortgage servicing, and debit card servicing. In 2007, WFC was the only U.S. bank rated AAA by Standard & Poors (though that rating was lowered to AA in light of the subsequent banking sector crisis).
  • The other six companies were directly connected to very positive results over the past five years.
  1. Procter & Gamble (PG), the world’s top maker of household products and owner of many top global brands, purchased Gillette in 2005. Afterward, PG posted a +10.64% 5-year return despite a recent battered retail market. My guess is that Gillette’s brand equity and product quality had at least a nominal role in PG’s success. Fortune Magazine also annually cites PG as one of the world’s most admired companies, which speaks for itself.
  2. Kimberly-Clark (KMB), the world’s top maker of personal paper products, posted a +4.64% 5-year return despite a one-year plummet from September 2008-September 2009. It currently outperforms all markets but NASDAQ.
  3. Kroger (KR), billed as the nation’s top pure grocery chain despite a number of diverse holdings, posted a +16.00% 5-year return despite heavy competition from retail titans Walmart and Costco. It outperformed all markets until November 2010, when NASDAQ narrowly clipped it. KR’s share price only recently dropped to levels equivalent to Walmart.
  4. Abbott Laboratories (ABT), a major health care products maker, posted a +17.65% 5-year return, which outperformed all markets and health care product peers Merck, Roche, and Sanofi Aventis.
  5. Philip Morris (PM), which makes seven of the top 15 brands of tobacco products in the world, posted a +19.82% 5-year return, which outperformed all markets but NASDAQ. PM sells its smokes in 160 countries and boasts at least 15% of the international cigarette market outside the U.S. (proving, I suppose, that despite health risks, people like to and will smoke).
  6. Nucor (NUE), which produces about 15 million tons of steel in its minimills annually and is a major recycler of scrap metal, posted a staggering +32.56% 5-year return, which outperformed all markets and its (much larger) peers.

Again, I’ll reinforce my lack of financial pedigree, but I’d wager that the Abbott, Gillette, Kimberly-Clark, Kroger, Nucor, and Philip Morris would make a fine stock portfolio, and I wouldn’t be surprised if Walgreens and Wells Fargo made good speculative investments at minimum.

Let’s be fair and cut Collins some due slack. While expounding on the G2G principles, he explicitly states that if the companies he identified as “great” ever strayed from their Hedgehog concepts, they’d become also-rans, which is precisely what Circuit City did (at least in part) and what Fannie Mae obviously did.

And let’s not forget: Egypt, Rome, Britain, and scores of other countries once ruled the world at various times. But like Fannie Mae and Circuit City, they quit doing the things that their Hedgehog Concept allowed them to do, their greatness diminished, and they fell by the wayside.

But enough from me. Let’s let some others weigh in on G2G.

After Galuszka’s initial ripping of Collins and G2G, leadership consultant and adjunct professor Dave Jensen weighed in with this:

“The essence of science is prediction. If you don’t have solid science behind what you say, it’s best for most if you don’t say it. To me G2G at least attempted to have a decent basis of its conclusion. Even if somewhat flawed, it doesn’t deserve to be lumped in with the trash that passes for business books these days.”

Another reader chimed in: “All business books are flawed! All theories are flawed because at some stage something happens and they change and evolve.”

Finally, after catching some pointed criticism from readers (particularly by one commenter whose writing style you’ll come to know in the future!), Galuszka did some indirect backtracking of his own in a second article about G2G:

“One year ago, few would have thought that such venerable names as Bear Stearns, Merrill Lynch, WaMu, Lehman Brothers, American International Group and Wachovia would be bought or out of business. Today’s crisis is happening at incredible speed, showing that comprehending business and economics is still very much an art, not a science.”

Mr. Galuszka, I couldn’t agree more, which is why I’ll continue to write, consult, and teach with a palette of Collins’ G2G concepts, at least until I come across something that holds more water than the arguments against it.


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:

Galuszka, P. (2008, November 26). “Good to Great” and Circuit City, Take Two. Retrieved January 9, 2011, from:

Galuszka, P. (2008, November 22). Circuit City and the “Good to Great” business book conundrum. Retrieved January 9, 2011, from:;content

Gettler, L. (2003, November 21). Guru Peters still taking no prisoners. Retrieved January 9, 2011, from:

Levitt, S. D. (2008, July 28). From Good to Great … to Below Average. Retrieved January 9, 2011, from:

May, R. (2006, January 31). Why “Good to Great” isn’t very good. Retrieved January 9, 2011, from:

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