Book Summary: Great by Choice

Author: Jim Collins | February 14, 2012 | Leadership, Strategy

The Growth Faculty produces a summary of key points and learnings from this book.  We recommend that you read the book to access the full research, data, case studies, findings and thinking that support these summary points.
 
Book Summary: Compiled by Karen Beattie, The Growth Faculty

Book:  Great by Choice: Uncertainty, chaos, and luck – why some thrive despite them all
 
Author: Jim Collins and Morten T Hansen
 
Chapter 1: Thriving in Uncertainty
 
The nine-year research project behind this book started in 2002 around a simple question: Why do some companies thrive in uncertainty, even chaos, and others do not? When buffeted by tumultuous events, when hit by big, fast-moving forces that we can neither predict nor control, what distinguishes those who perform exceptionally well from those who underperform or worse?
 
The research method rests upon having a comparison set. The critical question is not “What did great companies share in common?” The critical question is “What did great companies share in common that distinguished them from their direct comparisons?”
 
Comparisons are companies that were in the same industry with the same or very similar opportunities during the same era as the 10X companies, yet they did not produce great performance.
 
10Xers (“ten-EX-ers”) - companies that didn’t merely get by or just become successful. They truly thrived. Every 10X beat its industry index by at least 10 times.
 
10X cases in this study:
 •  Amgen, Biomet, Intel, Microsoft, Progressive Insurance, Southwest Airlines, Stryker   

Research conducted shattered the following deeply entrenched myths:
 •  Successful leaders in a turbulent world are bold, risk-seeking visionaries
 •  Innovation distinguishes 10X companies in a fast-moving, uncertain and chaotic world
 •  A threat-filled world favours the speedy; you are either the quick or the dead
 •  Radical change on the outside requires radical change on the inside
 •  Great enterprises with 10X success have a lot more good luck
 
Chapter 2: 10Xers
 
On one hand, 10Xers understand that they face continuous uncertainty and that they cannot control, and cannot accurately predict significant aspects of the world around them. On the other hand, 10Xers reject the idea that forces outside their control or chance events will determine their results; they accept full responsibility for their own fate.
 
10Xers then bring this idea to life by a triad of core behaviours: fanatic discipline, empirical creativity and productive paranoia. Animating these three core behaviours is a central motivating force, Level 5 ambition. These behavioural traits, correlate with achieving 10X results in chaotic and uncertain environments. Fanatic discipline keep 10X enterprises on track, empirical creativity keeps them vibrant, productive paranoia keeps them alive and Level 5 ambition provides inspired motivation.
 
Fanatical Discipline
 •  Discipline, in essence, is consistency of action – consistency with values, consistency with long-term goals, consistency with performance standards, consistency of method, consistency over time.
 •  10Xers are utterly relentless, monomaniacal even, unbending in their focus on their quests. They don’t overreact to events, succumb to the herd, or leap for alluring – but irrelevant – opportunities.
 
Empirical Creativity
 •  Empirical means relying upon direct observation, conducting practical experiments and/or engaging directly with evidence rather than relying on opinion, whim, conventional wisdom, authority or untested ideas.
 •  Having an empirical foundation enables 10Xers to make bold, creative moves and bound their risk.
 •  10Xers had a much deeper empirical foundation for their decision and action with gave them well-founded confidence and bounded their risk.

Productive Paranoia
 •  10Xers differ from their less successful comparisons in how they maintain hypervigilance in good times as well as bad. Even in calm, clear, positive conditions, 10Xers constantly consider the possibility that events could turn against them at any moment. Indeed, they believe that conditions will – absolutely with 100 percent certainty – turn against them without warning, at some unpredictable point in time, at some highly inconvenient. And they’d better prepared.
 
Level 5 ambition
 •  10Xers channel their ego and intensity into something larger and more enduring than themselves. They’re ambitious, to be sure, but for a purpose beyond themselves, be it building a great company, changing the world or achieving some object that’s ultimately not about them.
 •  10Xers share Level 5 leaders’ most important trait: they’re incredibly ambitious, but their ambition is first and foremost for the cause, for the company, for the work, not themselves.
 
Chapter 3: 20 Mile March

 The 20 Mile March was a distinguishing factor, to an overwhelming degree, between 10X companies and the comparison companies in the research
 
A good 20 Mile March has the following seven characteristics:
 
 •  Clear performance markers.
 •  Self-imposed constraints.
 •  Appropriate to the specific enterprise.
 •  Largely within the company’s control to achieve.
 •  A proper timeframe – long enough to manage, yet short enough to have teeth.
 •  Imposed by the company upon itself.
 •  Achieved with high consistency.

Unexpected findings
 
20 Mile Marchers have an edge in volatile environments; the more turbulent the world, the more you need to be a 20 Mile Marcher.
 
There is an inverse correlation between pursuit of maximum growth and 10X success. Comparison – company leaders often pressed for maximum growth in robust times, thereby exposing their enterprises to calamity in an unexpected downturn. 10X winners left growth on the table, always assuming that something bad lurked just around the corner, thereby ensuring they wouldn’t be caught overextended.
 
Chapter 4: Fire Bullets, Then Cannonballs
 
A “fire bullets, then cannonballs” approach better explains the success of 10X companies than big-leap innovations and predictive genius.
 
A bullet is a low-cost, low-risk, and low-distraction test or experiment. 10Xers use bullets to empirically validate what will actually work. Based on that empirical validation, they then concentrate their resources to fire a cannonball, enabling large returns from concentrated bets.
 
The 10X cases fired a significant number of bullets that never hit anything. They didn’t know ahead of time which bullets would hit or be successful.
 
Unexpected findings
 
The 10X winners were not always more innovative that the comparison cases.  In some matched pairs, the 10X cases proved to be less innovative than their comparison cases.
 
10Xers appear to have no better ability to predict impending changes and events than the comparisons. They aren’t visionary geniuses; they’re empiricists.
 
The combination of creativity and discipline, translated into the ability to scale innovation with great consistency, better explains some of the greatest success stories – from Intel to Southwest Airlines, from Amgen’s early years to Apple’s resurgence under Steve Jobs – than the mythology of big-hit, single step breakthroughs.
 
Chapter 5: Leading above The Death Line
 
This chapter explores three key dimensions of productive paranoia:
 
1) Build cash reserves and buffers – oxygen canisters – to prepare for unexpected events and back luck before they happen
 
2) Bound risk – death line risk, asymmetric risk, and uncontrollable risk – and manage time-based risk
 
3) Zoom out, then zoom in, remaining hypervigilant to sense changing conditions and respond effectively
 
10Xers understand they cannot reliably and consistently predict future events, so they prepare obsessively – ahead of time, all the time – for what they cannot possibly predict. They assume that a series of bad events can wallop them in quick succession, unexpectedly at any time.
 
It’s what you do before the storm hits – the decisions and disciplines and buffers and shock absorbers already in place – that matters most in determining whether your enterprise pulls ahead, falls behind or dies when the storm hits.
 
10xers are extremely prudent in how they approach and manage risk, paying special attention to three categories of risk:
 
 • Death Line Risk (which can kill or severely damage the enterprise)
 • Asymmetric Risk (in which the downside dwarfs the upside)
 • Uncontrollable risk (which cannon be controlled or managed)
 
Rapid change does not call for abandoning disciplined thought and disciplined action. Rather it calls for upping the intensity to zoom out for fast yet rigorous decision making and zoom in for fast yet superb execution.
 
Unexpected findings
 
The 10Xers cases took less risk than the comparison cases yet produced vastly superior results.
 
Contrary to the image of brazen, self-confident, risk-taking entrepreneurs who see only upside potential. 10X leaders exercise productive paranoia, obsessing about what can go wrong. They ask questions like: what is the worst case scenario? What are the consequences of the worst case scenario? What if? What if? What if?
 
The 10X cases didn’t have a greater bias for speed than the comparison companies. Taking the time available before the risk profile changes, whether short or long, to make a rigorous and deliberate decision produces a better outcome than rushing a decision.

Chapter 6: SMaC
 
SMaC stands for Specific Methodical and Consistent. The more uncertain, fast-changing and unforgiving your environment, the more SMaC you need to be.
 
A SMaC recipe is a set of durable operating practices that create a replicable and consistent success formula; it is clear and concrete, enabling the entire enterprise to unify and organise its efforts, giving clear guidance regarding what to do and what not to do.  A SMaC recipe reflects empirical validation and insight about what actually works and why. Howard Putnam’s 10 points at Southwest perfectly illustrates the point.
 
Developing a SMaC recipe, adhering to it, and amending it (rarely) when conditions merit correlate with 10X success. This requires the three 10X behaviours: empirical creativity (for developing and evolving it) fanatic discipline (for sticking to it) and productive paranoia (for sensing necessary change)

Unexpected findings
 
It is possible to develop specific concrete practices that can endure for decades – SmaC practices.

Far more difficult than implementing change if figuring out what works, understanding why it works,grasping when to change and knowing when not to.

Chapter 7: Return on Luck

We defined a luck event as one that meets three tests: (1) some significant aspect fo the event occur. Yet 10X cases were largely or entirely independent of actions of the key factors in the enterprise 2) the event has a potentially significant consequence (good or bad) and 3) the event has some element of unpredictability.

Luck happens a lot, both good and back luck. Every company in our research experienced significant luck event in our era of analysis. Yet the 10X cases were not generally luckier than the comparison cases.

The leadership concepts in this book – fanatic discipline, empirical creativity, productive paranoia, Level 5 ambition. 20 mile march, fire bullets, then cannonballs, leading above the death line and SMaC – all contribute directly to earning a great ROL.
 
10Xers credit good luck as a contributor to their successes, despite the undeniable fact that others also experienced good luck, but they never blame bad luck for set backs or failures.
 
Unexpected findings
 
Some of the comparison companies had extraordinarily good luck, better luck even than the 10X winners, yet failed because they squandered it.
 
ROL might be an even more important concept than return on assets (ROA), return on equity, return on sales (ROS) or return on investment.
 
Who Luck – the luck of finding the right mentor, partner, teammate, leader, friend – is one of the most important types of luck. The best way to find a current of good luck is to swim with great people, and to build deep and enduring relationships with people for whom you’d risk your life and who’d risk their lives for you.

FEATURING

Jim Collins is an American business consultant, author, and lecturer on the subject of company sustainability and growth. Jim Collins frequently contributes to Harvard Business Review, Business Week, Fortune and other magazines, journals, etc.

Jim has authored or co-authored five books based on his research, including the classic Built to Last, a fixture on the Business Week best-seller list for more than six years, and has been translated into 25 languages. The most recent book is How the Mighty Fall: And Why Some Companies Never Give In. Good to Great, his previous book, is "about the factors common to those few companies ... to sustain remarkable success for a substantial period," attained long-running positions on the New York Times, Wall Street Journal and Business Week best-seller lists, sold 2.5 million hardcover copies since publication, and has been translated into 32 languages.

Collins often discusses a "Level 5 leader" in his writings. This refers to the peak of a five-tier hierarchy of leadership characteristics presented in the books. A Level 5 Leader is someone who embodies a “paradoxical mix of personal humility and professional will.”

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