W h y s o m e c o m p a n I e s m a k e t h e
B U IL DU PAN DB RE AK THROUGH
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| B U IL DU PAN DB RE AK THROUGH The flywheel image captures the overall feel of what it was like inside the companies as they went from good to great. No matter how dramatic the end result, the good-to-great transformations never happened in one fell swoop. There was no single defining action, no grand program, no one killer innovation, no solitary lucky break, no wrenching revolution. Good to great comes about by a cumulative process-step by step, action by action, decision by decision, turn by turn of the fly wheel-that adds up to sustained and spectacular results. Yet to read media accounts of the companies, you might draw an entirely different conclusion. Often, the media does not cover a company until the flywheel is already turning at a thousand rotations per minute. This entirely skews our perception of how such transformations happen, making it seem as if they jumped right to breakthrough as some sort of an overnight metamorphosis. for the terms and breakthrough should go to David S. Landes and his book, The Wealth and Poverty of Nations Why Some Are So Rich and Some So Poor New York WW. Norton Company, 1998). On page 200, Landes writes "The question is really twofold. First, why and how did any country breakthrough the crust of and conventional knowledge to this new mode of production Turning to the first, I would stress buildup- the of knowledge and know-how; and breakthrough-reaching and passing thresholds" When we read this paragraph, we noted its applicability to our study and decided to adopt these terms in describing the good-to-great companies. 166 Collins For example, on August 27, 1984, Forbes magazine published an article on Circuit City. It was the first national-level profile ever published on the company. It wasn't that big of an article, just two pages, and it questioned whether Circuit City's recent growth could Still, there it was, the first public acknowledgment that Circuit City had broken through. The journalist had just identified a hot new company, almost like an overnight success story. This particular overnight success story, however, had been more than a decade in the making. Alan Wurtzel had inherited CEO responsibility from his father in 1973, with the firm close to bankruptcy. First, he rebuilt his executive team and undertook an objective look at the brutal facts of reality, both internal and external. Instill struggling with a crushing debt load, Wurtzel and his team began to experiment with a warehouse showroom style of retailing (large inventories of name brands, discount pricing, and immediate delivery) and built a prototype of this model in Richmond, Virginia, to sell appliances. In 1976, the company began to experiment with selling consumer electronics in the warehouse showroom format, and in 1977, it transformed the concept into the first-ever Circuit City store. The concept met with success, and the company began systematically converting its stereo stores into Circuit City stores. In with nine years of accumulated turns on the flywheel-Wurtzel and his team committed fully to the concept of the Circuit City superstore. Over the next five years, as it shifted entirely to this concept, Circuit City generated the highest total return to shareholders of any company on the New York Stock From 1982 to 1999, Circuit City generated cumulative stock returns twenty-two times better than the market, handily beating Intel, Wal-Mart, GE, Hewlett-Packard, and Coca-Cola. Not surprisingly, Circuit City then found itself a prime subject for media attention. Whereas we found no articles of any significance in the decade leading up the transition, we found ninety-seven articles' worth examining in the decade after the transition, twenty-two of them significant pieces. It's as if the company hadn't even existed prior to that, despite having traded on a major stock exchange since 1968, and despite the remarkable progress made by Wurtzel and his team in the decade leading up to the breakthrough point. The Circuit City experience reflects a common pattern. In case after case, we found fewer articles in the decade leading up to the point of transition than in the decade after, by an average factor of nearly three |