W h y s o m e c o m p a n I e s m a k e t h e
Download 3.69 Mb. View original pdf
|
| FROM G OOD TO G REAT TO B U I L T TO L A S T ? Ratio of Cumulative Stock Returns to General Market, 1927 - 2000 lasted only a short time in the job, before being ousted in an ugly executive- suite battle. One of the architects of this boardroom coup indicated in the Charlotte News and Observer (June 1 1, 1999, page that Iverson had fallen from Level 5 leadership in his old age and had begun to display more egocentric Level 4 traits. "In his heyday, Ken was a giant of a man" he said, "but he wanted to take this company to the grave with him" Iverson tells a different story, arguing that the real problem is current management's desire to diversify Nucor away from its Hedgehog Concept. "Iverson just shakes his head" wrote the News and Observer, "saying it was to getaway from diversification that Nucor became a narrowly focused steel products company in the first place" Whatever the case-loss of Level 5 leadership or straying from the Hedgehog Concept, or both-the future of Nucor as a great company remains uncertain at the time of this writing. That being said, it is worth noting that most of the good-to-great companies are still going strong at the time of this writing. Seven of the eleven companies have thus far generated over twenty years of extraordinary performance from their transition dates, with the median of the entire group being twenty-four years of exceptional results-a remarkable record by any measure. Good to Great 215 Q: How do you reconcile Philip Morris as a "great" company with the fact that it sells tobacco Perhaps no company anywhere generates as much antipathy as Philip Morris. Even if a tobacco company can be considered truly great (and many would dispute that, there is doubt as to whether any tobacco company can endure, given the ever-growing threat of litigation and social sanction. Ironically, Philip Morris has the longest track record of exceptional performance from the date of its transition-thirty-four years-and is the company that made it into both studies (Good to Great and Built to Last. This performance is not just a function of being in an industry with high-margin products sold to addicted customers. Philip Morris blew away all the other cigarette companies, including its direct comparison, R. J. Reynolds. But for Philip Morris to have a viable future will require confronting square-on the brutal facts about society's relationship to tobacco and the social perception of the tobacco industry. A large percentage of the public believes that every member of the industry participated equally in a systematic effort to deceive. Fair or not, peo- ple-especially in the United States-can forgive a lot of sins, but will never forget or forgive feeling lied to. Whatever one's personal feelings about the tobacco industry (and there was a wide range of feelings on the research team and some very heated debates, having Philip Morris in both Good to Great and Built to Last has proved very instructive. It has taught me that it is not the content of a company's values that correlates with performance, but the strength of conviction with which it holds those values, whatever they might be. This is one of those findings that I find difficult to swallow, but that are completely supported by the data. (For further discussion of this topic, see chapter 3 of Built to Last, pages 65-71 .) Q Can a company have a Hedgehog Concept and have a highly diverse business portfolio Our study strongly suggests that highly diversified firms and conglomerates will rarely produce sustained great results. One obvious exception to this is GE, but we can explain this case by suggesting that GE has a very unusual and subtle Hedgehog Concept that unifies its agglomeration of enterprises. What can GE do better than any company in the world Develop first-rate general managers. In our view, that is the essence of GE's Hedgehog Concept. And what would be GE's economic denominator Profit per top-quartile management talent. Think about it this way You have two business opportunities, both that might generate million in profits. But suppose one of those businesses would drain three times the amount of top-quartile management talent to achieve those profits as the other business. The one that drains less management talent would fit with the Hedgehog Concept and the other would not. Finally, what does GE pride itself on more than anything else Having the best set of general managers in the world. This is their true 216 Collins passion-more than lightbulbs, jet engines, or television programming. Hedgehog Concept, properly conceived, enables the company to operate in a diverse set of businesses yet remain squarely focused on the intersection of the three circles. Q What is the role of the board of directors in a transformation from good to great First, boards play a role in picking Level 5 leaders. The recent spate of boards enamored with charismatic especially "rock star" celebrity types, is one of the most damaging trends for the long-term health of companies. Boards should familiarize themselves with the characteristics of Level 5 leadership and install such leaders into positions of responsibility. Second, boards at corporations should distinguish between share value and share price. Boards have no responsibility to a large chunk of the people who own company shares at any given moment, namely the should refocus their energies on creating great companies that build value for the shareholders. Managing the stock for anything less than a horizon confuses price and value and is irresponsible to shareholders. Fora superb look at the board's role in taking a company from good to great, I recommend the book Resisting Hostile Takeovers by Rita Ricardo-Campbell (Praeger Publishers, 1997). Ms. Ricardo-Campbell was aboard member during the Colman Mockler era and a detailed account of how a responsible board wrestled with the difficult and complex question of price versus value. Q Can hot young technology companies in a go-go world have Level 5 leaders My answer is two words Morgridge. Mr. Morgridge was the transition CEO who turned a small, struggling company in the Bay Area into one of the great technology companies of the last decade. With the flywheel turning, this unassuming and relatively unknown man stepped into the background and turned the company over to the next generation of leadership. I doubt you've ever heard of John Morgridge, but I suspect you've heard of the company. It goes by the name Cisco Systems. Q How can you practice the discipline of "first when there is a shortage of outstanding people First, at the top levels of your organization, you absolutely must have the discipline not to hire until you find the right people. The single most harmful step you can take in a journey from good to great is to put the wrong people in key positions. Second, widen your definition of "right people" to focus more on the character attributes of the person and lesson specialized knowledge. |