Selective reading of 3 books tells how to build a great company

 

Sunday, May 29, 2005
St. Louis Post-Dispatch Business E8
"Selective reading of 3 books tells how to build a great company"


1.  James C. Collins and Jerry I. Porras, Built to Last: Successful: Habits of Visionary Companies
2. Jim Collins, Good to Great: Why Some Companies Make the Leap, and Others Don't
3. Jack Welch with Suzy Welch, Winning

What differentiates a great company from an average performer? How can you turn your organization into a high performer? Dozens of writers, and thousands of frustrated business leaders, have tackled those questions over the years. Whether or not there will ever be definitive answers, three books provide a coherent, practical and compelling approach.

In Built to Last (1994), Jim Collins and Jerry Porras identified eight timeless principles of companies that had been top performers for decades. But shortly after Built to Last was published, a McKinsey & Company consultant told Collins that, although he loved the book, it was basically useless since those companies had always been great. What you need to do, he told Collins, is write a book that shows how to transform a long-time average performer into a great company.

Collins agreed. The result, after six years of research, was Good to Great (2001). Collins and five assistants analyzed the 1,435 companies that had ever been on the Fortune 500, looking for those that met two criteria: (1) at least 10 years of average financial performance (2) followed by at least 15 years of growth three times greater than the S&P 500. Only 11 measured up. This time Collins identified seven differentiating principles that made one-time average performers great.

Now, complementing Built to Last and Good to Great, is Winning by retired General Electric CEO Jack Welch ‚with‚ his wife Suzy Welch, a former Harvard Business Review editor. The total market value of General Electric stock was $13 billion when Welch became CEO of this old-line, stagnating manufacturer in 1981. It increased by more than $400 billion in the next 20 years, becoming the most valuable company in the world in 2001. Think about it: That‚ more than 30-fold growth!

Welch‚ book clearly details the coherent management philosophy that led to these astounding results. Reflecting this attribute of Winning, Warren Buffett‚ endorsement on the front cover states, ‚No other management book will ever be needed.‚

But Welch also has legions of detractors, who will dismiss Winning because they despise Welch. Welch is known for his simple, direct and tough approaches to issues: closing down or selling assets with over $10 billion in sales between 1981 and 1986 to achieve his goal of being number one or number two in each market; outsourcing to India; terminating the bottom 10 percent of employees each year.

Let‚ face it. Jack Welch is simply not the man to follow if you want I-can-feel-your-pain leadership. For example, his comments in Winning on work-life balance are classics in political incorrectness: ‚From my earliest days in Plastics, I used to show up at the office Saturday mornings. Not coincidentally, my direct reports showed up too‚.The idea just never dawned on me that anyone would want to be anywhere but at work‚. Bosses know that work-life policies in the company brochure are mainly for recruiting purposes‚. that work-life balance is your problem to solve.‚

Nonetheless, I strongly recommend Winning. Here‚ why: Winning is a living case study of how to address every one of Jim Collins‚ 15 principles from Built to Last and Good to Great.

Let‚ look at how Winning addresses one of the most challenging principles from Good to Great: ‚The executives who ignited the transformation from good to great ‚ first get the right people on the bus (and the wrong people off the bus).‚

Welch‚ short answer to this challenge is the chapter titled, ‚Differentiation: Cruel and Darwinian? Try Fair and Effective,‚ which details his 20-70-10 policy. It attracts and retains ‚the right people‚ by showering the top 20 percent of employees with hard and soft rewards. It gets the wrong people off the bus by engineering the exit of the bottom 10 percent. This may well be Welch‚ most controversial policy. Also, because people are the foundation for success, it may be one of the most important foundations for GE‚ success under Welch.

Welch admits that it took GE 10 years to install the kind of candor and trust that makes differentiation possible. His chapters on mission and values, candor, hiring, people management, and parting ways can suggest how to implement differentiation. Perhaps more usefully, they also suggest how to attract and retain the right people without using differentiation.

I suggest this simple if tough exercise for moving your organization from average to great. First, identify the few crucial principles from Collins for moving your company to greatness. Then, read Winning. Note Welch‚ specific actions that are relevant to Collins‚ crucial principles. Neither reject nor adopt Welch‚ actions. Instead, use them to spark ideas. Adapt Welch‚ actions to create rules that work for your company.

 


Bill Finnie, a business consultant and adjunct professor at Washington University, writes about the do's and don'ts for success.

E-mail BIll  This e-mail address is being protected from spambots. You need JavaScript enabled to view it.

The St. Louis Post-Dispatch and William C. Finnie share the copyright on this column. Individuals and their organizations may use these columns for their internal use. Publication for use outside of your organization, however, requires written permission from the St. Louis Post-Dispatch or William C. Finnie.