"; if(is_file("header.php")) include "header.php"; else include "../header.php"; ?>

A "pretty good" book The author's thesis is that he knows how companies make the leap from "good" to "great," and that he learned the principles by studying the statistical differences between companies that made the jump, and those that didn't. He begins by explaining his ability to "take a lump of unorganized information, see patterns, and extract order from the mess - to go from chaos to concept." [page 11]. Collin's comment reminded me of another author, who wrote: "Human nature abhors a lack of predictability and the absence of meaning. As a consequence, we tend to "see" order where there is none, and we spot meaningful patterns where only the vagaries of chance are operating." ["How we know what isn't so," Gilovich, page 9]. While agreeing with many of his conclusions, this book lacks the statistical rigor the author ascribes to it. The principal error involves confusion between causality and correlation. Collins notes William P. Briggs' calculation that the probability of correlation by random chance is less than 1 in 17 million [211-212]. The calculation, while mathematically correct, is largely irrelevant because correlation does not mean "caused by." As an example, consider race cars which are highly correlated with advertiser's logos, although causality is clearly lacking because adding or stripping off logos won't suddenly make the cars go faster or slower. To strengthen his argument Collins should have specifically and methodologically examined the changes that happen to companies that go "from great to good." There are plenty of examples, including many of the "good-to-great" companies in Jim's data base. Unfortunately, the study does this only sporadically and inconsistently, and as more of a sideline. Compounding the problem is the fact that the author's statistical database applies only to major US companies (something he notes), though he tries to apply the "concepts" derived from these correlations to just about everything - including high school track teams and landlords. In spite of some of the methodological errors in his approach, I remain impressed by the extent to which Collins collected large amounts of data, and the way he defined the most important terms that he uses. It's true that he has a talent for finding "patterns," but I found myself mostly agreeing with his conclusions, even if I don't share his enthusiasm for the supposed rigidity with which they were drawn. In spite of the limitations of his work, Collins' book has a degree of rigor that's seldom approached by the plethora of evangelizing "management" and "leadership" tracts on the market. According to Collins, a "good" company has cumulative total stock returns no better than 1.25 times the general market for at least 15 years, while a great company is one that beats the general market by 3 times for at least 15 years. His selection criteria and method of ranking companies is relatively robust. Some of the ranking methods are obviously more quantitative than others. There is, for example, poor correlation between company performance and executive pay, employee layoffs, and corporate restructuring/acquisitions. The author draws some of his broadest conclusions from his most qualitative concepts. For example, he defines the Hedgehog Concept as "... an understanding of what you can be the best at [in the whole world]." That's a pretty fuzzy definition, and is ultimately unverifiable. As a result, the author gets involved in several ad hoc arguments. For example, on page 99 he berates Upjohn by saying: "Upjohn never confronted the same brutal reality [that it could not compete with an industry behemoth] and continued to live with the delusion that it could beat Merck." [page 99]. Yet he lauds Darwin Smith for making a similar gamble, in positioning Kimberly-Clark in competition with Procter & Gamble: "But they reasoned, if Kimberly-Clark thrust itself into the fire of the consumer paper-products industry, world-class competition like Procter & Gamble would force it to achieve greatness or perish." [page 20]. The difference between a great Hedgehog Concept and a bad one, apparently, is that the great one works and the others don't. But with history as our guide there's no end to playing the role of Monday-morning quarter back. Part of the Hedgehog concept is tight focus. But when faced with contrary evidence in the form of G.E., which has lots of conglomerates, the author tries to force the contrary data into his world view by arguing that GE's Hedgehog Concept is to have lots of good managers so they can manage various divisions. There's never a coherent, global definition of what constitutes a Hedgehog Concept; it's largely tautological reasoning that establishes "great" Hedgehog Concepts as those used by "great" companies. I must temper that complaint by saying that, in spite of the less-than-rigorous nature of this book, most of what Jim says makes sense to me. This was a most enjoyable book to read, and I've filled the margins (top, sides, and bottom) with notes and scribbles. In particular, he gives a nicely balanced view of leadership, cutting through the baloney that's so often the core competency of people who try to write books on the subject. Here's a typical quotation: "George Ruthmann ... understood that the purpose of bureaucracy is to compensate for incompetence and lack of discipline...Most companies build their bureaucratic rules to manage the small percentage of wrong people on the bus, which in turn drives away the right people on the bus, which then increases the percentage of wrong people on the bus, which increases the need for more bureaucracy to compensate for incompetence ... and so forth." [page 121] Overall, I gave this book a high rating because it made me think. The author has obviously spent an enormous amount of time doing research, and the book really is pretty good. The high points certainly outweigh the problems, and I highly recommend it - especially the lengthy appendices.