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They considered around 1,500 Fortune 500 companies from 1965 to 1995 to identify great companies. However, this exercise was like finding a needle in a haystack. Out of around 1,500 Fortune 500 companies, great companies were limited only to 11 according to his analysis. These 11 companies are dowdier companies and surprisingly didn’t include celebrity blockbuster companies which made headlines all the time included as they failed to match the above pattern. That means they failed to break out of the block and outperform the general market.
CEO of News Corporation, media mogul and self-made billionaire Rupert Murdoch said: “The world is changing very fast. Big will not beat small anymore. It will be the fast beating slow.” Probably these 11 companies will substantiate his saying as the said companies very handily beat others in terms of cumulative stock returns, including legendary companies like Coke, General Electric, etc., regardless of their sheer size according to his book.
These 11 companies are called good-to-great companies as once they followed the pattern of average companies with reasonable growth level and all of a sudden they outperformed the general stock market in an outstanding manner as seen in the graph since the transition point and they managed to sustain the same great status for at least 15 years.
As Jim and his research team dug into the facts of these good-to-great companies, they found some interesting facts:
nLarge-than-life celebrity leaders who had been parachuted from outside the company hardly managed to move the needle of the company as almost all out of all 11 good to great companies’ leaders came from inside. In recent past, the immediate past CEO of American departmental store JC Penny Ron Johnson who was an Apple veteran was headhunted by the Board of JC Penny by awarding him over $ 50 million when taking over the reins of the company according to publicly available information. After less than two years at the helm, he was fired and some analysts described his tenure as “one of the most aggressively unsuccessful tenures in the retail history”. In the same vein, Microsoft Corporation appointed new CEO Satya Nadella – after the not-very-successful tenure of Steve Ballmer as some blamed failing to get the grip of mobile operation system market by losing to Apple, Samsung and Google-Android – who had been working for 15 years for Microsoft as the Head of Cloud Business. To fulfil the top position Microsoft rattled boards from Ford to Ericson, again sort of celebrity leaders. However, I believe, Microsoft has done the right thing by giving preference to an internal veteran.
nThere is no evidence that these good-to-great companies used long range strategic planning when compared to other companies and there is no specific executive compensation package attached to this.
nHowever, they did not principally concentrate on what to do; rather they equally focused on what not to do and what to stop doing.
nMergers and acquisitions have not played any role in a path to become a great company and the technology per se helps only to accelerate the transformation. Most CEOs follows M&A as a fast-track to achieve growth as they can enjoy tremendous synergy in the process, however in the ‘speed of trust’ Steven Mack Covey explains the word ‘synergy’ per se comes as a big blow to the workers of related organisations as top higher-ups try to achieve the synergy by massive layoffs. Another reason would be mainly cultural mismatch- i.e. organisation A employees believe in one thing and organisation B employees believe in another thing, then there is a big mismatch leading to even complete failure of both businesses in some cases. These things happened due to the lack of a third alternative (3rd Alternative – Steven R. Covey). This book gives a new definition for word synergy and teaches us how to use synergy to transcend all dissimilarities and come to a solution where which is far better than previous solutions considered by both organisations individually.
nUltimately, against all odds, they produce revolutionary results without a revolutionary process.
nIn these good-to-great companies, the author and his team noted some common characteristics and those may be the cornerstones behind the magical sustainable success. Some of main common features are as follows.
Level 5 Leadership
In every good-to-great company, the person who was at the helm was believed to have come from Mars as these leaders had a paradoxical blend of extreme personal humility and intense professional will and they are very hard to find.
Humility + will = Level 5
According to his book, Darwin Smith is a one of very few Level 5 leaders who was at the helm at Kimberly Clark, a stodgy old paper company that was underperforming the general market substantially when he took over as CEO. Some board members had serious doubts about him as he lacked some necessary qualifications to hold the top position.
After becoming CEO within two months, he had been diagnosed with nose and throat cancer. Despite his illnesses, he took the company to an unprecedented level by impressively beating legendary companies such as Coke, GE, Scott Paper and Proctor and Gamble (in terms of cumulative stock returns) etc., and he was held the top position for more than 15 years and ultimately, when he was retiring he simply said, “I never stopped trying to become qualified for the job.”
The Window and the Mirror
Another common feature Jim and his research team noted was these Level 5 leaders never apportion credit for themselves for the success they achieved. They simply look out the window to apportion and pass the credit either to their subordinates or if there is no one to pass down they simply apportion the credit to luck.
Conversely, when rain fell on the company’s parade, they looked in the mirror to apportion responsibility and never blamed others or pinned it on bad luck.
Finally the author concluded by mentioning that all these Level 5 leaders were cut from the same cloth!
In the Sri Lankan context, I believe there are a very few Sri Lankan companies that have Level 5 leaders. Some of the very few may be:
nJetwing Hotels, a truly Sri Lankan company since its inception which dates back to the 1980s; the founders have managed to turn this company into a billion rupee company by expanding its footprint all over the country, becoming one of largest hotel chains in Sri Lanka.
nMAS Holdings, one of the largest apparel exporters to the USA, UK, etc., and catering to world-renowned brands such as Victoria’s Secret, etc.
nDilmah Tea, ‘Sri Lankan pride’ available in around 100 countries all over the world and one of the very few Sri Lankan brands to obtain international recognition.
nNDB Investment Bank – Probably the only investment bank in Sri Lanka to win international recognition three times in a row and managing to capitalise on the maximum potential out of the post-war rebound in capital markets and investment banking.
nI believe, by considering the staggering growth level they achieved from a very humble start, the leaders or founders who are at the top must be having the same traits of Level 5 leaders.
First who, then what
In fact good-to-great leaders follow quite a distinctive way for strategic planning when compared to other companies. They first focused on getting the right people on the bus while getting the wrong people off, putting the right people in the right seat, and then deciding where to drive.
The underlying principle they followed was if the company begin with ‘who’ rather than ‘what,’ then the company could adapt to the rapidly-changing environment.
I personally agree with this concept since if people primarily join the bus because of where it is going then halfway through if it realises that it is heading in the wrong direction, then in order to change the direction the company will experience an extremely uncomfortable position as there is some rigidity attached with the acquired skill set.
A good example is Wells Fargo, an American banking giant which is the fourth largest bank as per Forbes’ listing. During the 1970s, the American banking system had undergone wrenching change where it was extremely unpredictable.
At that time the CEO was Dick Cooley who is a Level 5 leader and he felt the gravity of change taking place and its ramifications. Therefore, first he started injecting an endless stream of talent directly into the veins of the company, hiring more and more outstanding people in the industry – even sometimes without even a specifically-defined vacancy. His explanation for this hiring strategy was: “If I am not smart enough to see the changes that are coming, they will.”
Actually, this strategy paid off very well as Wells Fargo was the only bank which managed all the banking deregulation successfully by outperforming the general market threefold whilst the banking system as a whole suffered a staggering decline of over 50% when compared to the general market.
Actually, I had an opportunity to attend a conference hosted by Gary Kirsten – former South African opening batsman (1993-2004) and he was the World Cup winning Cricket Coach of the Indian Cricket Team 2011. His presentation mainly focused on ‘How to Build Winning Teams’. One of his key tasks as a leader for the Indian Cricket Team was getting the right people on the bus and putting them in the right seat.
Confronting brutal facts head-on with unwavering faith towards ultimate objectives
Another common feature in good-to-great companies is they face brutal facts head-on yet never lose faith on the final objective. If you consider the autobiographies of Nelson Mandela and Mahatma Gandhi, we will find this fact to an extreme extent.
In Mandela’s autobiography, he mentioned the harsh and inhuman treatments he had undergone during 27 years imprisonment and found his way to become the first black president in South Africa. Even Gandhi who brought British dictators to their knees over-exemplified this fact. In general, Level 5 leadership is the mainstay to transform a good company to a great company.
Are Level 5 leaders born or made? The author describes this situation by dividing leaders into two categories. The first category is those who have the seeds of Level 5 qualities and those who do not. Thereby, the author is leaning more towards the fact that these leaders are born and not made. The great irony is that these leaders are all around us; sometimes even they do not know that they have seeds of Level 5 and sometimes we may also not be capable of recognising these unique talents.
(The writer can be reached via [email protected].)
