GOOD TO - THE YOUNG TREPS

1 # 'tGOODTOISAVEDUP >rofthebestsellinqrTOLASTUSA$ $ to Last,thedefiningmanagementstudyofthenine ties,showedhowgreatcompaniestriumphovert imeandhowlong-termsustainedperformanceca nbeengineeredintotheDNA Howcangoodcompanies,mediocrecompanies,ev enbadcompaniesachieveenduringgreatness?T HESTUDYF oryears, so,whataretheuniversaldistinguishingchar acteristicsthatcauseacompanytogofromgood togreat?THESTANDARDSU singtoughbenchmarks, ,thegood-to-greatcompaniesgeneratedcumul ativestockreturnsthatbeatthegeneralstock marketbyanaverageofseventimesinfifteenye ars,betterthantwicetheresultsdeliveredby acompositeindexoftheworld'sgreatestcompa nies,includingCoca-Cola,Intel,GeneralEle ctric, , ,Collinsandhiscrewdiscoveredthekeydeterm inantsofgreatness whysomecompaniesmaketheleapandothersdon' t.(continuedonbackflap)1001 GOODTOGREATALSOBYJIMCOL LINSB uilttohast( )mmi;n*#*& ,,' K>M?,Iff;i*k1& '* "si: -AviV'*"G^ M^y*1$$WhySomeCompaniesMaketheLeap.

2 AndOthersDon' 2001by the this bookmay be used orreproducedin any mannerwhatsoeverwithout writtenpermissionexcept in thecaseof briefquotationsembodied , 10 East53rdStreet, New York, bepurchasedforeducational,business, :SpecialMarketsDepartment,HarperCollinsP ublishersInc.,10 East 53rd Street,NewYork, , JamesC.(JamesCharles), 1958-Good togreat:why somecompaniesmake the 't / Jim Collins. 1st (he) 09 RRD90898887 86 Thisbookisdedicatedto theChimpsIloveyou all, each : Good Is the Enemy of Great12:Level5 Leadership173 :ConfronttheBrutalFacts(YetNever Lose Faith)6 55: The Hedgehog Concept(Simplicitywithinthe ThreeCircles)906: A Culture ofDiscipline1207:TechnologyAcceleratorsJ 448: TheFlywheeland the DoomLoop1649:FromGoodtoGreattoBuilttoLas tJ8 8epilogue:FrequentlyAskedQuestions211 ResearchAppendices219 Notes261 Index287 MEMBERSOFTHEG O OD-TO- G R EATRESEARCHTEAMASSEMBLEDFORTEAMMEETING,J ANUARY2000 Firstrow:VickiMosurOsgood,AlysonSinclair , ,ChristineJonesSecondrow:EricHagen,Duane ,PaulWeissman,Scott Jones, Weijia (Eve) ,JenniCooper,LeighWilbanks, ,JimCollins, ,PeterVanGenderen, Lane HornungNotpictured:ScottCederberg,Morten T.

3 Hansen, Amber \NL BQM&MTSft osaythisbookis"byJimCollins" contributions made by other people, this book would the top of the list are members of the research team. Iwastrulyblessedto have anextraordinarygroup of people dedicated to the ,they contributed something on the order of15,000hours ofworkto the project, and the standard they set forthemselvesin the qualityof theirworkset a highstandardfor me to try to live up struggledwithwritingthebook,I pictured all thehardworkingmembers of theteam who dedicated months (in somecases,years)to thiseffortlookingover my shoulder and holding meaccountable,challenging me to createa final manuscript that met theirstandards,worthyof their toil and contribution. I hope thiseffortmeets with reachthat standardrestsentirely with (Eve) addition, I would like to thank Denis B. Nock at theUniversityofColorado Graduate School ofBusiness,whowasinstrumental in helpingme identifyand recruit theverybest graduate students to join the the buswasthesinglemostimportantstepinmaking theprojectsuccessful,and Colorado, I am indebted to CarolKrismannand her dedicatedstaffat theWilliamM.

4 WhiteBusinessLibrary, ,Iwouldlike toacknowledgeBettyGrebe,LynnetteLeiker,D inahMcKay,MarthaJo Sani, and Jean amparticularlyindebted to alargenumber ofcriticalreaderswhoinvestedhoursinreadi ngdraftsofthemanuscriptandfeedingme the brutalfactsaboutwhatneededto (andalwayshelpful)feedback,theycontinual lyreinforcedmyfaithin thepotential of theirfranknessand insight, I would like tothankKirkArnold, ,NataliaCherney-Roca,Paul , NicoleToomeyDavis,AndrewFenniman, ChristopherFor-man, William ,TerryGold, Ed Greenberg, Martha Green-berg, , ,BeckyHall, Liz Heron, John , Ann H. Judd,RobKaufman,JoeKennedy,KeithKennedy, ButchKerzner, AlanKhazei,AnneKnapp,BetinaKoski,Ken Krechmer, Barbara , ,KyleLefkoff,KevinManey, Bill Miller, Joseph , Thomas ,Robert Mrlik, John ,Peter Nosier,AntoniaOzeroff,JerryPeterson,JimR eid, ,JohnRogers,KevinRumon, HeatherReynoldsSagar,VictorSanvido,Mason ,JeffreyL. Seglin, Sina Simantob, Orin Smith, Peter Staud-hammer, RickSterling,TedStolberg,Jeff Tarr, JeanTaylor,KimHollingsworthTaylor,TomTie rney,JohnVitale,DanWardrop,Mark ,David , wereveryfortunateto have theparticipationofexecutivesinstrumental in thetransformationat thegood-to-greatcompanies whopatiently endured ourquestionsduring one- to two-hourinterviewsand,at times, each of thefollowingpeople, Iwouldexpressmy hopes that this bookcapturesthe best of what ,you are the unsungheroesofAmericanbusiness:RobertAde rs,William ,III, Richard ,Charles ,Jr.

5 , Dick Auchter, H. DavidAycock,James D. Bernd, ,Roger ,Marc ,Eli Broad, Dr. Charles ,WalterBruckart, ,JamesE. Campbell, FredCanning, Joseph J. Cisco, Richard Cooley, Michael J. Critelli, Joseph 3rd, , ,LyleEveringham,AcknowledgmentsxiMeredit hB. Fischer, Paul N. Fruitt, AndreasGembler,MiltonL. Glass,James G. Grosklaus, Jack Grundhofer, George ,James Herring, ,Gene ,J. TimothyHoward, ,F. Kenneth Iverson, James A. Johnson, , ,ArthurJuergens, , ,Glenn , ,EdmundWattisLittlefield,David O. Maxwell, HamishMaxwell,Ellen Merlo, Hyman Meyers,ArjayMiller, John N. ,DavidNassef,Frank Newman, ArthurC. Nielsen, Jr., John D. Ong, Dr. Emanuel ,Richard D. Parsons,DerwynPhillips, ,William D. Pratt, Fred Purdue, ,GeorgeRathmann,Carl , ,BillRivas,DennisRoney,Francis ,Jr., , , Bernard H. Semler, Samuel Siegel,Thomas , , ,Glenn S. Utt Jr.,EdwardVillanueva, ,Jr., Charles ,III, ,GeorgeWeissman,BlairWhite,WilliamWilson , , people from the companies in our research were enormouslyhelpful witharranginginterviewsandprovidingus ,Iwouldlike to note CatherineBabington, ,AnnFahey-Widman,and MiriamWeltyTrangsrudatAbbottLaboratories ;Ann M.

6 Collier at Circuit City; John P. DiQuollo atFannieMae; David ;TinaBarryfor herassistanceat Kimberly-Clarkand herinsightsabout DarwinSmith;LisaCrouch andAngieMcCoyatKimberly-Clark;Jack Cornett atKroger; ; PhilipMorris; PitneyBowes,Thomas L. Mammoser and Laurie L. Meyer atWalgreens;and Naomi togivespecialthanksto Diane Compagno Miller for herhelp in openingdoorsatWellsFargo,John S. Reed for his help in opening doors at PhilipMorris,Sharon L. Wurtzel for her help in openingdoorsat Circuit City, Carl M. Brauer for hisinsightson Circuit City andgenerous sharing of his manuscript,JamesG. Clawsonfor his Circuit Citycasesandinsights,KarenLewisfor herassistancewithHewlett-PackardCompanyA rchives,TracyRusselland hercolleaguesat The Center forResearchinSecurityPricesfor theirdiligencein ensuring that we had themost current dataavailable, for her helpful guidance,Nick Sagarfor keybeta, MarvinBresslerfor his insight andwisdom,BrucexiiAcknowledgmentsWoolper tforhelpingme tounderstandtheconceptofmechanisms(andfo rhisongoingsupport),RuthAnnBagleyforherd iligentproofreading, hisremarkablebrain,ProfessorWilliamBrigg sforhisabilitytobreakacomplexprobleminto usefulsimplicity,AdmiralJimStockdaleforh isinvaluableteaching,JenniferFuternickfo rherinspirationincreatingtheMcKinseysalo nthatignitedthisproject,andBillMeehan for ; ,PeterGinsbergasmytrustedagentandfellowc ouncilmemberin thepublishingworld;LisaBerkowitz,whomake smagichappen.

7 AndAdrianZackheim,who hasenthusiasticallybelievedin andsupportedthisbookfromthe moment ,I amdeeplythankfulformygreatgoodfortuneto ,shecontinuesto put upwithmysomewhatneurotic nature andpropensityto become consumed ,but she thatyourspouselikesandrespectsyouevermor eas ,morethananyother,Ihopeto |pii||s jwasfinishingthismanuscript,I went for a run up a steep,rockytrail in EldoradoSpringsCanyon, justsouth of my home in Boulder, Colorado. I had stopped on top at one of myfavoritesitting places with aviewof the high countrystillcoveredinitswintercoat ofsnow,when an oddquestionpopped into my mind: How muchwouldsomeone have to paymenotto publishGoodtoGreat?Itwasan interesting thoughtexperiment,giventhat I'd just spent thepreviousfiveyearsworkingon theresearchproject that there isn'tsomenumber that might entice me to bury it, but bythetimeI crossed thehundred-million-dollarthreshold,it 'tconvincemetoabandon am a teacher at , it isimpossiblefor me toimaginenot sharing whatwe'velearned withstudentsaround it is in the spirit of learning and teaching that I bring forth months of hidingawaylike a hermit in what I call monkmode, Iwouldverymuch enjoyhearingfrompeople about whatworksforthem and what does not.

8 I hope youwillfind much of value in thesepagesandwillcommit toapplyingwhat you learn towhateveryou do, if not toyourcompany,then to yoursocialsectorwork,and if not there, then atleast to your own life. 2001 GOODTOGREATCHAPTERThat's whatmakesdeath sohard unsatisfiedcuriosity. BerylMarkham,WestwiththeNight1^ifi^oodis the enemy that is one of thekeyreasonswhywehaveso little that don'thavegreatschools,principallybecause we have don't have greatgovernment,principallybecause wehavegoodgovernment. Few people attain greatlives,in large part because it is just soeasyto settle for a good life. Thevastmajorityof companies never becomegreat,preciselybecause thevastmajoritybecome quitegood andthat istheir main point becamepiercinglyclear to me in1996,when Iwashavingdinner with a group of thoughtleadersgatheredfor , themanagingdirector of theSan Francisco office of McKinsey & Company, leaned over and casuallyconfided, "You know, Jim, we loveBuilt to Lastaroundhere.

9 You andyour coauthor did averyfine job on , it'suseless."Curious, I asked him toexplain."The companies youwroteabout were, for the most part,alwaysgreat,"hesaid."They never had to hadparentslike DavidPackardand GeorgeMerck, who shaped the character ofgreatnessfrom early on. But whatabout thevastmajorityofcompaniesthatwakeuppart waythrough lifeand realize that they'regood,but notgreat?"I now realize that Meehanwasexaggeratingfor effectwith his"useless"comment, but hisessentialobservationwascorrect thattruly great +5 Showsaverageratio,eachcompanysetto at transition date.+10 Good-to-GreatCompaniesDirectComparisonCo mpanies+15 YearsfromTransitionOoGoodtoGreat3panies, for the most part, the vastmajorityofgoodcompaniesremain justthat good,but , Meehan'scomment proved to be aninvaluablegift,as it planted the seed of a question that became thebasisof this entirebook namely,Can a good company become a great company and, if so,how?

10 Or is thediseaseof "justbeing good" incurable?Fiveyearsafterthatfatefuldinne r we can nowsay,withoutquestion,thatgoodtogreatdo eshappen,andwe'velearnedmuch about 'schallenge,myresearchteam and Iembarkedon afive-yearresearcheffort,ajourneytoexplo rethe ,lookat the chart onpage2.*Inessence,weidentifiedcompanies thatmadethe leapfromgoodresultsto greatresultsandsustainedthoseresultsfora t compared thesecompaniesto acarefullyselectedcontrolgroupofcomparis oncompaniesthatfailedto make the leap, or if they did, thencomparedthegood-to-greatcompaniesto made thefinalcut into thestudyattainedextraordinaryresults, put that inperspective,GeneralElectric(considered bymanyto be thebest-ledcompany inAmericaat the end of the twentieth century)outperformedthemarketby ,ifyouinvested$1in amutualfundof thegood-to-greatcompaniesin1965,holdinge achcompanyat thegeneralmarketrateuntil the date oftransition,andsimultaneouslyinvested$1 in a generalmarketstockfund,your$1in thegood-to-greatfundtakenout onJanuary1,2000,wouldhavemultiplied471ti mes,compared to a remarkable numbers, made all the more remarkable whenyou consider the fact that they camefromcompaniesthat hadpreviouslybeen , ,Walgreenshadbumpedalongas averyaveragecompany,more in1975,seeminglyout ofnowhere bang!