Business

Good to Great… to Failure?

Last night I finally sat down and started reading Jim Collins’ 2001 classic, Good to Great: Why Some Companies Make the Leap… and Others Don’t. I may be nearly a decade late, but this has been on my reading list for years and I typically find books of this nature (highly analytical, based on years of research, conclusions made from actual observations rather than preconceived theories) to be timeless.

So I was rather dismayed to find among the 11 “great” companies chronicled in the book, the following names:

  • Circuit City (1982-1997)
  • Fannie Mae (1984-1999)

Both of these companies made the leap from “good results” to “great results” during the 15-year periods listed, respectively. It’s important to note that these are good-to-great companies based primarily on attaining extraordinary stock returns compared to other competitors and the market. They were not evaluated on intangibles such as how they impacted society, primarily because there are no objective ways to calculate things of this nature.

It was also interesting to learn that a company I would work for much later, Harris Corporation (observed between the 60’s and 80’s), was identified as a case of “unsustained” greatness – a company that appeared to have hit a breakthrough (to greatness) in 1975, but, well, “crashed to a grinding halt” by 1988.

To be fair, Harris was much different back then than it was in the mid-2000’s when I worked there, but I can’t help but contrast with another 15-year period (1995 – 2010), where the results have been turned upside down. Harris is above S&P 500 whereas Fannie Mae has hit rock bottom.

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What’s even more interesting is that Harris has sustained these results in the Communications/IT Systems industry, an industry it may never have entered had the company not sold off its printing business decades before. The divesting of the printing business was one of the primary decisions (though not the only) that doomed Harris, and prevented it from attaining greatness, according to Collins.

Indeed, Harris did underperform the market through the 80’s, and to put it in perspective in the same way the book does, if you invested $1 each in Harris and Fannie Mae in 1978, your Harris stock would have only been worth about $1.40 by 1990, whereas Fannie Mae would have netted you $6.00. But if you were to have held on to these stocks to this day, well… I’ll let you do the math.

Is it all a matter of time?

Would Collins have selected the same 11 companies as examples of good-to-great if the time frame had been lengthened? Clearly the list might have been different (bigger) if it were shortened. If Circuit City made a leap to greatness between 1982 and 1997, then what would you describe it as having done between 1982 through 2007? Are these eras entirely separate and distinct – two tales of how the good become great, and then how the great may fall?

Apparently, yes.

Collins released How the Mighty Fall: And Why Some Companies Never Give In this past year, so I look forward to these answers when I read this book around the year 2020 or so.

I hope I’m being unfair

On some level I fundamentally believe in Collins’ research, approach, and therefore the results – even before finishing the book. There may be no perfect way to research and codify what makes anything successful, but I don’t know if there is any better way than making “empirical deductions directly from the [research] data” on over 1,000 companies and building a theory from the ground up, directly from evidence, as Collins puts it.

How the Mighty Fall does address Circuit City and Fannie Mae, I’m told, and I suspect their failures do not debunk Good to Great (surely, they only prove “how the mighty fall”, and that apparently, some companies do go from good to great to failure).

I look forward to the rest of the book and the conclusions Collins has drawn, but certainly we are not starting off on the brightest of notes. I’ll give the book the benefit of the doubt, but I think this goes to show that the parameters within which one researches something (in this case, primarily the time-frame) can have a tremendous effect on the result.