Sunday, March 22, 2009

"Good to Great"

I finally finished "Good to Great" by Jim Collings. The books explains "Why some companies make the leap... and others don't". I was attracted to the book wanting to know more about succesful companies and the key factors that differentiate them from the norm and their competitors.

The author and his research team identified 11 companies that made the leap (measured by stellar stock market performance). They then provide the framework that these companies have gone through to achieve their new status:

Start with a great leader (Level 5 leadership, humble but hardworking)
Get the right people on board
Listen to the facts
Focus on what you can be the best at, what you are passionate about and what drives your economic engine (Hedgehog Concept)
Be disciplined about the concept
Focus and build momentum to achieve breakthrough, The Flywheel (thanks to focus & results, no need for grand programs)

As an investment tool trying to understand the possible Hedgehog Concept of the company you are looking at may be a good start. (Are they the best? Can they be the best? What is their economic engine?) See the diagnostic tool here.

I note however that some of the companies chosen did not survive very long after the book was published in 2001 (Fannie Mae, Circuit City are bust). I could not find any recent update at or on the web but came across the following comment from Freakonomics author Steven Levitt:

The Good to Great companies are listed below. Since the end of 2001 (year-end after the book publication) Nucor has continued to outperform the broader market strongly. CC and FNM went bust, Gillette was acquired. The rest performed roughly in line with the market as this Yahoo chart illustrates (reset the start date at the bottom right to 12/31/2001).
Abbott Laboratories, Circuit City, Fannie Mae, Gillette, Kimberly-Clark, Kroger, Nucor, Philip Morris, Pitney Bowes, Walgreen, Wells Fargo

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