Great by Choice – Jim Collins [Book Summary]

by Nick

Introduction

The world in which we all live is extremely unstable. It is very changeable and chaotic. Many companies cannot survive in this chaos, but there are also those that feel in it like a fish in the water.

The author of “Great by Choice” analyzes the reasons why these companies manage to succeed while the rest fail. “Great ones of their own choice” is the result of a thorough and exhaustive study of the business environment. This book argues that the success of a company is not at all determined by its higher level of innovation, courage or willingness to take risks.

How do some companies manage to remain successful for a long period in our world of uncertainty? What tactics do ten-shots use to defeat competitors?

How do ten people make the most of their luck?

Morten T. Hansen is a professor of management at the University of California. He is the author of Collaboration: How Leaders Avoid Pitfalls, Find a Common Language, and Reap Excellent Results. He lectures and advises a variety of companies around the world.

In unpredictable business conditions, only those companies that are well prepared for them to succeed

Back in 1911, two groups of desperate researchers vied to become pioneers of the South Pole. The group led by Norwegian Roald Amundsen won. Having hoisted the Norwegian flag at the South Pole, they returned home without much adventure. Robert Falcon Scott’s group managed to get there only 34 days later. The loss was painful in itself, but the worst was to come.

Scott’s group was not destined to return home – on the way back they all froze to death.

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So Why Did These Two Groups Have Such a Different Fate?

It was all a matter of preparation. Amundsen carefully prepared for this difficult expedition – for many years he traveled around the world in search of useful knowledge that could suit him. So, for example, he studied the art of survival in the polar climate with the Eskimos, and also adapted his body to any food, even to dolphin meat. During his trip, his group took extra provisions in case of unexpected stops. They also noted the location of their food depots with black pennants that stood out against the snow.

Of course, Amundsen could not know exactly what to expect from insidious Antarctica, but he did everything in his power to prepare his team as best as possible. In general, he insured himself against almost any surprises.

But Scott’s group took very few supplies with them. This was extremely short-sighted since any delay threatened them with hunger. Amundsen traveled in a sleigh with a dog sled, a very effective means of transportation in the polar latitudes that the Eskimos used. Scott was riding a motor sleigh, which turned out to be an unsuitable mode of transport in the extreme weather conditions of Antarctica. So, insufficient knowledge of the peculiarities of the polar climate, lack of food and generally poor preparedness led to unforeseen stops, a loss to the competitor and, ultimately, to death.

Companies, just like Amundsen and Scott in their campaign, face extreme, unpredictable and volatile business conditions. Do not let external factors influence your success – get ready to survive in any condition.

Companies that succeed in the face of uncertainty rely on strict discipline, innovation, backed up by empirical evidence, and preparedness that borders on paranoia

The future is unknown. No one has been able to accurately predict the events of the coming months, not to mention years or decades.

However, some companies manage to not only survive but even thrive in this state of permanent uncertainty. To understand how they succeed, we just need to analyze the strategies of the so-called ten or tenfold – very successful companies whose performance results are ten or more times higher than the average in their markets.

So What is the Secret of Their Success?

Like the polar explorer, Amundsen, tenfolds try to prepare for any development of events and for this they increase knowledge and accumulate resources.

This philosophy is expressed in three fundamental strategies.

The first strategy: ten-timers are disciplined to fanaticism. Discipline, in this case, means consistency in actions and not blind execution of orders by each employee. After Amundsen determined the route and created a travel plan to the South Pole, he never once receded from it. Ten-timers do exactly the same – having determined their goals and strategies, they adhere to them stubbornly.

The second strategy: when making decisions, ten-timers use the so-called empirical creativity. For them, real evidence is important that something really works, and not other people’s opinions or well-known truths. Determining where his base camp will be located, Amundsen was not interested in the opinions of experts and independently studied all the information available to him. In the end he chose a completely unexpected location for everyone, which turned out to be very successful.

Similarly, tenfolds use a variety of data to determine where and when to innovate.

Third strategy: productive paranoia. It helps tenfolds survive changes in the business environment. The leaders of these companies are always super alert, they never let themselves relax, constantly fearing that something might go wrong. Amundsen did everything in his power to be as prepared for the worst as possible. Ten-timers do the same, thanks to their fears, they formulate policies that help them prepare for difficult times.

Companies Growing 10 Times Set Goals, and Then Achieve Them Year After Year, No Matter What

On its way to the South Pole, Amundsen’s group acted very methodically and disciplined. Every day they walked the same distance (about 20 miles), whatever the conditions. When the weather and terrain were favorable, they calmly walked their 20 miles, and then stopped for a halt, although they could have walked longer.

Thanks to such energy savings, they always had enough strength to overcome the established distance, even when the weather and terrain created difficulties for them. A similar policy helped the Amundsen group maintain a steady pace throughout the expedition.

This method of success is known as the “twenty-mile march”. This is one of those strategies whereby tenfolds succeed even in the most troubled times. Let’s talk about the essence of this strategy.

First of all, you need to determine the benchmark for success. Amundsen was guided by the established distance, and companies use such long-term things as his percentage of average annual growth or a certain level of innovation. Then they try to never fall below the set bar, no matter how difficult the circumstances.

During the “twenty-mile march” it is impossible to relax even when there are no difficulties. Indeed, in “peaceful” times, it is necessary not only to overcome this distance but also to try not to pass more. This may seem counterintuitive, but it is very important and requires self-discipline. If you overdo it, then your company will lose control over the situation and will not be able to adapt to changing circumstances.

AMD’s electronics company nearly died in the 80s in the pursuit of quick success. In an attempt to achieve a sixty percent growth rate, she went into debt, thus depriving herself of the necessary resources to survive the unexpected crisis in her market. As a result, it was behind Intel’s tenfold, which achieved more stable growth rates over the same period.

Representatives of Dozens Are Brave and Innovative Only When Empirical Evidence Suggests That Such Behavior is Justified

Tenfolds are famous for innovation and courage in decision making. For example, Apple never gets tired of creating new things, and many experts believe that courage in creating an original product is the secret to the success of this company.

To a certain extent, this is true, but innovation is not at all an end in itself for tenfold. These companies never take undue risk and do not release revolutionary products without initially determining how likely they are to succeed. Tenfolds first collect all available empirical data to get a deep and complete picture of the market situation, and then use the opportunities they have identified, directing their innovative efforts in a profitable direction.

This strategy is called empirical creativity. Among companies of tenfold, it is known as “bullets first and then cores”. Let’s talk about the essence of this strategy.

So, first the market is tested using cheap innovations with low risk, that is, “bullets” are issued in different directions. Having found a suitable target, tenfold begin to use “heavy artillery”, “firing at it with a cannonball.”

In 2001, Apple released a bullet, introducing a small little-claiming MP3 player that was only compatible with Mac computers. This bullet, which was the first version of the iPod, was cheap, did not carry many risks and did not particularly distract the time and resources of the company from its main product – Mac computers. Initial sales were

promising, and so Apple released another bullet – iTunes, an online music content store that was also only compatible with macs. iPod and iTunes users liked it because they could now download music legally and cheaply. So, the bullets hit the target. This was empirical evidence that it was time to release a cannonball – iTunes and iPod, compatible not only with macs. These huge cores hit exactly the target, discovered thanks to two small bullets, but what was further known to everyone.

Innovation is Not Everything. It Must Go Along With Iron Discipline.

There is a common misconception that in an ever-changing environment, the most innovative companies are always the most successful. In fact, this alone does not guarantee success.

Yes, each company must be innovative to a certain extent, since in all areas of activity there is a so-called innovation threshold, below which you cannot go down so as not to be behind competitors. In some markets, it is higher than in others. For example, the information technology industry has a relatively high threshold for innovation. In this market, products become obsolete very quickly, and companies forced to constantly release something new in order to remain competitive. But on the airline market, this threshold is low, because there is no need at all to come up with a new flight technology every month.

It is clear that for companies that are below the threshold of innovation, success does not shine, however, raising above this threshold brings small advantages. The problem here is that a company that is too focused on innovation is losing control. She invests too many resources in revolutionary products and at the same time is underfunded and has little to do with other important elements of her business. In general, you need to try to pay due attention to everything, including production, marketing, and accounting, and this requires strict discipline.

Intel managed to beat its rival AMS, despite the fact that it was more innovative. Intel succeeded because it paid attention to all aspects of its business, from production to distribution. Its managers were very attentive to expenses and production processes, doing everything in their power to ensure that customers received their product on time and at a reasonable price. Yes, AMS engineers were better than Intel’s, but Intel won the most important victory – it won the market.

Tenfolds Are “productive Paranoid”: They Always Expect the Worst and Tirelessly Prepare for It

Tenfolds are constantly on their guard. They are always worried about the future. Even in successful periods, they ask themselves: “What if the trend in the market changes? How will my company deal with this? ”Or“ Where to wait for a new competitor? ”. Then they productively use this paranoia, doing everything in their power to be ready for any development of events.

Accumulating large reserves of cash is one of the ways that tenfolds use to prepare for difficult times. On average, their ratio of cash to total assets is from 3 to 10 times greater than that of competitors.

This paranoia causes oversight. They constantly monitor what is happening on the market, trying to catch the beginning of some adverse events (for example, the emergence of new competitors, the introduction of new legislative standards or changes in financial conditions).

Thanks to this vigilance, they deeply understand their market, which, in combination with their over-preparedness for any troubles, gives a huge competitive advantage. This allows them to determine in the early stages the further development of events in the market and use the opportunities that arise.

On September 11, 2001, terrorists dealt a terrible blow to airlines. While many of them went bankrupt, a company called Southwest Airlines was able to not only survive this critical period, but even make a profit. She increased her capitalization and was able to offer new routes and services. The managers of Southwest Airlines certainly did not foresee the tragedy of September 11, but they created a reliable financial “airbag” that mitigated this terrible blow, and a deep understanding of their market helped them see new advantages in the midst of the chaos.

Managers of the ten companies create a long-term and concrete basic set of rules that serve as a guarantee of stability and success.

In 1979, deregulation was carried out on the American airline market, which contributed to the creation of new airlines and increased competition. In response to this, the tenfold CEO of Southwest Airlines created a list with ten basic rules that were supposed to help his company stay afloat in the changing environment. This list contained instructions like: “fly on a Boeing 737” or “stay away from catering companies”.

These rules have been so effective that over a quarter-century, 80% of them have not changed. Despite all the turmoil in a very unstable airline market, only 20% of them were changed. These regulations gave the company stability and clarity of purpose, which ensured its success for many years.

These rules were so effective due to their concreteness, methodology, and consistency (ILC). They were quite accurate and touched on a wide range of problems, quite reliable, so that they could be used for a long time, and also quite specific, which made them suitable for use in various situations.

Dozens of companies are real experts in creating basic rules. They form them based on a huge amount of empirical data, knowing full well which procedures will be effective and which will not. In addition, they have self-discipline that allows them to strictly adhere to these rules. Southwest Airlines could not give a damn about all of these requirements during one of the many crisis periods in the aviation market, but they did not, because they knew that they were effective.

Tenfolds worked out these rules very long and hard. Therefore, they only tend to make any changes to them if absolutely necessary. Thus, these companies have a specific plan of action, and, consequently, confidence, which help them succeed.

It’s Not Luck and Coincidence That Makes Dozens of Great Companies. In Fact, It is the Merit of Hard Work and Ambitiousness

The alarm is that in modern society, many believe that success is primarily a child of luck or a combination of circumstances. Everywhere you hear that great leaders and companies succeed not because of their determination, vision or strategy, but simply because they are lucky to be in the right place at the right time.

However, the truly great ones laugh at this fallacy. The great ones know that they are no luckier than the rest, and that their success was born of hard work and ambitiousness. For leaders of tenfold companies, the main thing is to fully utilize their luck and try to get the most out of the opportunities that are provided to them.

Take for example, Bill Gates. Microsoft’s founder was truly lucky. He received a good private education and had access to computers at the university. He also fell into the hands of the issue of Popular Electronics magazine with one very interesting article, which inspired him to create his first product.

However, not at all because of this, Bill Gates became great. After all, in the end, many representatives of his generation were no less fortunate. In fact, hard work and ambitiousness made him successful.

After reading this article, Bill Gates radically changed his life plan. He dropped out of the university and moved to a state where it was easier for him to start a revolution in the software world. He devoted almost all his time to work, often to the detriment of sleep and meals. He knew that he could succeed and was not going to stop until he achieved

greatness. In general, hard work and ambitiousness helped him turn luck into his advantage.

The Final Words

The most successful companies do not allow the chance to determine their fate.

They try to be ready for anything, are constantly in search of empirical data that would support their decisions and adhere to strict discipline so as not to back down from their plans even in the most difficult times. It is this combination of persistence with an empirical evidence-based analysis that allows tenfold companies to remain successful for a long period in our chaotic world.

It is not luck and coincidence that makes companies great. All of them luck measured out approximately equally, the whole thing is how they dispose of it.

Practical tips:

How do some companies manage to stay successful for a long period in our world of uncertainty?

  • Well-prepared companies succeed in unpredictable business conditions.
  • A company with tenfold successes to thrive in the face of uncertainty, discipline, innovation based on empirical data and a willingness that borders on paranoia.

What tactics do ten-shots use to defeat competitors?

  • They set goals and try to achieve them even in the most adverse circumstances.
  • These companies show courage and innovation only when such tactics are supported by empirical evidence.
  • Innovation is not everything. They must go along with discipline.
  • Tenfolds are productive paranoid people who fear the worst and therefore carefully prepare for it.
  • These companies create long-term, special basic rules that contribute to sustainability and success.

How do ten people make the most of their luck?

  • It is not luck or coincidence that these companies are great. Hard work and ambitiousness make them such.

Why You Should Read “Great by Choice”

  • To reveal the secret of long-term business success.
  • To learn what role luck or combination of circumstances plays in achieving success.
  • To understand why great companies continue to thrive even in extreme conditions.

This book is available as:

AudiobookeBook | Print