BOOKS: REALISTIC SUCCESS - This analysis of what makes a firm outperform offers some original thinking, says John Kay

BOOKS: REALISTIC SUCCESS - This analysis of what makes a firm outperform offers some original thinking, says John Kay - Good to Great; By Jim Collins; Random House pounds 20.

by JOHN KAY is writing a book on how markets work (www.johnkay.com)
Last Updated: 31 Aug 2010

Good to Great; By Jim Collins; Random House pounds 20.

Airport bookstalls groan with volumes revealing the keys to corporate greatness. This book and its predecessor, Built to Last, which Jim Collins wrote with Jerry Porras, are by far the best in this genre. Good enough - if not great - to merit reading in their own right.

Good to Great centres on a comparative analysis of 11 companies. Collins selects once-dull organisations, such as Kimberley Clark and Gillette, that subsequently outperformed.

The usual fault of such manuals is their obvious prescriptions. Of course, successful firms kept close to customers and motivated employees. But unsuccessful firms didn't fail because they rejected these objectives; they failed because they couldn't achieve them.

Collins penetrates these banalities because he questions the congratulatory self-description of winning businesses. For example, most of his 11 companies didn't have visionary CEOs, determined to turn the business round. Few were aiming at the cover page of Fortune, most were consensus builders from inside the organisation.

Another defiance of conventionality is encapsulated in the so-called Stockdale paradox. Admiral Stockdale survived imprisonment in Vietnam.

He had determination to survive, but claimed it was 'the optimists' who failed to see it through. The Stockdale paradox contrasts those who focus on a realistic objective with the fantasists whose slogan is that if you can dream it, you can do it.

For Collins, the core of such realistic objectives is found in the intersection of three circles. The focus has to be something the company can do better than anyone else, something capable of being its revenue engine and something employees and managers feel passionate about.

One problem fundamental to the Collins and Porras method of analysis is survivor bias - the statistical problem encountered when your sample is drawn from the ranks of the successful. What worked for some firms may have failed for many others.

It is also a pity that Collins' only measure of performance is share price performance. The stock market is not a measure of how a company is doing but of how the market thinks it is doing. Anyone who thought these were necessarily the same thing has suffered a rude awakening in the past two years.

Still, Good to Great is the best new business book I have read this year.

Don't be put off by the airport bookstall style. You will want to keep this one after you have arrived at your destination

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