Presentation on theme: "Great by Choice Jim Collins and Morten Hansen"— Presentation transcript:
1 Great by Choice Jim Collins and Morten Hansen Uncertainty, chaos and luck—Why some thrive despite them all!
2 South PoleVictory awaits him who has everything in order—luck people call it. Defeat is certain from him who has neglected to take the necessary precautions in time; this is called bad luck.-Roald Amundsen
3 Selection CriteriaSpectacular results for an era of 15+ years relative to the stock market and industryTurbulent environment—uncontrollable, fast-moving, uncertain and potentially harmfulBegan from a position of vulnerability, being young and/or small at the start of its 10X journey
4 10X Study Companies 10X Case Comparison Dynastic Era of Study Value of $10,000 InvestedPerformance Relative to MarketPerformance Relative to IndustryAmgenGenentech$4.5M24 X Market77.2 X its industryBiometKirschner$3.4M18.1 X Market11.2 X its industryIntelAMD$3.9M20.7 X Market46.3 X its industryMicrosoftApple$10.6M56 X Market118.8 X its industryProgressive InsuranceSafeco$2.7M14.6 X Market11.3 X its industrySouthwest AirlinesPSA$12.0M63.4 X Market550.4 X its industryStrykerUS Surgical Corporation$5.3M28 X Market10.9 X its industry
5 MythsSuccessful leaders in a turbulent world are bold, risk-seeking visionariesInnovation distinguishes 10X companies in a fast-moving, uncertain, and chaotic worldA threat-filled world favors the speedy; you’re either the quick or the deadRadical change on the outside requires radical change on the insideGreat enterprises with 10X success have a lot more good luck
6 Behaviors in 10X Leadership FanaticDISCIPLINELevel 5AMBITIONEmpiricalCREATIVITYProductivePARANOIA
7 Fanatic Discipline Consistency of Action Consistency with: ValuesLong-term goalsPerformance standardsLong-term aspirationsSelf Discipline=inner will to do whatever it takes to create a great outcome, no matter how difficult
8 20 Mile March Consistent performance no matter what Lower bound and Upper boundDiscomfortUnwavering commitment to high performance in difficult conditionsDiscomfort of holding back in good conditions
9 20 Mile March Which company would you invest in, A or B? Both small companiesFast growing industrySpinning out disruptive technologyThriving on rapidly growing customer demandCompany A: 25% average annual growth 19 yearsCompany B: 45% average annual growth 19 same years
10 20 Mile March Additional information: Company A Company B Standard Deviation=15 percentage pointsStandard Deviation=116 percentage pointsMaintain consistent growth staying below 30% but achieving 20% or more almost every yearGrowth rate exceed 30% for13 of 19 years but ranged from +313% to-200%
12 Stryker’s 20 Mile March Achieve 20% net income growth every year Law—not an optionSnorkel Award for those that laggedBehind for 2 years—CEO would “help” working around the clockNo excuses
13 Elements of a Good 20 Mile March Performance markers—lower bound of acceptable achievementSelf-imposed constraint—upper bound in exceptionally good conditionsTailored to enterpriseLies largely within your control to achieveGoldilocks time frame—not too short and not too long but just rightDesigned and self-imposed by the enterpriseMust be achieved with great consistency. Good intentions don’t count
14 20 Mile MarchAccomplishing a 20 Mile March, consistently, in good times and bad, builds confidence. Tangible achievement in the face of adversity reinforces the 10X perspective: we are ultimately responsible for improving performance. We never blame circumstance; we never blame the environment.
15 20 Mile MarchFailure to 20 Mile March in an uncertain and unforgiving environment can set you up for catastrophe. Every comparison case had an episode in its history in which failing to 20 Mile March led to a devastating outcome. In contrast, only two 10X companies had episodes of failing to 20 Mile March, and neither of these episodes led to a catastrophe because the 10X companies self-corrected before a storm could rise up and kill them.
16 20 Mile MarchLike Amundsen and his team, the 10Xers and their companies use their 20 Mile Marches as a way to exert self-control, even when afraid or tempted by opportunity. Having a clear 20 Mile March focuses the mind; because everyone on the team knows the markers and their importance, they can stay on track.
17 ExerciseDetermine a good 20 mile march for your organization
18 Empirical Creativity Is innovation a key to successful companies? Don’t creative companies outperform other less creative companies?
19 Empirical CreativityOnly 9% of pioneers end up as the final winners in a market64% of pioneers failed outright.It seems that pioneering innovation is good for society but statistically lethal for the individual pioneer.
20 Empirical CreativityThe evidence from our research does not support the premise that 10X companies will necessarily be more innovative than their less successful comparisons. And in some surprise cases, such as Southwest Airlines versus PSA and Amgen versus Genentech, the 10X companies were less innovative than the comparisons.
21 InnovationEach environment has a level of “threshold innovation” that you need to meet to be a contender in the game… Companies that fail even to meet the innovation threshold cannot win. But once you’re above the threshold, especially in a highly turbulent environment, being more innovative doesn’t seem to matter very much.
22 Discipline and Innovation Intel versus Advance Memory Systems—1970AMS produced first 1000 bit memory chipIntel rushed to market its 1103 chip late 1970 but had problemsIn spite of these problems, by 1973 Intel crushed AMSReason: “Intel Delivers”--Intel believed that innovation without discipline leads to disaster.
23 DisciplineThe great task, rarely achieved, is to blend creative intensity with relentless discipline so as to amplify the creativity rather than destroy it. When you marry operating excellence with innovation, you multiply the value of your creativity. And that is what 10Xers do.
24 Fire Bullets then Cannonballs Amgen was created to do great things but didn’t know what. So they tried many possible options until they had enough empirical evidence to put all of their efforts into one big project.
25 Empirical CreativityAmgen’s early days illustrate a key pattern we observed: fire bullets, then fire cannonballs. First, you fire bullets to figure out what will work. Then once you have empirical confidence based on the bullets, you concentrate your resources and fire a cannonball. After the cannonball hits, you keep 20 Mile Marching to make the most of your big success.
26 What Makes a Bullet?A bullet is an empirical test aimed at learning what works and that meets three criteria:Low CostLow RiskLow Distraction
27 Empirical Combination of Activities Fire bulletsAssess: Did your bullets hit anything?Consider: Do any of your successful bullets merit conversion to a big cannonball?Convert: Concentrate resources and fire a cannonball once calibratedDon’t fire uncalibrated cannonballsTerminate bullets that show no evidence of eventual success
28 Empirical ValidationIf an enterprise gets slammed by a series of shocks just as its uncalibrated cannonballs go crashing off into space, it’s more likely to have a catastrophic outcome (PSA).In the face of instability, uncertainty, and rapid change, relying upon pure analysis will likely not work, and just might get you killed. Analytic skills still matter, but empirical validation matters much more (Progressive).PSA took the entire travel experience as their domain. Bought hotels and rental car companies
29 StepsA big, successful venture can look in retrospect like a single-step creative breakthrough when, in fact, it came about as a multistep iterative process based more upon empirical validation than visionary genius. The marriage of fanatic discipline and empirical creativity better explains Apple’s revival than breakthrough innovation per se.
30 ExerciseDetermine two “bullets” that would apply to your business
31 Productive ParanoiaBuild cash reserves and buffers to prepare for unexpected events and bad luck before they happenBound risk—Death Line risk, asymmetric risk, and uncontrollable risk—and manage time-based risk.Zoom out, then zoom in, remaining hypervigilant to sense changing conditions and respond effectively
33 Productive Paranoia 1Extra Oxygen canisters—it’s what you do before the storm comesCash reserves—10X companies carried 3-10 times the ration of cash to assets (87,117 companies compared)10Xers are “Paranoid, neurotic freaks”—even when they were small and starting outBlack Swan events—Hard to predict but high probability they will occur
34 Southwest 2001On 9/11, SW had $1B in cash on hand and highest credit rating in the industryLowest cost-per-available-seat-mileCrisis plan in placeNo jobs cutNo flights cutTurned a profit in 2001 including Q4Turned a profit in 2002
35 Productive Paranoia 2—Bounding Risk Death Line risk--Kill you or severely damage the enterpriseAsymmetric risk—Potential downside is much bigger than the potential upsideUncontrollable risk—Expose the enterprise to forces and events that it has little ability to manage or control
38 Acting on RiskSometimes acting too fast increases risk. Sometimes acting too slow increases risk. The critical questions is, “How much time before your risk profile changes?” Do you have Seconds? Minutes? Hours? Days? Weeks? Months? Years? Decades? The primary difficulty lies not in answering the questions but in having the presence of mind to ask the question.
39 Productive Paranoia 3: Zoom Out, then Zoom In Gorilla in the roomZoom OutSense a change in conditionsAssess the time frame: How much time before the risk profile changes?Assess with rigor: Do the new conditions call for disrupting plans? If so, how?Zoom InFocus on supreme execution of plans and objectives
40 Intel’s Zoom Out then Zoom In Intel identified that Intel’s 8086 processor was falling behind Motorola’s chip—Intel becoming obsoleteDec 4, Special Task Force formedAnalyzed the threat—Why is Motorola winning? How important is it? How can we counterCounterattack—Zoom In—2000 design wins within a year
41 ActionWhen facing fast-moving threats, 10X teams neither freeze up nor immediately react; they think first, even when they need to think fast.Remember, not all time is equal. Live serves up moments that count much more than other moments.In 1910, Amundsen was planning to go to the North Pole. When he learned that Cook and Peary had already reached 90 degrees North he secretly changed plans to head South but didn’t tell his crew until they had set sail from Madeira, Portugal.
42 Level 5 Leadership Don’t define themselves by money, fame or power They define themselves by impact and contribution and purposeThe central question is, “What are you in it for?” 10X leaders can be bland or colorful, uncharismatic or magnetic, understated or flamboyant, normal to the point of dull or just flat-out weird—none of this really matters, as long as they’re passionately driven for a cause beyond themselves.
43 SMaC Recipe Specific, Methodical and, Consistent Set of durable operating practices that create a replicable and consistent success formula—include things not to doNot strategy, culture, core values, purpose, or tactics
44 SMaC AdvantagesKeep bearings and sustain high performance in extreme conditionsCreates confidence that the team can perform following the SMaCEstablishes control in areas that you have controlThe more unforgiving your world, the more SMaC you need to be
45 SMaC Durable—lasts over time Comparison companies changed recipes 4X as much as the 10XersRequires fanatic discipline—stay the courseThe signature of mediocrity is not an unwillingness to change; the signature of mediocrity is chronic inconsistency.
46 Exercise Create your SMaC Identify at least three durable operating practices for your companyOne must be a “do not”
47 Luck Definition—Must meet all three tests Some significant aspect of the event occurs largely or entirely independent of the actions of the key actors in the enterpriseThe event has a potentially significant consequence (good or bad) andThe event has some element of unpredictability
48 Luck Did 10Xers have more good luck than comparison companies? No! Did comparison companies have more bad luck than the 10Xers? No!Did the 10Xers have a big “luck spike” that gave them a huge advantage? Only 1 (with reservations)Did the 10Xers get more luck early? No!
49 LuckAdding up all the evidence, we found that the 10X cases were not generally luckier than the comparison cases. The 10X cases and the comparisons both got luck, good and bad, in comparable amounts. The evidence leads us to conclude that luck does not cause 10X success. People do. The critical question is not “Are you lucky” but “Do you get a high return on luck?”
50 Defining Moments in 10X Journey Essential skill for 10X results LuckDon’t Confuse Luck withReturn on Luck (ROL)Bad Luck GoodDefining Moments in 10X JourneyEssential skill for 10X resultsCan lead to hitting the Death LineA sure path to mediocrityGreatReturn on LuckPoor
51 Luck10Xers exercise productive paranoia, combined with empirical creativity and fanatic discipline, to create huge margins of safety. If you stay in the game long enough, good luck tends to return, but if you get knocked out, you’ll never have the chance to be lucky again. Luck favors the persistent, but you can persist only if you survive.