1. GOOD TO GREAT By Jim Collins

2. Introduction/Concept Research  Why is Greatness so Uncommon  Epiphany of 1996 & Research  Analysis of corporations transitioning from good to great  Can a Good Company Become a Great Company? and if so, How?

3. List of “Great” Companies Chosen CompanyResult from Transition Point to 15 years beyond Transition T Years to 1 Year + 15 Abbott3.98 times the market1974-1989 Circuit City18.50 times the market1982-1997 Fannie Mae7.56 times the market1984-1999 Gillette7.39 times the market1980-1995 Kimberly-Clark3.42 times the market1972-1987 Kroger4.17 times the market1973-1988 Nucor5.16 times the market1975-1990 Philip Morris7.06 times the market1964-1979 Pitney Bowes7.16 times the market1973-1988 Walgreens7.34 times the market1975-1990 Wells Fargo3.99 times the market1983-1998

4. Circuit City Then & Now

5. Best Buy vs. Circuit City Asset to Liability Ratio Best if Under 36%, higher than this percentage is considered a high risk. Best BuyCircuit City Period Ending20082007Period Ending20082007 Total Revenue$40,023,000$35,934,000Total Revenue$11,743,691$12,429,754 Cost of Revenue$30,477,000$27,165,000Cost of Revenue$9,318,174$9,501,438 Gross Profit$9,546,000$8,769,000Gross Profit$2,425,517$2,928,316 Net Income$1,407,000$1,377,000Net Income($319,897)($8,281)

6. Phase 1: The Search To find companies that showed the good-to-great pattern  The Basic Pattern: 15 year cumulative stock at or below the general stock market Punctuated by a transition point Cumulative returns at least three times the market over the next 15 years  Why 15 years? It would transcend one-hit wonders and lucky breaks. It would exceed the average tenure of most CEO’s. Helping to separate the great companies from the companies that just happened to have a single great leader.  Why three times the market? It exceeds the performance of most widely acknowledged great companies.

7. Criteria for Selection as a Good-to-Great Company “The focus of this particular research effort is on the very specific question of how to turn a good organization into one that produces sustained great results.” Jim Collins 1.Company shows a pattern of “good” performance punctuated by a transition point, after which shifts to “great” performance. 2.The good-to-great performance pattern must be a company shift, not an industry event. 3.At the transition point, the company must have been an established ongoing company, not a start-up. Also it had to have been publicly traded with stock return data available at least ten years prior to the transition point. 4.Transition point had to occur before 1985 5.The company had to appear in the 1995 Fortune 500 rankings, published in 1996 6.Finally, at time of selection, the company should still show an upward trend.

8. Good-to-Great Selection Process Cut 1 1,435 companies Selected from Fortune 500 1965 - 1995 Cut 2 126 companies Selected from full CRSP data pattern analysis Cut 3 19 companies Selected into industry analysis Cut 4 11 companies Selected into good- to-great set

9. The Entire Study Set Abbott Circuit City Fannie Mae Gillette Kimberly-Clark Kroger Nucor Philip Morris Pitney Bowes Walgreens Wells Fargo Good-to-Great Companies Upjohn Silo Great Western Warner-Lambert Scott Paper A&P Bethlehem Steel R.J. Reynolds Addressograph Eckerd Bank of America Direct Comparison Companies Burroughs Chrysler Harris Hasbro Rubbermaid Teledyne Unsustained Comparison Companies

10. Phase 2: Compared to What?  Goal: To find what the good-to-great companies shared in common and how they were distinguished from their industry.  Process: Compare the good-to-great companies against “direct” comparison companies and “unsustained” comparison companies. Direct Comparison Company- a company who is in the same industry and has the same resources and similar opportunities as a great company, but did not transition Unsustained Comparison Company-a company who did transition to greatness but was unable to sustain it for 15 years

11. Direct Comparisons  Tried to create a “historical controlled experiment” to conduct a direct comparative analysis, in order to find the distinguishing variables that account for the transition from good to great.  Why did the direct comparison companies fail?  What was different?

12. Direct Comparison Selection Method  Six Criteria: 1. Business Fit- similar products and services 2. Size Fit- same basic size based on a revenue ratio 3. Age Fit- founded in the same era 4. Stock Chart Fit- the cumulative stock returns to the market of the comparison company should roughly track the pattern of the good-to-great company, until the point of transition, and then is outperformed. 5. Conservative Test- at time of transition is more successful 6. Face Validity- in a similar line of business and at the time of selection into the study, is less successful than the good-to-great company

13. Scoring Scale and Example 4= fits the criteria extremely well 3= fits the criteria reasonable well 2= fits the criteria poorly 1= does not fit the criteria KrogerScore A&P3.17 Safeway2.58 Winn-Dixie2.5 American Stores2.42 Giant Foods, Inc.2.33 Jewel2.25 Albertson’s2.08 Food Fair1.5 Grand Union1.0

14. “Unsustained” Comparisons  To determine how a company can sustain great results and why these comparison companies failed to.  Question of Sustainability Resnick and Smunt Critique

15. “ Unsustained” Comparison Example Transition Point Harris Corporation Good-to-Great Companies

16. Revenues Profits Abbott $ 59,034.00 $ 2,157.0 Circuit City $ 11,743.70 $ (319.9) Fannie Mae $ 22,652.00 $ (58,707.0) Gillette/Procter & Gamble $ 83,503.00 $ 12,075.0 Kimberly-Clark $ 19,415.00 $ 1,690.0 Kroger $ 76,000.00 $ 1,249.4 Nucor $ 23,663.30 $ 1,831.0 Philip Morris International $ 25,705.00 $ 6,890.0 Pitney Bowes $ 6,262.30 $ 419.8 Walgreens $ 59,034.00 $ 2,157.0 Wells Fargo $ 51,652.00 $ 2,655.0 “Great” Companies 2009 Status -cnn.money.com Fortune 500 2009 list

17. Phase 3: Inside the Black Box What’s Inside The Black Box Good Results Great Results

18. Phase 3: Inside the Black Box  Good to Great …a process All concepts were derived directly from the evidence “Core Method was a systematic process of contrasting the good to great examples to the comparisons, always asking, “What’s the difference?”

19. The dog that did not bark  Dogs that were expected to bark but didn’t, turned out to be some of the best clues. Famous CEO Well defined strategy Technology No launch event

20. Phase 4:Chaos to Concept Looping back and forth Developing ideas and testing them against the data Revising the ideas Building a framework Seeing it break under the weight of evidence Rebuilding it yet again Repeating until everything hangs together in a coherent framework of concepts Taking lumps of unorganized info, seeing patterns, and extracting order from the mess (Focus on strengths)

21. Meeting the Concept Criteria  Each concept met a rigorous standard before it was deemed significant  Each concept was a change variable in 100% of the good to great companies and only 30% of comparison companies  Any insight that failed did not make it into the book as a chapter level concept

22. A process built on humility  DON’T SETTLE, you could be wrong!  If you’re not wrong frequently, you’re not trying hard enough.  We’re smart only if we admit we’re not so smart.

23. From good to great: The Flywheel

24. Chaos to Concept Example: Gillette  Chaos: Gillette didn’t track success of most promotional programs (didn’t know how each in store piece was used or how many made it into stores)  Gillette needed to focus strategy on placement rather than quantity  What was the most cost effective way to do this?

25. Gillette cont.  “Each piece needs to meet our objective now, if it doesn’t, we need to look at what we’re doing.” Leslie Palmer (Gillette Communications Manager)  Responsible for communication between 300 sales reps and marketing groups  No communication  “Sending in bulk”  ½ of promotion displays not being used

26. Gillette’s solution  Palmer found info from sales reps, rather than using her position to make an uneducated decision  Because reps price and promote products, and talk to store management, Palmer found through surveys that promotion material was sent, “to late, heavy, much, and often.”  The decision led to an improved company approach, and provided detailed product placement information (what was most popular and where) and generated new ideas for promotion products

27. Level 5: Leadership According to Jim Collins, leaders: Were thought to be: Celebrities High profile company leaders Are actually: Quiet Reserved Humble Image found at: http://images.google.com/imgres?imgurl=http://www.paperhall.org/inductees/photos/2004pix/d_smith.jpg&imgrefurl=http://www.paperhall.org/inductees/bios/2004/darwin_smith. php&usg=__2IKzVENxeZGLIxjMoqCItFLPcZU=&h=460&w=356&sz=76&hl=en&start=1&um=1&tbnid=OruVp1yVRjG0uM:&tbnh=128&tbnw=99&prev=/images%3Fq%3Ddarwin %2Be.%2Bsmith%26hl%3Den%26rls%3Dcom.microsoft:en-us%26sa%3DX%26um%3D1 Chairman and CEO Kimberly-Clark Corporation Darwin E. Smith

28. Leadership in Strategic Management…  Coulter states: Strategic leadership is the ability to: Anticipate Envision Maintain flexibility Think strategically Initiate changes to ensure a valuable future for the organization  “Great” leaders have both the attributes described by Collins and Coulter

29. First Who…then What.  “The right people are your most important asset.” Great leaders: “First got the right people on the bus” “The wrong people off the bus” “The right people in the right seats” “And then they figure out where to drive it.”

30. Confront the Brutal Facts (Yet Never Lose Faith).  “Stockdale Paradox:” “Maintain faith that you can prevail, regardless of the difficulties” “Have the discipline to confront the facts of your reality”  “Understand your company’s situation”  “Listen for the truth”

31. The Hedgehog Concept (Simplicity within the Three Circles). The Hedgehog Concept (Simplicity within the Three Circles). Image found at: http://www.emeraldinsight.com/fig/2610300502001.png

32. Phase 4 Cont. Part III: A Culture of Discipline  “All companies have a culture but few have a culture of discipline.” Southwest Airline employees willing to take pay cuts. Wal-mart makes sure suppliers add value while still contributing to achieve low cost

33. Technology Accelerators  “…pioneers in the application of carefully selected technologies.” Scanners, RFID, Self Checkout, etc….

34. The Flywheel and the Doom Loop  “No matter how dramatic the end result, the good-to-great transformations never happened in one fell swoop.” Large emphasis on developing good relationships internally and externally

35. From Good to Great to Built to Last  “This Book is about how to turn a good organization into one that produces sustained great results.”  Laying the groundwork for an Enduring Great Company. Good to Sustained Build to Enduring Great Great LastGreat Concepts Results ConceptsCompany

36. The Timeless “Physics” of Good to Great  Sustaining In a New Economy  Law of Organized Human Performance  Good to Great is a Choice  Good Company Becoming Great?

37. Key Points to Take Away  Good companies become accustom to being mediocre and so therefore do not become great.  Jim Collins and his research team’s overall goal are to discover if and how a company can transition from a good company to a great company with sustained results.  According to Jim Collins great companies did not transition in one fell swoop instead it was a combination of disciplined people, disciplined thought, and disciplined action.

38. References Bowersox, Donald J., David J. Closs, and M. B. Cooper. Supply Chain Logistics Management. 3rd ed. New York: McGraw-Hill Irwin, 2010. Print. Collins, Jim. Good To Great. New York: HarperCollins, 2001. Print. Coulter, Mary. Strategic Management In Action. 5th ed. New Jersey: Prentice Hall, 2010. Print. Paper Industry International Hall of Fame, Inc. "Darwin E. Smith." Paperhall.org. Paper Industry International Hall of Fame, Inc. Web. 22 Jan. 2010.. Pausch, Randy. The Last Lecture. New York: Hyperion, 2008. Print. Website, (2009) Best Buy Financials, http://finance.yahoo.com/q/is?s=BBY&annual. Retrieved January 19, 2009. Website, (2009) Circuit City Financials, http://finance.yahoo.com/q?s=CCTYQ.PK. Retried January 19, 2009. Website, (2009) Circuit City Downfall, http://gizmodo.com/5133179/the- downfall-of-circuit-city-in-convenient-graph-form Website, (2009) Fortune 500 List for 2009. http://money.cnn.com/magazines/fortune/fortune500/2009/full_list/index.ht ml