Monday, August 01, 2016

Monday Review: Great by Choice 3

This is now my third post reading through Jim Collins and Morten Hansen's book, Great by Choice.

1. This chapter expands on the first of three characteristics that Collins and Hansen think typify the kind of organization that makes striking long term gains despite an often chaotic environment. They titled this characteristic, "fanatic discipline."

They titled this chapter, "20 Mile March," and they did so before they realized that Admunsen, their south pole hero, had a goal of 15-20 miles a day, no matter what the weather or circumstances. Was it a horrible day? He strove to go at least 15 miles. Was it a wonderful day? He didn't try to do more. Rather, his plan was steady progress every day as a discipline.

2. They identified seven characteristics of these "20 Mile March" companies:
  • Clear performance goals
  • Self-imposed limits
  • Limits appropriate to their market
  • Within the company's power to acheive
  • Just the right time frame to achieve
  • Contraints not copied from somewhere else
  • Achieved with high consistency
There main examples were Stryker, Southwest, Progressive, and Intel. Stryker's performance goal was 20% net profit increase a year. What was more striking about Southwest was its refusal to expand too quickly, even when airports were clamoring for them to expand. Progressive aimed to stay in a 4% profit over payout sweet spot. Intel wanted to double the capacity of its integrated circuits every two years.

The bottom line is that these companies set a yearly goal that was stretching, but attainable. They forced themselves to do it in hard times but they did not go for the gold in the good times. This last part is probably what stands out the most from the chapter. Many of these companies could have expanded more quickly in certain years but they stuck to the plan, just as Admunsen did for the south pole. Then when hard times hit, they did not find themselves overextended.

3. Collins and Hansen suggested three reasons why the "20 miles a day in good times and bad" works:
  • It builds confidence and a "can do" attitude. You've done it every year. You can do it again.
  • It reduces the likelihood of catastrophe if there is a sudden up-turn.
  • It allows you to be in control of the future when everything around you is out of control.
4. This section worries me a little. My take-away is that an organization needs to be careful about becoming overextended or about losing focus on what its core business is. The question needs to be asked, "What would we do if something catastrophic happened in our environment?"

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