Monday, August 22, 2016

Monday Review: Great by Choice 6

This is the sixth post reading through Jim Collins and Morten Hansen's book, Great by Choice.

1. This chapter is called "SMaC," which stands for "Specific, Methodical, and Consistent." The authors are suggesting that companies that performed extraordinarily well over the long haul despite crises that tanked other companies had smac recipies from which they deviated little over the course of thirty years.

Throughout the chapter, specific examples are given. Southwest almost entirely stuck to its formula of only 737s, stick to less than two hour flights, stay out of food services, etc over the long haul of some thirty years. Progressive stuck to high risk drivers, pricing for individual customers, keeping experiments to less than 5% of total revenues. Intel stuck to doubling the capacity of its integrated circuits every two years, being unbendingly reliable in delivery, avoiding markets with entrenched competitors, not skimping on R & D. Even David Breashear, Mt. Everest photographer, had a formula to which he fanatically stuck.

The point I think is that there was less overall change from the core winning formula among 10X companies than there was among parallel companies that could have succeeded similarly but failed instead. Over thirty years, the 10X companies only had 10-20% change of their basic formula. The competing companies varied from 55-70%.

"The signature of mediocrity is not an unwillingness to change; the signature of mediocrity is chronic inconsistency"  (138).

2. That is not to say that they did not change. Indeed, several of them changed in key ways and would have failed if they had not. One wonders if this chapter could have also been written from that perspective. Microsoft "zoomed out and back in" and realized that it needed to get on the internet train in the mid-90s. Intel realized that its core business in memory was going nowhere and changed fairly significantly to microprocessors, which had only been a minor element in their portfolio up to that time.

So how does a lasting company make the changes that are needed? Here's where the previous chapters come into play. They have productive paranoia that smells a looming crisis and zooms out and then back in to refocus. They have empirical creativity that makes changes on the basis of empirical evidence.

The chapter ends by using the US Constitution as a good example of a company that has gone the distance. It set up a good core formula, but made room for amendments. But the process of making amendments is arduous and, aside from the original ten in the Bill of Rights, we have only made 17 changes in 225 years.

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