Great by Choice, not by Luck

Think about the world in 2000. Fast-forward to 2015 and see where it’s now. Ponder all the destabilizing events that occurred during the intervening years.  Vivid in our collective memory are bursting of the Dotcom Bubble, 9/11 Attack on the World Trade Centre and Pentagon, US invasion of Iraq and war on terrorism that ensued, US Credit Crunch and the subsequent Global Recession, and Arab Spring. Add to this all the changes in the science & technology landscape. No doubt, now it’s a mind-boggling mélange.

All these massive changes in the Political, Economic, Social & Technological (PEST) Environments have affected both local and global businesses in innumerable ways. Amidst all this uncertainty and chaos some companies have found themselves out of their business while some have flourished against all odds. How come this happens?

The reasons for this are the subject of an illuminating new book, titled ‘Great By Choice’ and co-authored by business pundit Jim Collins of ‘Good to Great’ fame and Morten T. Hansen, a management professor at the University of California, Berkeley (School of Information) and at INSEAD, France. They argue with deep passion and conviction that great businesses are great by choice and by design, not by luck and produce strong evidence that validates their claim.

Starting with a list of 20400 companies, they’ve systematically cut through a massive chunk of data to come up with what they call 10Xers, companies that beat their respective industry indexes by at least 10 times.

It’s something like this: if you invested US $10000 in a portfolio of these 10X companies at the end of 1972 (holding each enterprise at the general stock market rate of return until it came online on the New York Stock Exchange, the American Stock Exchange or NASDAQ), your investment would’ve grown to be worth over US $6 million by the end of the selected study period (through 2002). That’s a performance 32 times better than the general stock market. The 10Xers Collins and Hansen has identified are as follows:

• Amgen
• Biomet
• Intel
• Microsoft
• Progressive Insurance
• Southwest Airlines
• Stryker

Southwest Airlines, led by the legendary Herbert Kelleher is the best performing company among these elites. Its performance is 63.4 times of that of the general stock market and 550.4 times of that of the Aviation industry. Since the study period is until the end of 2002, I googled them to see how they’re faring: Biomet apart, the 10Xers are doing well.

Through this comprehensive study, Collins and Hansen have discovered three vital factors that make these companies stand out from the crowd. They call them ‘Fanatic Discipline, Empirical Creativity and Productive Paranoia’. In what they term as 10X Leadership, this triad of core behaviours are animated by Level 5 Ambition – the leaders who, in essence, possess the paradoxical mixture of personal humility & professional will and of whom Collins argues a compelling case in his highly praised bestseller ‘Good to Great.’

Fanatic Discipline: write Collins and Hansen “Discipline, in essence, is consistency of action – consistency with values, consistency with long-term goals, consistency with performance standards, consistency of method, consistency over time. Discipline is not the same as regimentation. Discipline is not the same as hierarchical obedience or adherence to bureaucratic rules.

True discipline requires the independence of mind to reject pressures to conform in ways incompatible with values, performance standards, and long-term aspirations…”  With the ability to focus like a spotlight on their core purpose, the 10Xers are persevering, uncompromising on their standards, yet disciplined enough not to overreach.

Empirical Creativity: at times of uncertainty, most of us tend to rely on authority figures, peers or group norms for their primary cues on how to proceed. This is completely normal and, to a certain extent, safe even. But, 10Xers navigate uncertainty primarily by banking on empirical evidence. This involves engaging directly with evidence instead of counting on opinion, whim, conventional wisdom, authority or untested ideas.

A notable case in point is how Andy Grove, the former CEO of Intel chose the treatments for his prostate cancer. Instead of relying solely on doctors’ advice like most of us do, he went on to do his own research and wager on his own charts.

Productive Paranoia: while drafting the prospectus for the IPO of Microsoft in early 1986, Steve Ballmer, then a vice president, spoke so eloquently about so many grim possibilities it involved at a meeting with lawyers and underwriters that one of the underwriters quipped to Ballmer after his talk “I’d hate to hear you on a bad day.” 10Xers are driven by the fear of failure rather than the allure of success. Bill Gates ‘nightmare memo (June 1991)’ that had been leaked to the San Jose Mercury News is perhaps the best example for this.