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Great by Choice | Jim Collins

Great by Choice | Jim Collins

20 Mile March

ELEMENTS OF A GOOD 20 MILE MARCH

A good 20 Mile March uses performance markers that delineate a lower bound of acceptable achievement. These create productive discomfort, much like hard physical training or rigorous mental development, and must be challenging (but not impossible) to achieve in difficult times. A good 20 Mile March has self- imposed constraints. This creates an upper bound for how far you’ll march when facing robust opportunity and exceptionally good conditions. These constraints should also produce discomfort in the face of pressures and fears that you should be going faster and doing more. A good 20 Mile March is tailored to the enterprise and its environment. There’s no all-purpose 20 Mile March for all enterprises. Southwest’s march wouldn’t apply to Intel. A sports team’s march wouldn’t apply to an Army platoon leader. An Army platoon leader’s march wouldn’t apply to a school. A good 20 Mile March lies largely within your control to achieve. A good 20 Mile March has a Goldilocks time frame, not too short and not too long but just right. Make the timeline of the march too short, and you’ll be more exposed to uncontrollable variability; make the timeline too long, and it loses power. [...]

A good 20 Mile March is designed and self- imposed by the enterprise, not imposed from the outside or blindly copied from others. For instance, to simply accept “earnings per share” as the focus of a march because Wall Street looks at earnings per share would lack rigor, reflecting no clarity about the underlying performance drivers in a specific enterprise. A good 20 Mile March must be achieved with great consistency. Good intentions do not count. [...]

Confidence comes not from motivational speeches, charismatic inspiration, wild pep rallies, unfounded optimism, or blind hope. Taciturn, understated, and reserved, John Brown at Stryker avoided all of these. Stryker earned its confidence by actual achievement, accomplishing stringent performance standards year in and year out, no matter the industry conditions. John Brown operated like a track coach who trains his runners to run strong at the end of every workout, in wind, in heat, in rain, in snow, no matter what the conditions. And then if it’s windy, hot, rainy, or snowy on championship day, the runners feel confident because of their own actual experience: we can run strong because we’ve trained hard even when we felt bad, because we’ve practiced running hard in heinous conditions! [...]

Accomplishing 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. [...]

Like 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. [...]

The case of Genentech under Levinson highlights two points. First, 20 Mile Marching can help you turn underachievement into superior achievement; so long as you stay alive and in the game, it’s never too late to start the march. Second, searching for— and even finding— the Next Big Thing does not in itself make a great company. Like a gifted but undisciplined athlete, Genentech had underperformed and disappointed, making good on its promise only once Levinson added fanatic discipline to the mix. [...]

Fire Bullets, Then Cannonballs

John Brown at Stryker lived by the mantra that it’s best to be “one fad behind,” never first to market, but never last. In contrast, Leon Hirsch at comparison case USSC piled breakthrough upon breakthrough, with new products that revolutionized surgical practice such as absorbable surgical staples and special devices for minimally invasive procedures, building a reputation among business analysts as the most innovative leader in its product categories. Investor’s Business Daily remarked, “That’s how [USSC] kept the competition at bay— by out- innovating them.” Yet Stryker— stepping along one fad behind— trounced USSC in long- term performance. 8 Even in pairs where the 10X case did out- innovate its comparison, such as with Intel versus AMD, the evidence still does not support the idea that maximum pioneering innovation is the most essential differentiator of 10X success. At multiple junctures in its history, Intel did not have the most innovative chip in the industry. Intel lagged behind National Semiconductor and Texas Instruments in the move to 16- bit microprocessors. Some of Intel’s own executives saw the Motorola 68000 as better than Intel’s 8086, and then Intel was late to market with its 32- bit microprocessors. Intel also fell behind those pioneering RISC (reduced instruction set) chips and had to play catch- up. Of course, Intel did create significant innovations— we’re not saying that Intel failed to innovate— but historical evidence shows Intel to be less of a pioneering innovator at critical junctures than most people realize. 9 We’re not the only researchers to have such findings. We came across a fascinating piece of work by Gerard J. Tellis and Peter N. Golder in their book Will and Vision. Tellis and Golder systematically examined the relationship between attaining long- term market leadership and being the innovative pioneer in 66 wide- ranging markets, from chewing gum to the Internet. They found that only 9 percent of pioneers end up as the final winners in a market. Gillette didn’t pioneer the safety razor; Star did. Polaroid didn’t pioneer the instant camera; Dubroni did. Microsoft didn’t pioneer the personal computer spreadsheet; VisiCorp did. Amazon didn’t pioneer online bookselling and AOL didn’t pioneer online Internet service. Tellis and Golder also found that 64 percent of pioneers failed outright. It seems that pioneering innovation is good for society but statistically lethal for the individual pioneer! [...]

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. [...]

And that’s the underlying principle: empirical validation. Be creative, but validate your creative ideas with empirical experience. You don’t even need to be the one to fire all the bullets; you can learn from the empirical experience of others. Southwest Airlines became one of the most successful start- up companies of all time by betting on an empirically validated model that it copied from PSA. Roald Amundsen built his strategy on proven techniques, such as the use of dogs and sleds, that’d been honed for centuries by Eskimos. (Robert Falcon Scott, in contrast, bet big on his newfangled motor sledges, which had never been fully tested in the most extreme polar conditions.) More important than being first or the most creative is figuring out what works in practice, doing it better than anyone else, and then making the very most of it with a 20 Mile March. [...]

The same point holds for Steve Jobs himself. When banished to the high- tech wilderness in 1985 after being ousted from his own company, Jobs never stopped developing, growing, learning, pushing himself. He could have taken his fortune, and retired to a life of ease and comfortable irrelevance. Instead, he launched a new company called NeXT, worked on a new operating system, and became engaged with animated films at Pixar. In the 12 years away from Apple, Jobs had turned himself from a creative entrepreneur into a disciplined, creative company builder. Jobs always knew how to build insanely great products, but he had to learn how to build an insanely great company. Fanatic discipline and empirical creativity— two sides of a coin, both required for 10X success and enduring greatness. Still, they are not enough, for if you get knocked out of the game, all your creativity and discipline amount to nothing. Apple nearly disappeared as an independent company in the mid- 1990s, having fallen so far and become so dispirited that its leaders seriously entertained a sellout to another company. Apple got a stay of execution when its board couldn’t come to terms with the potential acquirers, and Jobs returned soon thereafter. If Apple had capitulated and been acquired, there’d very likely have been no iMac, iPhone, iPod, or iPad. Greatness requires the Churchillian resolve to never give in, but it also requires having the reserves to endure staggering defeats, bad luck, calamity, chaos, and disruption. In a stable and predictable world, leading with fanatic discipline and empirical creativity might be enough; but uncertainty and instability also require leading with productive paranoia, the subject of our next chapter. [...]

Leading above the Death Line

  • Productive Paranoia 1: Build cash reserves and buffers— oxygen canisters— to prepare for unexpected events and bad luck before they happen. 
  • Productive Paranoia 2: Bound risk— Death Line risk, asymmetric risk, and uncontrollable risk— and manage time- based risk. 
  • Productive Paranoia 3: Zoom out, then zoom in, remaining hypervigilant to sense changing conditions and respond effectively.

Think of Intel as David Breashears and building a great company in the microelectronics industry as like climbing Everest with an IMAX camera. Think also of cash reserves and a conservative balance sheet as oxygen canisters and other supplies. By the late 1990s, Intel’s cash position had soared to more than $ 10 billion, reaching 40 percent of annual revenues (whereas AMD’s cash- to- revenue ratio hovered at less than 25 percent). Having such a high level of cash might be irrational and inefficient 95 percent of the time, but Intel leadership worried about the 5 percent of the time when catastrophe might devastate the industry or when some other unexpected shock might batter the company. In those rare scenarios, which inevitably come, Intel would be able to continue its relentless 20 Mile March, to keep creating, to keep inventing, to keep on its quest to become an enduring great company. Financial theory says that leaders who hoard cash in their companies are irresponsible in their deployment of capital. In a stable, predictable, and safe world, the theory might hold; but the world is not stable, predictable, or safe. And it never will be. [...]

The 10X companies carried 3 to 10 times the ratio of cash to assets. [...]

If you come at the world with the practices of building a great enterprise and you apply them with rigor all the time— good times and bad, stable times and unstable— you’ll have an enterprise that can pull ahead of others when turbulent times hit. When a calamitous event clobbers an industry or the overall economy, companies fall into one of three categories: those that pull ahead, those that fall behind, and those that die. The disruption itself does not determine your category. You do. [...]

Sometimes acting too fast increases risk. Sometimes acting too slow increases risk. The critical question 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 question but in having the presence of mind to ask the question. [...]

We adopted the terms zoom out and zoom in to capture an essential manifestation of productive paranoia, a dual- lens capability. 10X leaders remain obsessively focused on their objectives and hypervigilant about changes in their environment; they push for perfect execution and adjust to changing conditions; they count the passes and see the gorilla. [...]

In practice, it works like this: Zoom Out Sense a change in conditions Assess 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? Then Zoom In Focus on supreme execution of plans and objectives [...]

SMaC

SMaC RECIPE

In early 1979, Howard Putnam, then CEO of Southwest Airlines, wrestled with a question: does the sweeping disruption of deregulation call for a revolution in how we run our company? The 1978 Airline Deregulation Act would unleash competition, throw carriers into pitched battles for market share, ignite price wars, force airlines to cut costs, and lead to bankruptcies. Putnam considered: Does deregulation undermine our low-cost model? Does deregulation threaten our high-spirit, employee-focused culture? Does deregulation erode the competitive value of rapid gate turns or destroy the viability of our point-to-point system? Does radical change in our environment call for inflicting radical change upon ourselves? His answers: no, no, no, and no. He concluded that Southwest should continue to expand based on “the ‘cookie-cutter’ approach.” He conjured up the image of a recipe used repeatedly to create batches of consistently formed cookies. “Do the same thing that you are already doing well,” he said, and do it “over and over again.” Not only that, he specified the cookie recipe, point by point.

Reproduced below is what he articulated (we’re reproducing it verbatim, excluding one abbreviation that we couldn’t decipher, so that you can see how he laid out the recipe in his own words):

  1. Remain a short-haul carrier, under two-hour segments.
  2. Utilize the 737 as our primary aircraft for ten to twelve years.
  3. Continued high aircraft utilization and quick turns, ten minutes in most cases.
  4. The passenger is our #1 product. Do not carry air freight or mail, only small packages which have high profitability and low handling costs.
  5. Continued low fares and high frequency of service.
  6. Stay out of food services.
  7. No interlining…costs in ticketing, tariffs and computers and our unique airports do not lend themselves to interlining.
  8. Retain Texas as our #1 priority and only go interstate if high-density short-haul markets are available to us.
  9. Keep the family and people feeling in our service and a fun atmosphere aloft. We’re proud of our employees.
  10. Keep it simple.

Continue cash-register tickets, ten-minute cancellation of reservations at the gate in order to clear standbys, simplified computer system, free drinks in Executive service, free coffee and donuts in the boarding area, no seat selection on board, tape-recorded passenger manifest, bring airplanes and crews home to Dallas each night, only one domicile and maintenance facility.

Howard Putnam’s 10 points form a SMaC recipe. A SMaC recipe is a set of durable operating practices that create a replicable and consistent success formula. The word “SMaC” stands for Specific, Methodical, and Consistent. You can use the term “SMaC” as a descriptor in any number of ways: as an adjective (“ Let’s build a SMaC system”), as a noun (“ SMaC lowers risk”), and as a verb (“ Let’s SMaC this project”). A solid SMaC recipe is the operating code for turning strategic concepts into reality, a set of practices more enduring than mere tactics. Tactics change from situation to situation, whereas SMaC practices can last for decades and apply across a wide range of circumstances. We on the research team used to believe in an inevitable trade off between specificity and durability: if you want to have durable precepts to live by, they need to be more general, like core values or high- level strategy; but if you want specific practices, they need to change frequently as conditions change, like tactics. Yet it is possible to develop practices that are both specific and durable— SMaC practices. A SMaC practice is not the same as a strategy, culture, core values, purpose, or tactics. [...]

keep- it- simple strategy,” [...]

When faced with declining results, 10Xers do not first assume that their principles and methods have become obsolete. Rather, they first consider whether the enterprise has perhaps strayed from its recipe, or has forgone discipline and rigor in adhering to the recipe. If so, they see the remedy in reconnecting with the underlying insights behind the recipe and reigniting passion for adhering to it. They ask, “Is our recipe no longer working because we’ve lost discipline? Or is it no longer working because our circumstances have fundamentally changed?” [...]

Changes to a solid and proven SMaC recipe are like amendments to the Constitution: if you get the recipe right, based on practical insight and empirical validation, it should serve you well for a very long time; equally important, fundamental changes must be possible. Continually question and challenge your recipe, but change it rarely. [...]

Greatness comes to those who keep moving forward, figuring out what works, driving down Moore’s Law, advancing the Southwest Airlines model across the country, cracking the code for EPO, marching relentlessly to make Windows a standard, making computers and MP3 players that we’d want for ourselves. Those who spend most of their energy “reacting to change” will do exactly that, expend most of their energy reacting to change. In a great twist of irony, those who bring about the most significant change in the world, those who have the largest impact on the economy and society, are themselves enormously consistent in their approach. They aren’t dogmatic or rigid; they’re disciplined, they’re creative, they’re paranoid. They’re SMaC! [...]

Return on Luck

Greatness is not primarily a matter of circumstance; greatness is first and foremost a matter of conscious choice and discipline. [...]

The factors that determine whether or not a company becomes truly great, even in a chaotic and uncertain world, lie largely within the hands of its people. It is not mainly a matter of what happens to them but a matter of what they create, what they do, and how well they do it. [...]

Good research advances understanding but never provides the ultimate answer; we always have more to learn. And life offers no guarantees. It’s always possible that game- ending events and unbendable forces— disease, accident, brain injury, earthquake, tsunami, financial calamity, civil war, or any of a thousand other possible events— will subvert our strongest and most disciplined efforts. Still, we must act. When the moment comes— when we’re afraid, exhausted, or tempted— what choice do we make? Do we abandon our values? Do we give in? Do we accept average performance because that’s what most everyone else accepts? Do we capitulate to the pressure of the moment? Do we give up on our dreams when we’ve been slammed by brutal facts? The greatest leaders we’ve studied throughout all our research cared as much about values as victory, as much about purpose as profit, as much about being useful as being successful. Their drive and standards are ultimately internal, rising from somewhere deep inside. [...]

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