- Email: [email protected]
Review of Collins, Jim, Good to Great
Journal of Business Research 57 (2004) 678 – 680
Book reviews Review of Collins, Jim, Good to Great New York: HarperCollins Publishers, Inc., 2001; 300 pages with appendices and index; $27.50; ISBN 0-06-662099-6 In a section called ‘‘Understanding Your Passion,’’ in a chapter called ‘‘The Hedgehog Concept,’’ in his book Good to Great, Jim Collins quotes a chairman of Philip Morris—1 of the 11 companies Collins’ team identified as uniquely, among all the Fortune 500, progressing from good to great based on their returns outperforming the market over time— as follows: ‘‘I love cigarettes. It’s one of the things that makes life really worth living.’’ In offering this quote, Collins notes that, among Philip Morris executives, his team of researchers found ‘‘an intensity and passion that surprised us’’ (p. 108). This, then, would be their ‘‘hedgehog concept.’’ But why doesn’t Collins stop to ask whether there might be something disingenuous about such a display of intensity and passion? This is an example of the kind of muddled juxtaposition that undermines some interesting principles and themes outlined in this book. The particular theme Collins calls the ‘‘hedgehog concept’’ arises from Collins’ comparison of the fox with the hedgehog: the fox is opportunistic and knows how to do a lot of things, and ultimately is too versatile for its own good—or at least too versatile to serve as a metaphor for corporate greatness. The hedgehog knows how to do one thing and it does it beautifully. So your hedgehog concept is that about which you are most passionate, at which you are the best in the world, and to do which makes the most economic sense for you. This all makes perfect sense and, other than the fact that sometimes you need foxes to find out what lies beyond your boundaries, we could all benefit by knowing our hedgehog concept. But a love of cigarettes hardly provides a compelling illumination of a corporate hedgehog concept and, beside, during the 1980s and 1990s, Philip Morris was as predatory as any fox. It’s this dichotomy between truism and example that undermines this interesting insight. What we have here really seems like two books: a book somewhat encumbered by platitudes and proverbs that Collins has coined, expressed in his chapter titles: ‘‘Level 5 Leadership as Humility with Resolve,’’ ‘‘First Who, Then What,’’ ‘‘The Hedgehog Concept’’ and ‘‘The Flywheel and the Doom Loop’’; and a research-based book, on the other hand, that details a study that produced a list of 11 publicly held Fortune 500 companies that uniquely went from flat-
or-worse circa the seventies to a point where their return on investment was at least three times that of the market in general for at least 15 years—in other words, from good to great. Having produced this business guidebook, Collins yields several interesting insights, some of which are contrary to popular thought. Through his team’s research, he points out that good-to-great companies focus not only on what they need to do to become great, they focus as well on what not to do or what they need to stop doing to remain so. Another insight is that good-to-great firms hire the right people and then develop strategy and vision, rather than the other way around. People are not your most important asset, the right people are. In other words, hire the right people, get rid of the wrong people, and then focus on strategy and execution. Collins also references Viktor Frankl, the World War II concentration camp survivor and author of Man’s Search for Meaning, in describing what he calls The Stockdale Paradox: the need to retain faith and focus that you will succeed despite challenges, but also the need to recognize and confront the reality of your situation and the dangers of false or undue optimism in leading and transforming one’s business. However, to map the research findings to these guidelines, Collins selectively applies examples that both support as well as contradict his main points. This is illustrated by, for example, Collins’ critique of Henry Singleton of Teledyne. Singleton was, for Collins, a genius who used his personnel to implement his own platform. Teledyne failed to achieve greatness because on Singleton’s departure Teledyne went into a downward spiral. One of the characteristics of a level 5 leader is that he or she chooses a capable successor, so Singleton must not have been a level 5 leader. Ken Iverson of Nucor was, on the other hand, a level 5 leader. Yet, in the appendices, Collins acknowledges that the performance of both Nucor and Gillette similarly fell off following the retirement of their level 5 leaders. Collins also suggests that all the CEOs of the good to great companies have the quality of humility. Evidence of humility is that they all are virtually unknown to the public. Who has ever heard of any of these CEOs? Collins asks. Although this is not discussed in the book, if you are at least from Cincinnati, you have probably heard of Lyle Everingham of Kroger, because he’s involved in a high-profile way in Cincinnati life and culture. For one thing, he’s on the board of Cincinnati’s art institute; for another thing, Kroger is a high-profile donor to charities. Rather than from a leader who is ‘‘humble’’ by virtue of remaining behind the scenes,
Book reviews
one would expect such a customer-driven enterprise like Kroger to benefit from a leader who can be seen to be active in civic life. In his discussion of humility, however, noting that Kimberly-Clark’s Darwin Smith grew up as a farm boy in Indiana, Collins has failed to observe that Everingham started out as a Kroger stock boy. There are other objects on the radar that Collins seems to ignore or can’t explain. For example, while in Collins’ stated view one’s specific educational background is not an important component of level 5 leadership, only three universities—Harvard, Yale and MIT—are mentioned in connection with the CEOs’ educational backgrounds. Those leaders of the good-to-great companies whose alma maters are named went to Harvard or Yale. Singleton, the genius with helpers (and hence not a level 5 leader), Collins mentions, came from MIT. Wouldn’t it have helped his case to say that someone had gone to, I don’t know, Illinois Institute of Technology and Marquette University as did Kimberly-Clark’s current CEO? Another way in which the selection of only those examples that seem to support his principles weakens the book is that Collins does not include things that are interesting and exciting about the company that don’t appear to support his framework. The reader might like to know that Kroger credits itself with two major technological innovations: it was a leader in adopting the use of Model T trucks to replace horse-drawn vehicles and it was the first major food store to use bar-code scanners in checkout lines—this in 1976, during the good-to-great transition period. Both innovations support Kroger’s ‘‘hedgehog concept’’ of making the shopping experience easier and more enjoyable for the customer, but Collins specifically downplays bar-code scanning in Kroger’s battle with A&P because he has already set out to prove that technology is not that important. In light of its strengths and weaknesses, Good to Great should hold interest for managers because it offers unconventional insights as to what makes a company successful in the long run. Although its examples are somewhat skewed to support Collins’ themes, Good to Great adopts a methodical approach to analyzing current, well-known companies across disparate industries. The book’s themes may also be applied to undergraduate and graduate management and marketing courses and include some interesting and teachable concepts such as the Hedgehog Concept. The contrariwise nature of certain themes would provide students a catalyst with which to question several popular beliefs and would be a good stimulus for discussion and debate. Although the book is a bit too long for assigning in full, some ideas could be drawn out and used in class to teach specific topics. The structure of book, surprisingly unlike many other ‘‘how-to’’ business books, is logical and easy to follow. At the doctoral level, Good to Great may stimulate thought and research ideas as a supplement to doctoral seminars, but would not be appropriate as a core reading.
679
All in all, we could benefit from a richer and more balanced collection of examples that help to elaborate on the principles and their effects in the companies that implement them. We might have had such a collection of examples if Collins had not set out to use the exemplary and the comparison companies to prove his principles, and in so doing always draw a halo over the 11 anointed companies and horns on all the others. The principles themselves are thought provoking and many managers have already begun implementing them. At the same time, we could benefit from a more candid look at these 11 ‘‘good-to-great’’ companies. Andrew J. Rohm Marketing Group, Northeastern University, Boston, MA 02115-5000, USA Email address: [email protected] Tel.: +1-617-373-3260; fax: +1-617-373-8366 doi:10.1016/S0148-2963(02)00392-2
Driving Customer Equity: How Customer Lifetime Value is Reshaping Corporate Strategy By Roland T. Rust, Valarie A. Zeithaml, and Katherine N. Lemon, The Free Press, New York, 2000, 292 pages, US$28.00 It is not that often that one comes across a book that can truly have an immediate impact on a business if the principles in the book are implemented. Not only that, but that the principles are easy to understand and can actually be employed. That is the beauty of Ronald T. Rust, Valarie A. Zeithaml, and Katherine N. Lemon’s book Driving Customer Equity. In the vast sea of customer relationship management books that either offer interesting concepts with little advice on ‘‘how to’’ or vice versa, here is a real winner that delivers on both fronts—innovative thinking along with a roadmap of how such strategies can be applied. Using illustrative, real-world examples, Rust, Zeithaml, and Lemon effectively communicate that the key to a company’s long-term competitive success is a central focus on the customer, more specifically on customer equity (i.e., the total of the discounted lifetime values of all the firm’s customers). Such an approach confronts the outmoded strategy of examining only the product or the brand (which can lead to what the authors affectionately dub the profitable product death spiral) and hails the customer as the real gem of the organization. How a firm gains customer equity is dependent on three key drivers: value equity (i.e., the customer’s objective evaluation of the firm’s offerings, e.g., quality or price), brand equity (i.e., the customer’s subjective view of the firm and its offerings, e.g., brand awareness and attitude toward the brand), and retention equity (i.e., the customer’s view of the strength of the relationship between the customer and the firm, e.g., loyalty and affinity programs).
Book reviews Review of Collins, Jim, Good to Great New York: HarperCollins Publishers, Inc., 2001; 300 pages with appendices and index; $27.50; ISBN 0-06-662099-6 In a section called ‘‘Understanding Your Passion,’’ in a chapter called ‘‘The Hedgehog Concept,’’ in his book Good to Great, Jim Collins quotes a chairman of Philip Morris—1 of the 11 companies Collins’ team identified as uniquely, among all the Fortune 500, progressing from good to great based on their returns outperforming the market over time— as follows: ‘‘I love cigarettes. It’s one of the things that makes life really worth living.’’ In offering this quote, Collins notes that, among Philip Morris executives, his team of researchers found ‘‘an intensity and passion that surprised us’’ (p. 108). This, then, would be their ‘‘hedgehog concept.’’ But why doesn’t Collins stop to ask whether there might be something disingenuous about such a display of intensity and passion? This is an example of the kind of muddled juxtaposition that undermines some interesting principles and themes outlined in this book. The particular theme Collins calls the ‘‘hedgehog concept’’ arises from Collins’ comparison of the fox with the hedgehog: the fox is opportunistic and knows how to do a lot of things, and ultimately is too versatile for its own good—or at least too versatile to serve as a metaphor for corporate greatness. The hedgehog knows how to do one thing and it does it beautifully. So your hedgehog concept is that about which you are most passionate, at which you are the best in the world, and to do which makes the most economic sense for you. This all makes perfect sense and, other than the fact that sometimes you need foxes to find out what lies beyond your boundaries, we could all benefit by knowing our hedgehog concept. But a love of cigarettes hardly provides a compelling illumination of a corporate hedgehog concept and, beside, during the 1980s and 1990s, Philip Morris was as predatory as any fox. It’s this dichotomy between truism and example that undermines this interesting insight. What we have here really seems like two books: a book somewhat encumbered by platitudes and proverbs that Collins has coined, expressed in his chapter titles: ‘‘Level 5 Leadership as Humility with Resolve,’’ ‘‘First Who, Then What,’’ ‘‘The Hedgehog Concept’’ and ‘‘The Flywheel and the Doom Loop’’; and a research-based book, on the other hand, that details a study that produced a list of 11 publicly held Fortune 500 companies that uniquely went from flat-
or-worse circa the seventies to a point where their return on investment was at least three times that of the market in general for at least 15 years—in other words, from good to great. Having produced this business guidebook, Collins yields several interesting insights, some of which are contrary to popular thought. Through his team’s research, he points out that good-to-great companies focus not only on what they need to do to become great, they focus as well on what not to do or what they need to stop doing to remain so. Another insight is that good-to-great firms hire the right people and then develop strategy and vision, rather than the other way around. People are not your most important asset, the right people are. In other words, hire the right people, get rid of the wrong people, and then focus on strategy and execution. Collins also references Viktor Frankl, the World War II concentration camp survivor and author of Man’s Search for Meaning, in describing what he calls The Stockdale Paradox: the need to retain faith and focus that you will succeed despite challenges, but also the need to recognize and confront the reality of your situation and the dangers of false or undue optimism in leading and transforming one’s business. However, to map the research findings to these guidelines, Collins selectively applies examples that both support as well as contradict his main points. This is illustrated by, for example, Collins’ critique of Henry Singleton of Teledyne. Singleton was, for Collins, a genius who used his personnel to implement his own platform. Teledyne failed to achieve greatness because on Singleton’s departure Teledyne went into a downward spiral. One of the characteristics of a level 5 leader is that he or she chooses a capable successor, so Singleton must not have been a level 5 leader. Ken Iverson of Nucor was, on the other hand, a level 5 leader. Yet, in the appendices, Collins acknowledges that the performance of both Nucor and Gillette similarly fell off following the retirement of their level 5 leaders. Collins also suggests that all the CEOs of the good to great companies have the quality of humility. Evidence of humility is that they all are virtually unknown to the public. Who has ever heard of any of these CEOs? Collins asks. Although this is not discussed in the book, if you are at least from Cincinnati, you have probably heard of Lyle Everingham of Kroger, because he’s involved in a high-profile way in Cincinnati life and culture. For one thing, he’s on the board of Cincinnati’s art institute; for another thing, Kroger is a high-profile donor to charities. Rather than from a leader who is ‘‘humble’’ by virtue of remaining behind the scenes,
Book reviews
one would expect such a customer-driven enterprise like Kroger to benefit from a leader who can be seen to be active in civic life. In his discussion of humility, however, noting that Kimberly-Clark’s Darwin Smith grew up as a farm boy in Indiana, Collins has failed to observe that Everingham started out as a Kroger stock boy. There are other objects on the radar that Collins seems to ignore or can’t explain. For example, while in Collins’ stated view one’s specific educational background is not an important component of level 5 leadership, only three universities—Harvard, Yale and MIT—are mentioned in connection with the CEOs’ educational backgrounds. Those leaders of the good-to-great companies whose alma maters are named went to Harvard or Yale. Singleton, the genius with helpers (and hence not a level 5 leader), Collins mentions, came from MIT. Wouldn’t it have helped his case to say that someone had gone to, I don’t know, Illinois Institute of Technology and Marquette University as did Kimberly-Clark’s current CEO? Another way in which the selection of only those examples that seem to support his principles weakens the book is that Collins does not include things that are interesting and exciting about the company that don’t appear to support his framework. The reader might like to know that Kroger credits itself with two major technological innovations: it was a leader in adopting the use of Model T trucks to replace horse-drawn vehicles and it was the first major food store to use bar-code scanners in checkout lines—this in 1976, during the good-to-great transition period. Both innovations support Kroger’s ‘‘hedgehog concept’’ of making the shopping experience easier and more enjoyable for the customer, but Collins specifically downplays bar-code scanning in Kroger’s battle with A&P because he has already set out to prove that technology is not that important. In light of its strengths and weaknesses, Good to Great should hold interest for managers because it offers unconventional insights as to what makes a company successful in the long run. Although its examples are somewhat skewed to support Collins’ themes, Good to Great adopts a methodical approach to analyzing current, well-known companies across disparate industries. The book’s themes may also be applied to undergraduate and graduate management and marketing courses and include some interesting and teachable concepts such as the Hedgehog Concept. The contrariwise nature of certain themes would provide students a catalyst with which to question several popular beliefs and would be a good stimulus for discussion and debate. Although the book is a bit too long for assigning in full, some ideas could be drawn out and used in class to teach specific topics. The structure of book, surprisingly unlike many other ‘‘how-to’’ business books, is logical and easy to follow. At the doctoral level, Good to Great may stimulate thought and research ideas as a supplement to doctoral seminars, but would not be appropriate as a core reading.
679
All in all, we could benefit from a richer and more balanced collection of examples that help to elaborate on the principles and their effects in the companies that implement them. We might have had such a collection of examples if Collins had not set out to use the exemplary and the comparison companies to prove his principles, and in so doing always draw a halo over the 11 anointed companies and horns on all the others. The principles themselves are thought provoking and many managers have already begun implementing them. At the same time, we could benefit from a more candid look at these 11 ‘‘good-to-great’’ companies. Andrew J. Rohm Marketing Group, Northeastern University, Boston, MA 02115-5000, USA Email address: [email protected] Tel.: +1-617-373-3260; fax: +1-617-373-8366 doi:10.1016/S0148-2963(02)00392-2
Driving Customer Equity: How Customer Lifetime Value is Reshaping Corporate Strategy By Roland T. Rust, Valarie A. Zeithaml, and Katherine N. Lemon, The Free Press, New York, 2000, 292 pages, US$28.00 It is not that often that one comes across a book that can truly have an immediate impact on a business if the principles in the book are implemented. Not only that, but that the principles are easy to understand and can actually be employed. That is the beauty of Ronald T. Rust, Valarie A. Zeithaml, and Katherine N. Lemon’s book Driving Customer Equity. In the vast sea of customer relationship management books that either offer interesting concepts with little advice on ‘‘how to’’ or vice versa, here is a real winner that delivers on both fronts—innovative thinking along with a roadmap of how such strategies can be applied. Using illustrative, real-world examples, Rust, Zeithaml, and Lemon effectively communicate that the key to a company’s long-term competitive success is a central focus on the customer, more specifically on customer equity (i.e., the total of the discounted lifetime values of all the firm’s customers). Such an approach confronts the outmoded strategy of examining only the product or the brand (which can lead to what the authors affectionately dub the profitable product death spiral) and hails the customer as the real gem of the organization. How a firm gains customer equity is dependent on three key drivers: value equity (i.e., the customer’s objective evaluation of the firm’s offerings, e.g., quality or price), brand equity (i.e., the customer’s subjective view of the firm and its offerings, e.g., brand awareness and attitude toward the brand), and retention equity (i.e., the customer’s view of the strength of the relationship between the customer and the firm, e.g., loyalty and affinity programs).