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Take your organization from good to great

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Part 4

In Jim Collins’ book, Good to Great, he described a “great” company as one company whose financial performance achieved several multiples better than the stock market average over a sustained period. He also attributed the main factor for achieving this greatness as having a company focus its resources on its particular field of competence. Much has changed since this was published in 2001, especially the fast rising tide of consumer concern, and in some cases, demand for the business community to be more focused on sustainability, being good citizens, and giving back to their communities.

In Good to Great, Collins identifies 11 companies (Gillette, Kroger, Walgreens, Wells Fargo, Phillip Morris and others) he felt had made this transition from good to great. The standard he used was that these companies had either met or underperformed the stock market for a 15 year period and then transitioned to providing returns of at least three times that of the stock market over the subsequent period.

In Firms of Endearment published in 2007, authors Raj Sisodia, Jag Sheth and David B. Wolfe, challenged the more traditional capitalistic understanding as to what is seen as being a successful business. Their book promotes the need for a “new capitalism of caring” with its focus that all stakeholders must be equally valued. This approach mirrored my own beliefs and experience that there was a much better way for corporations to benefit everyone involved with their organization, both internally and externally, and not just their shareholders.

The authors of Firms of Endearment took a very different path in their analysis. Their research sought out companies that strived to “endear” themselves to all their stakeholder groups -customers, employees, partners, communities, and shareholders. They looked for companies that aligned the interests of all stakeholders in such a way that no stakeholder group gains at the expense of other stakeholder groups. The companies they selected included Amazon, BMW, Container Store, eBay, Google, Patagonia, Southwest Airlines, Starbucks, Whole Foods and others.

When the authors of Firms of Endearment completed their analysis of just the one category of stock market performance and the return to investors during the period of 1996 to 2006 (the primary focus of Good to Great, they found that:

1) Over a 10-year horizon, Firms of Endearment companies outperformed the Good to Great companies by 1026 percent to 331 percent (a 3.1 to 1 ratio).
2) Over five years, Firms of Endearment companies outperformed Good to Great companies by 128 percent to 77 percent (a 1.7 to 1 ratio).
3) Over three years, Firms of Endearment companies performed on par with Good to Great companies 73% to 75%.

By focusing on the benefits to all stakeholders, the Firms of Endearment companies met, or in the five and 10 year periods, greatly outperformed companies that focused primarily on stock performance and return to investors. This message cannot be emphasized enough. The authors summed up this comparison by saying that they had a “seismic disagreement” with Good to Great when it comes to defining what is “great.” They concluded, “To us, a great company is one that makes the world a better place because it exists, not simply a company that outperforms the market by a certain percentage over a certain period of time.”

Please visit www.bruceburtch.com for more information

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