From Good to Great … to Below Average

I almost never read business books anymore. I got my fill of them years ago when I was a management consultant before I went back and got a Ph.D.

Last week, however, I picked up Good to Great by Jim Collins. This book is an absolute phenomenon in the publishing world. Since it came out in 2001, it has sold millions of copies. It still sells over 300,000 copies a year. It has been so successful that seven years later the book is still in hardcover. I’ve been hearing about it for years and never looked at it. People are always asking me about it. I figured it was about time I took a look.

The book focuses on eleven companies that were just okay, and then transformed themselves into greatness — where greatness is defined as a sustained period over which the stock dramatically outperformed the market and its competitors. Not only did these companies make the transition from good to great, but they also had the sorts of characteristics which made them “built to last” (which is the title of Collins’s earlier book).


Ironically, I began reading the book on the very same day that one of the eleven “good to great” companies, Fannie Mae, made the headlines of the business pages. It looks like Fannie Mae is going to need to be bailed out by the federal government. If you had bought Fannie Mae stock around the time Good to Great was published, you would have lost over 80 percent of your initial investment.

Another one of the “good to great” companies is Circuit City. You would have lost your shirt investing in Circuit City as well, which is also down 80 percent or more. Best Buy has cleaned Circuit City’s clock for the last seven or eight years.

Nine of the eleven companies remain more or less intact. Of these, Nucor is the only one that has dramatically outperformed the stock market since the book came out. Abbott Labs and Wells Fargo have done okay. Overall, a portfolio of the “good to great” companies looks like it would have underperformed the S&P 500.

I seem to remember that someone did an analysis of the companies highlighted in Peters and Waterman‘s 1980’s classic book In Search of Excellence and found the same thing.

What does this all mean? In one sense, not much.

These business books are mostly backward-looking: what have companies done that has made them successful? The future is always hard to predict, and understanding the past is valuable; on the other hand, the implicit message of these business books is that the principles that these companies use not only have made them good in the past, but position them for continued success.

To the extent that this doesn’t actually turn out to be true, it calls into question the basic premise of these books, doesn’t it?


I will also jump on the bandwagon for Rosenzweig's "The Halo Effect". Part of the error in Collin's approach is what Rosenzweig calls "The Delusion of Connecting the Winning Dots". Picking successful companies and searching for what they have in common doesn't explain their success, because there is no way to compare them to less successful companies.

Dave Bridgeland

As Rob notes, "The Halo Effect" describes "Good to Great" is some detail. In fact, Rosenzweig thoroughly debunks "Good to Great". He shows how the Collins methodology is fundamentally flawed, that you cannot draw conclusions from looking at a collection of companies that have done well and generalizing. One Amazon reviewer characterized "The Halo Effect" as a throwdown, and for me it was as fun to read as a throwdown is to watch.

David Cohen

Apparently, you and the commenters have all missed the point: A company, although considered a "person" under the law, is not really a person. It doesn't "behave" or "perform"; it's managers and leaders do. And when managers and/or leaders change, there is no reason to suppose that the company will continue to "perform" the same way. One person can make the difference -- Steve Jobs comes to mind -- in whether a company is merely good or occasionally great.


For accurate predictions, leave it to Professor Parkinson.


Isn't it obvious?

I would think that the current stock price already factors in the "greatness" of the company. i.e. there is only the sudden jump in stock price when the company makes a change from Good to great. For these companies to have continuing increases they would have to go from great to greater. if a company was only good, and no longer great the stock price would in fact drop, and if this hasn't really happened (i.e. performed the same as the S&P500) then the company is still prob great.

But yes, some of these companies weren't so great. And as it turns out took huge risks trying to be great, but heh, you can't pick em all.

D. Illchuk

I guess there's nothing to learn from the Roman Empire either.

David Damore

To say that success is luck is allowable when... luck is defined as wise choices and hard work.

Wise Choices + Hard Work = Success/Luck



Circuit City is a great example of the problems faced by a "Good to Great" company. Circuit City really did do a good job of building a brand and expanding to create economies of scale. Unfortunately, they have not gone to the continual effort of upgrading; they're still selling MS-DOS in a Windows world.

Just like Microsoft has to create a new product to repeat sales, a retailer has to renovate, expand, move locations, and continually chase dollars. Old locations are just that; old locations. Entropy (and regression to the mean) suggests that the best locations in 1995 will not be the best locations in 2008. Circuit City didn't worship diligently enough in the Temple of Bigger and Better and Stronger and Faster.

They ended up with drab stores, limited merchandise, low market share leading to cost disadvantage, and declining assets. If you build it they will come. You have to rebuild it to get them to come back.



I had to write a short essay on this book a few years ago for a scholarship I was applying for. While the prompt implied that the book was the living embodiment goodness, I argued something along the lines you did. I didn't get the scholarship, but I feel a little better about it now.


Good to Great remains one of my favorite reads because it is more than just a business book. The principles discussed in the book can equally be applied to individuals. In fact, I actively practice what I've learned in the book, and it has been a great help in growing my career.

I would also like to point out that in order to sustain greatness, the principles discussed in the books need to be implemented over and over again. The reason Circuit City and Fannie Mae came to where they are today is they STOPPED practicing the principles.


if you skim the first 20-30 pages of "A Random Walk Down Wall Street" you will never have to read another boring business book again - including the rest of ARWDWS...


#8 "Maybe we should just teach MBAs to look busy to and hope they get lucky. "

This is brilliant. I think luck is the deciding factor between success and failure in 95% of all businesses. There are execptions of course (google, ibm, microsoft), but that's why those exceptions tend to dominate the landscape.

And yes, it does call into question the basic premise of the book.

Alex B

It would be cool if the answer to running a great company could be printed in no more than 300 pages.


In recent decades, "great" has been defined by the level of executive compensation and how successful these executives were at "managing" the share price. This was accomplished by not investing and forcing remaining employees to work double time after laying off major portions of their work force.

Such "successful" strategies eventually come to a bad end, but only after those implimenting them have taken the money and run.


"The Halo Effect" by Phil Rosenweig covers all these topics in detail including the subsequent performance of the companies from "In Search of Excellence" that Levitt mentions. He - more or less - draws the same conclusions as Levitt does in the post. Even has some funny examples where CEO's are getting awards one year and vilified the next ... from the same business publications.


guess that's the SI cover of the business world..


Peter Lynch, the great mutual fund manager, had a great piece of advice for small investors. Invest in businesses that any idiot could run because sooner or later one will.

The people who run companies change constantly, top to bottom. Given time, I think that any competent manager can make a company better. Wall Street, however, does not reward long term thinking and heaps disproportional praise whenever a CEO catches a big wave, not of his own making. Three years ago, CEOs of Fannie and Freddie and the like were seen as financial geniuses. Even Peter Lynch, before he retired, regarded Fannie (or was it Freddie) as a 'mon back.

I work for a big company that trots out the latest, greatest management technique every year or two. Some work, some don't. In the end, they're all just throwing _________on the wall to see what sticks. The _________ that sticks is good ___________. Until it's not.


Winston Wolf

I'm all-in with The Halo Effect...and have a lot fo chips behind The Black Swan.

The biggest thing I took from Halo was remembering that companies operate in competitive environments. Yet books such as GtG seem to ignore that. Rosensweig's KMart example is perfect. It did all the right things -- and then some -- to lead to profitable growth. It's strategy was solid and execution almost flawless. The only problem was that KMart was also competing with an entrenched WalMart and a growing Target. But if you looked at the description of KMart in Halo, you'd rightly thing that it was the kind of company that would be featured in GtG.

To close with some levity, remember the Rodney Dangerfield movie "Back to School?" Rodney is a businessman who goes back to college and has some "real world" advice for the business professor. The scene concludes with Rodney suggesting that the class's "company" they were starting should build its headquarters in "Fantasyland!" That's where Collins' seems to suggest that successful companies operate as well.


Michael F. Martin

By the time the book was first published, most of the ideas in the book were probably already reflected in the market prices. You'd have to go back to when the changes within each company described in the book were made and compare the performance over the period between then and when the book was published against the market to see whether there was anything special about these companies. Even then, I would look at the financial statements in addition to the stock price. There are times when a company that is doing well will be underpriced and a company that is doing poorly overpriced. Sadly, the people who are really good at doing this and sorting it out tend not to publish papers with their results. They trade on them.


Well the other companies may have been doing well before Good to Great was published, but not Fannie Mae...their current plight might be causing people to forget the last scandal - that they overstated earnings by billions of dollars. So maybe, if the had been honest from the beginning, they never should have been included in the book in the first place.