Notes on Great by Choice by Jim Collins

Having enjoyed the author's previous books, I decided to check out Great by Choice by Jim Collins. The audio edition was read by Jim, which I always enjoy, since I get to literally hear how the author intended the book to be read. The audio edition also included a nice FAQ section comparing this book to the others in the series. I personally found the overall style of the book (study looking at great companies against comparison set and picking out various character traits that help explain differences) very similar to the past books. The examples in this book and study were interesting, though I felt there was not enough justification given for the choices the authors made in coming up with their results or conclusions. I understood the methodology and company selection, but I didn't understand how they went from data to conclusions in picking out the behaviors they teach in this book.

Ch. 1: Thriving in uncertainty

• Began research for book in 2002 after 9/11
  
• Some companies thrive by 10x better than index in uncertainty
  
• Southwest Airlines did better in past 30 years than any other stock in index
  
• Extreme environment
  
• In this book as compared to the others, the cases were selected by the extremity of environment (not just great companies in general)
  

Ch. 2: The 10x companies

• Must over prepare and practice for every emergency and train hard
  
• South pole adventure story
  
• Different behaviors between great company and comparison in same crazy environment
  
• Embrace control and non-control
  
• Formula: Fanatic discipline + empirical creativity + productive paranoia
• Level 5 ambition
  

Fanatic discipline

• Progressive Insurance
  
• Progressive decided to not publish earnings guidance; instead just monthly financials
  
• Consistency of action and values
  
• Discipline
  
• Nonconformists
  

Empirical creativity

• Intel
• Instead of looking to others, rely on your own observation and evidence (similar to lean's "get out of the building" and "see for yourself" principles)

Productive paranoia

• Microsoft
• Constantly believe events will turn against them when everything going well

Level 5 ambition

• Zany personalities
  
• Ferocity of will
  
• Not about themselves but about goal
  

Ch. 3: Twenty mile march

• Stryker vs. USSC
  
• Discipline in sticking to one concrete plan in good and bad times instead of big shifts in energy
  
• Their goalw as 20% consistent growth no matter what (including never growing too much in any year)
  
• Need both lower and upper bound
  
• Hit step-wise performance markers consistently over time
  
• High performance in difficult conditions
  
• Hold back in good times
  
• Southwest: small deliberate steps out of initial TX geography
  
• Standard of consistent performance: profit every year
  
• Elements of good 20 mile march: 7 characteristics
• 1. Use performance markers of lower bound thresholds
  
• 2. Self-imposed constraints and upper bound
  
• 3. Tailored to the enterprise and environment
• 4. Lies within your control to achieve
• 5. Has a "goldilocks" timeframe (just right)
  
• 6. Designed and self imposed by the enterprise
• 7. Achieved with great consistency (not intentions)
• Progressive Insurance: "Combined Ratio" target for insurance
• Like a company law; rigorous standard to be achieved every year for many years
  
• Cannot abandon goal due to events

Ch. 4: Fire bullets then cannon balls

• Southwest airlines literally copied PSA
  
• But PSA died
  
• No connection between innovation and 10x
  
• Need creativity and discipline to be 10x
  
• Fire bullets to figure out what will work
  
• Bullet = low cost + low risk + low distraction
• Just meant to find out if will work (sounds like lean...)
  
• Then fire calibrated cannonballs
  
• Empirical validation
  
• Apple getting on track
  
• Increased discipline and testing
  
• Not about innovation or predictive genius
  
• Just need to be above innovation threshold
  

Ch. 5: Leading above the death line

• Productive paranoia
  
• Pack extra supplies
  
• Don't break protocol/discipline
  
• Build cash reserves and buffers to prepare for bad events
  
• Large ratio of cash to revenue, assets to liabilities
  
• Bound risk
  
• Death line risk: could kill
  
• Asymmetric risk: downside bigger than upside
  
• Uncontrollable risk
  
• Time risk
  
• Zoom out then zoom in
  
• Not all time in life is equal
  
• Some moments critical
  
• 10x people respond in those moments
  
• Prepare for black swans
  

Ch. 6: SMaC

• Specific
  
• Methodical
  
• and
  
• Consistent
  
• Southwest's 10 Points by Putnam
  
• Very few changes over 20 years to recipe
  
• Apple fell behind when changed from original recipe; when came back, company turned around
  
• Durable operating practices
  

Ch. 7: Return on what

• Role of luck (first study to examine this scientifically)
  
• Luck event: 3 tests
  
• 1. Some significant aspect independent of key actors
  
• 2. Significant consequence
  
• 3. Unpredictable
• Luck comes in form of "who"
  
• Authors coded 230 luck events for data
  
• "Return on Luck"
  
• Taking advantage of luck events based on triangle of behaviors
  
• 4 combos
  
• Good luck, good behavior = Return on luck (Bill Gates)
  
• Good luck, bad behavior = Squandering of luck (AMD's poor execution)
  
• Bad luck, good behavior = Great returns on bad luck (Progressive Insurance turnaround from bad law/Prop 103)
  
• Bad luck, bad behavior = Poor returns
  
• 10x companies credit luck for success, themselves for failure
  

Epilogue

• Focus on what you do and keeping discipline, not hopeless resignation that outcomes just about luck
  
• Greatness is a matter of choice, not circumstance