How Companies Go from Good to Great to Irrelevant

Audio Transcript

The answer is—you anticipate this in the research. I have a colleague named Morten Hansen at Harvard Business School, and he said, “You need to add one more comparison to the study. You need to find companies that show exactly that pattern you’re talking about, which is that they were going good to great, but they lost it very quickly, say, after four years or five years or six.”

So, we actually had a second set of comparisons, which were six unsustained [transformations]. Like Rubbermaid. Remember Rubbermaid? Everybody talked about Rubbermaid. It was the #1 most admired, most amazing, innovative company in the entire world; and they went from good to great to irrelevant. Classic example: good, great, irrelevant. Completely imploded. Why?

Chrysler was another one. Burroughs was another one. Teledyne was another one. As we looked at it, they did not have many of the things we’re talking about here. They were able to produce the change because instead of having a Level 5 leader, they had a genius with a thousand helpers. Instead of having a culture of discipline, they had a disciplinarian who personally disciplined the place into achieving better results. Instead of getting the right people on the bus first, they had the one right person who knew the right “whats,” but they didn’t necessarily build the right systems.

When you take a look at it, the other interesting thing is that a lot of these companies never really got a clear Hedgehog Concept. They had something that just kind of extracted initial results, say through cost cutting, but that doesn’t necessarily mean you’ve answered those questions of what you’re best at, what you’re passionate about, and how your economics best work. And it becomes unsustainable.

Finally, a lot of these companies ended up derailing themselves by lurching after growth for growth’s sake, like taking steroids. That would allow them to go fast for a while, but then they would die of cancer later. Big, hairy, audacious acquisitions that were ill advised but were ego gratifying. As Peter Drucker likes to say, “When the going gets tough, the mediocre go shopping.”