Kristin Clarke is books editor for Associations Now and a business journalist and sustainability director for ASAE.
A decade after his game-changing book Good to Great, Jim Collins has wrapped up one of the most influential leadership research projects in the world. The final book in his series, Great by Choice, examines why some organizations thrive in an environment of "uncertainty, chaos, and luck." Good news: Leaders have more control than they think.
You may not have considered it this way, but until recently you've been living and leading through a historic anomaly, a soothing bright spot in the turbulence that characterizes most of human history.
But the "unprecedented glitch" of rising prosperity has faded; the economic "protective cocoon" in which we've built our careers and organizations has split open, says researcher Jim Collins, author of the 2001 bestseller Good to Great. The idea that leading in a chaotic world is something new is just plain wrong, according to statistics he shares in his newest book, Great by Choice.
"It's just extraordinary that [the good times] lasted so long," says Collins of the high-growth period that ran roughly from the end of World War II until 2002. "It was an era in which there was a remarkably rare confluence of circumstances in human history, so most of our experience is in the historically aberrant moment. Then, all of a sudden, we hit a world that's more chaotic and uncertain, unstable, and full of disruption, and we think, 'The world is changing around us.'"
That's a misperception, Collins says. In fact, "we're just returning to the way life really is and [has been] for most of human history and, in all likelihood, is going to characterize the rest of our lives."
That's the reality check that Collins and Morten Hansen, a professor at the University of California-Berkeley and the international graduate business school INSEAD, say executives need to acknowledge before an organizational conversation can occur about the latest, often counterintuitive findings from their nine-year study of leadership.
In the latest and last book in a four-part series, Great by Choice: Uncertainty, Chaos, and Luck—Why Some Thrive Despite Them All, Collins and Hansen repeat the same rigorous, data-driven methodology used to ground the others. They culled from tens of thousands of companies to form a small set of matched pairs studied across an average of about 30 years in which some performed exceptionally well and others facing the same circumstances did not.
Here, Collins and Hansen label selected "great" organizations "10X" (pronounced ten-ex) companies because they beat their industry indexes by at least 10 times during a study period up to 2002.
"What's different in this study is our focus on the [business] environment," says Collins. "In none of our prior work had we selected on the severity of the environment, [its] instability. … What this study does is to go to the K2 or Everest environment to see more about leaders than we would have seen otherwise in the earlier studies.
"This piece of research really nailed the idea that whether you build something great, whether you prevail or die, is not primarily a function of what happens to you," he says. "It's a function of what you do, how well you do it, the choices you make, the disciplines you employ, and the actions you take. I hope leaders everywhere look in the mirror and say, 'Whatever happens in the world around us, we are ultimately responsible for whether we succeed or not.' … If that got embedded in the way everybody thinks, it would do all of us a lot of good."
For this book, Collins focused on small or start-up organizations in order to study those most "starkly exposed" and vulnerable to chaotic environments, although he says the research conclusions and resulting recommendations apply to organizations of any size.
The companies they studied "may have started small, but they became big, and the ones that continue to do well in those kinds of chaotic environments retained those behaviors," Collins says. "If you look at Bill Gates' behavior when Microsoft was five employees, and you look at his behavior when it was heading to be one of the largest market-cap companies in the world, they're very different-scale enterprises, but Bill Gates' behavior was the same."
Collins says that if any of the leaders from his first study in Good to Great had been placed in a turbulent environment, 10Xer behaviors would surely have emerged, "because the environment would have demanded that of them."
But identifying exactly which leadership behaviors are core differentiators for success despite chaos meant sifting through extensive data before he and Hansen settled on three that they depicted visually in a triangle: fanatic discipline, empirical creativity, and productive paranoia.
These learnable behaviors are amplified by what Collins and Hansen call "level-5 ambition," an idea that "maps directly to Good to Great in [that it] is ultimately about channeling your ambition into something that's not about you, your own ego, or what you get out of things," Collins says. "It is about channeling your ambition into the cause, company, or association and whatever will ultimately make it successful. All of our 10X leaders have that."
In addition, the research found that 10Xers must be devoted practitioners of each of the three key behaviors, not just one or two. "You need them all, and you need all the words in them—fanatic discipline, not discipline; empirical creativity, not just creativity; and productive paranoia, not just paranoia," says Collins. Those behaviors must then be translated into specific actions and strategies, which are executed as law.
Fanatic discipline. Leaders with fanatic discipline "are obsessed, monomaniacal, utterly driven, exhausting, relentless people," says Collins. "They don't really understand the idea of rest. I love what Herb Kelleher [of Southwest Airlines] once said: 'In my spare time, I work.'
"What's fascinating is, if you are truly disciplined, you are going to be nonconformist," Collins says. "If you're going to be a truly fanatically disciplined person—disciplined to live to the values, principles, standards, objectives, and goals you set out—you are not going to conform very easily to what other people think you should do."
Kelleher, for instance, "was not always behaving in a way that we would call normal. He would solve trade disputes with an arm-wrestling contest. He would appear on the cover of a magazine doing some sort of Elvis-like dance. He was a very interesting, colorful character," says Collins.
"He believed that one way to do well in the airline industry was to have a high-spirited culture that is fundamentally finding ways to retain a sense of joie de vivre and a renegade spirit in an industry that tries to beat that out of you. He had to be the extreme exemplar of it, almost like an actor who had to never go out of character. … So if you're highly disciplined, you are probably not going to end up like everybody else."
One tactic routinely employed by fanatically disciplined 10Xers combines their committed mindset with a specific step-by-step strategy of no-excuses performance mechanisms set in concrete. Collins and Hansen call this concept the "20-mile march."
"The 20-mile march requires hitting specified performance markers with great consistency over a long time," they write. "These create productive discomfort, much like hard physical training or rigorous mental development, and must be challenging but not impossible to achieve in difficult times."
"Every [organization] has some kind of a march," Collins says. "This march is something you hit on a periodic basis … but you also have to have the discipline to hold back. You don't, in good times, do too much and, in bad times, let yourself off the hook."
This is where the threat of emotion comes into play, especially in good times. Collins notes that he and Hansen were "really struck" by the two sides to the tactic: "On one side is the mantra, 'We're going to hit our 20-mile march no matter what,' [as when] Southwest Airlines says, 'We're going to be profitable every single year no matter what.' This is the lower bound [of acceptable performance].
"The other side is that discipline to hold back when you've got an abundance of opportunity," he continues. "Imagine sitting there in 1976, and there are 100 cities clamoring for Southwest Airlines' business, but [it has] the discipline to only open four. You can imagine the emotion of [the conversations]: 'Let's open eight! Let's open 12! We can do it! Overly aggressive? Bah, let's go!'"
Being disciplined in robust times can mean "leaving growth on the table, always assuming that something bad lurks just around the corner" and, thus, avoiding potential overextension, Collins and Hansen write. That conservatism is echoed in the other 10X behaviors as well.
Empirical creativity. Leaders who excel despite an uncertain environment tend to turn first to "empirical evidence, empirical experience, and empirical data rather than immediately seeking what experts or others advise them to do," Collins says. This hands-on approach "often leads 10Xers to very creative outcomes, since the outcomes are based on empirical validation."
He points to Apple founder Steve Jobs, who bet much of his company's success on the iPod. "You'd think it was this big creative thing that came out of nowhere," says Collins. "It wasn't. ... The MP3 was already out in the world, and [Apple employees had] made an iPod for themselves. The company fired what we call 'bullets' to take small empirical steps to validate the concept, and then they went big with it."
By "big," Collins and Hansen are talking about what they call a "cannonball"—an all-in, calibrated bet based on actual experience, rather than a massive uncalibrated investment with little or no validation.
Adopting empirical creativity can boost innovation success within organizations so risk-averse that they veer toward paralysis.
"If you say to people, go forth and innovate, what does that mean?" Collins asks. "First firing bullets and then firing cannonballs is a way of innovating while simultaneously bounding your risk" and moving forward.
Coauthor Hansen concurs: "First, conduct small experiments. Try out a new service to your members, for instance. Don't make big bets right away before you understand what works. When you have conducted the experiment and know if it worked, then commit resources."
This devotion to data, prototyping, and pilot projects aligns well with the association-specific findings in 7 Measures of Success (Association Management Press, 2006), for which Collins served as a research guide with ASAE.
"Remarkable associations ... are not so arrogant as to presume that they know better than what the data tell them," write the 7 Measures analysts. "When new data demonstrate that the present course, no matter how well conceived, is in error, remarkable associations do not hesitate to make adjustments."
Productive paranoia. This 10X behavior emerges because "outstanding leaders operating in a chaotic world are fearful to the point of full-on terror," Collins says. "'Fear should guide you' is how they think. They understand that the world is full of lots of things that can hurt you and ... opportunities that, if you're not fully prepared for them, you will miss, which is equally horrifying to them."
However, the Great by Choice research reveals that what differentiates these anxious leaders from their less-successful counterparts is that they translate their paranoia into specific, calm, clearheaded actions, disciplined decisions, and hyper-vigilant preparation.
"What they're doing all the time is building margins of safety, building cash reserves, managing their risks, [being] aware of what could possibly severely imperil their enterprise, and making sure they never go close to 'death line' risks" that could destroy or severely harm them, says Collins. "They understand that all your discipline and all your creativity don't add up to anything if you get killed, so you've got to stay alive first."
He cites leaders such as John Brown at the medical technology firm Stryker and Gordon Moore at Intel as examples of "productive paranoids": "They were driven by fear as a form of humility. If you don't have fear, you're not going to do very well in [turbulent] environments."
But Collins says that, like empirical creativity, productive paranoia in 10Xers does not translate into extreme conservatism or paralysis, a tendency of some leaders in an unstable economy.
"The idea here is you have these big, audacious goals that have an inherent level of risk within them, but once you're on that journey, you manage and bound your risk with great prudence," he says. "If you just want to avoid risk, you don't do anything great."
Collins recommends practicing this behavior: "When hit with something uncertain, you can zoom way out [with your perspective] and consider all the different what-ifs five times, then zoom back in."
Another suggested tactic: "Associations can be financially very conservative to ensure they retain their buffers and their reserves," he says.
Leaders reading Great by Choice might recognize the tone of optimism, reassurance, and humility that one of Collins' mentors, the leadership guru Peter Drucker, always practiced.
"Drucker deeply believed that it is up to us to create our future,'" Collins says. "That's why he had that wonderful line: 'The best way—the only way—to predict the future is to create it.' That's a really hopeful idea if you think about it. No one knows what's going to happen, so let's do something, and let's manage it well. … Don't predict the future. I can't do it, and you can't do it. Just go out and create it."
Hansen builds on that advice. "We have witnessed some very bad leadership behaviors and company disasters during the past three years of this horrible 'great recession,'" he says. "Some leaders may think, incorrectly, that the only way to attain truly great performance is to make these wild bets. … [But] the leaders in our study who performed insanely great in terms of stock market performance took less risk than their industry peers. They led differently. … There is a much better path to greatness for all companies and organizations. My hope is that more … leaders of nonprofits will follow this different path."
Kristin Clarke is a business journalist and editor for ASAE and the ASAE Convene Green Alliance. Email: [email protected]
In Great by Choice, Jim Collins and Morten Hansen identify three key behaviors of leaders of great—or "10X"—organizations. But their research also upturned some popular business assumptions. Here are three "new truths" they discovered relevant to associations:
New Truth 1: Great organizations tend to be one fad behind—meaning you don't have to be first or the fastest. "It's absolutely wrong to say, 'You should always go as fast as possible," Collins says. "[You] want to go slow when you can and fast when you must. … [When faced with disruption,] the right first question is to zoom out and ask, 'How much time do we have before our risk profile changes?'"
New Truth 2: Organizations that are front-edge innovators often are not 10X success stories. "We found that every environment has a threshold level of innovation, and you [must] be at that threshold in which you're operating to even be in the game," Collins says. "But what matters then is the ability to blend discipline with creativity in such a way that this discipline amplifies that creativity rather than destroying it. If you can then build a great organization that can replicate and scale its innovations, [that combination] produces the great results."
An example is Intel. Its mantra "wasn't 'Intel innovates,'" Collins says. "It was 'Intel delivers.' The reason Intel won is not because at any given moment in history it was the most innovative—there were numerous crucial points in its development where it wasn't—but what it had was enough innovation to be in the game combined with an amazingly disciplined organization that could manufacture and multiply its scale and could deliver chips on time [affordably] and do it in a replicable way."
New Truth 3: Smart change management may mean changing little—or not at all. The key to greatness in extreme environments is sticking to your so-called SMaC (specific, methodical, and consistent) recipe—what Collins describes as "a set of durable ways of operating that allows organizations to succeed."
"All of our 10X companies were able to translate into a very specific, disciplined recipe the elements they would stick to, so when the world around you is going crazy … you've got to go to your training, and you've got to go to your recipe to stay alive," Collins says.
And although leaders need to be open to changing their recipe, "we found that companies that did better changed their recipe less often than those that didn't do as well," says Collins. "Why? Because if you have a really good recipe, you want to be very careful about ever throwing it out, so you have to make careful, selective amendments to your recipe and be disciplined when you make them."
Hansen agrees: "You need to know what not to change—what in your SMaC recipe should remain constant—in order to know what to change."
To read coauthor Morten Hansen's take on the role of luck in longtime success, see "The Favorites Game: The Lowdown on Luck," by Kristin Clarke, Associations Now, February 2012
To learn how boards of directors factor into the success of "great by choice" organizations, see "Building a Great by Choice Organization: The Board Perspective," by Kristin Clarke.