Media Spotlight: Good to Great, Jim Collins

Good to Great is the classic corporate self-help book for firms looking to turn themselves around from just an average firm to a market-leading one.

Often quoted by many leading captains of the UK mortgage industry, there is much within it that can be applied not just to big corporate giants but smaller firms as well.

Written in 2001 by American management guru Jim Collins, he employed a 21-person team to analyse market data and interview individuals at firms which experienced market-beating and sustained growth over a 15-year period.

It throws up some great management buzzwords from Level 5 leadership to the Hedgehog Concept.

Level 5 leadership is the last thing you’d look for in a great leader – no big egos, no bombastic personality. These people are self-effacing, quiet and humble. They put the company first and self-aggrandisement second.

Great companies then ensure they’ve got the right people in the firm and confront the brutal facts of whatever they’re facing and adapt.

The Hedgehog Concept is that whatever the company excels at – even if that turns out to be something that has not been its core business – the firm needs to religiously stick to it and leave behind what it did in the past.

His other tips are that mergers and acquisitions play virtually no role in igniting a transformation from good to great. And similarly, technology should not be used as an all-encompassing panacea. Technology can speed up the transformation of a firm but cannot be the catalyst of that change to begin with.

Collins illustrates these different behaviours with the actions of real life, great firms and competing firms that were just good.

And written long before the credit crunch, for readers in 2009 it throws up some interesting comparisons.

Wells Fargo, painted as zippy and dynamic, is contrasted with the dogmatic and ridged corporate structure of Bank of America. Since the book was published, both firms have gone on to become banking lifeboats for many of the failed institutions in the US.

By contrast, Fannie Mae, which Collins praises for the fact that between 1984 and 1999 it beat the market 7.56 times over, has latterly been a disaster.

As of 2008 Fannie Mae owned or guaranteed about half of the US’ $12trillion mortgage market. But as a result of the sub-prime crisis the US government took it over in September 7 2008 and sacked all its chief executives.

The seeds of its future disaster seem to be in Collins’ description of its actions in the 1980s.

Back then Fannie Mae was viewed as a $56bn mortgage dinosaur due to its inability to diversify out of the mortgage finance business. But then chief executive David Maxwell assembled a crack team of executives and looked at new ways to make money.

As Collins puts it: “Fannie Mae had no choice but to become the best capital markets player in the world at managing mortgage interest risk. Maxwell and his team set out to create a new business model that would depend much less on interest rates, involving the invention of very sophisticated mortgage finance instruments.” Uh oh.

But then again, hindsight is never wrong, and it shouldn’t distract from some intelligent pointers about successful management within the rest of the book.