In 1996, Jim Collins and his research team set out to answer one simple question: 'Can a good company become a great company and, if so, how?' Most great companies grew up with superb parents - founders like George Merck, David Packard, and Walt Disney - who instilled the seeds of greatness early on. But what about the vast majority of companies that wake up part way through life and realize that they're good, but not great?
With 21 research associates working in groups of four to six at a time over a period of nearly five years, the study involved a wide range of both qualitative and quantitative analyses and examined 1,435 Fortune 500 companies. On the qualitative front, they collected thousands of articles, conducted interviews with key executives, analyzed internal strategy documents, and culled analyst reports. Quantitatively, they ran financial metrics, examined executive compensation, compared patterns of management turnover, quantified company layoffs and restructurings, and calculated the effect of acquisitions and divestitures on performance. They then synthesized the results to identify the drivers of good-to-great transformations.
And what did Collins and his team discover? They found the key concepts that permitted these good-to-great companies to achieve cumulative stock returns 6.9 times the stock market in fifteen years. To put that in perspective, that's a rate better than twice the rate achieved by General Electric. Put another way, a dollar invested in a mutual fund of the good-to-great companies in 1965 grew to $470 by 2000 - compared to just $56 in the general stock market. These are extraordinary numbers, made all the more so by the fact they came from previously unremarkable companies.show more