Jim Collins and Morten T. Hansen: An interview by Bob Morris

Posted on: November 16th, 2011 by bobmorris

Jim Collins

Jim Collins is a student and teacher of enduring great companies — how they grow, how they attain superior performance, and how good companies can become great companies.  Having invested nearly a quarter of a century of research into the topic, Jim has authored or co-authored six books that have sold more than ten million copies worldwide.  They include Built to Last, Good to Great, and How the Mighty Fall. His most recent book is Great by Choice: Uncertainty, Chaos, and Luck—Why Some Thrive Despite Them All, co-authored with Morten Hansen.  Based on nine years of research, it answers the question: Why do some companies thrive in uncertainty, even chaos, and others do not?  Great by Choice distinguishes itself from Jim’s prior books by its focus not just on performance, but also on the type of unstable environments faced by leaders today. Driven by a relentless curiosity, Jim began his research and teaching career on the faculty at Stanford Graduate School of Business, where he received the Distinguished Teaching Award in 1992. In 1995, he founded a management laboratory in Boulder, Colorado, where he now conducts research and consults with executives from the corporate and social sectors.  He holds degrees in business administration and mathematical sciences from Stanford University, and honorary doctoral degrees from the University of Colorado and the Peter F. Drucker Graduate School of Management at Claremont Graduate University.

Morten T. Hansen

Morten T. Hansen is a management professor at the University of California, Berkeley (School of Information) and at INSEAD, France. Formerly a professor at the Harvard Business School, he holds a Ph.D. from the Graduate School of Business at Stanford University, where he was a Fulbright scholar and received the Jaedicke award for outstanding academic performance. His award-winning research has been published in leading academic journals, and he is the winner of the Administrative Science Quarterly award for having made exceptional contributions to the field of organization studies. Hansen has published several best-selling articles in the Harvard Business Review and is the author of the management book, Collaboration: How Leaders Avoid the Traps, Create Unity, and Reap Big Results. A native of Norway and a former silver medalist in the Norwegian junior track and field championship, he lives in the San Francisco Bay Area with his wife and two daughters, and enjoys running, hiking and traveling.

*     *     *

Morris: When and why did you two decide to write Great by Choice and how was the division of labor determined?

Hansen: Around 2001, during the time of the dot.com boom and bust and 9/11, the world turned unstable and uncertain. People, including our students, kept asking us, how do you manage in unstable times? How do you prevail?  How do you become great in a world out of control? Finally, this topic grabbed us so completely that we both decided that we had to pursue it.

Morris: Were there any head-snapping revelations while you and your associates conducted the research over a period of nine years, 2002-2011?

Hansen: During this period, we experienced a recession (2001-02), a huge boom (2003-07), the great recession (2008-10) and the great uncertainty (2010-probably forever). These shifting circumstances just reinforced to us that we don’t live in stable times. In fact, we came to the conclusion that the past 50 years have been an abnormal period of stability and that what we will be experiencing going forward is a permanent state of instability, uncertainty, disruption, and even chaos.

Morris: To what extent (if any) does the book in final form differ from the one you originally envisioned?

Collins: We started the project with the idea that it would just be an article.  But the question and findings proved so fascinating, that we decided to shift gears into a full-blown multi-year research effort that could be a book.

Morris: To what extent does it differ significantly from those earlier works?

Collins: First, there are some important similarities across the four studies.  They all use the historical matched-pair research method.  They all proceed with a “let the data speak” approach, following the evidence rather than our own preconceptions.  They all have powerful conceptual frameworks.  They all use vivid stories as a pedagogical method for teaching the concepts.

There are three main differences between this study and the others.  First, is the question itself: why do some companies thrive in uncertainty, even chaos, and others don’t?  Unlike any of the prior books, we deliberately selected on the severity and instability of the environment, not just on performance.  Second, this study deliberately examined small, vulnerable enterprises that rose to greatness, giving us insight into entrepreneurial leadership that we did not have in the prior works.  And finally—although we did not plan this—it has some of the most directly useful ideas that apply not just to building companies, but also to navigating a life in an uncertain and chaotic world.

Morris: The book is based on a decade of research (2002-2011). By what process was the research conducted and how were data verified along the way?

Hansen: Our research moved in stages. First we identified the exceptional companies, what we call 10x companies, because their shareholder return beat their industry index by at least 10x over the past 30 years. Then we matched these companies with an industry peer, a company that also ran this marathon with a similar starting position (same size, age, business) but that did not become exceptional. Once we had selected these contrasting pairs (14 companies in total), we spent years collecting data and analyzing the differences between the companies. Then from all of that analysis came the overarching concepts we present in the book. We did not start with any pre-conceived notions but let the data speak. We had faith in the method of contrasting pairs.

Morris: Both of you have written or co-authored several books before. In each of them, the material responds to an important business question. Is that also true of Great by Choice?

Collins: We address human questions that we just happen to address through the lens of business.  Built to Last speaks to the human question of resilience and legacy, of creating something enduring and great that might outlive us.  Good to Great speaks to the deeply human drive to be better.   How the Mighty Fall speaks to the fear and tragedy of falling from great heights.  Great by Choice speaks to the angst of uncertainty and the question of how to retain freedom and self-determination when nearly everything is ultimately out of our control.

Morris: However different they may be in most respects, what do all of the companies that thrive in chaos share in common?

Hansen: The core findings we present in the book hold across the seven disparate industries we studied. They are not idiosyncratic to a particular industry or company. So we have some confidence that our findings generalize across many industry settings characterized by uncertainty, disruption, and chaos. That means that all the concepts we present are shared in common among the companies in the study.  To pick one concept that turned out to be one of the most striking and robust findings: the 20 Mile March.  The 10X companies pursued a 20 Mile March whereby they picked a progress marker, did everything they could to reach it in bad times, and held back in good times so as not to over-extend themselves. For example, Southwest Airlines followed a long, steady march of opening about four (4) new city routes per year, in good times and bad.  One year 100 cities clamored for them to fly there (after all, that’s good business for a city airport) but Southwest Airlines stuck to their march. Over time, of course, that meant opening many new city routes and marching to greatness.

Morris: Based on what you’ve experienced and observed, are there companies that are merely good or even mediocre “by choice”? Please explain.

Collins: Some people are motivated primarily by just making money, rather than doing or creating something truly great—and if they can make a lot of money without doing something great, they will choose that path.  Our 10Xers are driven first and foremost by the drive for exceptional achievement and contribution, and no amount of money would dilute their drive.

Morris: What are the defining characteristics of a 10X case?

Hansen: We chose the moniker because the winners in our study did not just win by a bit; they won by a huge margin. Their cumulative total shareholder returns from 1972 to 2002 (about 30 years) beat their respective industry indexes by AT LEAST 10 times.

Morris: Can almost any organization become a 10Xer? If so, how?

Hansen: There is of course no guarantee in life, and we are not claiming that if you follow these principles, you will become a 10Xer. Of course not. If you look at these principles, however, there is no genius business plan, secret sauce, special trait like charisma, or anything like that which would be almost impossible to emulate.  No, these are behaviors that can be implemented. Leaders can choose to implement a 20 Mile March, for instance. Leaders have choices, as the book title suggests; they can choose to follow the path that these 10Xers followed.

Morris: Several well-entrenched myths were invalidated by your research. Which myths and what, in fact, is true?

Collins:  There are several. We identify and then examine five in the first chapter. Here are two.

Entrenched Myth: Successful leaders in a turbulent world are bold, risk-seeking visionaries.

Contrary Finding: In fact, the best leaders Morten and I studied did not have a visionary ability to predict the future. They observed what worked, figured out why it worked, and build upon solid foundations.

Entrenched Myth: A threat-filled world favors the speedy; you’re either the quick or the dead.

Contrary Finding: In fact, the idea that leading in a “fast world” always requires “fast decisions” and “fast action” – and that we should embrace an overall ethos of “Fast! Fast! Fast!” – is a good way to get killed. 10X leaders figure out  when to go fast, and when not to.

Hansen: Here’s another that really surprised me. I thought that perhaps the winners in these highly uncertain, disruptive industries would be the most innovative–that the most innovative companies would win. That makes sense, right, because a world of change may reward people who are the best at creating something new. Well, to our surprise, that was not the case. Sometimes the most innovative did best (Intel was more innovative than AMD), other times they did not (Genentech was more innovative than Amgen but it did not perform the best). The myth that “the great innovators will win” is simply not true. So what did we find instead?

First, we are not saying that innovation is not important–it IS important.  What we found was a threshold effect; you have to be good enough at innovation to meet the threshold, but beyond that, other things matter. In biotech, that threshold is very high, while in the airline industry it is quite low. Once you meet that threshold, your ability to scale your innovation and execute in a disciplined matters way more.   For example, Intel was an innovative company (innovative enough), but it oftentimes was not the most innovative company in the industry. But it had the ability to execute on its innovation: “Intel delivers” is a more apt description than “Intel innovates.”

Morris: How do you explain the durability of these myths and the zeal of their advocates?

Collins: A really good question, Bob.  I think because such myths are often exciting or sexy.  It’s more memorable to read about how a company engaged in bold radical change led by a charismatic visionary than it is to read about a disciplined executive who understands that the signature of mediocrity is chronic inconsistency.

Morris: You discuss Roald Amundsen and Robert Falcon Scott in Chapter 2. What are the most valuable lessons to be learned from them?

Collins: Oh, so many.  For me, though, it is the 10Xer triangle of behaviors all working in concert: fanatic discipline plus empirical creativity plus productive paranoia.  It’s not just one of these behaviors, but having all three—that is the big lesson.

Morris: To what does the title of Chapter 7, “Return on Luck,” refer?

Hansen: This was a fascinating piece of analysis in our research–what role did luck play in explaining success?  What we found, in a nutshell, is that the 10X winners and the average performers had basically the same number of luck events during their history–both good and bad.  The 10Xers, however, got a better return on their luck. That was the differentiating factor.

Morris: What do 10X leaders and Level 5 levels share in common?

Collins: To be a true 10Xer you also need to have the Level 5 characteristic of Humility plus Will.  “Humility” in this context does not necessarily mean being low profile or self-effacing.  It means having an absolutely passionate burning ambition—obsessive, relentless, unyielding, exhausting, ferocious drive—but it is channeled outward into a cause or company, for its values, and for its purpose.  And it means having the stoic, unflinching resolve to do whatever it takes to make that cause succeed, even if you must endure significant personal pain in the process.  When you marry this Level 5 ambition to the three 10Xer behaviors—fanatic discipline, empirical creativity, and productive paranoia—you get a powerful combination for building greatness in the face of chaos.

Morris: As you both know, for years it has been my great pleasure as well as privilege to be closely associated with owner/CEOs of hundreds of small companies, those with less that $25-million in annual sales. Here’s my question: Of all the lessons to be learned from the 10X leaders you discuss in the book, which of those lessons do you think would be most valuable to those who lead small companies? Why?

Collins: The beauty of this study is that it draws lessons from when our 10X companies were start-ups and small enterprises—when Microsoft had seven people, when Southwest had three aircraft, when Amgen operated in a tilt-up building that it shared with a church choir, etc.  All the lessons apply directly to small companies.  For me, though, the most powerful idea for the entrepreneur is Return on Luck.  All small companies are exposed to the vagaries of luck, and the wrong luck early can be catastrophic. The key is not to try to be luckier, but to make more of the luck that you get.

Morris: Here’s a similar question but in a different domain: In your opinion, of all the lessons to be learned from the 10X leaders you discuss in the book, which of those lessons do you think would be most valuable to our nation’s leaders, especially leaders in the Executive and Legislative branches?

Collins: This is a fascinating question!  I think the idea of first fire bullets then fire cannonballs (fire bullets to calibrate a line of sight, then fire a cannonball to smash into a target).  Governments have a propensity to fire big uncalibrated cannonballs, big untested programs that have big unintended consequences.  It would be better if they could do more testing on a small scale (bullets) before firing cannonballs, especially if those cannonballs are going to become part of permanent legislation.

Morris: Here are the final two sentences in the Epilogue before the FAQ section. They are: “In the end, we can control only a tiny sliver of what happens to us. But even so, we are free to choose, free to become great by choice.” I am curious why you chose to conclude with the thoughts they express:

Collins: Because in the end greatness is not a function of circumstance—of what happens to an organization—but of choice and discipline.  My favorite chapter quote in the book is the one from Ron Serino at the start of chapter 3: Freely chosen, discipline is absolute freedom.

Morris: Which of the “Most Frequently Asked Questions” has been the most frequently asked question? What does that suggest to you?

Collins: I would say the question, “How does leading above the Death Line (exercising productive paranoia) fit with pursuing BHAGs (Big Hairy Audacious Goals)?”  I think people fear that productive paranoia would make them too risk averse and paralyzed by fear.  But actually, we remind people that the 10Xers we studied were engaged in inherently risky activities (e.g. going to the South Pole in 1911, starting new companies in dangerous and chaotic industries, climbing Everest with an IMAX camera).  Their goal was to achieve BHAGs and manage their risks so that they come back alive.

Morris: I was surprised, frankly, that you devote Pages 201-253 to “Research Foundations.” Why?

Hansen: This piece of work stands on a decade’s worth of research. We thought it important to describe our method and individual pieces of analysis, so that everyone can see what we have done.

Collins: Given the amount of research we did over nine-years, it was very difficult to make the research foundations that short!   Our model was to keep the percentage of words spent on research foundations the same as in Good to Great

Morris: What will be the question to which your next book responds?

Collins: I’ve spent nearly a quarter of a century now researching and writing about the question of what it takes to build a great company, and why some sustain greatness and others don’t.  After the four main works (Built to Last, Good to Great, How the Mighty Fall, and Great by Choice) I’m ready to move on to different set of questions.  By no means will I retire, ever; I hope to work intensely until the day I die.  But the questions are going to be different from here.  I am especially interested in young leaders, and that is why I have accepted a two-year post as the class of 1951 Chair for the Study of Leadership at the United States Military Academy at West Point.  I will be traveling from my lab in Boulder to West Point four times per year for the next two years, to engage and work with cadets.  I am also inspired to work with young church leaders, young educators, and young entrepreneurs in the US and abroad.  I suspect the next questions might well come from them.  Stay tuned!

Morris: Which question had you hoped to be asked during this interview – but weren’t – and what is your response to it?

Collins: I think people are often curious to know “Why do these projects take so darned long?” The answer: because we are trying to do the best work of which we’re capable.  It can take ten years to have an insight that only takes ten seconds to write down.

*     *     *

Jim and Morten cordially invite you to check out the resources at these websites:

http://www.jimcollins.com/

http://www.mortenhansen.com/

 


Tags: , , , , , , , , , , , , , , , ,

2 Responses

  1. […] Own Luck,” please click here. To read my interview of Morten and Jim Collins, please click here. Tags: "How Great Leaders Make Their Own Luck", Administrative Science Quarterly, Boston Consulting […]

  2. […] Here is an excerpt. To read the complete interview, please click here. […]

Leave a Reply

bobmorris

Archives