21st Century Leadership

Great by Choice – A Brief Review

‘Great By Choice’
Jim Collins and Morten Hansen

Precis by Pete Laburn

None of us can predict with certainty the twists and turns our lives will take. Life is uncertain, the future unknown. This is neither good nor bad, it just is. Yet the task remains: how to master our own fate in an uncertain world.

In the book ‘Great By Choice’, Collins and Hansen asked the simple question: Why do some companies thrive in uncertainty and chaos, while others do not. In a world of tumultuous events and fast‐moving forces that we cannot control, what distinguishes those who perform exceptionally well, from those who underperform or worse?

Some companies and their leaders navigate uncertainty exceptionally well. They don’t merely react to situations and events, they create their own future. They don’t merely survive, they prevail. They don’t merely succeed, they thrive. They build great companies that can endure and while no company thrives on chaos, some can thrive in chaos.

‘Great By Choice’ is based on case studies conducted by Collins and Hansen and their team on a set of high‐performing companies that thrived during times of great uncertainty in their respective industries. Each case study company started from a position of vulnerability, rose to become a great company, and did so in unstable environments characterised by big forces out of their control. These high‐performing cases were called 10X companies. These cases were then compared to a control
group of companies that failed to become great, whilst operating in the same industries during the same extreme environments over the same period of time.

 

10Xer Behaviour

Collins and Hansen coined the phrase 10Xers to describe leaders who built great companies that outperformed their competitors by more than 10 times the profits over the same period of time. The research observed that 10Xers share a set of behavioural traits that distinguish them from the comparison leaders. Surprisingly, they did not find 10Xers to be more creative, visionary, charismatic, ambitious, blessed with good luck, risk seeking, heroic or prone to making big, bold
moves. While 10Xers did not lack these traits, they displayed all these equally to their less successful comparisons. However, the distinguishing characteristics involve 10Xers embracing a paradox of control and non‐control. On the one hand they understand that they face continuous uncertainty and that they cannot control and accurately predict significant aspects of the world around them. On the other hand, they reject the idea that forces outside their control or chance events will determine their results, they accept full responsibility for their own fate.

10Xers then bring this idea to life by a triad of core behaviours, including fanatic discipline, empirical creativity and productive paranoia. These behavioural trains correlate with achieving 10X results in chaotic and uncertain environments. Fanatic discipline keeps enterprises on track, empirical creativity keeps them vibrant, productive paranoia keeps them alive and level 5 ambition provides inspired motivation.

 

1. Fanatic Discipline

Discipline, in essence, is consistency of values, action, method, long term goals and performance over time. Discipline is not the same as regimentation, measurement, hierarchical obedience or adherence to bureaucratic rules. True discipline requires the independence of mind to reject pressures to conform in ways incompatible with values, performance standards, and long term aspirations. For 10Xers, the only legitimate form of discipline is self‐discipline, having the inner will
to do whatever it takes to create great outcomes, no matter how difficult.

 

10Xers are utterly relentless and unbending in their focus on their quests. They don’t overreact to events, succumb to the herd, or leap for alluring but irrelevant opportunities. They are capable of immense perseverance, unyielding in their standards, yet disciplined enough not to overreach. Most business CEO’s have some level of discipline but 10Xers operate on an entirely different level. They are fanatically disciplined. They are non‐conformist in the best sense. They start with values, purpose, long‐term goals and severe performance standards, and they have the fanatic discipline to adhere to them. They do not let external pressures or even social norms, knock them off course.

 

1.1 The 20 Mile March

When Collins and Hansen began the study, they thought they might see 10X winners respond to a volatile, fast‐changing world full of new opportunities by pursuing aggressive growth
and making radical, big leaps and riding the Next Big Wave time and again. While their findings did indicate 10X companies did grow and pursue spectacular opportunities, they did so much less aggressively than their less successful comparison. 10X cases exemplified what they came to call the 20 Mile March concept, hitting stepwise performance markers with great consistency over a long
period of time, while the comparison cases did not.

The ‘20 Mile March’ concept comes from the story of Roald Amundsen’s successful trip to the South Pole. Amundsen planned to go 20 miles every day. No matter the weather or how the team felt, they were to go the 20 miles. This is where the principle of the 20 mile march originates. Staying focused and being consistent every day, no matter what occurs.

The 20 Mile March is more than a philosophy. It is about having concrete, clear, intelligent and rigorously pursued performance mechanisms that keep you on track. The 20 Mile March creates two
types of self‐imposed discomfort: The discomfort of unwavering commitment to high performance in difficult conditions; and the discomfort to hold back in good conditions. If you want to achieve consistent performance, you need both parts of a 20 Mile March: a lower bound and an upper bound. A hurdle that you jump over, and a ceiling that you will not rise above ‐ the ambition to
achieve and the self‐control to hold back. 10X cases have the discipline to hold back in good times so as not to extend beyond their ability to preserve profitability and to sustain their organizational culture.

Some people believe that a world characterized by radical change and disruptive forces no longer favours those who engage in consistent 20 Mile Marching. Yet the great irony is that research
indicates that in just this type of out‐of‐control, fast‐paced environment, every 10X company exemplified the 20 Mile March principle during the era that was studied.

 

1.2 So what makes a successful 20 Mile March?

A good 20 Mile March

  • uses performance markers that delineate a lower bound of acceptable achievement.  These create discomfort, and must be challenging to achieve in difficult times.
  • has self‐imposed constraints. This creates an upper bound for how far you will march when facing robust opportunity and exceptionally good conditions. These constraints should also produce discomfort in the face of pressures and fears that you should be going faster and doing more.
  • is tailored to the enterprise and its environments. There is no all‐purpose 20 Mile March for all enterprises.
  • lies largely within your control to achieve. You should not need luck to achieve your march.
  • has a Goldilocks time frame, not too short and not too long but just right. Make the timeline of the march too short and you will be more exposed to uncontrollable variability. Make the timeline too long and it loses power.
  • is designed and self‐imposed by the enterprise, not imposed from outside or blindly copied from others.
  • must be achieved with great consistency. Good intentions do not count.

While 10X companies did not achieve a 20 Mile March 100% of the time, they never saw missing a march as ok. If they missed it even once, they obsessed over what they needed to do to get back on track. The 20 Mile March imposes order amidst disorder, consistency amidst swirling inconsistency.  But it works only if you actually achieve your march year after year. If you set a 20 Mile March and then fail to achieve it, or abandon fanatic discipline altogether, you may well get crushed by events.

 

1.3 20 Mile Marching helps turn the odds in your favour for three reasons:

1. It builds confidence in your ability to perform well in adverse circumstances.
Accomplishing a 20 Mile March consistently, in good times and bad, builds confidence. Tangible achievement in the face of adversity reinforces the 10X perspective: we are ultimately responsible for improving performance. We never blame circumstance or the environment.

2. It reduces the likelihood of catastrophe when you are hit by turbulent disruption.
If as a company you deplete your resources and run yourself to exhaustion chasing growth, and then get caught at the wrong moment by an external shock, you can be in serious trouble. By  sticking with your 20 Mile March, you reduce the chances of getting crippled by a big, unexpected shock. Every 10X winner pulled further ahead of its less successful comparison company during turbulent times. Ferocious instability favours the 20 Mile Marchers – this is when they really shine.

In a setting characterized by unpredictability, full of immense threat and opportunity, you cannot afford to leave yourself exposed to unforeseen events. You can get away with failing to 20 Mile March in stable times for a while, but doing so leaves you weak and undisciplined, and therefore exposed when unstable times comes.

3. It helps you exert self‐control in an out of control environment.
10X companies use their 20 Mile Marches as a way to exert self‐control, even when afraid or tempted by opportunity. Having a clear 20 Mile March focuses the mind, because everyone on the team knows the markers and their importance, they can stay on track.  Financial markets are out of your control, customers are out of your control, earthquakes are out of your control, global competition is out of your control, technological change is out of your control, most everything is ultimately out of your control. But when you 20 Mile March, you have a tangible point of focus that keeps you and your team moving forward, despite confusion, uncertainty and even chaos.

 

2. Empirical Creativity

Social psychology research indicates that at times of uncertainty, most people look to other people for their primary cues about how to proceed. 10Xers, in contrast, do not look to conventional wisdom to set their course during times of uncertainty, nor do they primarily look to what other people do or to what pundits and experts say they should do. They look to empirical evidence.  By empirical we mean relying upon direct observation, conducting practical experiments and engaging directly with evidence rather than relying upon opinion, whim, conventional wisdom, authority or untested ideas. Having an empirical foundation enables 10Xers to make bold, creative moves and bound their risk.

 

2.1 Fire Bullets, Then Cannonballs

When Collins and Hansen began this research effort, they anticipated that innovation might be a primary distinguishing factor for 10X success in unstable environments characterized by rapid change. However, the research evidence did not support the premise that 10X companies will necessarily be more innovative than their less successful comparisons. This does not mean that innovation is unimportant. Every company in the study innovated. However, 10X winners innovated
enough to be successful but generally not as much as their comparison cases. From this Collins and Hansen concluded that each environment has a level of threshold innovation that you need to meet to be a contender in the game. Some industries have a low threshold, whereas other industries command a high threshold. Companies that fail even to meet the innovation threshold cannot win. But once you are above the threshold, especially in a highly turbulent environment, being more innovative doesn’t seem to matter very much. Once a company meets the threshold of innovation necessary for survival and success in a given environment, it needs a mixture of other elements to become a 10X company – in particular, the mixture of creativity and discipline.

The great task that is rarely achieved is to blend creative intensity with relentless discipline so as to amplify the creativity rather than destroy it. When you marry operating excellence with innovation, you multiply the value of your creativity. And that is what 10Xers do.  While 10X companies are always innovating, they are not placing all their hope on finding the Next Big Thing. Instead they constantly fire bullets to find out what works, and then when they have found a winning formula they fire cannonballs to make the most of their success. 10Xers use empirical evidence to determine which ideas will work and only then concentrate their resources to fire a cannonball. After the cannonball hits, they keep 20 Mile Marching to make the most of their success.

 

2.2 So what makes a bullet?

A bullet is an empirical test aimed at learning what works. In general bullets are low cost, low risk and a small distraction for the overall enterprise. 10X companies use a combination of creative bullets – such as new products, technologies, services and processes – and acquisitions to explore new markets, technologies and niches.  Both 10Xers and the comparison cases fired cannonballs. The difference is that less successful companies tend to fire cannonballs before they have obtained a confirming calibration – which is empirical validation gained through actual experience – that the cannonball will likely reach its intended target. We call these uncallibrated cannonballs which are likely to have a catastrophic
outcome.

Be creative, but validate your creative ideas with empirical experience of what works in practise. You don’t even need to be the one to fire all the bullets, but you can learn from the empirical experience of others. More important than being first or most creative is doing it better than anyone else, and then making the very most of it with a 20 Mile March. A big successful venture can look in retrospect like a single‐step creative break‐through when, in fact it came about as a multistep iterative process based more upon empirical validation than visionary genius.

 

3. Productive Paranoia

10Xers differ from their less successful comparisons in how they maintain hyper vigilance in good times as well as bad. Even in calm, clear, positive conditions, 10Xers constantly consider the possibility that events could turn against them at any moment. Indeed, they believe that conditions will turn against them without warning, at some unpredictable point in time and they had better be prepared. By embracing the myriad of possible dangers, they put themselves in a superior position
to overcome danger.

Their fear of what could possibly happen is then channelled into effective action and extensive preparation. Generally 10Xers maintain a conservative financial position, squirrelling away cash to protect against unforeseen disruptions. In this way they succeed in uncertain and unforgiving environments through deliberate, methodical and systematic preparation, always asking ‘What If?’ 10X winners always assume that conditions can – and often do – unexpectedly change, violently and
fast. They are hypersensitive to changing conditions, and are continually preparing ahead of time, building reserves, maintaining irrationally large margins of safety, bounding their risk and honing their disciplines in good times and bad enabling them to handle disruptions from a position of strength and flexibility. They understand that the only mistakes you can learn from are the ones you survive.

Productive Paranoia has 3 main aspects:

1. Building cash reserves and buffers to prepare for unexpected events and bad luck before
they happen;
2. Bounding risk by managing risk;
3. And zooming out then zooming in to remain hyper vigilant to changing conditions and
enable you to respond effectively.

 

3.1 Building Cash Reserves

Financial theory says that leaders who hoard cash in their companies are irresponsible in their deployment of capital. In a stable, predictable and safe world, the theory might hold, but the world is not stable, predictable or safe and never will be. 10X organisations carry lots of extra cash, 3 to 10 times the ratio of cash to assets and a higher cash‐to‐liabilities ratio than their comparisons. 10Xers build buffers and shock absorbers as a habit early on, preparing to absorb the next disruption
or crisis. While almost no‐one can predict a particular disruption or crisis before it hits, it is possible to predict that there will be some disruption or crisis that will hit at some point. 10Xers always prepare for what they cannot predict, stowing away lots of extra cash and increasing their safety margins and their options before they meet an unforeseen event.

 

3.2 Bounding Risk

At the beginning of the research, Collins and Hansen wondered if perhaps 10X companies achieved success simply because they took more risk. Perhaps they were just high risk, high‐reward winners, merely lucky that their big risks paid off. The research results however revealed that the 10Xers appeared to lead their companies with a more conservative, risk‐averse approach. 10X companies took less risk than the comparison cases. While they did take risks, relative to their comparisons in the same environment, they bounded, managed and avoided risks.

10X companies also managed to recognise a change or threat early and took the time available to make a rigorous and deliberate decision. In this way they managed to make better decisions that yielded better outcomes than just making a bunch of quick decisions. Sometimes acting too fast to changes or threats actually increases risk. The critical question is how much time before your risk profile changes. 10X team tended to take their time, to let events unfold, when the risk profile was
changing slowly, while they prepared to act quickly in the event that the risk profile began to change rapidly.

 

3.3 Zoom out, then Zoom in

Zoom out, then zoom in refers to an essential manifestation of productive paranoia – a dual‐lens capability. 10X leaders remain obsessively focused on their objectives and hyper vigilant about changes in their environment. They push for perfect execution and adjust to changing conditions.  In practice, leaders first need to zoom out to sense a change in conditions. They then assess the time frame before the risk profile changes. They assess with rigor to ascertain if the new conditions call
for disrupting plans and if so how. They then zoom in to focus on supreme execution of the plans and objectives identified. In this way 10X teams do not freeze up or immediately react to a fast-moving threat. They think first, and then act fast.  10Xers distinguish themselves by an ability to recognize defining moments that call for disrupting their plans, changing the focus of their intensity and rearranging their agenda, because of opportunity or peril. When the defining moment comes, they have the buffers already in place, giving them options and the flexibility to adjust. They have huge margins of safety because they have bounded their risks, exercising prudence all the way along and minimized their risk.

Not all time in life is equal. Life serves up some moments that count more than other moments. We will all face moments when the quality of our performance matters much more than other moments, moments that we can seize or squander. 10Xers prepare for those moments, recognize them, grab them, upend their lives and deliver their best in those moments. They respond to unequal times with unequal intensity, when it matters most.

 

4. Level 5 Ambition

The motivating factor behind these 3 types of 10Xer behaviour is level 5 Ambition. 10Xers channel their ego and intensity into something larger and more enduring than themselves. They are ambitious to be sure, but for a purpose beyond themselves, be it building a great company, changing the world, or achieving some great object that is ultimately not about them. 10Xers are incredibly ambitious, but their ambition is for the cause, for the company, for the work and not for themselves.

Every 10Xer aimed for much more than just becoming successful. They did not define themselves by money. They didn’t define themselves by fame. They didn’t define themselves by power. They
defined themselves by impact and contribution and purpose.

 

4.1 Be SMaC

10X leaders all instilled a SMaC recipe within their organisations. A SMaC recipe stands for Specific, Methodical and Consistent. It is a set of durable operating practices that create a replicable and consistent formula for success. While tactics change from situation to situation, SMaC practices can last for decades and apply across a wide range of circumstances.  A SmaC recipe includes practices that the firm will focus on, but also practices that the firm will not do or get side‐tracked by. The clarity and specificity of a SMaC recipe helps people keep their bearings and sustain high performance when in extreme conditions.

In a world full of big, fast‐moving forces and unrelenting uncertainty, 10Xers accept what they cannot control, yet they exert extreme control when they can. One of the most crucial ways they exert control is by being incredibly SMaC. The more unforgiving your world, the more SMaC you need to be. A SMaC recipe forces order in chaos and imposes consistency when you are slammed by disruption. While 10Xers adhered to their SMaC recipes with fanatic discipline; their comparisons
changed their recipes to a much greater degree over time causing inconsistency within the organisations.

Modern management dogma exhorts that an enterprise should commit frequent wholesale revolution and should change more on the inside than the world is changing on the outside, that it should inflict radical change upon itself and should be doing so all the time. But this is a recipe for disaster. If you really want to become mediocre or get yourself killed in a turbulent environment, you want to be changing, morphing, leaping and transforming yourself all the time in reaction to
everything that hits you. The research study results indicated that the signature of mediocrity is not unwillingness to change, but chronic inconsistency.

In contrast, 10X companies changed their SMaC recipes less than their comparisons. This does not mean that 10X leaders are complacent. They are truly obsessed, driven people. It is just that they accomplish their huge goals by adhering with great discipline to what they know works while simultaneously looking at what might no longer work in a changing environment. When conditions truly call for a change, they respond by amending the recipe using empirical creativity.
Those who spend most of their energy reacting to change will do exactly that. Ironically, those who bring about the most significant change in the world and have the largest impact on the economy and society are themselves enormously consistent in their approach. They are disciplined, creative, paranoid and SMaC.

 

The Role of Luck

In their study Collins and Hansen also wanted to ascertain the role of luck in the survival and success of 10X companies. Overall the research found that the 10X cases were not generally luckier than the comparison cases. It is not about how lucky you are but about what you do with the luck you get. Getting a high return on luck requires showing yourself at the luck event with ferocious intensity, disrupting your life and not letting up. The comparison cases squandered their good luck. When the time came to execute on their good fortune, they stumbled. They did not fail for lack of good luck, but for lack of superb execution. In contrast, the 10X cases used the four preceding behavior traits to make the most out of the luck they were given.

Luck does not cause 10X success – people do. People are disciplined, empirical, creative, productively paranoid, exemplify values, pursue purpose and achieve big goals. Of all the luck we can get, people luck – the luck of finding the right person for the job – is one of the most important.

Conclusion

There is a dangerous disease infecting our modern culture and eroding hope: an increasingly prevalent view that greatness owes more to circumstance than to action and discipline – that what happens to us matters more than what we do.
The research evidence in this book stands firmly against this view. Indeed, if there is one overarching message arising from more than 6000 years of corporate history across all the research by Collins and Hansen it is that greatness is not primarily a matter of circumstance. Greatness is first and foremost a matter of conscious choice and discipline. The factors that determine whether or not a company becomes truly great, even in a chaotic and uncertain world, lie largely within the hands of its people. It is not mainly a matter of what happens to them, but a matter of what they create, what they do and how well they do it.

The greatest leaders care as much about values as victory, as much about purpose as profit, as much about being useful as being successful. Their drive and standards are ultimately internal, rising from somewhere deep inside. In the end, we can control only a sliver of what happens to us, but we are free to choose, free to become great by choice.

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