November 10, 2005
Excerpts: Big Winners and Big Losers - Bestesellers Compared
Starting with Tom Peters and Robert Waterman's In Search of Excellence, there has been a spate of books that purport to provide managers withthe secrets to sustained competitive advantage (SCA).1 Jim Collins' and Jerry Porras' best-selling Built to Last is another work in this genre.
The problem with these books is that the prescriptions they make often are contradictory and one sided. On the one hand, they urge you to take bold steps and explore entirely new markets, technologies, and business models, or risk becoming extinct (Peters and Waterman). On the other hand, you are admonished not to divert your attention to things you know nothing about,and to take small,gradual steps to get better at what you currently do (Collins). Most best-selling business books divide into these campsthose that put their primary emphasis on agility (see following entries) and those that put their primary emphasis on discipline and focus.
Many books have been advocates for the dynamic elements in strategy. Others have been advocates for the more static elements. Some have argued for technological discontinuity, entrepreneurship, adaptability to unstable and fast-changing circumstances, and adroit management of fluid assets and capabilities. Others have argued for stable structures, long-term competencies, and fixed configurations of business- specific resources. Few have combined such traits into a powerful, integrative approach. They have often missed the importance of managing the tension. Because of the disparate advice managers have receivedeither be mobile or focused and disciplinedthey have to be confused. The advice does not completely add up. For practicing managers who are trying to figure out what to do,this advice is not that useful. No one has combined the two sides and said that all ofthese elements are needed to be truly successful.
These books that have claimed to provide the secrets of sustained competitive advantage also base their conclusions on limited evidence, anecdotal in nature,which often comes from the consulting or other practical experience ofthe authors. Execution by Bossidy and Charan , for instance, is derived from the experiences ofthe authors,who happen to be a CEO and consultant. They refer to a few well-known companies like Dell, Johnson & Johnson, and Xerox. Slywotzky, Wise, and Weber refer to a number of well-known examples like Wal-Mart, Dell, Southwest Airlines, and Nucor. Similarly, Christensen and Raynor rely on firms like Wal-Mart, Southwest Airlines, Nucor, Schwab, Canon, Sony, Honda, Apple Computer, IBM, and Xerox. Godins examples are unusual and include such stalwarts as Krispy Kreme, Logitech, and Curad.
Except for Finkelstein and Sull, none of the authors pay much attention to losers. Comparisons of companies that have done well with those that have not also are rare. What Really Works by Nohria and Joyce does compare firms that realized a return of945 percent over a 10-year period with firms that yielded a 62 percent return. And Good to Great by Collins is a comparison of10 firms with superior 15-year performance and 10 firms that did not do as well.Collins reports that the cumulative stock returns of the winners beat the general stock market by an average of seven times in 15 years. However, these gains were ephemeral.
From 1992 to 2002, the Good to Great companies did not fare particularly[...]. Given these limitations, is it a huge surprise that the companies selected as examples by the authors of these books often collapsed? Peters and Watermans excellentcompanies included such giants of perpetual high performance as Digital Equipment, Westinghouse, Kodak, Wang Laboratories, Polaroid, and Kmart. Did Collins and Porras do any better with McDonnell Douglas, Ford Motor, Disney, and again Westinghouse? Collins is not the only author who has had to deal with the problem of firms changing fortunes. Foster and Kaplan heaped abundant praise on Enron and Corning, whose good runs dissipated because of scandal and the telecom bust. Is it like the curse of being on the cover of Sports Illustrated? After receiving so much favorable attention, a company is bound to fail? Most writers on high-performing companies pick well-known firms, whose ultimate success is questionable.This book,in contrast,picks less well-known firms whose success in the period studied was more enduring.
This is from Appendix A of Big Winners and Big Losers by Alfred Marcus