Book: Great by Choice

Great by Choice - Jim Collins

Overview: "Great by Choice" explores how some companies thrive in unpredictable environments while others falter. The book identifies key behaviors and practices that differentiate "10Xers" (companies that achieve exceptional performance relative to their industry) from their counterparts. The study emphasizes that success is not primarily a matter of luck or predicting the future, but rather a result of specific choices and disciplined execution.

Key Themes and Ideas:

1. The 10Xer Mindset: Fanatic Discipline, Empirical Creativity, Productive Paranoia

• Fanatic Discipline: A commitment to consistency, values, and long-term goals, regardless of external conditions. This is exemplified by the "20 Mile March" concept.
• "Freely chosen, discipline is absolute freedom."
• "Like Amundsen and his team, the 10Xers and their companies use their 20 Mile Marches as a way to exert self-control, even when afraid or tempted by opportunity."
• Empirical Creativity: A reliance on direct observation, experimentation, and learning from experience rather than relying on predictions or conventional wisdom. This involves "firing bullets, then cannonballs."
• "How can we bullet our way to understanding?” “How can we fire a bullet on this?” “What bullets have others fired?” “What does this bullet teach us?” “Do we need to fire another bullet?” “Do we have enough empirical validation to fire a cannonball?”"
• Productive Paranoia: A heightened awareness of potential threats and a proactive approach to mitigating risks. This includes building buffers and preparing for worst-case scenarios.
• "Our nightmare…is a reality.” Keep in mind that at the time of the memo, Microsoft was rapidly becoming the most powerful player in its industry, with Windows on the verge of becoming one of the most dominant software products ever."
• "10X cases are extremely prudent in how they approach and manage risk, paying special attention to three categories of risk: Death Line risk (which can kill or severely damage the enterprise); Asymmetric risk (in which the downside dwarfs the upside); Uncontrollable risk (which cannot be controlled or managed)."

1. The 20 Mile March:

• A self-imposed, consistent performance standard that companies adhere to regardless of external conditions. It provides focus and discipline, helping organizations stay on track in chaotic environments.
• "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."
• Examples include Stryker's 20% net income growth and Southwest Airlines' commitment to profitability every year.
• The 20 Mile March builds confidence because "By adhering to a 20 Mile March no matter what challenges and unexpected shocks you encounter, you prove to yourself and your enterprise that performance is not determined by your conditions but largely by your own actions."
• It doesn't have to be a financial metric.

1. Bullets, Then Cannonballs:

• A strategy of testing multiple ideas ("bullets") through low-cost, low-risk experiments. Once empirical evidence confirms a promising idea, the company concentrates resources and makes a significant investment ("cannonball"). This minimizes the risk of deploying resources on unproven concepts.
• "First, you fire bullets to figure out what’ll work. Then once you have empirical confidence based on the bullets, you concentrate your resources and fire a cannonball."
• "The comparison companies, however, tended to fire cannonballs before they’d obtained a confirming calibration—empirical validation gained through actual experience—that the cannonball would likely reach its intended target. For shorthand, we call a cannonball fired before you gain empirical validation an uncalibrated cannonball."
• This is exemplified by Amgen's early experiments and Apple's approach to the iPod.
• Acquisitions can be bullets if they meet the three tests: low cost, low risk, and low distraction.

1. Leading Above the Death Line: Productive Paranoia and Risk Management

• 10X leaders exhibit "productive paranoia" by proactively identifying and mitigating risks. They focus on avoiding "Death Line risk," "asymmetric risk," and "uncontrollable risk."
• "10Xers distinguish themselves by an ability to recognize defining moments that call for disrupting their plans, changing the focus of their intensity, and/or rearranging their agenda, because of opportunity or peril, or both."
• This is illustrated by Intel's conservative financial management and cash reserves.
• The 10Xers use both the zoom out (sensing changes) and zoom in (focusing on superb execution) approaches.

1. SMaC Recipe (Specific, Methodical and Consistent):

• A set of clearly defined and consistently applied operating practices that guide a company's actions. The SMaC recipe provides a framework for decision-making and ensures consistent execution.
• "Do the same thing that you are already doing well,” he said, and do it “over and over again."
• Companies amend recipes when new empirical evidence is available.
• "Far more difficult than implementing change is figuring out what works, understanding why it works, grasping when to change, and knowing when not to."

1. Return on Luck (ROL):

• Luck, both good and bad, plays a role in every company's trajectory. However, 10Xers are distinguished by their ability to maximize the return on good luck and to learn from and overcome bad luck.
• "What does not kill me, makes me stronger.”
• Bad luck must be used to become stronger and not a psychological prison.
• A single stroke of good luck cannot make a company great, but a single stroke of bad luck can end the game.

1. The Genius of the AND:

• Successful companies embrace seemingly contradictory ideas, such as discipline and creativity, paranoia and courage, prudence and boldness. This balanced approach enables them to navigate complexity and uncertainty.

Examples and Case Studies:

• Southwest Airlines: Illustrates the power of fanatic discipline, the 20 Mile March, and a well-defined SMaC recipe.
• Amundsen vs. Scott: Highlights the importance of preparation, risk management, and disciplined execution in extreme environments.
• Intel: Demonstrates productive paranoia, empirical creativity, and the ability to adapt its SMaC recipe in response to changing market conditions.
• Amgen: Shows the "bullets, then cannonballs" approach to innovation.
• Apple: Underlines the importance of discipline and creativity.

Key Questions for Application:

• Rank-order the core 10Xer behaviors—fanatic discipline, empirical creativity, and productive paranoia—from your strongest to weakest. What can you do to turn your weakest into your strongest?
• What is your SMaC recipe and does it need amending?
• How would you rate your environment—stable or unstable, certain or uncertain, predictable or unpredictable, in your control or not?

Concluding Thought:

"Great by Choice" challenges the notion that success is primarily a matter of external factors or inherent talent. Instead, it emphasizes the power of choice, discipline, and a proactive approach to navigating uncertainty. By adopting the principles outlined in the book, organizations can significantly increase their odds of achieving exceptional performance, regardless of the challenges they face.

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