Great by Choice

Jim Collins: In his own words

September 30, 2011: 5:00 AM ET

What's behind a giant multiyear research project like the one that became Great by Choice? Fortune's Geoff Colvin asked Collins what inspired him, what surprised him, and what may be next.

FORTUNE -- Q: Managing through turbulence is topic A for business leaders now, but you and your co-author Morten Hansen chose it as a research focus in 2002. What led you to it back then?

A: We came to believe that growing up in a country like the U.S. in the second half of the 20th century (or in Norway, as Morten did) created a false sense of stability that would likely not return. Think about it: How many times in history does a people come of age in the seemingly safe cocoon of a dominant global superpower during an era of rarely stalled rising prosperity? Ancient Egypt, Greece in 500 B.C.E., the Roman Empire, England in the 1800s, and a few others -- these, along with the U.S. in the second half of the 20th century, are rarefied slices of human history. And rarefied slices tend not to repeat. Morten and I came to believe that we were entering an extended period of uncertainty and turbulent disruption that might well characterize the rest of our lives. We wanted to understand what's required to perform exceptionally well in such a world.

This research is full of unexpected findings about the companies you studied. What surprised you both most?

There were so many surprises! That's the joy of good research. I was delightfully surprised by the finding we came to call "Fire Bullets, Then Cannonballs." A successful venture or breakthrough product can look in retrospect like a single-step act of pioneering creativity, but that retrospective bias is deceiving. The path to something like, say, the iPod turns out to be a multistep iterative process -- first "firing bullets" to gain empirical validation before making a big bet (firing a cannonball). Who would have expected that empirical creativity, not visionary genius, better explains 10X success in a chaotic world? And here's the beautiful thing: It's a learnable behavior."

The winning companies you identify often defied conventional management thinking. Which of today's popular management ideas strike you as particularly dangerous?

The idea that results are primarily determined by chance events or forces outside of our control. There is an emerging school of thought that makes an argument something like this: If people in a stadium flip coins and sit down when they get tails, some small percentage will be left standing after 10 flips by sheer chance; in this view, those who build 10X companies or achieve outsize success might merely be those few who just happened to flip 10 or 20 heads in a row. In finance, there might be some truth to this idea. But when it comes to building great companies that outperform their industries for 15 or more years, this view is not only wrong, but debilitating. Those we studied were paranoid about chance events and complex forces out of their control, but they focused on what they could do, seeing themselves as ultimately responsible for their choices and accountable for their performance -- no matter what the sequence of coin flips.

Overstating the power of luck seems to be a deep human tendency. How did the winning managers get past it?

They have a paradoxical relationship to luck. They credit good luck for having helped them in their accomplishments, despite the undeniable fact that others were just as lucky. But if they get bad luck, they still hold themselves responsible for their performance. They prepare always for the possibility that they might have to endure multiple hits of bad luck in a row. That's one reason why they hold freakishly high levels of cash and a conservative balance sheet.

One of your key points is that winning companies maintain a steady pace through good times and bad -- what you call the 20-Mile March. But what do they do in a multiyear stretch of a stagnant or shrinking economy, like now, when it may seem impossible to maintain that pace?

The 10Xers simply did not accept any external factors as an excuse or reason for failing to achieve their 20-Mile March. Look at Intel (INTC) and its 30-year-plus march to accomplish Moore's Law (double the complexity of components per integrated circuit at an affordable cost every 18 months to two years). Gordon Moore and Andy Grove would have never allowed external factors, even the catastrophic industry meltdown of the mid-1980s, to be a "reason" to be knocked off their march.

When you look at the traits of your winning managers, do they suggest an advantage for either men or women?

The best leaders we've studied, men or women, distinguish themselves first and foremost by their Level 5 ambition: being fiercely ambitious for a cause or company larger than themselves, channeling ego into that larger goal, infused with the will to do whatever it takes to make good on that ambition. Four of the women leaders I've written about previously all share this fundamental distinction: Wendy Kopp of Teach for America (my own choice for entrepreneur of the decade); Anne Mulcahy, who saved Xerox (XRX); Katharine Graham of the Washington Post, one of the 10 greatest CEOs of the 20th century; and Frances Hesselbein, who revitalized the Girl Scouts and is now CEO of the Leader to Leader Institute.

Each of your books seems to arise from questions raised by the previous one. Can you give us any hint of where we go from here?

I've accepted a two-year appointment as the Class of 1951 Chair for the Study of Leadership at the U.S. Military Academy at West Point, and I'll be traveling from my lab in Boulder to visit with cadets multiple times per year beginning in 2012. These young cadets will somehow affect and inspire me. I'm also inspired by young people at social enterprises like Teach for America and the young crop of church leaders. I suspect that the next question to grab me around the throat might well be ignited by these up-and-coming generations.

This article is from the October 17, 2011 issue of Fortune.

Back to Jim Collins: How to manage through chaos

Video courtesy of Detroit Regional Chamber and Detroit Public Television

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