Greatness is a choice

By Kenneth Mikkelsen, journalist
13 April 2012

Some companies and leaders navigate in turbulent and chaotic times exceptionally well while others struggle fiercely to maintain a high level of performance.

Ten years ago Jim Collins and Morten Hansen – two of the world’s most renowned management thinkers – embarked upon an ambitious journey to find out why. Their findings were recently published in the book Great by Choice that praises for corporate evolution over revolution. In a conversation with Morten Hansen journalist Kenneth Mikkelsen explores the leadership qualities that is needed to stay ahead and sustain success in the long run.

During the presidential election of 1864, when Abraham Lincoln ran against General George McClellan, he adopted a famous campaign slogan: Don’t swap horses in midstream. The euphemism was an appeal to reelect Lincoln for his second term. But the underlying message was also to avoid flip-flopping politics no matter if it was challenging times.

The campaign slogan comes to mind when you read Great By Choice. The book is the result of a productive partnership between Jim Collins and Morten Hansen – two of the most influential management thinkers today. Jim Collins is a household name on bestseller lists worldwide. He has authored or coauthored six books that have sold in total more than ten million copies. Morten Hansen is the author of the critically acclaimed book Collaboration and a management professor at the University of California, Berkeley and at INSEAD, France.

The major theme of Great By Choice is that the ability of any company to not merely survive, but to thrive in the face of harsh business conditions, depends on the quality of decisions its leadership makes.

Uncertainty, chaos and luck are constraints, and great leaders understand that these forces cannot be controlled, only managed to. And to achieve sustained success companies and leaders should avoid constant flip-flopping as a reaction to a radically changing world. In other words avoid swapping horses in midstream.

Leading like a 10Xer

With a team of more than twenty researchers, Collins and Hansen studied companies that rose to greatness – beating their industry indexes by a minimum of ten times over a fifteen year period in environments characterized by big forces and rapid shifts that leaders could not predict or control.

The research team then contrasted these “10X companies”: Amgen, Biomet, Intel, Microsoft, Progressive Insurance, Southwest Airlines and Stryker to a selected set of comparison companies in the same industry: Genentech, Kirschner, AMD, Apple, Safeco, PSA and United States Surgical and analysed why success and failure occurred. The complete data set covers the evolution of 75 corporations, for a total of more than six thousand years of combined corporate history. The result was highly unexpected to the authors.

“It was a surprise to me that the winners or the extraordinary performance were not more innovative than others. I had thought that in industries, where there is a lot of change and turbulence and uncertainty, that innovation or being the great innovator, would be the trump card. If you could do that, it would be the winning formula. But to our surprise, we did not find that,” Morten Hansen explains.

  “In a chaotic world it is also very tempting to just change and respond to everything, adapt to every possible thing that comes your way. But what you are doing is that you are never achieving anything.”  

 

During their nine-year studies Collins and Hansen looked into the leadership qualities that are core differentiators for success despite chaos.

“There is a set of qualities and they are not what perhaps you would think they are. It is very tempting to say that a leader who thrives in chaos is very adaptive and can easily change, like a chameleon, change colors depending where you are; somebody who is visionary and can see the future, and make people go in that direction, somebody who takes a lot of risks, and is comfortable taking risks, because after all in a world of uncertainty you need to make some risky bets. Those are very normal hypotheses.

But what we found was that it did not make a difference. A lot of the leaders, who were charismatic, risk-taking and visionary, only turned in average performance,” says Morten Hansen.

20 mile marching

“The worst has happened. All the daydreams must go. Great God! This is an awful place and terrible enough for us to have laboured to it without the reward of priority.”

These are the anguished words of Robert Falcon Scott, the British explorer who raced against Norwegian Roald Amundsen to first reach the South Pole 100 years ago. Scott wrote this in his diary on 17 January 1912, when he realised that Amundsen had preceded his team by 34 days. Scoot and his men never made it home alive while Amundsen returned to a hero’s welcome in Norway and secured his name in history.

The story of the two explorer’s epic battle to conquer the grueling Arctic nature runs thru Great by Choice as a red thread and is used as a striking metaphor to illustrate why some leaders and companies achieve greatness and others fail. And it turns out that the 10X business leaders in Collins and Hansen’s research behaved very much like Amundsen and the comparison leaders behaved much more like Scott.

The two explorers faced the same environment at the same time with the same goal and yet had different outcomes. Just like the compared companies in Great by Choice. So how did the 10Xers distinguish themselves? The research found that 10X leaders were devoted practitioners of three key behaviors. They had a fanatic discipline, relied on empirical creativity, and exhibited productive paranoia.

“Basically what you have in these three leadership qualities is fanatic discipline that keeps you on track, empirical creativity keeps you vibrant and productive paranoia keeps you alive; and if you have those three together, you are on the track to build something great and stay alive,” says Morten Hansen.

  “In a chaotic and uncertain world, greatness happens by choice – not by chance.”  

 

One tactic routinely employed by fanatically disciplined 10Xers combines their committed mindset with a specific step-by-step strategy of no-excuses performance mechanisms. Collins and Hansen call this concept the 20 Mile March. It requires hitting specified performance markers with great consistency over a long time.

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. Amundsen who traveled 15 to 20 mile every day regardless of the weather conditions inspires the term. In good times he didn’t overdo it and in bad times, he didn’t let himself off the hook. Morten Hansen believes that the economic crisis exemplifies why that kind of long term focus is necessary to achieve great performances.

“There is no doubt in my mind that short term greed fuelled the crisis. People took risks, they put up the balance sheet, they overextended themselves, and it worked for a while – and then the music stopped. They were not 20 Mile Marching where you are looking for consistent performance and know that in the short term, you might not be the best. You might not have the highest stock price. But you know that in the long term you will win or you have a higher chance of winning; and that is a different mind-frame.

In a chaotic world it is also very tempting to just change and respond to everything, adapt to every possible thing that comes your way. But what you are doing is that you are never achieving anything, you are just moving and changing all the time without accumulating performance. A fanatic discipline gives you progress in your performance every day, every quarter, every year. That is an important thing to have. Otherwise you are not building performance,” Morten Hansen underlines.

  10x Leadership  
   
 

Fanatic Discipline: Extreme consistency of action. Don’t overreact to events.

 
 

Empirical Creativity: Bold, creative moves from a sound empirical base.

 
 

Productive Paranoia: Highly attuned to threats and changes especially when things are going well. Fear and worry is channeled into preparation, contingency plans, buffers and margins of safety.

 
 

Level 5 Ambition: The passion for a larger cause and infused with the will to do whatever it takes to make good on that cause.

 

Stop following the crowd

Discipline is a key element in both Collins and Hansen’s authorship and work. And to emphasize his point Morten Hansen uses Southwest Airlines as an example. Southwest had the discipline to hold back in good times so as not to extend beyond its ability to preserve profitability and the Southwest culture. It didn’t expand outside Texas until nearly eight years after starting service, making a small jump to New Orleans. Southwest moved outward from Texas in deliberate steps – Oklahoma City, Tulsa, Albuquerque, Phoenix, Los Angeles – and didn’t reach the Eastern Seaboard until almost a quarter of a century after its founding. In 1996 more than 100 cities clamored for Southwest service. But Southwest only opened four new destinations that year.

“In an uncertain world we often look more to others for guidance – that is a human trait. That is problematic because it means that you look to others to see what they are doing, and then you might copy what they are doing. But they might be as ignorant as you – it is the blind leading the blind. And if that happens, you are just going with the crowd. It has happened to social media for sure. It happened in the dotcom boom. What our 10X leaders did, was to think more independently about what was going on. When deregulation for instance came to the US airline industry most analysis experts said that Soutwest had to go to the hub-and-spoke system to organize their flights and abandon their point-to-point system.

Most companies morphed into hub-and-spoke but Southwest did not. They looked at it hard and independently and analysed the situation and they came to a conclusion that their model was a really great marvel in the new world. They had the courage and the conviction and the analysis to make that conclusion. And then they said, no, we are staying with our model and it proved to be a very good move. But you have to be able to basically stand tall as a leader and have the courage to say: My own thinking, my own analysis say I should just do the opposite of the crowd,” Morten Hansen says.

Fire bullets, then cannonballs

Overall, Great by Choice does away with the notion that innovation is the killer application in a turbulent business environment. The reseach shows that you have to be innovative to be in the game, but 10X companies who excel despite an uncertain environment tend to first fire bullets and then cannonballs as a calibrated way of innovating, rather than going all-in in their pursuit of radical innovation. They also rely on thought thru and substantiated decision making based where creative ideas are validated with empirical experience.

Amundsen did this by building his strategy on proven techniques, such as the use of dog and sleds that had been honed for centuries by Eskimos while Scoot in contrast used motor sledges, that had never been fully tested in the extreme polar conditions and they all broke down from mechanical problems causing Scott and his men to pull the sledges themselves. Morten Hansen explains the concept of firing bullets, then cannonballs:

“First, conduct small experiments. Try out a new service to your customers, for instance. Don’t make big bets right away before you understand what works. When you have conducted the experiment and know if it worked, then commit resources. You need to be creative, you need to be innovative, but of a certain kind; a kind that says it has to be rooted in practice, experience, trials, experimentation, as supposed to rooted in intuition or just thinking.

  We could have found that the winners were luckier, but what we found was that there was no difference in terms of the type of luck or the amount of luck – bad or good – that the winners got, and the losers did not get.  

 

The reason for this is that it is hard to know what works by just sitting at your desk or just hiring Mckinsey. It does not tell you what works. It tells you what you think will work, and those are not the same things. So you need to be out in the field experimenting and if you have empirical creativity, you are experimenting your way to what works, and having ideas that actually work in practice.”

Morten Hansen continues by telling how Intel goes about their innovation. “When we looked into the history of Intel, we found that they were not the most innovative company in their industry. Well, at certain times they were but at other times their competitors had faster and better microchips. So, Intel did not win in that industry, because they were the most innovative. Intel was innovative enough to be a key player in the industry. But they had something else, the others did not; which is exemplified by its slogan in the early day: Intel Delivers.

It means that they could manufacture chips at large scale, without too many errors. And it is difficult to manufacture microchips without flaws. It shows that as a company you need to be at a high level, to even be a player. But beyond that level, it does not count so much. Other things count, in other words discipline. So in business to be creative and be disciplined, that is a hard combination,” says Morten Hansen.

Prepare for the storm

The third leadership quality that Collins and Hansen found in the 10Xers was productive paranoia. Leaders such as Bill Gates from Microsoft and Andy Grove from Intel were hyper-vigilant about the environment they were in. What are the threats that could hit them? What are the bad storms, which could come their way?

These leaders had their sensors up; they did not know when or in what form the bad times would come or in what shape: it could be a collapse in demand, it could be regulatory change, it could be an industry recession. Since it is impossible to consistently predict specific disruptive events, they systematically build buffers and shock absorbers for dealing with unexpected events. Both Bill Gates and Andy Grove built up a large amount of cash on the balance sheet – that was one way to prepare for the storm.

“Productive paranoia sounds a little odd, but paranoia basically means that you are hypersensitive about what is going on around you, and productive means that you have to use that worry and turn it into something productive like building cash reserves and safety margins, taking hedging positions, plan really well to avoid risks, those kinds of things. But it also requires the ability of the leader, to do what we call zoom in and zoom out. As a leader you have to be in the bigger picture, the daily operation, in quality results and be preoccupied with what is going on, on a daily basis. You are fighting fires, and you need to do that as a leader.

That is being detail-oriented. But you also need to be able to zoom out and take a broader view of what is going on in your industry or beyond your industry. These changes happen; they start off in a periphery, they might start in another industry. Now, as a leader you must be able to see the big picture, the big trends, and be able to see how it might impact you,” Morten Hansen tells.

Besides from being extremely cautions the 10X leaders also balanced the elements of purpose and profit. In Great by Choice the authors call this Level 5 Ambition. “You can say that it is a redeeming quality, because if you do not have it, then people are not going to follow you as a leader. And if you are just interested in your own pay-check, your riches and your own ego, then at some point, people are not going to follow you. You need to engage people and make them passionate about something else. The leaders in our study, they were fundamentally motivated by building a great company or a great institution; that matters more to them than their own riches,” Morten Hansen emphasises.

   
 
 

Great by Choice
is published by HarperBusiness
and can be found here.

Do you feel lucky?

During their nine-year research study Collins and Hansen also investigated the phenomenon of luck and whether the good fortune and business results of the 10X cases could the written of as a series of lucky events that the comparison cases did not experience. The conclusion is that luck does not play a guiding factor, rather its how you take advantage of good luck and are prepared for bad luck. Resilience, not luck, is the signature of greatness.

“The reason we studied luck is that there are people before us who made the argument that if you look at high performing companies, they were just lucky. But here is the key thing with luck; and this is important because few people understand the concept of luck and how to measure it.

If you think about luck as events that are happening to you, that are out of your control, that are unpredictable, and have a significant impact. Luck events happen in our personal lives all the time. You drive down the road and the car runs over the red light and crushes into you. That is a bad luck event; it was not of your own making.

Or you meet somebody on a bus stop and you start chatting with that person and you fall in love and you marry. You were lucky at being at the bus stop at that time and having that chat; it is not that you created that event. It is same with companies; your competitor comes out with a competing product that is going to kill your product; that was not of your making. Or a competitor flops and makes a mistake and you benefit, or a recession sets in at a wrong time for you. There are lots of bad and good luck events happening to companies. So, what we did was that we went back in history to these companies, and we made a list of luck events that have happened to these companies from their founding year until the end of our study.

Then we drew up a list, and we categorized them into good luck and bad luck events. We cut them into minor and larger luck events. And then we looked at that list of the winners, and compared that list to their peers in industry and the insight of what we found. We could have found that the winners were luckier, but what we found was that there was no difference in terms of the type of luck or the amount of luck – bad or good – that the winners got, and the losers did not get,” Morten Hansen explains.

So 10Xers were not more lucky or unlucky than their competitors, they simply had better return on luck or ROL as Collins and Hansen names it because they exploited good luck and mitigated the effects of bad luck.

“When we examined less successful companies, we saw a generally poor overall return on luck. Some of the comparison cases had extraordinary sequences of good luck yet showed a spectacular ability to fritter that luck away. When the time came to execute on their good fortune, they stumbled. They didn’t fail for lack of good luck. They failed for lack of superb execution,” says Morten Hansen.

Checklist for 10x Leadership
  • The best leaders were not more risk taking, more visionary, and more creative than the comparisons; they were more disciplined, more empirical, and more paranoid.
  • Innovation by itself is not the trump card in a chaotic and uncertain world; more important is the ability to scale innovation, to blend creativity with discipline.
  • Following the belief that leading in a “fast world” always requires “fast decisions” and “fast action” is a good way to get killed.
  • They always test new ideas by “firing bullets” (doing tests) before “firing canon balls” (taking a big bet on something new), allowing them to know when a need idea will be more likely to succeed
  • 10X leaders prepare ahead of time for what they cannot predict, and build up reserves that act as a buffer. They consistently consider the possibility that events could turn against them at any moment.
  • 10X leaders have the ability to “zoom out” and take a look at the whole issue and the macro environments that affect their world, before “zooming in” and addressing the problem at hand.
  • The great companies changed less in reaction to a radically changing world than the comparison companies.

Influence your own luck

As a leader you have to know when it is time to put your chips on the table and perform to the highest standards. To exemplify his point Morten Hansen refers to a story about the legendary opera singer Maria Callas and her rise to stardom. While Callas was the understudy at the renowned opera house La Scala in Milan the main opera singer had fallen ill and she was called up to sing the lead role. Here is the luck, she did not cause the main singer to be ill, but if the person had not been ill, she would not have been given a chance and we would never know her name. But in that moment, she had the opportunity to go on stage and mesmerize the audience.

“When your moment comes, you have to recognize that this is a very special moment. You cannot blow up the moment. Maria Callas sang brilliantly and a star was born. Leaders of winner companies equally recognize these moments while others squandered their moments. What made a difference was that winners have a better return on the luck events. They make more out of it. Instability and chaos naturally brings change. And it creates a new leadership challenge.

Because as a leader you have to understand when these moments come and recognize them early. Sometimes you have to ignore them, because it is just noise and you cannot react to everything. Other times you have to understand that this is a special moment, and you might have to change your strategy at that time,” says Morten Hansen.

Whether Abraham Lincoln would qualify to the standards of a 10X leader will have to go unsaid, but the importance of consistency resonated well with the American public back in 1864 and Lincoln ended up being elected for his second term as the first president in history. But unlike the great leaders that Collins and Hansen brilliantly portrays in Great by Choice he failed to prepare for the bad event that hit him one year later when he was assassinated while attending a play in Ford’s Theatre in Washington DC.

About 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. Professor Hansen’s 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. He has also published several best-selling articles in the Harvard Business Review on collaboration, leadership and innovation. Morten Hansen regularly delivers keynote addresses and consults for companies across the world.

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