Classic Guidance

Jim Collins has sold more than 10 million books worldwide, including his bestsellers Good to Great, Built to Last and How the Mighty Fall. Morten T. Hansen, a management professor at the University of California, Berkeley’s School of Information, wrote Collaboration. They explore how certain companies excel during volatile, uncertain, complex and ambiguous (VUCA) times. They offer anecdotes, historic examples, case studies and business models to illustrate their theories and observations in this broadly acclaimed business classic.

10X

Collins and Hansen ask, how did some companies thrive while others dwindled? The organizations that moved from a vulnerable position to spectacular performance embraced change, the authors say, as the only constant. Yet, these 10X firms – so-called by the authors because they beat their industry indexes by a factor of 10 – often faced issues that sank other organizations. For example, Collins and Hansen offer the example of Pacific Southwest Airlines which suffered despite having the same business model and opportunity as Southwest Airlines, an exemplary 10X.

In the end, we can control only a tiny sliver of what happens to us. But even so, we are free to choose, free to become great by choice.Jim Collins and Morten T. Hansen 

Collins and Hansen explain that to emerge as a 10X from the 20,400 companies they considered, a company had to meet three markers: spectacular results for 15 years compared with the stock market and its industry, peak performance during difficult times, and climbing to the top from a shaky initial position. The authors found that only seven companies met the 10X criteria at the time: Amgen, Biomet, Intel, Microsoft, Progressive Insurance, Southwest Airlines and Stryker.

Control and Non-Control

Leaders of 10X companies – 10Xers – embrace the contradiction of having control and lacking control. But, Hansen and Collins underscore, once they choose a course of action, they stick to it.

The authors cite three beliefs and strategies all 1oXers share: the discipline of inner strength, the creativity to ignore conventional wisdom, and productive caution that helps them avoid dumb risks, hoard cash and hire with care.

Cash on Hand

Hansen and Collins stress that cash reserves are the breath of life for every business. They explain that 10Xers prepare for disaster before it strikes. 10Xers never move too quickly on any decision. Even when an apparent gold mine or a complete disaster appears, the authors explain, 10Xers take a breath and vest in empirical research before setting their course.

Southwest Airlines

Hansen and Collins cite Howard Putnam, CEO of Southwest Airlines, who faced airline deregulation in 1978. He carefully considered the ramifications and how this change might affect Southwest.

Life offers no guarantees. But it does offer strategies for managing the odds – indeed, even managing luck.Jim Collins and Morten T. Hansen

Putnam devised a recipe and stuck with it to great success. Southwest would fly short flights in 737s with fast turnaround times carrying only passengers – no freight. To maintain low fares, Southwest would not serve food, coordinate with other airlines or seek longer routes outside of Texas, its home base. Southwest would promote fun for its passengers and would bring its planes and crews home every night to a single Dallas facility.

The authors point out that Putnam’s recipe is highly specific. Over 23 years – as of 2011, when this business classic was written – Southwest’s only changes were to accept passenger bookings online and offer flights longer than two hours.

Luck and Planning

Collins and Hansen believe you can manage luck if you’re thoughtful. They recommend pulling back from daily activities, goals and pressures to gauge your firm’s progress from an objective distance. Managing luck, the authors caution, means preparing for your luck to take a hit, which requires holding cash reserves and having a plan to retrench.

Progressive Insurance

Hansen and Collins admire Peter Lewis, head of Progressive Insurance, for his actions after California voters approved Proposition 103, which called for a 20% cost reduction in auto insurance. Almost 25% of Progressive’s customers were Californians; Proposition 103 was a major disruptor. The authors show that Lewis understood his customers’ resentment of insurer practices.

We are ultimately responsible for improving performance. We never blame circumstances; we never blame the environment.Jim  Collins and Morten T. Hansen

In response, as Hansen and Collins relay, Progressive launched an “Immediate Response” program allowing customers to file accident claims 24 hours a day. Progressive sent claims adjusters in vans and SUVs directly to accident sites and to customers’ homes. By 1995, the authors report, in 80% of cases, its adjusters could write a customer a check within 24 hours of an accident. Before Proposition 103 passed, Hansen and Collins disclose, Progressive ranked number 13 in the private-passenger auto insurance market. By 2002, it was number four.

Groundbreaking Depth and Complexity

The depth and complexity of the authors’ conclusions reflects Collins’s background in management research and both authors’ devotion to thoroughness, originality, and granular dissection of cause and effect.You can read this book today and apply it tomorrow, and you probably should. When the authors discuss competing South Pole expeditions with life-and-death struggles on a freezing mountain, their book becomes a page-turner. How many business classics can you say that about? Hansen and Collins’s groundbreaking findings still provide applicable, practicable business advice to entrepreneurs, executives, and management students and professors.

In addition to the authors’ books cited above, these works can provide additional business insight: Turning the Flywheel by Jim Collins, BE 2.0 by Jim Collins and William Lazier, and Creating Great Choices by Jennifer Riel and Roger L. Martin.