2. Cut 1: From the Universe of Companies to 1,435
• Only companies of substantial size (by annual revenues)
• An established on going company
• Publicly traded, hence, financial stock return data available as the basis for more
rigorous screening and analysis.
• Only U.S firms
Cut 2: From 1,435 to 126 companies
• Screened companies for above average returns
• Test 1: total returns exceeded average returns by 1.3 times from 1985-1995 with
evidence of average or below-average performance in the prior two decades
• Test 2: total returns exceeded average returns by 1.3 times from 1975-1985 with
evidence of average or below-average performance in the prior two decades
• Test 3: total returns exceeded average returns by 1.3 times from 1965-1995
• Test 4: Companies Founded After 1970, with total returns exceeded average returns
by 1.3 times from 1975/1985-1995
Cut 3: From 126 Companies to 19 Companies
• T-Year: point at which performance began an upward trend
• X period: Era of observable "good" performance relative to the market immediately
prior to the T year.
• Y period: Era of substantially above market performance immediately following the
T year.
• 11 Elimination criteria
Cut 4: From 19 Companies to 11 Good- Great Companies
• Companies that showed a transition relative to their industry index and not just the
stock market
Great Company: Cumulative total stock return of
at least 3 times the general market from T+15 yrs
Good Company: Cumulative total stock return of at
least 1.25 times the general market from T+15 yrs
ONE QUESTION, FIVE YEARS, ELEVEN COMPANIES: Can a good company become a great company and, if so, how?
3. The Direct Comparison companies were scored on a scale of 1 to 4 on 6
criteria
• Business fit
• Size fit
• Age fit
• Stock chart fit
• Conservative fit
• Face validity
4 = The comparison candidate Fits criteria extremely well
1 = The comparison candidate fails the criteria
4. Examined all the CEOs from ten years prior to the transition date to 1998. The research counted any CEO who had been with the
company for one year or less as an outsider
Total numberof CEO Total numberof outsiders No. of companies No. of companies hiredoutside CEO
Goodto Great Companies 42 2 11 1
Direct comparisoncompanies 65 20 11 7
UnsustainedComparisonCompanies 25 6 6 3
5. This is the big-picture difference between great and good, the gestalt of the whole study captured in the metaphor of the
flywheel versus the doom loop
The Doom of Warner Lambert
1979: Told Business Wee that it aimed to be a leading
consumer products company
1980: Merck, Lilly, SmithKline - everybody and his
brother
1981: Returned to diversification and consumer goods
1987: Try once again to be like Merck and beat them
1990s: Reembraced diversification and consumer brands
The Problem?
Each new Warner-Lambert CEO brought his own new program and halted the momentum of his predecessor
End Result:
3 major restructurings from 1979-1998, Warner-Lambert disappeared as an independent company, swallowed up by Pfizer
Good to Great companies used acquisitions as an accelerator of flywheel momentum, not to create it. They took big
acquisitions after development of Hedgehog concept and flywheel had momentum.
Gillette V/s Warner Lambert
