Good
to
Great
3
panies, for the most
part, have always been great. And the vast majority of
good companies remain just that
-
good, but not great. Indeed, Meehan's
comment proved to be an invaluable gift,
as it planted the seed of a ques
-
tion that
became the basis of this entire book
-
namely, Can a good com
-
pany become a
great company and, if so, how? Or is the disease of
"
just
being good
"
incurable?
Five years after that fateful dinner we can now say, without
question, that
good to great
does
happen, and we've learned much about
the underlying
variables that make it happen. Inspired by Bill Meehan's challenge, my
research team and I embarked on a five
-
year research effort, a journey to
explore the
inner workings of good to great.
To quickly grasp the concept of the project, look at the chart on page 2.
"
In essence, we identified companies
that made the leap from good results
to great results and sustained those results for at least fifteen years. We com
-
pared
these companies to a carefull
y
selected
control group of comparison
companies that failed to make the leap, or if they did, failed to sustain it.
We then compared the good
-
to
-
great companies to the comparison
com
-
panies to
discover the essential and distinguishing factors at work.
The good
-
to
-
great examples that made the final cut into the study
attained extraordinary results, averaging cumulative stock returns 6.9
times the general
market in the fifteen years following their transition
points.2 To
put that in perspective, General Electric (considered
by many
to
be the best
-
led company
in America at the end of the twentieth cen
-
tury) outperformed the market by 2.8 times over the fifteen years 1985 to
2000.3 Furthermore, if you invested
$1
in a mutual
fund of the good
-
to
-
great companies
in 1965, holding each company at the general market
rate until the date of transition, and simultaneously invested $1 in a gen
-
eral
market stock fund, your $1 in the good
-
to
-
great fund taken out on
January
1, 2000,
would have multiplied 471 times, compared to a 56 fold
increase in the
market.4
These are
remarkable numbers, made all the more remarkable when
you consider the fact that they came from companies that had previously
been so utterly unremarkable. Consider just one case, Walgreens. For over
forty years, Walgreens had bumped along as a very average company,
more or less tracking the general market. Then in 1975, seemingly out of
nowhere
-
bang!
-
Walgreens
began to
clinib
.
.
.
and climb.
.
.
and
*A
description of how the charts on pages
2
and
4
were created appears
in
chapter
1
notes at the end
of
the
book.
