Circuit City (see chart here) has announced it will close another 155 stores (see article here). Here, right before the big holiday buying season, Circuit City is contracting drastically. The company is almost out of cash, and is running into problems obtaining inventory. And with the likely demise of the company soon, it's unclear how many customers will buy from Circuit City when they can't take back items that break after the retailer is gone.
What makes this story somewhat remarkable is that Circuit City was one of the 11 companies Jim Collins profiled in "Good to Great." Not only was it one of what were considered the best 11 corporate performers in the world – it's turnaround to greatness score was the absolute highest of all the companies profiled, more than twice as high as the next best performer, and more than 3 times higher than the average "Good to Great" company. Jim is considered a management guru, who receives around $100,000 every time he gives a speech to corporate clients. "Good to Great" has been considered a corporate bible by many CEOs and other executives who have taken the stories from Mr. Collins to heart and decided his approach is the best way to great success. So to have Circuit City severely falter, and most likely fail, after only a handful of years since Mr. Collins published his book is an event worth spending some time discussing.
Despite Mr. Collins' great wealth accumulation and speaking success, he is not without detractors. Many academics have questioned the validity of his research. And in "The Halo Effect" professor Rosenzweig of Switzerland's top business school casts Mr. Collins as a fraud. Unfortunately for Mr. Collins, a review of the performance of his 11 "Great" companies demonstrates their performance since publishing the book is – at best – average. When one fails, perhaps it's worth spending some time reconsidering Mr. Collins' recommendations.
What appears true is that companies Mr. Collins likes end up in growth markets. Then, they pursue very targeted strategies which Mr. Collins recommends you not alter much nor even challenge. Mr. Collins ascribes business success in these companies, as he does in his first book about start-ups that get big ("Built to Last"), largely to dogged determination and sacrifice. He proselityzes that success is the result of hard work, dedication, and focus. And, from all appearances, once a company is into the Rapids of Growth, such actions to reinforce the Success Formula are helpful for the early leader to grow. For those who turnaround, much of their success can be ascribed to getting into a growth market and then simply doing what got them there.
But the problem with Mr. Collins' "Great" companies occurs when they lose their growth. In most cases, exactly as it happened with Circuit City, competitors figure out the Success Formula and they copy it. Additionally, lacking the significant Success Formula Lock-ins (behavioral and structural) which Mr. Collins loves and become part of the "Great" companies, new competitors more quickly implement new ways of competing which the "Great"companies ignore. In Circuit City's case, this was obvious in spades as Circuit City ignored on-line competitors which have lower cost, faster inventory turns, wider selection and lower price than traditional brick-and-mortar stores.
As a result, even Collins's "Great" companies end up falling out of the Rapids. Quickly they move into the back half of the life cycle, mired in the Swamp. Without the current of growth, which pushed them in the Rapids toward profitability, they are consumed fighting competitors. But, doing "more, better, faster, cheaper" of what they've always done simply does not make them more profitable. Competitors create market shifts which require changes in the Success Formula to continue thriving. But, with "everyone on the bus" (a favorite phrase of Mr. Collins) no one knows how to do anything new, and there's no place to try anything new. Quickly, results continue faltering and the company is sucked into the Whirlpool of failure – a prediction being made by Marketwatch.com when labeling today's Circuit City article "Circuit City Circling the Drain." Of course, it's hard to argue with Marketwatch's editors when the company value has declined from over 30 dallars per share to 30 cents per share in about 2 years!
Phoenix companies avoid this sort of fall by overcoming their Lock-ins. Something Mr. Collins never discusses. Yes, these Lock-ins help them grow during the Rapids. But all markets eventually shift. The Rapids disappear due to competitive changes. To succeed long-term companies have to Disrupt their Success Formulas by attacking Lock-in BEFORE they find themselves in the Whirlpool. And they implement White Space where they can test and develop a new Success Formula toward which the company can migrate for long-term success. Winning long-term requires more than a single turnaround into a growth market and then slavish willingness to do only one thing. Instead, it requires figuring out likely market changes with extensive scenario planning, being obsessive about competitors in order to identify new competitive changes. And then Disrupting and using White Space to constantly be reborn.