Great Companies can be found in all industries

If I were to indulge myself in a Sunday brunch, sip on a cup of coffee, and think about the great companies in America today, they would come from the most exciting industries in the country – like the internet companies and the space age industries. It’s hard for me to imagine great companies springing from lacklustre industries. The research data, however, would show me to be dead wrong.

The companies that Jim Collins qualifies as “good to great” in his book Good to Great: Why Some Companies Make the Leap and Others Don’t come from run of the mill industries. Industries without flare or panache. That’s not what I had expected at all.

But before we look at companies that made the transition from good to great, we need to understand the criteria Collins used. He is the first to admit that his criteria are arbitrary. His criteria are very strict. Companies that he excluded today he might include a decade from now – simply because they would have been around long enough to have a 30-year history. His criteria were companies that:

  • Had 15 years of mediocre financial achievements followed by a turning point and then 15 years of extraordinary achievements. In fact, the companies Collins selected had average cumulative stock returns 6.9 times the general market.
  • Outstripped their respective industries 3 to 1. If the entire industry went through a massive ramp up and the subject company rode the surf with its cohorts, it was not a “good to great” company.

In fact, there are many great companies in America that have far outstripped the market year after year for decades. Collins excluded these great companies precisely because they had been great for a long time. He was only interested in “good to great” companies. The eleven “good to great” companies and their industries are listed below:

Abbott Health care
Circuit City Consumer electronics
Fannie Mae Mortgages
Gillette Consumer packaged goods
Kimberly-Clark Personal paper products
Kroger Grocery
Nucor Steel
Philip Morris Consumer products
Pitney Bowes Business services
Walgreens Retail
Wells Fargo Financial services

What is instructive here is that these “good to great” companies come from a wide range of industries. This means that any company can become a great company. It’s a matter of the senior management or the board making that decision – and then following through.