Innovation and Insight on How to Build a Great Business. Highly profitable, successful companies have often been studied in an attempt to learn how they did it. What alchemy enabled them to weave straw into gold? What magic was employed in achieving sustained market leadership, business excellence, and superior results?
This Quixotic quest has been the subject of many studies, business books and articles aimed at unlocking the genetic code that allowed these organizations to achieve exemplary results. One such study, and a very worthwhile read, is a book entitled Good to Great: Why Some Organizations Make the Leap and Others Don’t, by Jim Collins.
In Good to Great, Collins examines companies that made the leap from good results to great results and were able to sustain those great results for at least 15 years. He then compares these “great companies” to a control group to identify the factors that distinguished these businesses, factors that can be used by entrepreneurs looking for a path to build a great business.
From these factors Collins developed a model that summarizes how these great companies were able to consistently match their business strategy to their core competencies and business model. Collins’ “Three Circles” model is a useful tool to help any organization renew its business focus by assessing three key areas:
Passion — What do you care very deeply about?
Ability — What are you really good at?
Economic Reward — What is your potential for economic gain?
Passion
As Collins points out, passion in this context represents a characteristic or belief that you value more than any other. Passion conveys a higher order feeling. Passion represents values and beliefs taken to a higher level. You don’t just care about it — you love it!
Your values and beliefs are a starting point to identifying what you are passionate about. Values can be expressed as short statements that convey what your organization cares about. They are at the centre of your culture and ethics, and convey the personality of your business and its leaders. Collins suggests that obtaining extraordinary results on a sustained basis requires a passion that underpins your value proposition and motivates your people to incredible results.
Assessing your values can be a worthwhile exercise on its own merit, as it provides a context and foundation for governance, strategy and decision-making. Once you have identified your values and beliefs, you can focus on the aspect of your business that you care the most about.
Ability
In this element of Collins’ model he suggests that you identify your organization’s greatest strengths.Assess the aspect of your organization’s skills and abilities, where, through focus and investment, you can be better than your competition — possibly even world-class.
To properly assess your organization’s abilities you need to look at your business from across the street. This assessment, this out-of-body experience, requires that you see your business the way others see it. To assess your strengths objectively, it is essential to solicit input from customers, suppliers and advisers. Surprisingly, many entrepreneurs are actually quite critical of their businesses; most are quick to criticize but slow to self-praise.
Economic Reward
Collins refers to this as determining “what drives your economic engine.” A key element that defines great businesses is profit — they are all very profitable. Profits allow investments, make shareholders happy and provide the ability to pay your team well. Assess areas in the market that have high economic potential. This assessment might involve examining elements of the value chain of your current or future business model to see where the best potential lies. The value chain represents the incremental elements of value that occur between inputs (resources) and the final product or service delivery to the end user. Potential can be found in new markets or old markets — it doesn’t matter as long as the potential is substantial.
Intersection
Now here is the alchemy in Collins’ model: having completed your assessments of passion, ability and economic opportunity, find the area where your organization’s three circles intersect, and focus your business there. Find the match between ability, passion and economic reward and you have the ingredients to build a great business.
Think about the power of an organization whose people are passionate, that operates in an area of great skill and that provides substantial returns on investment. Wow! No wonder the companies that Collins studied achieved sustained leadership and excellent results for more than 15 years.
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