Tuesday, April 24, 2012
Saturday, April 21, 2012
A key concept of Jim Collins’ 2011 book Great By Choice is the “20-Mile March.” Explained simply, the 20 Mile March cites the example of the divergence in strategy between the explorers Roald Amundsen and Robert Falcon Scott, in their efforts to lead their teams to be the first to the South Pole in October 1911.
Amundsen vs. Scott:
The round trip trek was roughly fourteen hundred miles, the equivalent of the distance from New York to Chicago and back. The environment was uncertain and unforgiving, where temperatures could easily reach 20 degrees below zero F even during the Summer. They had no means of modern communications – no cell phones, no satellite links, no radio – a rescue would have been improbable were they to err. One leader led his team to victory and safety. The other led his team to defeat and death.
Amundsen prepared rigorously for years in advance of the journey. He learned what worked in polar conditions, going as far as to live with Eskimos to learn how they moved in sub-zero temperatures, what they wore, and reviewed every conceivable situation that his team might encounter en route to the Pole. He trained his body and mind with fanatic discipline. Scott presents quite a contrast to Amundsen. His preparation was limited, and what plans he made were based on his own intuitive conclusions, rather than direct research of the environment he was entering.
Amundsen stored three tons of supplies for five men, versus Scott, who stored one ton for seventeen men. Amundsen used sled dogs (learned from the Eskimos), whereas Scott used unproven “motor sledges” which failed within days of his journey. Amundsen carried enough extra supplies to miss every single supply depot and still have enough to go another hundred miles. Scott ran everything dangerously close to his calculations, so that missing even one supply depot would bring disaster. A single detail aptly highlights the difference between their approaches: Scott brought one thermometer for a key altitude measurement, and he exploded in “an outburst of wrath” when it broke; Amundsen brought four such devices. The divergence in preparation goes on and on.
Unlike Scott, Amundsen systematically built enormous buffers for unforeseen events. He designed the entire journey to systematically reduce the role of big forces and chance events. He presumed that bad events would strike his team somewhere along the journey and he prepared for them.
On December 15, 1911 Amundsen and his team reached the South Pole. He and his teammates planted the Norwegian flag and then went right back to work. They could not have known that Scott and his team were now desperately man-hauling their sleds, fully 360 miles behind. More than a month later, Scott found himself staring at Amundsen’s flag at the South Pole. Amundsen had already traveled five hundred miles back North. Scott and his team turned back North dejected, just as the season began to turn. The already menacing weather turned more severe, while supplies dwindled and Scott and his men struggled through the snow.
Amundsen and his team reached home base on January 25th, the precise day he had planned. Running out of supplies, Scott and his team stalled in mid-March, exhausted and depressed. Eight months later, a British reconnaissance party found the frozen bodies of Scott and two teammates in a forlorn, snow-drifted little tent, just ten miles short of his supply depot. His whole team had perished.
Just as striking a difference between the preparations between the two men was the discipline of Amundsen to press forward in bad weather, and hold back his team in good weather:
Throughout the journey, Amundsen adhered to a regimen of consistent progress, never going too far in good weather, careful to stay away from the red line of exhaustion that could leave his team exposed, yet pressing ahead in nasty weather to stay on pace. Amundsen throttled back his well-tuned team to travel between 15 and 20 miles per day, in a relentless march to 90 degrees south. When a member of Amundsen’s team suggested they could go faster, up to 25 miles a day, Amundsen said no. They needed to rest and sleep so as to continually replenish their energy. In contrast, Scott would sometimes drive his team to exhaustion on good days and then sit in his tent and complain about the weather on bad days. At one point Scott faced 6 days of gale force winds and traveled on none, whereas Amundsen faced 15 and traveled on 8. Amundsen clocked in at the South Pole right on his pre-decided pace, having averaged 15.5 miles per day. Scott in contrast fell behind early, with no plan of a daily pace, and as the conditions worsened, enhanced by his lack of preparation for unforeseen events, he and his team never recovered.
20 Mile Marching:
Imagine you are standing with your feet in the Pacific Ocean in San Diego, CA looking inland. You are about to embark on a 3,000 mile walk from San Diego to the tip of Maine. On the first day, you march 20 miles, making it out of town. On the second day you march 20 miles. And again, on the third day you march 20 miles, heading into the heat of the desert. It’s hot, more than 100 degrees, and you want to rest in the cool of your tent. But you don’t. You get up and march 20 miles. You keep the pace, 20 miles a day.
Then the weather cools and you are in comfortable conditions, with the wind at your back, and you could go much further. But you hold back, modulating your effort. You stick with your 20 miles. Then your reach the Colorado high mountains and get hit by snow, wind, and temperatures below zero – and all you want to do is stay in your tent. But you get up. You get dressed, and you march your 20 miles.
You keep up the effort – 20 miles, 20 miles, 20 miles – and then you cross into the plains and its glorious springtime, and you can go 40 of 50 miles in a day. But you don’t. You sustain your pace, marching 20 miles.
And eventually you get to Maine.
Now, imagine another person who starts out with you on the same day in San Diego. He gets all excited by the journey and logs 40 miles the first day.
Exhausted by his first gigantic day, he wakes up to hundred-degree temperatures. He decides to hang out until the weather cools thinking “I’ll make it up when conditions improve.” He maintains this pattern – big days with good conditions, whining and waiting in his tent on bad days – as he moves across the western United States.
Just before the Colorado high mountains, he gets a spate of great weather and he goes all out, logging 40- to 50-mile days to make up lost ground. But then he hits a huge winter storm when utterly exhausted. It nearly kills him and he hunkers down in his tent, waiting for spring.
When spring finally comes, he emerges, weakened, and stumbles off towards Maine. By the time he enters Kansas City, you, with your relentless 20 mile march, have already reached the tip of Maine.
You win, by a huge margin.
20 Mile Marching and Organizational Performance: Stryker vs. USSC
When John Brown became CEO of Stryker in 1977, he deliberately set a performance benchmark to drive consistent progress: Stryker would achieve 20 percent net income growth every year. This was more than a mere target, or a wish, or a hope, or a dream, or a vision. It was, to use Brown’s own words, “the law.” He ingrained “the law” into the company’s culture, making it a way of life.
Those divisions at Stryker that achieved their 20 Mile March were rewarded, recognized, and highly compensated. Those that fell behind the twenty percent watermark were given ‘The Snorkel Award’ to display on the wall of their office. The snorkel would indicate that you were underwater and drowning. People worked hard to keep the snorkel off their walls.
If a division fell behind for two years in a row, Brown would insert himself to “help,” working around the clock to “help” you get back in track. “We’ll arrive at an agreement to what has to be done to correct the problem,” said the understated Brown. You get the impression that you really don’t want to need John Brown’s help.
Markets bad? Currency exchange rates hurting results? Doesn’t matter. At Stryker, that was irrelevant.
From the time John Brown became CEO in 1977 to 1998 (when its main rival USSC disappeared as a public company); Stryker achieved its 20 Mile March goal more than 90 percent of the time. Yet for all this self-imposed pressure, Stryker had an equally important self-imposed constraint: to never go too far, to never grow too much in a single year. Just imagine the pressure from Wall Street to increase growth when your direct rival (USSC) is growing faster than your company. In fact, Stryker grew more slowly than USSC more than half the time. According to the Wall Street Transcript, some observers criticized Brown for being more aggressive. Brown, however, consciously chose to maintain the 20 Mile March, regardless of criticism of him urging to grow Stryker at a faster pace in boom years.
It would be hard to find a more perfect, stark contrast to Stryker than the spectacular rise and fall of USSC. In 1989, USSC had $345 million in sales; in 1992 it had $1.2 billion, representing 248 percent growth in just three years. USSC aggressively pursued growth, making a risky bet on a new line of sutures that was a direct attack on Johnson & Johnson’s Ethicon division which controlled 80 percent of that market and was deeply entrenched. USSC aggressively pushed inventory onto hospitals, so much so that the Wall Street Journal reported “According to the lore surrounding USSC’s reputation for aggressive marketing, a salesman aiming to boost volume once stored so much inventory in a hospital storeroom’s false ceiling that it collapsed.” The company also attained explosive growth from the rapid adoption of laparoscopic instruments for gallbladder surgery, and it sought even more growth by expanding the use of its laparoscopic instruments into a range of other surgical procedures.
But then – bang! – USSC got walloped by a series of storms. The specter of the Clinton healthcare reform created uncertainty, and hospitals decreased purchasing. Doctors showed less-than-expected enthusiasm for new laparoscopic devices for anything beyond gallbladder surgery. Johnson & Johnson proved to be a formidable competitor in sutures, striking back hard, and holding on to much of its market share. Johnson & Johnson also responded to USSC’s assault on their sutures business by attacking USSC’s core laparoscopic business, taking 45 percent of domestic market share in just three years. Revenues fell, and by 1997, they remained below peak 1992 levels. By the end of 1998, USSC would no longer exist as an independent company, capitulating to a takeover, acquired by Tyco.
Other Similar Business Cases:
Examples of this divergence between the highly planned and disciplined 20 Mile March Companies versus their undisciplined rivals repeat itself through business history:
Southwest Airlines for example set a goal for itself of achieving profitability every year and has done so for 30 consecutive years. Its early direct rival, PSA showed no such discipline and capitulated to a takeover by US Air in 1986.
Progressive Insurance set its 20 Mile March goal to keep its combined ratio below 100% every year, averaging 96% across time. The combined ratio is a key insurance industry performance metric. Simplified it means that for every $100 worth of insurance sold, you should never pay out more than a combined $96 in losses plus overhead combined. Progressive achieved a profitable combined ratio in 27 out of 30 years, and limited its growth to ensure that it maintained underwriting standards to hit its combined ratio objective. In contrast their rival Safeco abandoned its focus on combined ratio in 1980 and went for big growth via a huge debt-fueled acquisition of American States in the 1990s. It only achieved profitable combined ratio in 10 of the 27 comparison years.
Intel upheld Moore’s Law, doubling the complexity of components per integrated circuit at minimum cost every 18 months to two years. They pursued this relentlessly over decades. Their rival, AMD, repeatedly pursued big growth in good times (sometimes with significant debt), leaving the company unprepared and overextended in bad times.
Microsoft practiced 20 Mile March innovation, consisting of continuous iterations of software products. They often began with imperfect products, then marched to improve year after year to achieve industry dominance. They never overextended financially thereby never needed to pause their march. Apple in contrast, did not practice 20 Mile March discipline during its early history. They experienced inconsistent profit growth with major setbacks in the mid-1980s, early 1990s, and mid-1990s. Upon Steve Jobs return, they adopted 20 Mile March innovation, which was a key factor in Apple’s resurgence in the 2000s.
Amgen undertook 20 Mile March innovation based on incremental product development milestones. They also consistently developed existing drugs for new indications. This resulted in strong, profitable, and consistent revenue growth. Genentech did not 20 Mile March from 1976 to 1995, following a big-bet mentality with overpromises, resulting in a major downfall. After 1995, they adopted a 20 Mile March strategy by breaking five-year goals into a series of one-year targets.
Biomet focused on consistent and profitable growth, achieved in 20 of 21 years. They also practiced 20 Mile March innovation, with rapid product development iterations. They also took disciplined care not to overextend. By contrast, Kirschner embarked on a “grow fast through acquisition” approach, using debt. This ultimately resulted in crisis and the sale of the company in 1994.
Why 20 Mile Marchers Win:
The 20 Mile March is more than a philosophy. It’s about having concrete, clear, intelligent, and rigorously pursued performance mechanisms that keep you on track. The 20 Mile March, just like Amundsen and his team, creates two types of self-imposed discomfort:
1. The discomfort of unwavering commitment to high performance in difficult conditions.
2. The discomfort of holding back in good conditions.
To achieve consistent performance, you need both parts of the 20 Mile March: a lower bound and an upper bound, a hurdle that you jump over and a ceiling that you will not rise above, the ambition to achieve, and the self-control to hold back.
20 Mile Marching helps turn the odds in your favor for three reasons:
1. It builds confidence in your ability to perform well in adverse circumstances.
2. It reduces the likelihood of catastrophe when you are hit by turbulent disruption.
3. It helps you exert self-control in an out of control environment.
Accomplishing a 20 Mile March, consistently, in good times and bad, builds confidence. Tangible achievement in the face of adversity reinforces the winning perspective that we are ultimately responsible for improving performance. We never blame circumstance; we never blame the environment.
Failure to 20 Mile March in an uncertain and unforgiving environment can set you up for catastrophe. Every comparison case had an episode in its history in which failing to 20 Mile March led to a devastating outcome. In contrast, only two of the winning (“10X”) companies had episodes of failing to 20 Mile March, and neither of these episodes led to catastrophe because the 10X companies self-corrected their course before a storm could rise up and kill them.
Like Amundsen and his team, the 10X companies used their 20 Mile Marches as a way to exert self-control, even when afraid or tempted by opportunity. Having a clear 20 Mile March focuses the mind; because everyone on the team knows their markers and their importance, they can stay on track.
Financial markets are out of your control. Customers are out of your control. Earthquakes are out of your control. Global competition is out of your control. Technological change is out of your control. Most everything is ultimately out of your control. But when you 20 Mile March, you have a tangible point of focus that keeps you and your team moving forward, despite confusion, uncertainty, and even chaos.
Summary and Key Points:
· The 20 Mile March is a distinguishing factor to an overwhelming degree between great companies and average ones.
· 20 Mile Marching requires hitting specified performance markers with great consistency over a long period of time. It requires two distinct types of discomfort, delivering high performance in difficult times and holding back to avoid overextension in good times.
· A good 20 Mile March has seven key characteristics:
1. Clear performance markers.
2. Self-imposed constraints.
3. Appropriate to specific enterprise.
4. Largely within the team or company’s control to achieve.
5. A proper timeframe – long enough to manage, yet short enough to have teeth.
6. Imposed by the company or team on itself, not by external forces.
7. Achieved with high consistency.
· A 20 Mile March need not be financial. You can have a creative march, a learning march, a service-improvement march, or any other type of march, as long as it has the primary characteristics of a good 20 Mile March.
· The 20 Mile March builds confidence. By adhering to a 20 Mile March no matter what the circumstances, you prove to yourself and your enterprise that performance is not determined by your conditions, but largely by your own actions.
· Failing to 20 Mile March leaves an organization more exposed to turbulent events. Every comparison case had at least one episode of slamming into a difficult time without having the discipline of a 20 Mile March, which resulted in a major setback or catastrophe.
· The 20 Mile March helps you exert self-control in an out-of-control environment.
· 10X Winners set their own 20 Mile March, appropriate to their own enterprise; they don’t let outside pressures define it for them.
· A company can always adopt a 20 Mile March discipline even if it hasn’t had such discipline earlier in its history.
· 20 Mile Marches have a major edge in volatile environments; the more turbulent the world, the more you need to be a 20 Mile Marcher.
· There is an inverse correlation between pursuit of maximum growth and 10X success. Comparison-company leaders often pressed for maximum growth in robust times, thereby exposing their companies to calamity in an unexpected downturn. 10X winners left growth on the table, always assuming the something bad lurked just around the corner, thereby ensuring that they would not be caught overextended.
· 20 Mile March was not a luxury afforded to the 10X cases by their success; they had 20 Mile Marches in place long before they were big successes, which helped them to become successful in the first place.
One Final Key Question:
· What is your 20 Mile March, something you can commit to achieving for years with as much consistency as Stryker, Southwest Airlines, Intel, and Progressive?
*This Summary is an adaption from key ideas from Great By Choice, Jim Collins 2011.