Thomas D. Gorman: You wrote an article in Inc. Magazine back in 1995 and in that you wrote, "In a world of constant change, the fundamentals are more important than ever." Does that still hold true? It's sort of obvious, but in today's environment, we have to ask.
Jim Collins: Yeah. So, let's just first of all, let's just look at a number of, ones that we know, in the United States. Look up the Hewlett Packard turnaround under Mark Hurd. Did he go back to some very disciplined fundamentals? Yes. Let's look at the IBM turnaround under Lou Gerstner -- a, tremendous time of turmoil. I mean, the rise of distributed computing, the threat to the mainframe business. The challenges they had, they hadn't even come up with the idea of broad services yet. IBM on the cover of magazines as a dinosaur, did he go back to fundamentals of really great people, really good evidence-based analysis, deciding with great rigor how to allocate resources, building a team of 300?
Look at the challenges that Blake Nordstrom faced when he took over Nordstrom, a family business. And ask what it took to get them back on track. He had a company with a great history which had lost sight of some basic fundamentals, starting with things like great customer service and good systems. They were facing tremendous change in the retail industry, a world in complete flux, plus new competition like the Gap and whoever else. In the face of all that, he took them back to fundamentals.
Jim Collins: Look at Xerox, when Anne Mulcahy took over. Everything was beginning to fall apart around her. The world was in flux, their technology being outpaced. Did she go back to fundamentals? Yes.
All of these cases happened in times of great turmoil, tremendous change, and difficult situations. So you ask: did these companies get into trouble because they abandoned the fundamentals; and did they get out of trouble by returning to the fundamentals? And the answer to both questions is: yes!
I cannot escape the verdict of history.
Will there be new fundamentals out there, and some things we don't understand yet? Yes, of course.
But if we consider the verdict of history -- business history -- and we now have over 6,000 years of combined company history in our database. And we ask this one question, a multiple choice question, about how these companies got into trouble.
The choice is between answer "A", because they failed to embrace new things;
Or answer "B", because they lost the fundamental disciplines that we've known up to this point. The correct answer is "B".
So the verdict of history is "B"; that they lost the fundamental disciplines.
There may be things we don't know yet, but we know for certain that if you grow beyond your ability to put the right people in the key seats, you will fail. If you fail to renew your core business -- as long as it's still your core business -- you'll fail. If you lose focus on what you can be the best at, where you can add value, have passion for -- and maybe a 4th circle -- you'll fail. We know these things.
There are two people in my world whom I have always looked up to: Peter Drucker and Michael Porter. If you read their works, both emphasize over and over again the importance of certain key points. Does Michael Porter ever say that the "5 Forces" are obsolete? No, just that we've forgotten them. Does Peter Drucker ever say that "Management by Objectives" is obsolete? No, just that we've forgotten about it. I very much believe that our first task is to make sure we get our basics right.