Jim Collins: Managing risk like a rock climber

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Jim Collins has invented his own language.

Companies or chief executives 10 times better than their peers are "10Xers." Large objectives are BHAGS (Big Hairy Audacious Goals), and mission statements are SMaC recipes: Specific, Methodical and Consistent. Small, low-cost experiments with new products or services are "bullets" and reckless gambles are "uncalibrated cannonballs."

A strange vocabulary, perhaps, but it has formed the basis for books that have seen runaway success, propelling Mr. Collins from Stanford business professor to one of the most sought-after management gurus in the world. His works, which read a bit like self-help for CEOs and seek to determine why some companies fail and others succeed, have sold over 10 million copies around the globe.

And now, as markets swing wildly and a debt crisis terrorizes governments, those who run the world's biggest companies are even more eager for advice from the 53-year-old, whose lean face recently stared out from the cover of Fortune magazine.

So what to do in the face of volatility? Get used to it, he says. In fact, over a meal at Toronto's dimly lit Shore Club, the normally affable, curious Mr. Collins becomes slightly agitated when I suggest that chronic uncertainty forces stock-market-driven businesses into short-term decision-making that makes his ideal of long-run "10X" performance unlikely.

"Anyone, anyone,who tells me, 'Oh, I can't do it because of the markets,' is simply saying 'I choose not to.' "

His new book, Great by Choice, is based on nine years of research into the details of decades-worth of corporate decision-making. Co-written with Berkeley professor Morten Hansen and released in October, it examines how companies can achieve greatness even in times of crisis or uncertainty. It's timely, to say the least.

Despite all the data, some of the book's conclusions end up reading like old-fashioned good advice – or in the words of one critic, horoscope prescriptions vague enough that you can apply them to yourself quite easily, whatever decisions you are making. (Prepare for the worst. Do low-risk experiments before you make big bets. Radical change for change's sake often fails.)

But the book's findings in fact dismiss several closely held business-world beliefs, such as the notion that companies should transform themselves by hiring an external, cult-of-celebrity CEO. Successful leaders are in fact not "bold risk-seeking visionaries," Mr. Collins concludes. They are instead "disciplined," "empirical" and "paranoid," building on verifiable results and constantly anticipating what could go wrong.

Mr. Collins, who runs a small office that he calls a "management laboratory" in Boulder, Colo., knows something about risk, having been an avid rock climber since his teens. While appearing to do something dangerous, rock climbers must also have a similar discipline if they want to survive, he says.

When I suggest his book's real message is that business leaders must be risk-averse conservatives, he disagrees. Business leaders must of course take risks. But to survive, they must also, like rock climbers, obsessively keep those risks in check, through exhaustive preparation and constantly anticipating the worst.

"There's risk in rock climbing. If all you want is a risk-averse approach to life, you don't go climb in Yosemite Valley," says Mr. Collins, in town for a speaking engagement at the invitation of McCarthy Tétrault LLP.

In his book, he compares the meticulous preparation of Norwegian explorer Roald Amundsen, who reached the South Pole first in 1911, to the disastrous amateurism of Britain's Robert Scott, whose expedition to do the same ended in death. Amundsen was an obsessive, who brought along four thermometers that were important for an altitude measuring device, while Scott broke the only one he packed.

It's the same for businesses. Bill Gates, Mr. Collins writes, was a "Grand Master of Productive Paranoia," a CEO who "lived in fear" and was the author behind a 1991 "nightmare memo" on the many potential dangers facing Microsoft that leaked out and was so gloomy it caused the company's stock to sink.

Perhaps if the people running the U.S. banking system were a little more paranoid, the 2008 meltdown could have been avoided, I suggest.

"I think what's interesting is that people will say, 'Well you couldn't have predicted the events,' " Mr. Collins says. "And my response to that is … No, you couldn't have predicted that specific storm. But what our research teaches is you can predict with certainty there's going to be a storm."

Mr. Collins lives his own life according to the lingo from his books. For example, he says companies that succeed set consistent measurable short-term goals, a concept he compares to a daily "20-mile march." For his own 20-mile march, he carries a stopwatch and clocks how much time he spends writing, thinking and teaching, which he charts on a whiteboard in his office. His goal is to spend at least 50 per cent of his time on "creative" pursuits, 30 per cent on teaching, and 20 per cent on everything else.

While he receives countless speaking or consulting requests, he carefully rations himself, turning down many and only choosing the dozen or so a year that interest him. (He said he plans 18 this year, an unusually high number for him, due to the new book.)

This discipline comes from what he calls his personal "SMaC recipe," a kind of mission statement he says successful companies or individuals need to stay focused.

"It has very specific elements to it," he says. "Like, only say yes to something if it has potential for great learning or a great teaching moment. And if it doesn't have that in it, don't say yes."

When he does meet with CEOs or non-profit leaders, the sessions are decidedly Socratic ones, in which he provides more questions than answers. And as our dinner begins, the questions are all his.

He apologizes, tells me appreciates a journalist's "lens on the world," and then fires away. He clearly prefers questions of the wide-open, university-essay kind: How is power distributed differently here than in the United States? Why do you think that Canada came through the financial crisis relatively well? What are the main historical touchstones in Canadian life?

Reporters secretly love answering questions instead of asking them for a change. But by the time his scallops and my filet mignon arrive, I feel like I have been maundering on for too long about our prudent banking system and the War of 1812. I quickly steer the conversation toward the recently departed Steve Jobs, whom Mr. Collins naturally labels a 10Xer. He predicts that Apple, like Disney, IBM and others, will transcend the loss of its founder.

Later, we are so embroiled in our conversation that we walk away from our table without paying. I rush back and naturally insist on covering the bill, according to The Globe's ethics rules. Unlike many in the business world, who try to insist on paying anyway, he approves with surprising enthusiasm.

Hold on to your ethics, above all else, he tells me: "I'm absolutely convinced through my research that you do not need to choose between great success and really doing it in a very, very principled way. I know that for a fact."

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JIM COLLINS, CURRICULUM VITAE

ROOTS

Born: Jan. 25, 1958.

Age: 53

Home town: Boulder, Colo.

EDUCATION

Degrees in business administration and mathematical sciences from Stanford University, and honorary doctorates from the University of Colorado and the Peter F. Drucker Graduate School of Management at Claremont Graduate University.

TEACHING, CONSULTING

Stanford Graduate School of Business, where he received the Distinguished Teaching Award in 1992. After leaving Stanford, he founded what he calls a "management laboratory" in Boulder in 1995, where he has a small staff, does his research and consults for executives.

BOOKS

Built to Last, with Jerry Porras (1994)

Good to Great (2001)

How the Mighty Fall (2009)

Great by Choice, with Morten Hansen (2011)

PERSONAL

His Calgary-born wife, Joanne Ernst, won the 1985 Hawaii Ironman triathlon, after Mr. Collins quit a job at Hewlett-Packard to manage her athletic career. The two met at Stanford in 1980 and were engaged four days after their first date, which was an eight-mile run. She is a breast cancer survivor, and Mr. Collins says they have a "10X" marriage. They have cat named Dante.