COMMENTARY--If the Internet has brought one big management question to the fore, it's this: In a world of change, what makes a company great? Two years ago innovation was everything. Companies that could somehow see around the bend and prepare for the future were considered the new-economy leaders. But now that the stock market has collapsed and some of those innovations no longer seem so earthshaking (know anyone who still orders groceries online?), the managers and the money people are a lot more cautious. The emphasis these days is on producing results, cutting costs, getting the basics right. Innovation is deemed by many to be a luxury they can ill afford. That, however, only makes the question more relevant: Is it stability that makes a company great, or speed?
Two of the best-selling business books of the 1990s -- Built to Last by James Collins and Jerry Porras, and The Innovator's Dilemma by Clayton Christensen -- represent the opposing camps. Built to Last identified certain characteristics of great companies and argued that managers should stick to those and not try to reinvent the wheel before breakfast every day. (Those principles include the ideas that the company is guided by a core ideology that serves it well during rough times, experiments with many strategies and keeps what works, and promotes from within -- their success stems for a "culture of discipline" rather than a glorified CEO.) The Innovator's Dilemma, on the other hand, suggested that companies that are too enslaved by tradition risk being blindsided by disruptive new technologies. Christensen was the darling of the dotcommers because he helped explain their relevance much more eloquently than they ever could. But with the recent vaporization of dotcoms and the prospect of the new economy turning into a molasses economy, his theories are now in full-scale retreat. Companies are not as worried about cannibalizing their existing revenues with new products as they are about simply having enough revenues to cannibalize in the first place. It's back to basics. Or so you'd think.
"To me it is an obvious and, not an or," Collins says when I ask him about the permanence vs. change debate. "You do both." That answer is somewhat surprising, since he easily could have delivered an I-told-you-so response. But Collins has no use for such false dichotomies. He has a new book coming out this fall called From Good to Great (Harper Business), and he has been thinking a lot about these issues. For companies to be great, they must preserve their core strengths, the source of their competitive advantages, and at the same time stimulate progress and adapt to an ever-changing environment.
Sure, the business world is a lot less static now, which might make preserving those core traits less useful than in the past. But Collins puts this into perspective when he points out that the rate of change between 1880 and 1920 was much greater than it is today. "I don't think you and I wake up and feel like we've been hit with the invention of electricity, telephones, motorcars, and airplanes all at once," he says. In many respects, the modern corporation arose to take advantage of these new technologies -- and also to face the challenges that they presented. "Are we at the point," asks Collins, "where we need new organizations? Yes. But the answer is always yes."
The way Collins sees it, both recent business trends -- the late-1990s infatuation with change, and the predictable backlash of "getting back to basics" -- are wrongheaded. "There are two forms of ignorance," he says. "One form is to just lurching like Chicken Little, grasping at straws, at any new idea, because you're scared of being left behind. That's the ultimate sign of mediocrity. The other form of barbaric ignorance is going back to repeating patterns, doing the same stupid stuff over and over again. ‘Times are tough, I guess we have to fire people.'"
Instead, Collins says, companies should try to gain a deeper understanding of exactly what it is that they do better than any other company in the world, and then cut out anything that doesn't advance that purpose. And by the way, that doesn't necessarily mean performing such meat-cleaver layoffs as we've been seeing in the headlines lately. The point is to focus the organization, rather than just to cut costs. Collins's take is that a company's people are its most important assets: "In order to build a great company, you must have the right people on the bus, the wrong people off the bus, and people in the right seats. That's an eternal principle." Thirty years ago it was sufficient to tell people what seats to sit in and to just enjoy the ride. Today, though, you have to be more careful about what is motivating people to get on the bus in the first place.
"If you get people on the bus because of where it is going," Collins continues, "it is hard to change direction. But suppose you got people on the bus because of who else is on that bus? It is so simple when you think about it, but most companies do the opposite: they motivate the people they have to want to go where they are already taking the bus."
So, whatever it takes to keep the right people inside a company is what should stay constant in that organization. Everything else is up for grabs.
As an editor at large for Business 2.0, Erick Schonfeld contributes to the editorial development of the magazine, writes feature stories, and pens a weekly online column (called "Future Boy"). Schonfeld is also a contributing editor for Fortune, where he has written about technology and investing for the past seven years.