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Good To Great
Good To Great
Table of Contents
About the Author.3 Thesis...3 Chapter 1. Good is the Enemy of Great...4 Chapter 2.Level 5 Leadership..5 Chapter 3. First Who.Then what..6 Chapter 4. Confront the brutal facts7 Chapter 5. Hedgehog Concept9 Chapter 6. Cultural Discipline.10 Chapter 7. Technological Accelerators.11 Chapter 8. The Flywheel And the Doom Loop.12 Chapter 9. From Good To great To built to Last..14 Learnings from Good to great.15 Critique16
About
the
Author
Jim Collins is a student and teacher of enduring great companies -- how they grow, how they attain superior performance, and how good companies can become great companies. Having invested over a decade of research into the topic, Jim has co-authored three books, including the classic Built to Last, a fixture on the Business Week bestseller list for s eliminated wasteful luxuries, like executive dining rooms, corporate jets, lavish vacation spots, etc., for the good of the co mpany - to other people, external factors, and good luck. All 11 of the featured companies had this type of leadership, charactmulti-year research projects and works with executives from the private, public, and social sectors. Jim has served as a teacher to senior executives and CEOs at corporations that include: Starbucks Coffee, Merck, Patagonia, American General, W.L. Gore, and hundreds more. He has also worked with the non-corporate sector such as the Leadership Network of Churches, Johns Hopkins Medical School, the Boys & Girls Clubs of America and The Peter F. Drucker Foundation for Non-Profit Management. Jim invests a significant portion of his energy in large-scale research projects -- often five or more years in duration -- to develop fundamental insights and then translate those findings into books, articles and lectures. He uses his management laboratory to work directly with executives and to develop practical tools for applying the concepts that flow from his research. In addition, Jim is an avid rock climber and has made free ascents of the West Face of El Capitan and the East Face of Washington Column in Yosemite Valley.
Thesis :
Collins and his team identified 11 companies that followed a pattern of "fifteen-year cumulative stock returns at or below the general stock market, punctuated by a transition point, then cumulative returns at least three times the market over the next fifteen years." Public companies were selected because of the availability of comparable data. Fifteen-year segments were selected to weed out the one-hit wonders and luck breaks. While these selection criteria exclude "new economy" companies, Collins contends that there is nothing new about the new economy, citing earlier technology innovations of electricity, the telephone, and the transistor. Having identified the companies that made the leap from Good To Great, Collins and his team set out to examine the transition point. What characteristics did the Good To Great companies have that their industry counterparts did not? What didn't the Good To Great companies have? Collins maps out three stages, each with two key concepts. These six concepts are the heart of Good To Great and he devotes a chapter to explaining each of them.
Level 5 Leadership First Who... Then What Confront the Brutal Facts The Hedgehog Concept
Collins characterizes the Level 5 leader, as "a paradoxical blend of personal humility and professional will." The Level 5 leader is not the "corporate savior" or "turnaround expert". Most of the CEOs of the Good To Great companies as they made the transition were company insiders. They were more concerned about what they could "build, create and contribute" than what they could "get - fame, fortune, adulation, power, whatever". No Ken Lay of Enron or Al Dunlap of Scott Paper, the larger-than-life CEO, led a Good To Great company. This kind of executive is "concerned more with their own reputation for personal greatness" than they are with "setting the company up for success in the next generation". In this book, Jim Collins also challenges the notion that "people are your most important asset" and postulates instead that "the right people are." I don't know that I yet completely agree with his philosophy that it's more important to get the right people on the bus and then see where it goes than it is to figure out where to go and get the right people on the bus who can get you there. However, he makes his point clearly and you can decide if you agree with him. This nearly 300-page book is packed with leading edge thinking, clear examples, and data to support the conclusions. It is a challenge to all business leaders to exhibit the discipline required to move their companies from Good To Great.
channel their egos into building the company. The hope is that, if you select the right people, they'll do what's best for the company rather than for themselves. Finding something you can be passionate about is the other key. And, all employees must be passionate about the endeavor. Because most employees won't get jazzed about making the CEO and shareholders wealthy, a company should have a purpose beyond just making money. Collins says a company should have 'core values.' Collins says it doesn't matter what these 'core values' are, just that they exist. He says Philip Morris is happy to provide the strongest brand recognition of 'sinful' products. Maybe, they're rebelling against political correctness, or health, or whatever. If it works for them, it's cool. Fannie Mae, on the other hand, prides itself on providing mortgages to new, less-affluent homeowners and helping people buy homes. That sounds good, and is probably true, but it reads a little bit like a publicity statement.
Chapter
2:
Level
Leadership
In this chapter Collins describes what he refers to as level 5 leadership as explained in the table below. Every good-to-great company had Level 5 leadership during pivotal transition years, where Level 1 is a Highly Capable Individual, Level 2 is a Contributing Team Member, Level 3 is the Competent Manager, Level 4 is an Effective Leader, and Level 5 is the Executive who builds enduring greatness through a paradoxical blend of personal humility and professional will. Level 5 leaders display a compelling modesty, are self-effacing and understated. In contrast, two thirds of the comparison companies had leaders with gargantuan personal egos that contributed to the demise or continued mediocrity of the company. Level 5 leaders are fanatically driven, infected with an incurable need to produce sustained results. They are resolved to do whatever it takes to make the company great, no matter how big or hard the decisions. One of the most damaging trends in recent history is the tendency (especially of boards of directors) to select dazzling, celebrity leaders and to de-select potential Level 5 leaders. Potential Level 5 leaders exist all around us, we just have to know what to look for. The research team was not looking for Level 5 leadership, but the data was overwhelming and convincing. The Level 5 discovery is an empirical, not ideological, finding. The 5th Level Leader 5th Level Leaders have a combination of strong will and personal humility. The 5th Level Leader demonstrates an unwavering resolve and sets the standard for building great companies. In balance, he/she demonstrates a compelling modesty, relies on inspired standards and channels ambition into the company, and not into the self. The 5th Level Leader looks in the mirror, not out the window when focusing on responsibility and does just the opposite when apportioning credit for success of the company. When a leaders energy is in balance they are driven neither by ego nor fear. They are moving at a speed that allows them to feel themselves, as well as those around them. They realize more than anyone else, that the less you control, the more you can do. Leadership greatness is about being a conduit of energy, not a single generator of it. Collins asked a critical question: Can 5th Level Leadership be taught? Well, yes and no. To the extent someone is gifted with these innate capabilities, they certainly have a head start. For any leader it is a matter of degree. It is about growing into the role of a 5th Level Leadership leader. It is interesting to note that most 5th Level Leaders did not live extravagant lifestyles. They had sound family and community relationships. They had healthy and long-term marriages. Most of them are highly spiritual people who have attributed much of their success to good-luck and God rather than personal greatness. These men and women were servant leaders, not self-serving ones.
The five levels are as follows : Level 5 Executive Builds enduring greatness through a paradoxical blend of personal humility and professional will. Level 4 Effective Leader Catalyzes commitment to and vigorous pursuit of a clear and compelling vision, stimulating higher performance standards. Level 3Competent Manager Organizes people and resources towards the effective and efficient pursuit of predetermined objectives. Level 2Contributing Team Member Contributes individual capabilities to the achievement of group objectives and worked effectively with others in a group setting. Level 1Highly Capable Individual Makes productive contributions through talent, knowledge skills, and good work habits .Humility + Will = Level 5 Professional Will and Personal Humility creates superb results, a clear catalyst in the transition from good to great. Demonstrates a compelling modesty, shunning public adulation; never boastful. Demonstrates an unwavering resolve to do whatever must be done to produce the best long-term results, no matter how difficult. Acts with quiet, calm determination; relies principally on inspired standards, not inspiring charisma, to motivate. Sets the standard of building an enduring great company; will settle for nothing less. Channels ambition into the company, not the self; sets up successors for even greater success in the next generation. Looks into the mirror, not out the window, to apportion responsibility for poor results, never blaming other people, external factors, or bad luck. Looks out the window, not in the mirror, to apportion credit for the success of the company - to other people, external factors, and good luck. All 11 of the featured companies had this type of leadership, characterized by a CEO who displayed determination and a strong will to be the best, yet who also showed humility. These level 5 leaders eliminated wasteful luxuries, like executive dining rooms, corporate jets, lavish vacation spots, etc., for the good of the company. Also, when asked about the success of the company, they were quick to give complete credit to the other workers in the company, rather than themselves. Yet these CEOs rose above their peers. Collins dubs them "Level 5" managers. By this definition, each was humble to a fault and hid from the limelight. At the same time, though, all of them went to extraordinary lengths to make their companies great. For Darwin E. Smith of Kimberly-Clark, that required jettisoning the core business when he sold its paper mills. For George Cain at Abbott, it meant firing his own relatives. These leaders' ambition was "first and foremost for the company," writes Collins. They were "concerned with its success, rather than their own riches and personal renown."
is to first get the right people on the bus (and the wrong people off the bus) before you figure out where to drive it. The second key point is the degree of sheer rigor needed in people decisions in order to take a company from good to great.". Regarding people decisions he has the following to say: 1. When in doubt, don't hire - keep looking. (Corollary: A company should limit its growth based on its ability to attract enough of the right people.) 2. When you know you need to make a people change, act. (Corollary: First be sure you don't simply have someone in the wrong seat.) 3. Put your best people on your biggest opportunities, not your biggest problems. (Corollary: If you sell off your problems, don't sell off your best people.) Good-to-great leaders understand three simple truths: If you begin with the who, rather than the what, you can more easily adapt to a changing world. If you have the right people on the bus, the problem of how to motivate and manage people largely goes away. If you have the wrong people, it doesnt matter whether you discover the right directionyou still wont have a great company. Great vision without great people is irrelevant.
All good-to-great companies began the process of finding a path to greatness by confronting the brutal facts of their current reality. When a company starts with an honest and diligent effort to determine the truth of its situation, the right decisions often become self-evident. Good decisions are impossible without an honest confrontation of the brutal facts. Why Kroger Beat A&P The Great Atlantic and Pacific Tea Company (also known as A&P) had the perfect business model for the first half of the twentieth century, when two world wars and an economic depression imposed frugality upon Americans: cheap, plentiful groceries sold in utilitarian stores. However, in the more affluent second half of the century, Americans began demanding bigger stores, more choices, fresh baked goods, fresh flowers, banking services and so forth. They wanted superstores that offered almost everything under one roof. To f ace the brutal facts about the mismatch between its past model and the changing world, A&P opened a new store called Golden Key, where it could experiment with new methods and models and learn what customers wanted. It sold no A&P-branded products, experimented with new departments, and began to evolve toward the more modern superstore. A&P began to discover the answer to the questions of why it was losing market share and what it could do about it. But A&P executives didnt like the answers they got, so they closed the store, rather than diverge from their ages-old business ideas. Meanwhile, the Kroger grocery chain also conducted experiments and, by 1970, discovered the inescapable truth that the old-model grocery store was going to become extinct. Rather than ignore the brutal truth, as A&P did, the company acted on it, eliminating, changing, or replacing every single store that did not fit the new realities. It went block-by-block, city-by-city, state-bystate, until it had rebuilt its entire system. By 1999, it was the number one grocery chain in America. Let the Truth Be Heard One of the primary tasks in taking a company from good to great is to create a culture wherein people have a tremendous opportunity to be heard and, ultimately, for the truth to be likewise heard. To accomplish this, you must engage in four basic practices: Lead with questions, not answers. Leading from good to great does not mean coming up with the answers and motivating everyone to follow your messianic vision. It means having the humility to grasp the fact that you do not yet understand enough to have the answers, and then to ask questions that will lead to the best possible insights. Engage in dialogue and debate, not coercion. All good-to-great companies have a penchant for intense debates, discussions and healthy conflict. Dialogue is not used as a sham process to let people have their say so they can buy into a predetermined decision; rather, it is used to engage people in the search for the best answers. Conduct autopsies, without blame. Good-to-great leaders must take an honest look at decisions his or her company makes, rather than simply assigning blame for the outcomes of those decisions. These autopsies go a long way toward establishing understanding and learning, creating a climate where the truth is heard. Build red flag mechanisms that turn information into information that cannot be ignored.
Good-to-great companies have no better access to information than any other company; they simply give their people and customers ample opportunities to provide unfiltered information and insight that can act as an early warning for potentially deeper problems.
which your company has the potential to be the best in the world. The second circle represents what your company can feel passionate about. The third circle represents a measure of profitability that can drive your economic success. You must choose to do something that's profitable and know how to focus upon that profitability. To find the circles, Collins makes the excellent point that you must begin with the right people. Collins emphasizes that the people must come before you decide exactly how your company will achieve success. We learn that in great companies there is often heated debate about what's best for the company. The culture of great companies is open in the sense that the truth will be heard. That's very different from debating for the sake of protecting private turf and selfaggrandizement.
Fill your culture with self-disciplined people who are willing to go to extreme lengths to fulfill their responsibilities. People in good-to-great companies tend to be almost fanatical in the pursuit of greatness; they possess the discipline to do whatever it takes to become the best within carefully selected arenas, and then seek continual improvement from there. While everyone would like to be the best, most organizations lack the discipline to figure out with ego less clarity what they can be the best at, and the will to do whatever it takes to turn that potential into reality. Dont confuse a culture of discipline with a tyrannical disciplinarian. Many companies that could not sustain their success had leaders who personally disciplined the organization through sheer force. Good-to-great companies had Level 5 leaders who built an enduring culture of discipline, powered by self-disciplined people who acted in the companys best interests without strict dictums from leadership. These disciplined companies could and did thrive even after their leaders had departed the organization; those companies that practiced discipline only by tyrannical rule could not sustain themselves once their leaders departed. Adhere with great consistency to the Hedgehog Concept, exercising an almost religious focus on the intersection of the three circles. The good-to-great companies at their best followed a simple mantra Anything that does not fit with our Hedgehog Concept, we will not do. They did not launch unrelated businesses or joint ventures in an effort to diversify. They did not panic if the competitive landscape shifted. If a course of action did not fit into their disciplined approach, they did not perform that action. It takes discipline to say No to such opportunities. Collins claims magic occurs when you blend a culture of discipline with an ethic of entrepreneurship. Collins discussion about discipline is no different than my discussion about responsibility or Marshall Thurbers discussion about integrity. Collins points out the interesting paradox that political scientists have known all along. In order to have freedom, there must be rules. To the extent that people are willing to voluntarily abide by those rules, there will an increase in the levels of available freedom. This discipline, responsibility or integrity cannot come through control. There must be disciplined people who engage in disciplined thought and then take disciplined action. The most important discipline is staying loyal to the hedgehog concept.
walk, run. Based on the experience of these companies, a cautioned approach towards technology works best, even during times of rapid and radical change.
The Doom Loop Other companies exhibited very different patterns. Instead of a quiet, deliberate process of figuring out what needed to be done, then doing it, these companies frequently launched new programs often loudly, with the aim of motivating the troops only to see those programs fail to produce sustained results. They pushed the flywheel in one direction, stopped, changed course and pushed it in a new direction, a process they repeat-ed continually. After years of lurching back and forth, these companies failed to build sustained momentum and fell into what could be termed the doom loop. Are You on the Flywheel or in the Doom Loop? How can you tell if your organization is on the fly-wheel, or in the doom loop? Consider the following: Youre on the flywheel if you Follow a pattern of buildup, leading to break-through. Confront the brutal facts to see what steps must be taken to build momentum. Attain consistency with a clear Hedgehog Concept, staying within the three circles. Follow the pattern of disciplined people, thought and action. Harness appropriate technologies to your Hedgehog Concept, to accelerate momentum. Spend little energy trying to motivate or align people; the momentum of the flywheel is infectious. Maintain consistency over time. Youre in the doom loop if you Skip buildup and jump right into breakthrough. Implement big programs, radical change efforts, dramatic revolutions and chronic restructuring. Embrace fads and engage in management hoopla, rather than confront the brutal facts. Demonstrate chronic inconsistency, lurching back and forth and straying outside the three circles. Jump right into action, without disciplined thought, or first getting the right people on the bus. Spend a lot of energy trying to align and motivate people, rallying them around new visions.
Sell the future to compensate for lack of results in the present. The Flywheel and the Doom Loop are metaphors for demonstrating how great companies start out slowly and methodically yet eventually reach the sustained momentum needed for breakthrough results. In this chapter Collins shows how each of the companies on the good to great list went through a period of buildup before it achieved breakthrough success. Companies that moved too quickly, and tried to skip the buildup phase, often saw their success shrivel and fade away. Those that underwent a steady changeover phase, followed by careful implementation, went on to achieve great things. Sustainable transformations follow a predictable pattern of buildup and breakthrough. Like pushing on a giant, heavy flywheel, it takes a lot of effort to get the thing moving at all, but with persistent pushing in a consistent direction over a long period of time, the flywheel builds momentum, eventually hitting a point of breakthrough.
--Mergers and acquisitions do not cause a transformation from good to great. --Know that you will succeed in the end. Have faith in your company's destiny. But, realize it might take many years that really suck to get there. Collins says you must confront the brutal
facts of your company's reality --Discover your core values and purpose beyond simply making money and combine this with the dynamic of preserve the core values - stimulate progress, as shown for example by Disney. They have evolved from making short animated films, to feature length films, to theme parks, to cruises, but their core values of providing happiness to young and old, and not succumbing to cynicism remains strong. -- Enduring great companies dont exist merely to deliver returns to shareholders. In a truly great company, profits and cash flow are absolutely essential for life, but they are not the very point of life. If youre doing something you care deeply about and if you believe in it, its impossible to imagine not trying to make it great.
Critique
Ever wonder what makes some companies stand out from the rest of the pack? Ever wonder why they seem to come out of nowhere? In? Good to Great: Why Some Companies Make the Leap... and Other Don't? Jim Collins explains both why and how the magic happens. Collins put forth quite an extensive study of a very select group of companies based on stock performance over many years, each with a similar control company in a similar starting position to compare to. He studied the companies and interviewed enough of the employees and CEO to get a feel for them inside and out. The conclusions based on the data he collected and its analysis is quite astounding. Jim himself says he was very surprised by the outcome. See, one of the variables he initially tried to minimize ended up being the critical difference between the good and the great...the companies' leaders. Mr. Collins sets out to show what a company must do in order to make the huge, all-important leap from a so-so company to a superb company. (The leap, in my opinion, can be seen as similar to that of John Travoltas career path from Welcome Back Kotter to current day status.) Starting with 1,435 Fortune 500 companies, Collins shaves the list down, using the criteria of stock price over fifteen years, until he settles on eleven great companies. After researching this handful of companies, the author draws conclusions about how all companies can make a similar transition. His findings fall into three categories: disciplined people, disciplined thought, and disciplined action. The first step, disciplined people, begins with a Level 5 Leader a humble yet ambitious leader focused on the constant growth of the company with little regard to her own needs. This fearless leader must then surround herself with the right people not just qualified individuals but skilled people who are right for their job and for the organization. By choosing the proper person to run the company and by filling the company with employees who should be on the bus, the author envisions a company that can be driven in the right direction. Once you have the right people in the organization, Collins says the people must all work toward a company managed by disciplined thought. All the people on the bus must confront the facts good and bad of the organization. By accepting the negative company news with a realistic attitude while still looking to conquer these problems, the disciplined people move the company forward, says Collins. The next step is to ensure that the company finds its all-important hedgehog concept Collins cute term for the core business concept of the company. By finding the overlap of what you are passionate about, what you can be best at in the world and what drives your economic engine, the author lays out a general plan for how to find out what your hedgehog is. After getting the right people and the right frame of mind, Collins suggests the final step - development of a disciplined company culture. This culture should bring, according to
the author, an entrepreneurial spirit that increases productivity while lessening bureaucracy. Finally, with all other pieces of the puzzle in place, the company should recognize that technology is not the lynchpin to any companys success, but it can be used as an accelerator of greatness. After conquering these three areas people, thought and action the company can, as Collins describes, slowly pick up momentum until it is a strong and great sustainable company. However, there are some extremely valid and interesting points that the author exhibits from his research that are worth revisiting. His studies reinforce the idea that the success of anything in life, especially in business, comes down to the right people. When the people who will truly be happy in the organization are firmly established, they will lead to powerful advances. Secondly, Collins reinforces the idea that the culture of the organization, when properly handled, is essential to creating positive growth in the company. By invigorating an entrepreneurial spirit, the company can only get stronger. If nothing else, these steps - toward trust in your employees seem crucial to any organization. In addition, Collins does discover several interesting facts along the way, including the idea, (that has been discussed in detail in the new book, In The Company of Owners: The Truth About Stock Options and Why Every Employee Should Have Them) that the level of executive compensation does not correspond to the level of a great company. In fact, the author shows that with all the great companies, it was more important to instill the right culture in the company then to create the best executive compensation packages. Another interesting point Collins introduced was the idea that of all the companies that were deemed great, not one of the CEOs was well-known. It is somehow comforting that those retired CEOs, who have written multiple autobiographies and collected on their immense severance packages, have not, according to the author, done as much for their companies as the quiet yet effective CEO of the great companies. The warm and fuzzy feeling rises a level when one recognizes the possibility to be great without being born as Lee Iacocca. The book overall is well-written, easily followed with great anecdotes and simple diagrams. However, I do think everyone can find something of value in Good to Great. As instructive as Collins' research is, his book isn't perfect. He uses just one gauge to measure a company's greatness: its share price over 15 years. He points out that he picked a long time frame to edit out one-hit wonders, but as we've seen from the phenomenal upsurge and subsequent bust in the Internet and telecom sectors, stock prices may not be the best way to judge a company's real and lasting nature. The market leaders are not always share-price superstars or profit leaders. Also, a few of the Good to Great companies no longer seem so great. Nucor Corp., for example, had a spectacular run from 1975 to 1990, when the steelmaker's share price rose 5.16 times as rapidly as the overall market. Over the next 10 years, however, Nucor trailed every major stock index, as it has gone through four CEOs. Gillette, too, has been on a steady decline since early 1998, and Wells Fargo was taken over that same year. So much for its legacy. Still, it's clear that Collins has found a clutch of companies that did transform themselves from so-so to outstanding for at least a 15-year run. And he makes a reasoned argument for how this occurred. Management how-to books can be as faddish as pop music. But Collins again has written a book that seems built to last. The book overall is well-written, easily followed with great anecdotes and simple diagrams and therefore I do think everyone can find something of value in Good to Great.