Good to Great: Why Some Companies Make the Leap...And Others Don't - By Jim Collins
Date read: 2017-05-27How strongly I recommend it: 8/10
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An in depth analysis into why some companies succeed while others fail, or just remain mediocre. Includes case studies from companies such as Circuit City, Kimberly-Clarke, Walgreens, and Abbott to name a few. Great philosophies that can be applied to any company.
Contents:
- LEVEL 5 LEADERSHIP
- FIRST WHO, THEN WHAT
- CONFRONT THE BRUTAL FACTS (YET NEVER LOSE FAITH)
- THE HEDGEHOG CONCEPT (SIMPLICITY WITHIN THE THREE CIRCLES
- A CULTURE OF DISCIPLINE
- TECHNOLOGY ACCELERATORS
- THE FLYWHEEL AND THE DOOM LOOP
- BUILT TO LAST
My Notes
Good is the enemy of great.
Larger-than-life, celebrity leaders who ride in from the outside are negatively correlated with taking a company from good to great. Ten of eleven good-to-great CEOs came from inside the company, whereas the comparison companies tried outside CEOs six times more often.
No systematic pattern was found linking specific forms of executive compensation to the process of going from good to great.
Strategy per se did not separate the good-to-great companies from the comparison companies.
The good-to-great companies did not focus principally on what to do to become great; they focused equally on what not to do and what to stop doing.
Technology and technology-driven change has virtually nothing to do with igniting a transformation from good to great.
Mergers and acquisitions play virtually no role in igniting a transformation from good to great.
The good-to-great companies paid scant attention to managing change, motivating people, or creating alignment. Under the right conditions, the problems of commitment, alignment, motivation, and change largely melt away.
The good-to-great companies had no name, tag line, launch event, or program to signify their transformations.
Greatness is not a function of circumstance. Greatness, it turns out, is largely a matter of conscious choice.
"You can accomplish anything in life, provided that you do not mind who gets the credit." —HARRY S. TRUMAN
Level 5 leader — an individual who blends extreme personal humility with intense professional will. They channel their ego needs away from themselves and into the larger goal of building a great company.
Their ambition is first and foremost for the institution, not themselves.
Level 5 leaders are a study in duality: modest and willful, humble and fearless.
A key trait of Level 5 leaders: ambition first and foremost for the company and concern for its success rather than for one’s own riches and personal renown.
Level 5 leaders want to see the company even more successful in the next generation, comfortable with the idea that most people won’t even know that the roots of that success trace back to their efforts.
Level 5 leadership is not just about humility and modesty. It is equally about ferocious resolve, an almost stoic determination to do whatever needs to be done to make the company great.
Level 5 leaders look out the window to apportion credit to factors outside themselves when things go well (and if they cannot find a specific person or event to give credit to, they credit good luck). At the same time, they look in the mirror to apportion responsibility, never blaming bad luck when things go poorly.
Level 5 leaders display a workmanlike diligence — more plow horse than show horse.
Level 5 leaders attribute much of their success to good luck, rather than personal greatness.
First get the right people on the bus (and the wrong people off the bus) and then figure out where to drive it.
If you begin with “who,” rather than “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 doesn’t matter whether you discover the right direction; you still won’t have a great company.
You get the best people, you build them into the best managers in the industry, and you accept the fact that some of them will be recruited to become CEOs of other companies.
“Who” questions come before “what” questions — before vision, before strategy, before tactics, before organizational structure, before technology.
We found no systematic pattern linking executive compensation to the process of going from good to great.
It’s not how you compensate your executives, it’s which executives you have to compensate in the first place. If you have the right executives on the bus, they will do everything within their power to build a great company, not because of what they will “get” for it, but because they simply cannot imagine settling for anything less.
In a good-to-great transformation, people are not your most important asset. The right people are. But they’re not ruthless cultures, they’re rigorous cultures.
To be rigorous means consistently applying exacting standards at all times and at all levels, especially in upper management.
To be rigorous in people decisions means first becoming rigorous about top management people decisions.
Three practical disciplines from the research for being rigorous rather than ruthless:
You need executives, on the one hand, who argue and debate — sometimes violently — in pursuit of the best answers, yet, on the other hand, who unify fully behind a decision, regardless of parochial interests.
Those who build great companies understand that the ultimate throttle on growth for any great company is not markets, or technology, or competition, or products. It is one thing above all others: the ability to get and keep enough of the right people.
Letting the wrong people hang around is unfair to all the right people, as they inevitably find themselves compensating for the inadequacies of the wrong people. Worse, it can drive away the best people. Strong performers are intrinsically motivated by performance, and when they see their efforts impeded by carrying extra weight, they eventually become frustrated.
I spent a lot of time thinking and talking about who sits where on the bus. I called it “putting square pegs in square holes and round pegs in round holes.”... Instead of firing honest and able people who are not performing well, it is important to try to move them once or even two or three times to other positions where they might blossom.
Two key questions can help. First, if it were a hiring decision (rather than a “should this person get off the bus?” decision), would you hire the person again? Second, if the person came to tell you that he or she is leaving to pursue an exciting new opportunity, would you feel terribly disappointed or secretly relieved?
If you create a place where the best people always have a seat on the bus, they’re more likely to support changes in direction.
You absolutely cannot make a series of good decisions without first confronting the brutal.
The moment a leader allows himself to become the primary reality people worry about, rather than reality being the primary reality, you have a recipe for mediocrity, or worse. This is one of the key reasons why less charismatic leaders often produce better long-term results than their more charismatic counterparts.
How do you create a climate where the truth is heard? We offer four basic practices:
In confronting the brutal facts, the good-to-great companies left themselves stronger and more resilient, not weaker and more dispirited.
The Stockdale Paradox: You must retain faith that you will prevail in the end and you must also confront the most brutal facts of your current reality.
Charisma can be as much a liability as an asset, as the strength of your leadership personality can deter people from bringing you the brutal facts.
Spending time and energy trying to “motivate” people is a waste of effort. The real question is not, “How do we motivate our people?” If you have the right people, they will be self-motivated. The key is to not de-motivate them. One of the primary ways to de-motivate people is to ignore the brutal facts of reality.
Divide people into two basic groups: foxes and hedgehogs. Foxes pursue many ends at the same time and see the world in all its complexity while hedgehogs, on the other hand, simplify a complex world into a single organizing idea, a basic principle or concept that unifies and guides everything. It doesn’t matter how complex the world, a hedgehog reduces all challenges and dilemmas to simple— indeed almost simplistic—hedgehog ideas.
Those who built the good-to-great companies were, to one degree or another, hedgehogs. They used their hedgehog nature to drive toward what we came to call a Hedgehog Concept for their companies.
The Hedgehog Concept is a simple, crystalline concept that flows from deep understanding about the intersection of the following three circles:
To have a fully developed Hedgehog Concept, you need all three circles.
A Hedgehog Concept is not a goal to be the best, a strategy to be the best, an intention to be the best, a plan to be the best. It is an understanding of what you can be the best at.
A single “economic denominator” - Think about it in terms of the following question: If you could pick one and only one ratio—profit per x (or, in the social sector, cash flow per x) — to systematically increase over time, what x would have the greatest and most sustainable impact on your economic engine? We learned that this single question leads to profound insight into the inner workings of an organization’s economics. For example, Walgreens switched its focus from profit per store to profit per customer visit.
If you successfully apply these ideas, but then stop doing them, you will slide backward, from great to good, or worse. The only way to remain great is to keep applying the fundamental principles that made you great.
You can’t manufacture passion or “motivate” people to feel passionate. You can only discover what ignites your passion and the passions of those around you.
“Growth!” is not a Hedgehog Concept. Rather, if you have the right Hedgehog Concept and make decisions relentlessly consistent with it, you will create such momentum that your main problem will not be how to grow, but how not to grow too fast.
It took about four years on average for the good-to-great companies to clarify their Hedgehog Concepts. It is an inherently iterative process, not an event.
You absolutely do not need to be in a great industry to produce sustained great results. No matter how bad the industry, every good-to-great company figured out how to produce truly superior economic returns.
Most companies build their bureaucratic rules to manage the small percentage of wrong people on the bus, which in turn drives away the right people on the bus, which then increases the percentage of wrong people on the bus, which increases the need for more bureaucracy to compensate for incompetence and lack of discipline, which then further drives the right people away, and so forth.
Avoid bureaucracy and hierarchy and instead create a culture of discipline.
Build a culture full of people who take disciplined action within the three circles, fanatically consistent with the Hedgehog Concept.
The good-to-great companies built a consistent system with clear constraints, but they also gave people freedom and responsibility within the framework of that system. They hired self-disciplined people who didn’t need to be managed, and then managed the system, not the people.
The more an organization has the discipline to stay within its three circles, the more it will have attractive opportunities for growth. Indeed, a great company is much more likely to die of indigestion from too much opportunity than starvation from too little. The challenge becomes not opportunity creation, but opportunity selection.
Make as much use of “stop doing” lists as “to do” lists. You need remarkable discipline to unplug all sorts of extraneous junk.
In a good-to-great transformation, budgeting is a discipline to decide which arenas should be fully funded and which should not be funded at all. In other words, the budget process is not about figuring out how much each activity gets, but about determining which activities best support the Hedgehog Concept and should be fully strengthened and which should be eliminated entirely.
Do not confuse a culture of discipline with a tyrant who disciplines — they are very different concepts, one highly functional, the other highly dysfunctional. Savior CEOs who personally discipline through sheer force of personality usually fail to produce sustained results.
The pioneering application of technology usually comes late in the transition and never at the start.
When used right, technology becomes an accelerator of momentum, not a creator of it. The good-to-great companies never began their transitions with pioneering technology, for the simple reason that you cannot make good use of technology until you know which technologies are relevant.
Does the technology fit directly with your Hedgehog Concept? If yes, then you need to become a pioneer in the application of that technology. If no, then ask, do you need this technology at all?
Technology cannot turn a good enterprise into a great one, nor by itself prevent disaster.
We’ve allowed the way transitions look from the outside to drive our perception of what they must feel like to those going through them on the inside. From the outside, they look like dramatic, almost revolutionary breakthroughs. But from the inside, they feel completely different, more like an organic development process.
The good-to-great companies had no name for their transformations. There was no launch event, no tag line, no programmatic feel whatsoever. There was no miracle moment.
The Flywheel Effect: Point to tangible accomplishments — however incremental at first — and show how these steps fit into the context of an overall concept that will work. When you do this in such a way that people see and feel the buildup of momentum, they will line up with enthusiasm.
Big acquisitions generally took place after development of the Hedgehog Concept and after the flywheel had built significant momentum. They used acquisitions as an accelerator of flywheel momentum, not a creator of it.
Enduring great companies don’t exist merely to deliver returns to shareholders.
Built to Last—core values are essential for enduring greatness, but it doesn’t seem to matter what those core values are.
Enduring great companies preserve their core values and purpose while their business strategies and operating practices endlessly adapt to a changing world. This is the magical combination of “preserve the core and stimulate progress.”
Build an organization that can endure and adapt through multiple generations of leaders and multiple product life cycles; the exact opposite of being built around a single great leader or a single great idea.
Embrace both extremes on a number of dimensions at the same time. Instead of choosing A OR B, figure out how to have A AND B—purpose AND profit, continuity AND change, freedom AND responsibility, etc.
Instill core values (essential and enduring tenets) and core purpose (fundamental reason for being beyond just making money) as principles to guide decisions and inspire people throughout the organization over a long period of time.
Change practices and strategies while holding core values and purpose fixed. Set and achieve BHAGs (Big Hairy Audacious Goals) consistent with the core ideology.
Bad BHAGs, it turns out, are set with bravado; good BHAGs are set with understanding.
To remain great over time requires, on the one hand, staying squarely within the three circles while, on the other hand, being willing to change the specific manifestation of what’s inside the three circles at any given moment.
Indeed, the real question is not, “Why greatness?” but “What work makes you feel compelled to try to create greatness?” If you have to ask the question, “Why should we try to make it great? Isn’t success enough?” then you’re probably engaged in the wrong line of work.probably engaged in the wrong line of work.probably engaged in the wrong line of work.