Good is often the enemy of great in business. The vast majority of companies never become great because they’re satisfied with good results. So, Good To Great aims to address the question, “How can a good company become a great company?”
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Author Jim Collins and his team sought to identify organizations that had made the transition from good-to-great. They analyzed publicly-traded companies looking for those that matched the following pattern: fifteen-year cumulative stock returns at or below the general stock market, punctuated by a transition point, then cumulative returns at least 3x the market over the next fifteen years.
Each company had to demonstrate the good-to-great pattern independent of its industry. If the whole industry showed the same pattern, the company was dropped from consideration. In the end, eleven good-to-great companies were found.
Critically, the team also found two sets of comparison companies. The first set was “direct comparisons” in the same industry as their good-to-great counterparts (but did not show a leap). The second was “unsustained comparisons” that made a short-term shift from good-to-great but failed to maintain the trajectory.
The critical question was, “What did the good-to-great companies share in common that distinguished them from the comparison companies?”
The core concepts of this book were developed by making empirical deductions from the data. It was an iterative process of developing ideas and testing them against the data, revising the ideas, building a framework, seeing it break, and rebuilding it yet again. In the end, the following framework was born.
The model includes three stages: disciplined people, disciplined thought, and disciplined action. Within each stage are two key concepts. Wrapping around the entire model is “The Flywheel,” which brings everything together.
Concept 1: Level 5 Leadership
All of the good-to-great companies had Level 5 Leadership at the time of transition. This form of leadership is a unique combination of personal humility and professional will. Such leaders have incredible ambition for the company and its success rather than for their fame or fortune.
Here are the five levels of leadership as described in the book (1-5):
- Highly Capable Individual – Makes productive contributions through talent, knowledge, skills, and good work habits.
- Contributing Team Member – Contributes individual capabilities to the achievement of group objectives and works effectively with others.
- Competent Manager – Organizes people and resources toward the effective and efficient pursuit of predetermined objectives.
- Effective Leader – Catalyzes commitment to and vigorous pursuit of a clear and compelling vision, stimulating higher performance standards.
- Level 5 Executive – Builds enduring greatness through a paradoxical blend of personal humility and professional will.
Level 5 leaders channel their ego needs away from themselves and into the goal of building a great company. It’s not that they don’t have an ego or self-interest, but rather that their ambition is first and foremost for the institution, not themselves. As a result, they set up their successors for even better results in the next generation.
“You can accomplish anything in life, provided that you do not mind who gets the credit.“Harry S. Truman
Note: Larger-than-life celebrity leaders who ride in from the outside are negatively correlated with going from good to great. Ten of eleven good-to-great CEOs came from inside the company, whereas the comparison companies brought in outside leadership six times more often. Such leaders, concerned more with their reputation for personal greatness, often failed to set their companies up for success.
Level 5 leaders would humbly attribute success to factors outside of themselves. But, when things go poorly, they would blame themselves, taking full responsibility. The comparison company CEOs often did just the opposite, taking credit for successes while blaming others for disappointing results.
Concept 2: First Who… Then What
The executives who ignited good-to-great transformations started by first getting the right people on the bus (and the wrong people off the bus) and then figured out where to drive it. The reason is that when you begin with “who” rather than “what,” you can more easily adapt to an ever-changing world.
To be clear, the key takeaway here is not just hiring the right people. Instead, it’s that hiring the right people comes before determining vision, strategy, structure, or tactics. Such people should be recruited primarily for their character and work ethic rather than for education, skills, or knowledge that can be acquired on the job.
Here are three practical disciplines for making people decisions:
- When in doubt, don’t hire and keep looking.
- When you know that you need to make a change, act.
- Put your best people on your biggest opportunities, not your biggest problems.
When you have the right people, the problem of how to motivate and manage largely goes away. The right people don’t need to be tightly managed or fired up. They are self-motivated and capable of generating results. So, create an environment where hardworking people can thrive, and lazy workers jump ship or are let go.
To be clear, having great people doesn’t mean they will always agree with each other. It’s best if they fiercely debate ideas in pursuit of the best answers to organizational questions. And then, when all is said and done, unify fully behind final decisions, regardless of personal interests.
For contrast, comparison companies often took the “genius with a thousand helpers” approach. A bold leader would set the vision and then coordinate with “helpers” to turn it into reality. Unfortunately, this approach falls apart whenever the leader leaves the organization.
Concept 3: Confront The Brutal Facts
Companies cannot make great decisions without first confronting reality. When leaders manufacture their own reality instead of acknowledging the brutal facts, they create a recipe for mediocrity, or worse. On the other hand, when you start with an honest effort to determine the truth of a situation, the right decisions often become self-evident.
Here are four ways to create a climate where truth is heard:
- Lead with questions, not answers.
- Engage in dialogue and debate, not coercion.
- When mistakes happen, conduct autopsies without blame.
- Build “red flag” mechanisms to gather critical feedback.
Every good-to-great company faced significant adversity along the way to greatness. In confronting the brutal facts, they left themselves stronger and more resilient, not weaker and more discouraged. There is a sense of exhilaration that comes in facing the hard truths and saying, “we will never give up.”
It’s essential to strike a balance between confronting the most brutal facts of your current reality and retaining absolute faith that you can and will prevail. This is referred to as the Stockdale Paradox, and it’s vital for leading a company from good to great.
Concept 4: The Hedgehog Concept
The good-to-great companies were like hedgehogs: simple, dowdy creatures that had “one core strategy” and stuck to it. The comparison companies were more like foxes: crafty, cunning creatures that know many things yet lack consistency.
“The fox knows many things, but the hedgehog knows one big thing.”Ancient Greek Parable
The Hedgehog Concept is a tool for identifying your own simple, crystalline concept. It’s based on developing a deep understanding of three circles: (1) what you’re deeply passionate about, (2) what you can be the best in the world at, and (3) what drives your economic or resource engine.
Circle 1: What Are You Deeply Passionate About?
Good-to-great companies focused on the activities that ignite their passion. The idea here is not to stimulate passion but to discover what makes you passionate. You can’t manufacture passion or “motivate” people to feel passionate. You can only discover what you and your team are already passionate about.
Circle 2: What Can You be The Best At?
Every company would like to be the best at something, but few understand with total clarity what they have the potential to be best at. It’s not about coming up with a goal to be the best, a strategy to be the best, or an intention to be the best. It’s about identifying what you can truly be the best at. The distinction is critical.
Circle 3: What Drives Your Economic Engine?
Every organization must understand how to generate sustained cash flow. To gain insight into the drivers of your economic engine, search for the one denominator that has the single most significant impact. Some examples that may be relevant include:
- Profit per customer.
- Profit per employee.
- Profit per retail location.
- Profit per square foot.
- Profit per geographic region.
- Profit per product.
Identify The Overlap Between The Three Circles
All of the good to great companies understood that the essence of profound insight is simplicity. They identified their Hedgehog Concept and used it as a frame of reference for future decisions. While it sometimes took years for the concept to come together, the eventual discovery coincided with breakthrough results.
Concept 5: A Culture Of Discipline
The ability to sustain great results depends on building a culture of discipline. This involves disciplined people, disciplined thought, and disciplined action. Each plays a critical role in allowing an organization to thrive with minimal bureaucracy.
Everything starts with great people. Avoid trying to discipline the wrong people into taking the correct actions. Instead, identify self-disciplined people that are willing and able to go to extreme lengths to fulfill their responsibilities.
Organizations must also be disciplined around: confronting brutal facts, remaining resilient, and identifying a clear Hedgehog Concept. When it comes to achieving sustained results, the most essential of the three is having a fanatical adherence to the Hedgehog Concept and the willingness to shun opportunities that don’t fit.
A culture of discipline involves a duality. On the one hand, it requires that people adhere to a consistent system. On the other hand, it gives people freedom and responsibility with the framework of that system. Thus, a culture of discipline is not just about taking action but ensuring those actions contribute to a larger whole.
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. We will not launch unrelated businesses. We will not make unrelated acquisitions. We will not do unrelated joint ventures. If it doesn’t fit, we don’t do it. Period.”
The more an organization has the discipline to stay within its three circles, the more it will have attractive growth opportunities. So the key to a disciplined culture is to give great people the freedom to take action within a well-defined Hedgehog Concept.
Concept 6: Technology Accelerators
When used correctly, technology becomes an accelerator of momentum, not a creator of it. The good-to-great companies never began their path to greatness by pioneering technology just for the sake of innovation. Instead, they understood that you cannot make good use of technology until you know which technologies are relevant.
The critical question is, “Does this technology fit directly with the 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? If yes, then all you need is parity (you don’t need the world’s most advanced phone system to be a great company). If no, then the technology is irrelevant, and you can ignore it.
Good-to-great organizations avoided technology fads and bandwagons, yet they become pioneers in the application of carefully selected technologies. The thoughtless pursuit of technology is a liability, not an asset. Innovation alone cannot turn a good enterprise into a great one. Nor by itself can it prevent disaster.
The Flywheel and The Doom Loop
While good-to-great transformations often look dramatic from the outside, they feel like organic, cumulative processes to the people on the inside. It’s very comparable to the time and effort required to get a heavy flywheel spinning.
Imagine a huge flywheel mounted horizontally on an axle, 30 feet in diameter, 2 feet thick, and 5,000 pounds in weight. Any effort to get it rotating necessarily starts with tremendous effort and minimal movement. However, so long as you continue pushing in the same direction, the task becomes easier as the wheel builds momentum.
The same is true when it comes to business. As you build momentum in a clear direction, the challenges around organizational commitment, alignment, and motivation begin to melt away. They essentially take care of themselves as team members start to see visible, tangible results build up over time.
The Doom Loop
Unfortunately, the comparison companies weren’t able to build momentum. They spent years bouncing back and forth between various strategies instead of making consistent progress in one direction. As a result, they fell into what is called The Doom Loop.
Rather than accumulating momentum, the comparison companies tried to skip the buildup process to jump directly into a breakthrough. Then, with disappointing results, they’d lurch back and forth, getting stuck in a downward spiral of trying new things.
How To Build Momentum
Each piece of the Good To Great system reinforces the other parts to form an integrated whole. The initial buildup begins with Level 5 Leadership, getting the right people on the bus, and confronting the brutal facts. Eventually, the Hedgehog Concept comes into focus, and then breakthrough results can begin with a culture of discipline and effective use of technology.
Beyond The Good To Great Book Summary
This summary is just a preview of what to expect from Good To Great. It’s not a substitute for reading the book because the original text provides a much richer learning experience. If you’re serious about applying these ideas, I strongly recommend that you pick up a copy.
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