Good to Great
The book Good to Great is a book where Jim Collins and a research team, after 5 years of research, try to answer the question; Can a good company become a great company, and if so, how?
In doing so Collins and his team identified a group of “good-to-great companies” (initially at least 15 years of cumulative stock returns at or below the general stock market then cumulative returns at least three times the market over the next 15 years) as well as two group of comparison companies, one group with “direct comparisons” that were in the same industry as the good-to-great companies with the same opportunities, and a second group of “unsustained comparisons” that made a short lived shift from good to great but failed to maintain the trajectory.
Based on the research 7 areas are identified that distinguish the good-to-great companies from the comparison companies. In the book Collins uses a vast number of examples from the study to illustrate these areas which is well worth reading. Collins and his team call these areas; Level 5 leaders, First Who…Then What, Confront the Brutal Facts (Yet Never Lose Faith), The Hedgehog Concept, A Culture of Discipline, Technology Accelerators, and the Flywheel. A summary of each concept is presented below:
Level 5 leaders
Collins analyses show a common characteristic among the leaders. They share a high level of humility together with an unwavering will.
Level 5 leaders channel their ego needs away from themselves and into the larger goal of building a great company. It’s not that Level 5 leaders have no ego or self-interest. Indeed, they are incredibly ambitious – but their ambition is first and foremost for the institution, not themselves.
Level 5 leaders cuts against the grain of conventional wisdom, especially the belief that we need larger-than-life saviors with big personalities to transform companies. Key traits of level 5 leaders are 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 most people won’t even know that the roots of that success trace back to their efforts.
Level 5 leaders don’t aspire to be put on a pedestal or become unreachable icons. They never aspired to be put on a pedestal or become unreachable icons. They were seemingly ordinary people quietly producing extraordinary results crediting the success to other people, external factors and good luck*. The level 5 leaders didn’t talk about themselves, in Collins interviews they used words as: “I don’t think I can take much credit we were blessed with marvelous people”, “I hope I’m not sounding like a big shot”, and “if the board hadn’t picked such great successors, you probably wouldn’t be talking to me today”. Their colleagues also used word as quite, humble, reserved, shy, gracious, mild-mannered to describe the level 5 leaders.
Very successful CEO’s that with consecutive earnings during the time as managers but since declined are not level 5 leaders but can be very good level 4 leaders. Collins found this pattern particularly strong in the unsustainable comparison – cases where the company would show a leap in performance under a talented yet egocentric leader, only to decline in later years.
Level 5 Leadership is not only 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. The level 5 leaders are fanatically driven, infested with an incurable need to produce results.
In doing so Collins and his team identified a group of “good-to-great companies” (initially at least 15 years of cumulative stock returns at or below the general stock market then cumulative returns at least three times the market over the next 15 years) as well as two group of comparison companies, one group with “direct comparisons” that were in the same industry as the good-to-great companies with the same opportunities, and a second group of “unsustained comparisons” that made a short lived shift from good to great but failed to maintain the trajectory.
Based on the research 7 areas are identified that distinguish the good-to-great companies from the comparison companies. In the book Collins uses a vast number of examples from the study to illustrate these areas which is well worth reading. Collins and his team call these areas; Level 5 leaders, First Who…Then What, Confront the Brutal Facts (Yet Never Lose Faith), The Hedgehog Concept, A Culture of Discipline, Technology Accelerators, and the Flywheel. A summary of each concept is presented below:
Level 5 leaders
Collins analyses show a common characteristic among the leaders. They share a high level of humility together with an unwavering will.
Level 5 leaders channel their ego needs away from themselves and into the larger goal of building a great company. It’s not that Level 5 leaders have no ego or self-interest. Indeed, they are incredibly ambitious – but their ambition is first and foremost for the institution, not themselves.
Level 5 leaders cuts against the grain of conventional wisdom, especially the belief that we need larger-than-life saviors with big personalities to transform companies. Key traits of level 5 leaders are 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 most people won’t even know that the roots of that success trace back to their efforts.
Level 5 leaders don’t aspire to be put on a pedestal or become unreachable icons. They never aspired to be put on a pedestal or become unreachable icons. They were seemingly ordinary people quietly producing extraordinary results crediting the success to other people, external factors and good luck*. The level 5 leaders didn’t talk about themselves, in Collins interviews they used words as: “I don’t think I can take much credit we were blessed with marvelous people”, “I hope I’m not sounding like a big shot”, and “if the board hadn’t picked such great successors, you probably wouldn’t be talking to me today”. Their colleagues also used word as quite, humble, reserved, shy, gracious, mild-mannered to describe the level 5 leaders.
Very successful CEO’s that with consecutive earnings during the time as managers but since declined are not level 5 leaders but can be very good level 4 leaders. Collins found this pattern particularly strong in the unsustainable comparison – cases where the company would show a leap in performance under a talented yet egocentric leader, only to decline in later years.
Level 5 Leadership is not only 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. The level 5 leaders are fanatically driven, infested with an incurable need to produce results.
Collins hypothesis is that 2 kinds of people: those who do not have the seed of level 5 and those who do. The first category is consist of people who could never in a million years bring themselves to subjugate their egoistic needs to the greater ambition of building something larger and more lasting then themselves. For these people, work will always be first and foremost about what they get – fame, fortune, adulation, power, whatever – not what they build, create, and contribute - The second category of people consist of those who have the potential to evolve to Level 5 and under the right circumstances they blossom.
The great irony is that the animus and personal ambition that often drive people to positions of power stand at odds with the humility required for Level 5 leadership. When you combine that irony with the fact that boards of directors frequently operate under the false belief that they need to hire a larger-than-life, egocentric leader to make an organization great, you can quickly see why Level 5 leaders rarely appear at the top of our institutions. The evidence does not support the idea that you need an outside leader to come in and shake up the place to go from good to great. 10/11 CEOs came from inside the company, comparison companies turned to outsiders with six times greater frequency.
First who, then what
It is all about the people! The executives who ignite the transition from good to great did not first figure out a new direction, a new strategy, a new vision of the company and then got the people to take it there. No, they first got the right people and then figured out where to go. The saying that the people are your most important asset does not hold true in a good-to-great transformation. People are not your most important asset, the right people are.
The good-to-great leaders understood three simple truths. First, if you begin with “who”, rather than “what”, you can more easily adapt to a changing world. Secondly, if you have the right people, the problem of how to motivate and manage people largely goes away. Thirdly, if you have the wrong people, it doesn’t matter wheatear you discover the right direction; you still won’t have a great company. Great vision without great people is irrelevant.
No company can grow revenues consistently faster than its ability to get enough of the right people to implement that growth and still become a great company. Those who build the great companies understand that the ultimate throttle on growth for any great company is not markets, or technology, or compensation, or products. It is one thing above all other: the ability to get and keep enough of the right people.
Who are the right people? The good to great companies placed greater weight on character attributes than on specific educational background, practical skills, specialized knowledge, or work experience. They viewed specific knowledge or skills as more teachable, whereas they believed dimensions like character, work ethic, basic intelligence, dedication to fulfilling commitments, and values are more ingrained.
One of the crucial elements about the right people when taking a company from good to great is somewhat paradoxical. You need executives, on the one hand, who argues and debates – sometimes violently – in pursuit of the best answer, yet, on the other hand, who unify fully behind a decision, regardless of interests.
Collins extracted 3 disciplines from the research:
1. When in doubt, don’t hire – keep looking
2. When you know you need to make a people change, act.
3. Put your best people on your biggest opportunities, not your biggest problems.
Confront the brutal facts (yet never lose faith)
One of the dominant themes from Collins research is that breakthrough results come about by a series of good decisions, diligently executed and accumulated one on top of another. Of course, the good-to-great companies did not have a perfect track record. But on the whole, they made many more good decisions than the comparison companies. This of course, begs a question. Is the study only about a set of companies that happened by luck* to stumble into the right set of decisions? Or was there something distinctive about their process that dramatically increased the likelihood of being right? It turns out, that the good-to-great companies displayed two distinctive forms of disciplined though. The first, and the topic of this section, is that they infused the entire process with the brutal facts of reality. (The second, which is described in the next section, is that they developed a simple framework of reference for all decisions.)**
Yes leadership is about vision and execution but one thing is certain, you cannot make a series of good decisions without first confronting the brutal facts. This means that leadership is equally about creating a climate where the truth is heard and the brutal facts confronted. There’s a huge difference between the opportunity to “have your say” and the opportunity to be heard. The good-to-great leaders understood this distinction, creating a culture wherein people had a tremendous opportunity to be heard, ultimately, for the truth to be heard.
The management teams of the good-to-great companies had a powerful psychological duality. On the one hand, they accepted the brutal facts of reality. On the other hand, they maintained an unwavering faith in the end game, and commitment to prevail as a great company despite the brutal facts. Collins and his research team came to call this duality the Stockdale paradigm and there is a very interesting story about Stockdale in the book.
Stockdale paradigm: Retain faith that you will prevail in the end, regardless of the difficulties and at the same time confront the most brutal facts of your current reality, whatever they might be.
The Stockdale paradigm is about how life is not fair – sometimes to our advantage, sometimes to our disadvantage. We will all experience disappointment and crushing events somewhere along the way, setbacks for which there is no “reason”, no one to blame. It might be a disease, it might be injury, it might be an accident, it might be losing a loved one, it might be getting swept away in a political shake-up. The stockdale paradigm is about how you deal with the inevitable difficulties of life. In wrestling with life’s challenges, 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) has proved powerful for coming back from difficulties not weakened, but stronger.
Collins found no evidence that the good-to-great companies had more or better information than the comparison companies. Both sets of companies had virtually identical access to good information. The key, then, lies in better information, but in turning information into information that cannot be ignored. How do you create a climate where the truth is heard? Collins identifies four best practices:
1. Lead with questions, not answers.
2. Engage in dialogue and debate, not coercion
3. Conduct autopsies, without blame
4. Build “red flag” mechanisms
The moment a leader allows himself/herself 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 key reason why less charismatic leaders often produce better long-term results than their more charismatic counterparts.
The hedgehog concept
Collins hedgehog concept is based on the story about “The hedgehog and the fox” by Isaiah Berlin. The story says that foxes pursue many ends at the same time and see the world in all its complexity. They are “scattered of diffused, moving on many levels”, never integrating their thinking into one overall concept or unified vision. Hedgehogs, on the other hand, simplify a complex world into a single organizing idea, a basic principle or concept that unifies and guides everything. For hedgehogs, anything that does not somehow relate to the hedgehog idea holds no relevance. Hedgehogs are not stupid, quite the contrary, they have piercing insight that allows them to see through complexity and discern underlying patterns. Hedgehogs see what is essential and ignores the rest.
Those who built the good-to-great companies were, to one degree, or another, hedgehogs. They used their hedgehog nature to drive towards what Collins and his team calls a hedgehog concept. Those who lead the comparison companies tended to be foxes, never gaining the clarifying advantage of a hedgehog concept, being instead scattered, diffused and inconsistent.
The essential strategic difference between the good-to-great and the comparison companies lay in two fundamental distinctions. First, the good-to-great companies founded their strategy on deep understanding along three key dimensions – which Collins calls the three circles. Second, the good-to-great companies translated that understanding into simple clear concept that guided all their efforts – hence the term hedgehog concept.
The great irony is that the animus and personal ambition that often drive people to positions of power stand at odds with the humility required for Level 5 leadership. When you combine that irony with the fact that boards of directors frequently operate under the false belief that they need to hire a larger-than-life, egocentric leader to make an organization great, you can quickly see why Level 5 leaders rarely appear at the top of our institutions. The evidence does not support the idea that you need an outside leader to come in and shake up the place to go from good to great. 10/11 CEOs came from inside the company, comparison companies turned to outsiders with six times greater frequency.
First who, then what
It is all about the people! The executives who ignite the transition from good to great did not first figure out a new direction, a new strategy, a new vision of the company and then got the people to take it there. No, they first got the right people and then figured out where to go. The saying that the people are your most important asset does not hold true in a good-to-great transformation. People are not your most important asset, the right people are.
The good-to-great leaders understood three simple truths. First, if you begin with “who”, rather than “what”, you can more easily adapt to a changing world. Secondly, if you have the right people, the problem of how to motivate and manage people largely goes away. Thirdly, if you have the wrong people, it doesn’t matter wheatear you discover the right direction; you still won’t have a great company. Great vision without great people is irrelevant.
No company can grow revenues consistently faster than its ability to get enough of the right people to implement that growth and still become a great company. Those who build the great companies understand that the ultimate throttle on growth for any great company is not markets, or technology, or compensation, or products. It is one thing above all other: the ability to get and keep enough of the right people.
Who are the right people? The good to great companies placed greater weight on character attributes than on specific educational background, practical skills, specialized knowledge, or work experience. They viewed specific knowledge or skills as more teachable, whereas they believed dimensions like character, work ethic, basic intelligence, dedication to fulfilling commitments, and values are more ingrained.
One of the crucial elements about the right people when taking a company from good to great is somewhat paradoxical. You need executives, on the one hand, who argues and debates – sometimes violently – in pursuit of the best answer, yet, on the other hand, who unify fully behind a decision, regardless of interests.
Collins extracted 3 disciplines from the research:
1. When in doubt, don’t hire – keep looking
2. When you know you need to make a people change, act.
3. Put your best people on your biggest opportunities, not your biggest problems.
Confront the brutal facts (yet never lose faith)
One of the dominant themes from Collins research is that breakthrough results come about by a series of good decisions, diligently executed and accumulated one on top of another. Of course, the good-to-great companies did not have a perfect track record. But on the whole, they made many more good decisions than the comparison companies. This of course, begs a question. Is the study only about a set of companies that happened by luck* to stumble into the right set of decisions? Or was there something distinctive about their process that dramatically increased the likelihood of being right? It turns out, that the good-to-great companies displayed two distinctive forms of disciplined though. The first, and the topic of this section, is that they infused the entire process with the brutal facts of reality. (The second, which is described in the next section, is that they developed a simple framework of reference for all decisions.)**
Yes leadership is about vision and execution but one thing is certain, you cannot make a series of good decisions without first confronting the brutal facts. This means that leadership is equally about creating a climate where the truth is heard and the brutal facts confronted. There’s a huge difference between the opportunity to “have your say” and the opportunity to be heard. The good-to-great leaders understood this distinction, creating a culture wherein people had a tremendous opportunity to be heard, ultimately, for the truth to be heard.
The management teams of the good-to-great companies had a powerful psychological duality. On the one hand, they accepted the brutal facts of reality. On the other hand, they maintained an unwavering faith in the end game, and commitment to prevail as a great company despite the brutal facts. Collins and his research team came to call this duality the Stockdale paradigm and there is a very interesting story about Stockdale in the book.
Stockdale paradigm: Retain faith that you will prevail in the end, regardless of the difficulties and at the same time confront the most brutal facts of your current reality, whatever they might be.
The Stockdale paradigm is about how life is not fair – sometimes to our advantage, sometimes to our disadvantage. We will all experience disappointment and crushing events somewhere along the way, setbacks for which there is no “reason”, no one to blame. It might be a disease, it might be injury, it might be an accident, it might be losing a loved one, it might be getting swept away in a political shake-up. The stockdale paradigm is about how you deal with the inevitable difficulties of life. In wrestling with life’s challenges, 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) has proved powerful for coming back from difficulties not weakened, but stronger.
Collins found no evidence that the good-to-great companies had more or better information than the comparison companies. Both sets of companies had virtually identical access to good information. The key, then, lies in better information, but in turning information into information that cannot be ignored. How do you create a climate where the truth is heard? Collins identifies four best practices:
1. Lead with questions, not answers.
2. Engage in dialogue and debate, not coercion
3. Conduct autopsies, without blame
4. Build “red flag” mechanisms
The moment a leader allows himself/herself 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 key reason why less charismatic leaders often produce better long-term results than their more charismatic counterparts.
The hedgehog concept
Collins hedgehog concept is based on the story about “The hedgehog and the fox” by Isaiah Berlin. The story says that foxes pursue many ends at the same time and see the world in all its complexity. They are “scattered of diffused, moving on many levels”, never integrating their thinking into one overall concept or unified vision. Hedgehogs, on the other hand, simplify a complex world into a single organizing idea, a basic principle or concept that unifies and guides everything. For hedgehogs, anything that does not somehow relate to the hedgehog idea holds no relevance. Hedgehogs are not stupid, quite the contrary, they have piercing insight that allows them to see through complexity and discern underlying patterns. Hedgehogs see what is essential and ignores the rest.
Those who built the good-to-great companies were, to one degree, or another, hedgehogs. They used their hedgehog nature to drive towards what Collins and his team calls a hedgehog concept. Those who lead the comparison companies tended to be foxes, never gaining the clarifying advantage of a hedgehog concept, being instead scattered, diffused and inconsistent.
The essential strategic difference between the good-to-great and the comparison companies lay in two fundamental distinctions. First, the good-to-great companies founded their strategy on deep understanding along three key dimensions – which Collins calls the three circles. Second, the good-to-great companies translated that understanding into simple clear concept that guided all their efforts – hence the term hedgehog concept.
What you can be the best in the world at (and equally important, what you cannot be the best in the world at). This goes far beyond core competencies. The 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. Examples from a good-to-great company: “Could be the best in the world at harnessing culture and technology to produce low-cost steel”.
What drives your economic engine? Good-to-great companies discovered the single denominator – profit per x – that lead to the greatest impact on their economics. Example from a good-to-great company: “Economic denominator of profit per ton of finished steel”
What you are deeply passionate about? Good-to-great companies focused on their activities that ignited their passion (what makes you passionate). Passion can also come from what the company stands for. Example from a good-to-great company: Passion for eliminating class distinctions and creating an egalitarian meritocracy that aligns management, labor, and financial interests
It took on average 4 years for the good-to-great companies to clarify their hedgehog concepts through iterative processes. The essence of the process is to get the right people engaged in vigorous dialogue and debate, infused with the brutal facts and guided by questions formed by the three circles.
Culture of Discipline
Avoid bureaucracy and hierarchy and instead create a culture of discipline. As a company grows it normally also implements more procedures, checklists etc. What was once a egalitarian environment gets replaced with a hierarchy. Chain of command appears for the first time. Reporting relationships become clear, and an executive class with special perks begins to appear. “We” and “they” segmentation appears etc. The professional managers finally rein in the mess. They create order out of chaos, but they also kill entrepreneurial spirit.
The purpose of bureaucracy is to compensate for incompetence and lack of discipline – a problem that largely goes away if you have the right people in the first place. Most companies build their bureaucratic rules to mange the small percentage of wrong people, which in turn drives away the right people, which then increases the percentage of wrong people, 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.
The alternative is to join these two complementary forces together – a culture of discipline (full of people who take disciplined actions within the three circles, fanatically consistent with the hedgehog concept) with an ethic of entrepreneurship – you get a magical alchemy of superior performance and sustained results.
What drives your economic engine? Good-to-great companies discovered the single denominator – profit per x – that lead to the greatest impact on their economics. Example from a good-to-great company: “Economic denominator of profit per ton of finished steel”
What you are deeply passionate about? Good-to-great companies focused on their activities that ignited their passion (what makes you passionate). Passion can also come from what the company stands for. Example from a good-to-great company: Passion for eliminating class distinctions and creating an egalitarian meritocracy that aligns management, labor, and financial interests
It took on average 4 years for the good-to-great companies to clarify their hedgehog concepts through iterative processes. The essence of the process is to get the right people engaged in vigorous dialogue and debate, infused with the brutal facts and guided by questions formed by the three circles.
Culture of Discipline
Avoid bureaucracy and hierarchy and instead create a culture of discipline. As a company grows it normally also implements more procedures, checklists etc. What was once a egalitarian environment gets replaced with a hierarchy. Chain of command appears for the first time. Reporting relationships become clear, and an executive class with special perks begins to appear. “We” and “they” segmentation appears etc. The professional managers finally rein in the mess. They create order out of chaos, but they also kill entrepreneurial spirit.
The purpose of bureaucracy is to compensate for incompetence and lack of discipline – a problem that largely goes away if you have the right people in the first place. Most companies build their bureaucratic rules to mange the small percentage of wrong people, which in turn drives away the right people, which then increases the percentage of wrong people, 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.
The alternative is to join these two complementary forces together – a culture of discipline (full of people who take disciplined actions within the three circles, fanatically consistent with the hedgehog concept) with an ethic of entrepreneurship – you get a magical alchemy of superior performance and sustained results.
Build a culture around the idea of:
Freedom and responsibility within a framework. 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.
Rinse your cottage cheese (do what ever it takes). Much of the answer to the question of “good to great” lies in the discipline to do whatever it takes to become the best within carefully selected arena and then to seek continual improvements from there. Collins uses an example of an athlete that rinses the cottage cheese as one of many steps to be the best at his sport, hence the name.
A culture, not a tyrant. Whereas the good to great companies had level 5 leaders who built an enduring culture of discipline, the unsustained comparisons had Level 4 leaders who personally disciplined the organization through sheer force. In every unsustained comparison company a spectacular rise under a tyrannical disciplinarian, followed by an equally spectacular decline when the discipline stepped away, leaving behind no enduring culture of discipline.
Fanatical adherence to the hedgehog concept. Equally important, create a “stop doing list” and systematically unplug anything extraneous. 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”. In contrast, we found a lack of discipline to stay within the three circles as a key factor in the demise of nearly all the comparison companies. Every comparison either lacked the discipline to understand its three circles, or lacked the discipline to stay within the three circles.
In a sense, much of the book is about creating a culture of discipline. It all starts with disciplined people. The transition begins not by trying to discipline the wrong people into the right behaviors, but by getting self disciplined people in the first place. Next there is disciplined thought. You need the discipline to confront the brutal facts of reality, while retaining resolute faith that you can and will create a path to greatness. Most importantly, you need the discipline to persist in the search for understanding until you get your hedgehog concept. Finally, there is disciplined action, the primary subject of this section. This order is important. The comparison companies often tried to jump right to disciplined action. But disciplined action without self-disciplined people is impossible to sustain, and discipline action without disciplined thought is a recipe for disaster.
Technology Accelerators
Every one of the good-to-great companies became extreme pioneers in the application of technology long before the rest of the world became technology obsessed.
The central part of this section is that 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. And which are those? Those – and only those – that link directly to the three intersecting circles of the hedgehog concept. The pioneering application of technology is just another way in which the good-to-great companies remained disciplined within the frame of their Hedgehog Concept.
To make technology productive in a transformation from good to great means asking the following questions: 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? If yes, then all you need is parity. If no, then the technology is irrelevant, and you can ignore it.
The evidence from Collins study does not support the idea that technological change plays the principle role in the decline of once-great companies (or the perpetual mediocrity of others). Certainly, technology is important – you can’t remain a laggard and hope to be great. But technology by itself is never a primary cause of either greatness or decline.
The Flywheel
Collins uses a flywheel to illustrate how momentum was built up in the good-to-great organizations. The flywheel image captures the overall feel of what it was like inside the companies as they went from good to great. No matter how dramatic the end result, the good-to-great transformation never happened in a magical moment. There was no single defining action, no grand program, no one killer innovation, no solitary lucky break, no wrenching revolution. Good to great comes about by a cumulative process – step by step, action by action, decision by decision, turn by turn of the flywheel – that adds up to sustained and spectacular results.
We’ve allowed the way transitions look from the outside to drive our perception of what they 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. It was a quiet, deliberate process of figuring out what needed to be done to create the best future results and then simply taking those steps, one after the other, turn by turn of the flywheel. After pushing on that flywheel in a consistent direction over an extended period of time, they’d inevitably hit a point of breakthrough.
Other findings in Collins research:
*Luck: Many of the level 5 leaders also credit luck and the comparison company leaders lamed bad luck, even though they were in the same industry with similar conditions and possibilities. In the good to great book Collins explains this as “the window and the mirror”. 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. The comparison leader did just the opposite. They look out the window for something or someone outside themselves to blame for poor results, but would preen in front of the mirror and credit themselves when things went well.
Luck also gets another more detailed explanation in another of Collins books Great by Choice. In this book Collins examines how some companies succeed to utilize disruptive changes to their advantage and others not. In this book luck is explained by proactively being prepared for whatever challenges that may come. Luck will be in the favor of the one that is well prepared and planned for all possible scenarios.
**In Collins book Great by choice the is also the identified pattern from successful companies that they shoot a lot of test bullets to make sure they hit before betting everything on a big cannon ball. In this way the companies can test what works and optimize and fine-tune it before they make a significant investment, thereby improving the odds of success.
Freedom and responsibility within a framework. 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.
Rinse your cottage cheese (do what ever it takes). Much of the answer to the question of “good to great” lies in the discipline to do whatever it takes to become the best within carefully selected arena and then to seek continual improvements from there. Collins uses an example of an athlete that rinses the cottage cheese as one of many steps to be the best at his sport, hence the name.
A culture, not a tyrant. Whereas the good to great companies had level 5 leaders who built an enduring culture of discipline, the unsustained comparisons had Level 4 leaders who personally disciplined the organization through sheer force. In every unsustained comparison company a spectacular rise under a tyrannical disciplinarian, followed by an equally spectacular decline when the discipline stepped away, leaving behind no enduring culture of discipline.
Fanatical adherence to the hedgehog concept. Equally important, create a “stop doing list” and systematically unplug anything extraneous. 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”. In contrast, we found a lack of discipline to stay within the three circles as a key factor in the demise of nearly all the comparison companies. Every comparison either lacked the discipline to understand its three circles, or lacked the discipline to stay within the three circles.
In a sense, much of the book is about creating a culture of discipline. It all starts with disciplined people. The transition begins not by trying to discipline the wrong people into the right behaviors, but by getting self disciplined people in the first place. Next there is disciplined thought. You need the discipline to confront the brutal facts of reality, while retaining resolute faith that you can and will create a path to greatness. Most importantly, you need the discipline to persist in the search for understanding until you get your hedgehog concept. Finally, there is disciplined action, the primary subject of this section. This order is important. The comparison companies often tried to jump right to disciplined action. But disciplined action without self-disciplined people is impossible to sustain, and discipline action without disciplined thought is a recipe for disaster.
Technology Accelerators
Every one of the good-to-great companies became extreme pioneers in the application of technology long before the rest of the world became technology obsessed.
The central part of this section is that 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. And which are those? Those – and only those – that link directly to the three intersecting circles of the hedgehog concept. The pioneering application of technology is just another way in which the good-to-great companies remained disciplined within the frame of their Hedgehog Concept.
To make technology productive in a transformation from good to great means asking the following questions: 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? If yes, then all you need is parity. If no, then the technology is irrelevant, and you can ignore it.
The evidence from Collins study does not support the idea that technological change plays the principle role in the decline of once-great companies (or the perpetual mediocrity of others). Certainly, technology is important – you can’t remain a laggard and hope to be great. But technology by itself is never a primary cause of either greatness or decline.
The Flywheel
Collins uses a flywheel to illustrate how momentum was built up in the good-to-great organizations. The flywheel image captures the overall feel of what it was like inside the companies as they went from good to great. No matter how dramatic the end result, the good-to-great transformation never happened in a magical moment. There was no single defining action, no grand program, no one killer innovation, no solitary lucky break, no wrenching revolution. Good to great comes about by a cumulative process – step by step, action by action, decision by decision, turn by turn of the flywheel – that adds up to sustained and spectacular results.
We’ve allowed the way transitions look from the outside to drive our perception of what they 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. It was a quiet, deliberate process of figuring out what needed to be done to create the best future results and then simply taking those steps, one after the other, turn by turn of the flywheel. After pushing on that flywheel in a consistent direction over an extended period of time, they’d inevitably hit a point of breakthrough.
Other findings in Collins research:
*Luck: Many of the level 5 leaders also credit luck and the comparison company leaders lamed bad luck, even though they were in the same industry with similar conditions and possibilities. In the good to great book Collins explains this as “the window and the mirror”. 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. The comparison leader did just the opposite. They look out the window for something or someone outside themselves to blame for poor results, but would preen in front of the mirror and credit themselves when things went well.
Luck also gets another more detailed explanation in another of Collins books Great by Choice. In this book Collins examines how some companies succeed to utilize disruptive changes to their advantage and others not. In this book luck is explained by proactively being prepared for whatever challenges that may come. Luck will be in the favor of the one that is well prepared and planned for all possible scenarios.
**In Collins book Great by choice the is also the identified pattern from successful companies that they shoot a lot of test bullets to make sure they hit before betting everything on a big cannon ball. In this way the companies can test what works and optimize and fine-tune it before they make a significant investment, thereby improving the odds of success.
Source:
Jim Collins, Good to Great, 2001, London (link to latest edition)
Jim Collins, Morten T. Hansen, Great by Choice, 2011, New York (link to latest edition)
