Good to Great - Jim Collins

Why some companies make the leap... and others don't

Time Date 01-Jan-9999 Venue Speaker Seat Available: N/A

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Jim Collins Publisher: New York: HarperBusiness, 2001.ISBN: 0066620996

This is a synopsis only.  RESULTS.com recommends you buy the original book.

Good is the Enemy of Great

The companies in the study had to satisfy the following criteria:

• 15-year cumulative stock returns at or below the general stock market

• Punctuated by a transition point

• Then cumulative returns at least 3 times the market over the next 15 years

• This weeded out the ‘one-hit-wonders’ and the average tenure of CEOs, removing the possibility that the company would crumble without the same leader.

• 6,000 articles, 2,000 pages of interview transcripts and about 10 people years of effort.

Research Findings:

• Majority of good-to-great company leaders came from the inside.

• They were not outsiders hired in to ‘save’ the company.

• Good to great companies focus on “what not to do” and what they should “stop doing”.

• Technology has nothing to do with the transformation from good to great. 

• Mergers and acquisitions do not cause a transformation from good to great.

• Good to great companies paid little attention to managing change or motivating people.

• Good to great transformations did not need any new name, tagline, or launch program.

• The leap was in the performance results, not a revolutionary process.

Three Stages of Breakthrough

1.    Disciplined People

• Level 5 Leadership

• First Who, Then What

2. Disciplined Thought

• Confront the Brutal Facts

• Hedgehog Concept

3. Disciplined Action

• Culture of Discipline

• Technology Accelerators

Level 5 Leadership

Level 1 Highly Capable Individual

• Makes productive contributions through talent, knowledge, skills, and good work habits

Level 2 Contributing Team Member

• Contribute individual capabilities to the group objective, works well in a group setting

Level 3 Competent Manager

• Organizes people and resources toward efficient and effective pursuit of objectives

Level 4 Effective Leader

• Catalyst, vigorous pursuit of vision, stimulates higher performance standards

Level 5 Executive

• Paradoxical blend of personal humility + professional will

• Humble, modest, self-effacing and understated

• Concern for the company’s success rather than one’s own personal fortune.

• Think in terms of “We” not “I”

• Do not want to be larger-than-life icons or heroes

• Ordinary people quietly working and producing extraordinary results

• Results-oriented. Do not tolerate mediocrity.

• Never allow nepotism or seniority.

• Will fire non-performing family members and friends.

• Are insiders. Worked many years inside the company or are from the family owners

• They are not saviors hired in from the outside.

• They are not show horses – rather they are plow horses

• Choose good successors because of their concern for the future of the company

• They want to see it endure for generations.

The Window and The Mirror

Level 5 Leaders:

• Give credit to outside factors when things go well, (looking out the window)

• Take full responsibility when things go poorly, (looking at the mirror).

Poor leaders of mediocre companies:

• Blame outside factors when things go poorly

• Take credit the company’s successes themselves

• Gargantuan personal egos that contributed to the demise or continued mediocrity of the company.

• Larger-than-life celebrity leaders who ride in from the outside are negatively correlated with going from good to great.

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.

First Who, Then What

Disciplined People:

First get the right people on the bus – and the wrong people off the bus

Then figure out what direction to drive the company

The right people will do the right things – regardless of the incentive system

• Good-to-great companies build deeply committed, strong management teams.

• Good-to-great management teams consist of people who debate vigorously in search of the best answers, yet who unify behind decisions, regardless of parochial interests.

• Mediocre companies = “genius with a thousand helpers” model - which fails when genius departs.

• No link between executive compensation – and the process of going from good to great.

• It is not how you compensate; it’s which executives you compensate in the first place.

• The right executives will do everything in their power to build a great company, not because of what they will get in terms of incentives and compensation, but because they simply cannot imagine settling for anything less. Their moral code is “Excellence for its own sake”.

• People aren’t your most important asset, the right people are.

• Place greater weight on character – rather than education, skills, or experience

• You can teach skills - but character, intelligence, work ethic, and dedication are ingrained

• People who did not fit the mold eventually quit or were told to find opportunities elsewhere.

Hiring Disciplines

• When in doubt, don’t hire. Keep looking.

• A company should limit its growth based on its ability to attract enough of the right people.

• When you know you need to make a people change, act.

• First, make sure you simply don’t have someone in the wrong seat.

• Move people to different seats to see where they might blossom

• Put your best people on your biggest opportunities, not your biggest problems.

• If you sell off your problems, don’t sell off your best people.

• Letting the wrong people hang around is unfair to all the right people

• Ask yourself, would you hire that person again?

• If they came to you saying she was leaving to pursue a new and exciting opportunity, would you be greatly disappointed or secretly relieved?

Confront the Brutal Facts (Yet Never Lose Faith)

Disciplined Thought

• Disciplined thought = confront the facts.

• When the effort to determine the facts is made, decisions become self-evident.

• People filter the brutal facts from a charismatic leader.

• They worry about how the leader will react rather than speaking up for the good of the company.

• Create a climate where the truth is heard

• Lead with questions, not answers. In order to gain an understanding of the facts,

• Use questions to gain information, not as a way to manipulate or put down others.

• Hold non-agenda forums or informal meetings to let current realities bubble to the surface.

• Engage in dialogue and debate, not coercion.

• Conduct autopsies, without blame.

• Build ‘red flag’ mechanisms = anything that will warn you before you lose your customers.

• The key lies not in better information, but in designing information that simply cannot be ignored

• Catalytic mechanisms (e.g. Granite Rock – “You pay us what you think the invoice is worth”).

The Stockdale Paradox

• Named after Admiral Jim Stockdale, the highest-ranking US officer to be taken prisoner in Vietnam

• Face the harshness of your current reality, but never lose faith you will prevail in the end.

• What separates great people or companies from the mediocre is not the absence of difficulties

• It is how they deal with the inevitable difficulties of life.

• If you have the right people, they will be self-motivated.

• The key is not to de-motivate them by ignoring the brutal facts of reality.

The Hedgehog Concept (Simplicity Within the Three Circles)

The 3 Circles

1. What can you be the best in the world at?

2. What drives your economic engine?

3. What are you deeply passionate about?

To achieve greatness, the three circles need to intersect (= BHAG)

• Focus on one simple, unifying concept, everything else is irrelevant.

• The fox, despite his cunning, fails to make prey out of the hedgehog.

• When the fox comes along, the hedgehog simply rolls up into a spiked ball.

• Foxes pursue many ends at the same time, and see the world in all its complexity

• Foxes are scattered - rather than focused on one simple organizing idea or principle.

• Hedgehogs simplify a complex world into a single basic organizing principle

• Everything else outside this basic concept is irrelevant and not worth wasting energy on.

• The key is to simplify - hedgehogs see what is essential, and ignore the rest.

• Good-to-great companies are hedgehogs - mediocre companies behave like foxes

• Stick with what you understand, and let your abilities, not ego determine what to attempt.

• Just because something is your core business doesn’t mean you can be the best in the world at it.

• If you cannot be the best in the world, then your core business cannot be your hedgehog.

Mediocre companies never asked the right questions

• Their strategies were based on bravado - not deep understanding.

• A hedgehog concept is a process, not an event.

• It took good-to great companies many years to clarify their hedgehog concepts.

Leadership Council: 

• Formed to gain understanding about important issues facing the organization.

• Each member has the ability to argue and debate in search of understanding

• Not from the egotistic need to win a point or protect a parochial interest.

• Each member retains respect for every other member without exception.

• 5- 12 people. Members come from a wide range of perspectives

• Not limited to members of the management team, nor is every executive automatically a member.

• The council is a standing body, not an ad hoc committee assembled for a specific project

• Does not seek consensus. Consensus decisions are often at odds with intelligent decisions.

• The responsibility for the final decision rests with the leading executive.

• Informal body - not listed on any formal organization chart or document.

A Culture of Discipline

Disciplined Action

• Requires people who adhere to a consistent system, yet the freedom to act within that framework

• Avoid bureaucracy and hierarchy.

• Create a culture of discipline with an ethic of entrepreneurship.

• Hire self-disciplined people willing to go to extreme lengths to fulfill their responsibilities.

• Create a “Stop Doing” list as well as a “To-do” list.

• Unplug any extraneous activities. Have clear constraints.

• Hire people who don’t need to be managed, so you manage the system, not the people.

• Disciplined People 􀃆 Disciplined Thought 􀃆 Disciplined Action

Technology Accelerators

• If you think technology alone holds the key to success, then think of the Vietnam war. The Americans lost to the Vietnamese despite superior technology.

• Good-to-great companies react to new technology with calm, quiet, and deliberate steps in the right direction, sticking closely to their hedgehog concepts.

• Mediocre companies react in a frantic, fearful, Chicken Little manner.

• Great companies respond to technology with creative thinking as to how to create greater results, mediocre companies react to technology with fear of being left behind.

• Great organizations avoid technology fads and bandwagons, yet they become pioneers in the application of carefully selected technologies.

• Does the technology fit in with your Hedgehog concept? If yes, you need to pioneer in the application of that technology. If no, then you can ignore it entirely.

• Good-to-great companies use technology as an accelerator of momentum, not a creator of it.

• Use technology to accelerate momentum (of your hedgehog concept), not create momentum where there was none. Crawl – walk – run!

The Flywheel and the Doom Loop

The Flywheel:

• Like pushing a massive flywheel to acceleration is how good-to-great companies progress

• There was no defining action, innovation, launch event, clever tagline or miracle moment.

• The breakthrough came from an accumulation of consistent effort over time.

• An overnight success is usually the result of a decade of hard work

• People will naturally keep pushing the wheel in 1 direction when they see the tangible results

The Doom Loop:

• A new direction, new leader, new acquisition comes in

• Flywheel comes to a screeching, grinding halt.

• The company then changes direction, pushing it the other way.

• The results are disappointing, which leads to reaction without understanding what went wrong

• Then a new fad, leader or event appears to try save the company

• They push the wheel another way, and so forth.

• Mergers & Acquisitions – 2 mediocre companies joined together does not make 1 great company

• You cannot buy your way to greatness

From Good-to-Great to Built to Last

• Good-to-Great is not a sequel to Built to Last. It is actually a prequel.

• Discover your core values and purpose beyond just making money

• Combine this purpose with the dynamic of: preserving the core + stimulate progress,

• What is the difference between a good BHAG (big hairy audacious goal) and a bad BHAG?

• Great companies don’t exist merely to deliver returns to shareholders – they want to be GREAT!

• To aspire to greatness is to have the satisfaction that your time on earth was well spent

• If you have to ask “why should we make it great?” you are in the wrong line of work

• Clock building not time telling – great leaders build a company that can tick along without them, rather than being needed to tell the time.

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