Why Some Companies Make the Leap… and Others Don’t
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Good to Great utilizes years of academic research to identify how today’s great companies transitioned from being merely good companies. Through his research, Jim Collins noticed several common features across all great companies. The key is hiring the right people, firing the wrong people, adapting when needed, and promoting effective leaders. The consequence is positive momentum that will snowball you and your team towards greatness. This method is not merely a theory, though. The Good to Great method is utilized by several great companies. For example, Jeff Bezos, the CEO of Amazon, invited Jim Collins to implement this book’s insights into Amazon.
Jim Collins’ Perspective
Jim Collins began his research and teaching career on the Stanford Graduate School of Business faculty. Here, he received the Distinguished Teaching Award in 1992. In 1995, he founded a management laboratory in Boulder, Colorado, where he conducts research and engages with CEOs and senior leadership teams. Jim holds a bachelor’s degree in mathematical sciences and an MBA from Stanford University. He also holds honorary doctoral degrees from the University of Colorado and the Peter F. Drucker Graduate School of Management at Claremont Graduate University. In 2017, Forbes selected Jim as one of the 100 Greatest Living Business Minds.
StoryShot 1 – Good Is the Enemy of Great
“Good is the enemy of great. And that is one of the key reasons why we have so little that becomes great. We don’t have great schools, principally because we have good schools. We don’t have great government, principally because we have good government. Few people attain great lives, in large part because it is just so easy to settle for a good life.”– Jim Collins
Based on a meta-analysis conducted by Collins and his research team, Collins identified specific instances of sustained success. This success far outpaced the market average and included the following companies:
- Fannie Mae
- Circuit City
- Philip Morris
- Pitney Bowes
- Wells Fargo
The most important feature these companies had in common was their obsession with being great rather than good. This obsession with greatness was supported by disciplined people, disciplined thought, and disciplined action. Each of these features prevented these companies from pursuing goodness.
The issue with pursuing goodness is it never leads to greatness. There is a misconception that being great is simply a slight improvement on being good. Collins explains that greatness and goodness are entirely different and require different approaches. In fact, due to this misconception, Collins describes good as being the enemy of great. People are willing to accept a good life as they see it as only slightly worse than a great life. Similarly, most companies are unable to become great, as they become good. Great companies are those that show great performance independent of their industry. Subsequently, if the industry were to decline, then this company would still succeed.
StoryShot 2 – Level Five Leadership
Level 1 – Highly capable individual. Level 1 individuals make contributions to the company through their talent.
Level 2 – Contributing team members have been working at the company for a while and understand what needs to be done.
Level 3 – Capable managers can organize people and resources for a predetermined pursuit of objectives.
Level 4 – Effective leaders aim to pursue a clear and compelling vision for the organization. Subsequently, they can stimulate higher performance standards.
Level 5 – Executive (focused on greatness). The emphasis on greatness is achieved through humility, fanatic drive, diligence, and willpower.
For your company to become great, you need level 5 leadership. Collins found that each of the companies identified as great had a level 5 leader. Collins found that many of the level 5 leaders within his study displayed a confusing combination of determination and humility. This combination allowed them to develop long-term investment into the company’s success. These leaders were not handed this position. Instead, they were people who had climbed their way up the company’s ranks to become a leader. Therefore, they know the company intimately. Level 5 leaders are not focused on their ego or personal financial success. Instead, they put the long-term success of their team and organization ahead of their own success. Therefore, Collins argues that bringing in celebrity CEOs is not an effective strategy for turning a good company into a great company. Instead, hire somebody who knows and cares about the company. This is what 10/11 of the identified companies did. These individuals should be willing to accept blame when something goes wrong and be quick to praise others when the team succeeds.
The Two Sides of Level Five Leadership
- An unwavering resolve to do whatever must be done to produce the best long-term results.
- It sets the standard of building an enduring great company. Will settle for nothing less than this standard.
- Never boastful.
- Relies on inspiring standards rather than charisma.
- Channels ambition into the company, not the self.
StoryShot 3 – First Who, Then What
“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.”– Jim Collins
The Three Disciplines
Collins describes this chapter as being based on three disciplines. Start your transformation process by getting the right people into your organization and the wrong people out of the organization.
- Discipline 1 – Hire slow and fire fast. When in doubt, don’t hire and keep looking.
- Discipline 2 – When you know you need to make a personnel change, then act.
- Discipline 3 – Put your best people on your biggest opportunities rather than your biggest problems
Keeping to these disciplines should allow you to hire high-quality and high-talent individuals with level 5 leadership abilities. You must establish this team before you develop an overarching strategy. This is because your strategy should account for the strengths and weaknesses of your team.
Efficient Hiring and Firing
Once you have placed the right people in the right positions, many of your organizational problems will dissipate. For example, you will find you have more resources available. Therefore, it is worth the initial investment in recruiting the right personnel for the right positions.
As well as hiring effectively, management also must be ruthless. There is a need to understand when employees are failing. One solution might be identifying a different position that might suit the individual better. However, if the problem is simply the individual not fitting the company’s overarching plans, then do not hesitate to fire them. Replacing ineffective personnel with well-chosen replacements will significantly improve your chances of developing a great company.
Confront the Brutal Facts
Great companies can keep up with trends in consumer preferences and change accordingly. If you are unable to face the brutal fact that your company needs to change to excel, your company will never be great.
Collins offers examples of Kroger and A&P. Kroger identified the market was moving towards a modern way of grocery shopping. Hence, they adjusted their business model in accordance with advancements in technology and an increase in online orders. This changed the way their stores were run and the whole company’s goal. Comparatively, A&P resisted the large-scale change required to keep up with this changing industry. Subsequently, instead of excelling as Kroger has, A&P went bankrupt.
Collins outlines a four-step process to promote awareness of emerging trends and potential problems:
1) Lead with questions, not answers.
2) Engage in dialogue and debate, not coercion.
3) Conduct autopsies without blame.
4) Build red flag mechanisms that turn information into information that cannot be ignored.
StoryShot 5 – The Hedgehog Concept
Simplicity has the potential to create greatness. This principle may seem contradictory at first, and this is why Collins uses a hedgehog as a metaphor. Hedgehogs have a straightforward response to being threatened by predators. They simply roll up into a ball. This might sound like a feeble defense, but it effectively prevents predators from eating them. Foxes are often used as an image of wisdom and slyness. Still, they are unable to overcome the hedgehog’s simple response. Crucially, this simple defense mechanism is as effective after 100 times as it is the first time.
Using this analogy as a foundation, Collins highlights that transforming from good to great requires you to find your hedgehog concept. Identify an area within your organization’s market where you can become the best in the world. This single function will become your selling point, and you will repeat this function over and over. Collins explains that the most successful companies can identify an effective hedgehog concept and consistently apply this concept to their organization.
If you are struggling to identify your company’s potential hedgehog concept, you can use Collins’ three criteria:
- Determine what you can be the best in the world at. Crucially, also note the areas where you cannot be the best in the world.
- Determine what drives your company’s economic engine.
- Determine what you and your company are deeply passionate about.
After running through these criteria, you should have a better idea of what concepts could be your hedgehog concept.
StoryShot 6 – A Culture of Discipline
A common feature across all great companies was an organizational culture built upon discipline. Collins highlights that this discipline does not relate to managerial discipline, whereby staff members are punished. Instead, the great companies were those where all staff members had a sense of internal discipline. This also applied to managers. Essentially, an inner sense of determination to make the organization succeed.
Collins describes a culture of discipline as being filled with staff members who are willing to act like individual entrepreneurs. As with entrepreneurs, these staff members are personally invested in their own work and the company’s success.
Organizations will benefit from a culture of discipline for several reasons. Firstly, a culture of discipline generally facilitates a higher standard of work at an individual- and organizational-level. Additionally, a culture of discipline also encourages a fanatical devotion to the exercises associated with your organization’s hedgehog concept. Again, this devotion should not be encouraged through coercive or authoritarian means. Instead, Collins recommends offering your employees personal empowerment and flexibility. Suppose you offer your employees these significant perks. In that case, they are far more likely to become passionate about the organization’s overarching goals. They can associate their passions with a passion for the organization.
StoryShot 7 – Technology Accelerators
Keeping up-to-date with technological advancements is particularly important. However, Collins warns readers against depending too heavily upon technology to increase your organization’s efficiency. Similarly, you should not be relying on technology to maximize your competitive advantage and reduce your overhead. Technology can solve some problems, but it will not solve all your problems.
Collins uses the tech bubble crash in the early 2000s as an example of how an overreliance on technology can have disastrous outcomes. The market correction threw into sharp relief the differences between sustainable uses of the Internet to extend established businesses and ill-planned, unviable online start-ups.
Collins believes that great companies approach new technology in the same way they approach all business decisions. They are open to the possibility of new technology. Still, they also spend considerable time deliberating whether to integrate this technology. Additionally, if a great company decides to integrate technology, it does so in line with its hedgehog concepts.
Based on all this advice, Collins outlines the ideal technology approach cycle for great companies:
StoryShot 8 – The Flywheel and the Doom Loop
Collins argues that business success and failure develop over several years. There is a misconception that success and failure can occur in a moment. In reality, success or failure only emerge after sufficient positive or negative momentum has developed.
Henceforth, you want your business to develop an advantageous business cycle. In doing so, you are increasing your chances of business success later down the line. Collins labels this the flywheel effect. The flywheel effect can be established by making decisions and taking actions that reinforce the hedgehog concept. This, in turn, results in the accumulation of tangible positive outcomes, which serve to energize and earn the staff’s investment and loyalty. Further staff investment will only continue to build positive momentum. If you can maintain this momentum, you will significantly reduce the time taken to reach greatness.
You can also avoid developing what Collins calls a doom loop by avoiding:
- Reactive decision-making
- Over-extension into too many diverse areas of concentration
- Following short-lived trends
- Frequent changes in leadership and personnel
- Loss of morale
- Disappointing results
StoryShot #9 – From Good to Great to Built to Last
Transitioning from good to great is crucial for significant success. However, it is also crucial that you understand how to maintain this success. Collins states you need to establish a set of core values to maintain success. These core values cannot be shallow values, like economic success. Instead, they must serve a higher purpose. This might just be creating a company that is the best in its field. However, it must be something that can motivate employees over the long-term.
We rate this book 4.6/5.
This is an unofficial summary and analysis.
Good to Great PDF, Free Audiobook, Infographic and Animated Book Summary
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