Good to Great
Good to Great: Why Some Companies Make the Leap…and Others Don’t
Good to Great: Why Some Companies Make the Leap…and Others Don’t
James C. Collins
Being good will stop you from being great. Why start off as an average person who’s just good enough when you can start off as a great person in the first place?
Chapter 1: Good is the enemy of great.
Jim Collins bizarrely argues that one of the reasons stopping something from being great is that it’s already good. This suggestion weighed heavily in his mind during a business meeting. When the managing director of the San Francisco Office Mckinsey Company said that some proposed companies were useless for the mere fact that they weren’t great, they were ‘only good’. Jim Collins then presented the idea of his research, where companies were sub-grouped into ‘great’ and ‘good’ companies and their results were compared.
The conduction of such research went through different phases. The first phase was called ‘the search ‘and as expected, it comprised two things.First, search for the team and search for the companies to study. The team was composed of 21 researchers, and the companies had one condition to fulfill to become a ‘great company’. The cumulative returns should at least be three times the general stock market for fifteen years. The next phase was called ‘inside the black box’.
This phase is predominantly an analysis of the twenty-eight collected companies. From reading articles, to subgrouping the attained material, to interviewing the executives. That was a lot of work that needed ten and a half years to be complete. These research results surprised the researchers a myriad of times. They found out there is no ‘strategy for greatness’. The greater companies did not have more complex strategies.
Nor technology, nor acquisitions had anything to do with being great. As supported by the research results. For a company to become great, it shouldn’t focus only on what to do, but also on what not to do. Being in a great industry does not mean the company is going to become great.Finally, paying attention to the influence of people and managing change is the key to success.The last phase is called ‘the chaos’.Jim Collins explains that in this phase, he built up an entire framework from a set of meaningless data.
The results of the research can be simply put into one word, discipline. The leaders of the chosen companies were surprisingly shy, self-affecting and quiet. They did not begin with a strategy and tried to fulfill it. On the other hand, they chose the right people, discarded the wrong ones, and then went on from there. The researchers came to a staggering conclusion.For a company to become great, it should believe that one day it will be great despite the obstacles, and at the same time, tackle its current problems with no denial.
Doing something for a long time does not signify that you’re the best at it. Not being the best means you cannot be great.You must learn about culture and discipline to become great. Lastly, technology is not the cause of greatness, it’s a tool and not a cause of greatness itself.There is no one-time event to success. It’s a process that takes time and effort, for the whole picture to be completed.Will this idea be applied to new companies? Yes, this book is the root for how to change your company from good to great.
Chapter 2: Level 5 leadership
Imagine two racers in a marathon, one was most likely to win, and the other was the dark horse of the race.He made all the efforts that could possibly be done, and he finally went glorious.One of the best examples of a CEO who changes his company from good to great is Darwin Smith. In the twentieth century, Kimberly-Clark was the leading paper-based consumer products company in the world. Smith said, “I made the decision to sell the workshop as the business became too mainstream and therefore weak.”
The media called the act stupid.Surprisingly, the company owned Scott paper and beat Procter and Gamble in six categories.Not everything that happens in a company should be attributed to the leader. Instead, a deeper scientific understanding should be reached.To become a level 5 leader, you should combine humble and fearless in your character. Colman Mockler, the CEO of the famous Gillette, refused to surrender and fought till the last breath to not sell his shares in the company.He preferred long term success over a temporary prize and turned out right in the end.
David Maxwell who was the CEO of Fannie and Mae miraculously transformed the company from losing a million dollars every day to winning four million every day and beating the general stock market 3.8 to 1. Afraid of harming the company after retirement, Maxwell willingly left 5.5 million of his retirement money to the company’s foundation for low-income housing. This is what all the leader of good or great companies has in common. Putting the firm’s concern first regardless of the benefit or loss they will personally experience.
Another key to a company’s success is leaving behind a company that can be equally great without you being in charge. Moreover, a successful leader should always be modest, speaking more of the company and how the board members were successful.Those leaders were quiet, they didn’t show off, they didn’t’ boast about themselves, and their work, they work and victoriously step towards their target. Leaders who show off what they did do not continue to be successful.
Lee Lacocca, CEO of Chrysler saved the company and had a major role in one of the so-called most celebrated turn arounds in American business history. Showing off and celebrating his victory, Chrysler was sold to another German car maker. Becoming a level 5 leader does not imply being modest, but it also shows they are being ferocious in your decisions. Even if this means firing your own family member, like George Caine did for the sake of the company. Luck, plays an important job in making a company great, thought Alan Wurtzel, a Nucor executive, and Joseph F. Cullman.
In fact, there is no place for luck in the success of great companies. It is blaming the poor results on bad luck.Can someone learn to become a level 5 leader? Non-egoistic people can. Almost all the study’s CEOs had a plot twist somewhere in their lives that glimmered their maturation. There are no steps that can be taken to become a level 5 leader, only the application of the leaders’ traits would help.
Chapter 3: First who, then what
Before driving the bus to a certain place, you must first be sure that the bus has the right people on it. People who would motivate you (the driver) to make the right decisions. People who would not bother to go to unpleasant roads to reach a beautiful destination.A great leader should first know the right people and fire the wrong ones, only then can he have a successful strategy.To become a great leader, you should consider having the right people working with you.The right people won’t need the same amount of motivation as wrong people.
Considering Wells Fargo, where its CEO gathered the best people he could find in the business. This turned out successful as the bank outpunched the market by 4 times. Another regimen followed by some companies is hiring weak leaders for the ones under, to become competitive. There are two simple keys that must be grasped for a company to become great.One is deciding on ‘who’ to work with instead of ‘what’ to do.The second is deciding ‘who to pay’ and not ‘how to pay them.
The right people will do what they think is best for the company, regardless of how much they earn. Hiring the best people in the business is the key. Having almost half of what they earn based on their productivity, you’re guaranteed with a hard-working team.A great company is rigorous, applying pressure on the employees to get the best out of them and not ruthless.Firing people without any thoughtful consideration.
To become rigorous, you should apply three principles. 1. When in doubt, don’t hire, keep looking. 2. When you know you need to make people change, act. 3. Put your best on your biggest opportunities, not problems. Can you build a great company and a great life? A great leader should be able to balance between work and things he likes to do. To relax and have time with your family is something inevitable of a great leader.
Chapter 4: Confront the Brutal Facts
What’s the difference between 2 old companies sharing a strategy that’s only right for a certain period? One of them faces itself with the brutal fact that it needs to keep up with the evolution.Not only admitting there’s a problem, but also action by research and physical effort is the key.Becoming a ‘good to great’ company requires 2 decisions.First is to saturate the whole process by the facts of reality.Second is to originate a deep and intuitive frame of reference for all decisions.Moreover, becoming a great business requires the leader to not only know the problem but also take a step to correct what’s wrong.
Having an environment that’s motivating is important because having to motivate employees is a waste of time. The dilemma is not de-motivate the employees by admitting the real struggles that you need to overcome as a company. One way is to take advantage of the non-formal meetings to lead by question. Asking questions like, what’s on your mind? This will let the present realities show up.Moreover, a leader should engage in debate, not force an employee into a certain decision. An efficient leader should be able to admit bad decisions without blaming the employees. Information solely has no value.
Significance only comes when the leader can tell which information cannot be abandoned. An efficacious was to become a great company ID using the red flag mechanism. This basically comprises a way for the client to say this thing got on my nerves. A great leader must be able to become stronger after a disastrous event that his company went through.
The company can benefit from the downfall to develop something greater, regardless of if it’s the company going through the disaster or their competitor. Also, the company must be able to efficiently grasp the ‘Stockdale paradox’, where they not only admit their failures but also act towards success. Life is not always fair, it’s full of difficulties, but how we deal with the difficulties is what makes a company great.
Chapter 5: The Hedgehog Concept
Hedgehog vs Fox? Everyone is sub-grouped under those two categories. A fox knows a myriad of strategies to hunt the hedgehog. The hedgehog knows one thing and is GOOD at it. Hedgehogs are not unintelligent they simply focus on what’s important and disregard the rest.Walgreens, for example, used the hedgehog concept beating other companies like Coca-Cola.They simply exchanged inconvenient locations of stores with more convenient ones!
Why can’t everyone apply it if it’s so simple? Companies in general usually try to solve issues using the most complex processes. Most often they fail to see the obvious. The hedgehog concept lies in the simplicity but deepness with the act. How an act is so simple, yet so deep in the application can make the difference.You must find, what you can be the best in the world in, what you’re passionate about, and what moves your economic engine. It’s not a matter of finding a target to be the best, it’s the understanding of what you can be the best at.
You don’t need to be in a great industry to become a great company, however, you must have a phenomenal work engine. An economic key is recording profit on a larger scale. You should only do things that you’re passionate about, that is the fundamental of the hedgehog concept. Applying the hedgehog concept is not easy, it requires time and effort. It requires employees to get involved in debates and ask meaningful questions. Another way of understanding such a concept is ‘the council’.
Chapter 6: A Culture of Discipline
What makes start-ups not likely to become a great company? The Lack of creativity. These start-ups suddenly become big, with many orders and clients on their plate. This leads to their downfall. Somebody then decides to stop the chaos, with new rules and strategies which leads to mediocrity in the company. The first step is to build a society of freedom and responsibility.
Then you should saturate this society with people that are willing to go miles to pursue and fulfill their responsibilities. The leader shouldn’t be dictatorial. You should apply the hedgehog concept with great care to the intersection of its three pillars. The employees should have some checklist for the routine work. However, they should have the freedom and responsibility to take the crucial decisions.Rinsing your cottage cheese? This is an interesting analogy that explains that you need to take every small step towards your goal to become great.
A good to great leader should discipline to rinse their cottage cheese, even if they don’t like to. The difference between a good and a great company is not discipline but, being able to develop a disciplined society. Not by force is an important factor. Building discipline by force is related to a person once the person steps away, the discipline is lost. A good to great company focuses on a specialty, not our thing, we won’t do it. Good to great companies have a ‘stop doing’ list where they find out which activities should be funded and what should be abandoned.
Chapter 7: Technology Accelerators
Thinking is not optional. Working smart and not hard in the 21st century is an obligation, not a luxury. Being able to think is a crucial factor of success. Drugstore.com, for example, multiplied their stock nearly 3 times within seconds of their opening. Because of their advanced technology at the time, they became a huge success.On the other hand, Walgreens steadily caught up because they were able to think.A breakthrough is not something new, it happened with electricity, internet and will happen with what’s coming after.
The idea is to implement the internet in something extraordinary. Walgreen built the intercom, Kroger built the barcode, and Gillette built high tolerance razor blades.You don’t necessarily need the best technology in the world to become successful. You must ask yourself, does such technology fit the hedgehog concept or not. If yes proceed and if no, ignore.Technology isn’t the success factor, but the management of technology is. It’s only an accelerator of the process. No technology can make a level 5 leader, nor can it confront the leader with realities.
Great companies lack competitive strategies, or at least they don’t talk about it. They are concerned with winning and being the best, but they don’t pay attention to what their rivals are doing. They focus on their work and on what they must do to become the best. Great companies don’t know fear of any kind, not of what they don’t understand, not of not being the best, none.
Chapter 8: The Flywheel and the Doom Loop
Like operating a Ferris wheel, the first push is hard, and it gets easier with every cycle. It’s the same way with companies. Building up momentum is needed to be able to make minimal effort to get the same results. Success doesn’t come in one swoop, it’s a long process.A breakthrough requires time, and after the breakthrough, only minimal effort is needed to sustain such success.This is known as the ‘flywheel model’. Some people might think that it’s a matter of coincidence that a certain company succeeded, on the other hand, only discipline and meticulous planning can bring success.
Great companies also face obstacles, but how they deal with it is what makes them great. These companies treat such difficulties with discipline and planned action. Under the right work circumstances, a great company need not worry about difficulties like commitment and motivation.They just solve themselves.A great company needs not to worry about setting goals, employees working within the flywheel model will know where this amount of work will take them.
Some companies fall in the trap of creating a new direction in the hope of having better results, only to be surprised by worse results.The explanation? Such companies are motivated by bad results so the direction they create has no buildup. Some companies show greater success with more acquisitions and the secret is applying the flywheel model and the hedgehog concept to build notable momentum.These acquisitions are used as an accelerator of momentum and not the creator of it.
Another trap that some leaders fall into is working with a company that already goes in a certain direction, and the leader decides a new direction for it. One key adjective for success is coherence.Every part of the system reinforces the other, which shapes the whole picture in the end.
If you want to make sure that you’re on the flywheel, you should follow a pattern of development that leads to a breakthrough and obtains a consistent hedgehog concept. On the other hand, skipping development and jumping right into breakthrough and demonstrating constant inconsistency, shows you’re definitely in the doom loop.
Chapter 9: From Good to Great to Built to Last
What makes a company last forever? A company must find its core values -away from making money- and then merge this with the dynamic process of progress. The application good to great concepts in general discussed in this book, will assure great results.However, the built to last concepts will assure an everlasting great company.Just like how it goes with any of the good to great companies, there is no breakthrough.
It requires time and hard work.Lasting great companies are not there merely for profit to the shareholders.On the other hand, these companies have a huge impact on how other companies are being managed through the years. Moreover, great companies are not life, but rather an important aspect of it. Lasting great companies have a core value, which they take care of. It doesn’t matter what this core value is, as long as it’s there.It could be respect for the individual or social responsibility, etc.
How do you preserve such core values? Accepting the concept of core progress. Four ideas briefly explain how to apply the good to great and consequently the built to last concepts.
1. You should develop a team that can adapt to multiple generations of leaders.
2. You must figure out a way to have the two extreme options of anything, like freedom and responsibility.
3. Have a core ideology.
4. Stimulate the progress.
Is greatness mandatory? What if you don’t want to build something great? This question has 2 answers.
One, it is not harder to build something great than it is to build something good. It is not that great doesn’t require hard work but building energy up along the way puts more into your savings pot than it takes out. The second, you feel something like a state of trance when you achieve something great, something you care about and dream of.