Good to Great Summary

January 14, 2019

My Rating: 9/10

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Jim Collins and his research team set out to figure out how companies make the transition from good to great and why other companies fail to do so. The requisites for greatness were cumulative stock returns greater than 7 times the general stock market index for 15 years. After identifying those companies, Collins and his research team dug into articles, interviewed employees, and analyzed tons of data to figure out how these companies made the transition to greatness. After all of the debate and research they discovered the following traits among the great companies:

  1. Level 5 Leaders
  2. First who, then what
  3. Confront the brutal facts
  4. The Hedgehog concept
  5. Culture of discipline
  6. Technology as an accelerator
  7. The Flywheel concept

Level 5 Leaders

At every pivotal moment in a company going from good to great, a level 5 leader was at the helm. What is it that makes level 5 leaders different from other leaders?

Level 5 Leader Traits

  1. Gets results
  2. Are humble
  3. Is ambitious for the cause and the company and not for themselves
  4. Window and Mirror analogy: a level 5 leader looks out the window to others to attribute success and looks in the mirror to attribute blame for poor results. Other leaders are the opposite.  
  5. Set up their successor for success and not failure

Most good leaders are level 4 leaders. The levels that precede and are also required to become a level 5 leader are as follows:

  1. Highly capable individual
  2. Contributing team member
  3. Competent manager
  4. Effective leader

Many leaders are able to obtain results and many times it is through force and punishment and reward. When these leaders leave, their subordinates are left without always being told what to do and the organization suffers. As shown in the traits above, level 5 leaders not only get results but they see themselves on the same level as others and prepare the company to succeed when they leave.

Darwin Smith was the CEO of Kimberly Clark during their transition from good to great. Early in his tenure as CEO he was diagnosed with cancer. After he recovered from cancer he stated, “If you have a cancer in your arm, you have to have the guts to cut off your own arm.” He later restated this when asked about the decision he made to sell the paper mills and pivot the company to paper consumer goods.

First Who, Then What

“If we get the right people on the bus, get the right people in the right seats, get the wrong people off the bus, then we’ll figure out how to take it to a great place.” Hiring great self motivated employees is perhaps one of the most important pieces of taking a company from good to great. After you hire these employees you then have to get them in the correct positions in the company.

Studies showed that compensation differences had no difference in making a great company. The best approach was to use compensation to get the right people on the bus in the first place. 

When you think you might a wrong person on the bus, first think that you might have them in the wrong seat. How do you know if it is a wrong seat problem?  Two questions might help. 

  1. If you were hiring this person from scratch would you hire them?
  2. If this person left to pursue another option would you miss them or be secretly relieved?

“When you decide to sell off your problems, don’t sell off your best people.” If you find a way to keep the best people you will always be ready to deal with change.

Do you have to choose between a great company and a great life or can you have both? When you get the right people in the right seats you can find time to do other things as well. Surround yourself with the right people with people you love and respect and you will find a great life. 

Confront the Brutal Facts

To really make a good to great transition an organization always needs to know where it stands so it can know how to improve. Many leaders don’t receive the feedback necessary to take a company from good to great. This can happen for a number of reasons be it number padding, faulty reward systems, not listening to complaints of employees, etc. If a leader does not get the brutal facts they will not be able to face the reality of the situation to make the right moves. To face the brutal facts about your organization you need to create a culture wherein people have a tremendous opportunity to be heard and ultimately for the truth to be heard. The good to great companies did so in the following ways:

  1. Lead with questions not answers
    1. Engage dialog and debate, not coercion and manipulation
      1. Within Nucor Steel many notes about the meetings are full of yelling and debating to which afterwards many important decisions were made.
  2. Conduct autopsies without blame
  3. Build red-flag mechanisms that turn information into information that cannot be ignored
    1. In Professor Collins’ class he came up with a process where each student got a red flag. This red flag was used to bring up the truth during lectures. It could’ve been used to flag Collins for incorrect material. One time a young woman said “You aren’t allowing us to learn today you are leading too much with your questions. Allow us to think for ourselves.” This is much better than finding out at the end of the semester in a class eval.

The Stockdale Paradox

Admiral James Stockdale was a prisoner of war in the famed “Hanoi Hilton” prisoner camp. He was held captive for 7.5 years after his aircraft was shot down. When Collins met with Stockdale he asked him which kind of prisoners didn’t make it out of Vietnam. Stockdale replied, “Oh, that’s easy, the optimists. Oh, they were the ones who said, ‘We’re going to be out by Christmas.’ And Christmas would come, and Christmas would go. Then they’d say, ‘We’re going to be out by Easter.’ And Easter would come, and Easter would go. And then Thanksgiving, and then it would be Christmas again. And they died of a broken heart.” He later added, “This is a very important lesson. You must never confuse faith that you will prevail in the end—which you can never afford to lose—with the discipline to confront the most brutal facts of your current reality, whatever they might be.”

source: strategicdiscipline.positioningsystems.com

This philosophy of duality became known as the Stockdale paradox. Many of the Good to Great companies had this attitude. They knew in the end they would prevail, they never lost that vision, but they also had to confront the brutal facts of their current reality to become great.

Charisma can be a liability instead of an asset. It can prevent people from telling you the brutal facts. During WWII Winston Churchill knew his charismatic personality could lead to him not receiving the brutal facts about the goings on of the war. So he created the Central Statistical Office which was tasked with collecting the brutal facts of the war and relaying them to Churchill so he would always remain informed with the correct data.

Hedgehog Concept

An old Greek parable states “The fox knows many things, the hedgehog knows one big thing.” The fox devises many flashy plans and sneak attacks trying to take down the hedgehog. The hedgehog puts up a defense as he rolls up into a ball and is protected by its pricks. No matter what attack the fox devises against the hedgehog the hedgehog prevails with the same defense which it is so good at.

Collins and his team discovered that each great company were really good at one thing much like a hedgehog. To qualify as a hedgehog concept it must answer these three questions:

  1. Can you be the best in the world at it?
  2. Can you make money? Economic
  3. Are you deeply passionate about it?

It takes an average company 4 years to discover their hedgehog concept. Walgreens hedgehog concept was to be the “most convenient drugstore”. Each company also had a basic economic driver. For example Walgreens’ driver was profit per customer visit. As soon as you discover your hedgehog concept the next step to achieve greatness is to be disciplined in focusing on that concept.

Create a Culture of Discipline

After a company realizes its hedgehog concept it needs to dig in and focus solely hedgehog concept to become great.

Rinsing the cottage cheese. A multiple time iron man champion discovered that a low fat high carb diet would help improve his performance. So he began rinsing his cottage cheese to remove the excess fat. This is an example of going to extreme lengths to focus on the one big thing of winning the iron man. This is the similar attitude that a company should have when it comes to its hedgehog concept.

Stop doing list. In maintaining this discipline it was found that many companies had “Stop Doing List” as opposed to a to-do list. This is because many times an organization gets distracted by too many opportunities. However if these opportunities do not align with a companies hedgehog concept then they should be abandoned. This is much like Kimberly Clark’s decision to sell their paper mills. Multiple times technology finds itself on these stop doing lists.

Technology as an Accelerator

When CEOs were asked the 5 main things that contributed to their transformation from good to great, none of them mentioned technology as a contributor. Many times organizations look at technology as a possible hedgehog concept in itself. This is almost always a poor decision as it is easily replicable and does not qualify as a hedgehog concept. However, if there is technology that fits within your hedgehog concept it should be adopted slowly. Collins mentions that great organizations utilized a crawl, walk, run approach. As you focus with discipline in your technology adoption and point everything else towards your hedgehog concept, you will begin to see the fruits of your work little by little.

The Flywheel Concept

A flywheel is a large wheel that once it gets moving it keeps spinning and stores energy to as it maintains its motion. When the good to great companies asked what the key moments/initiatives that really made the company go from good to great, no one could really name a specific moment that really boosted the company. Multiple and continuous small initiatives were what really got the flywheel of greatness turning. At first, the flywheel is hard to push with hard work and multiple small pushes. However once the wheel starts spinning it is easy to maintain the energy with continual small pushes.