Jim Collins is the kind of academics who bases his conclusions on deep analyses over very long periods of times. This is the reason why his conclusions are typically interesting.
In From Good to Great, he searches for what allows companies to move from good performance to great performance. His definition of great performance is quite selective: only 11 of American Fortune 500 companies make the cut. Have a look at the book for their names and definition details! He compared these 11 companies with 28 good companies in similar sectors.
His conclusions include that good is the enemy of great. Because when we are already doing fine, we may not push towards greatness. Though, he claims that achieving greatness is not necessarily harder than being just good. It is statisically more rare, but the author believes that sustaining mediocrity requires probably even more effort as aiming for greatness compels to work smart. Mostly, it is a question of doing more of certain things and less of others.
Thus, Jim Collins calls all us to target greatness. First, because it is easier and more fun than good. Second, because if we love our work, we feel compelled to greatness.
« Indeed, the real question is not, “Why greatness?” but “What work makes you feel compelled to try to create greatness?” If you have to ask the question, “Why should we try to make it great? Isn’t success enough?” then you’re probably engaged in the wrong line of work. »
In order to achieve greatness, Jim has a few secrets to share. Seven dimensions that do not move the needle, five principles that make the difference, the concept of level 5 leadership, five actions you may take as of now… and the hedgehog concept that is very close of what is now widely known is Ikigai.
It is also interesting to note that the difference he makes between great companies led by “level 5 leaders” and good companies led by “genius with 1000 helpers” is about the the same point as the key argument of the great work Why nations fail applied to companies instead of countries.
Ready for a synthesis? The text below is 99% the words of the author as it is mostly copy paste from the excellent synthesis sections at the end of each chapter. It was hard to write a synthesis better than what was already provided. I slightly reorganized the flow, though.
It is not perfect, but these notes are intended for myself and I do not plan to spend hours on polishing them.
Would you choose to read through, I hope you may find them useful.
Seven dimensions that do not move the needle
First, Him makes a list of what he observes has no impact on making it to the great list. These seven dimensions may help to be good, but it was not observed as a differentiating factor. Some of them may even prevent a company from being great.
The list includes: rock star CEO, compensation, strategy, technology, M&A, transformation plan, and industry. Doing any of these seven bad may hurt. But none is required to be a great company.
Rock star CEOs hurt rather than help. Larger-than-life, celebrity leaders who ride in from the outside are negatively correlated with taking a company from good to great. Ten of eleven good-to-great CEOs came from inside the company, whereas the comparison companies tried outside CEOs six times more often.
Charisma can be as much a liability as an asset, as the strength of your leadership personality can deter people from bringing you the brutal facts. Leadership does not begin just with vision. It begins with getting people to confront the brutal facts and to act on the implications. Spending time and energy trying to “motivate” people is a waste of effort. The real question is not, “How do we motivate our people?” If you have the right people, they will be self-motivated. The key is to not de-motivate them. One of the primary ways to de-motivate people is to ignore the brutal facts of reality.
Compensation has no impact provided it is decent. « We found no systematic pattern linking specific forms of executive compensation to the process of going from good to great. The idea that the structure of executive compensation is a key driver in corporate performance is simply not supported by the data. »
« Yes, compensation and incentives are important, but for very different reasons in good-to-great companies. The purpose of a compensation system should not be to get the right behaviors from the wrong people, but to get the right people on the bus in the first place, and to keep them there. »
Strategy is not a differentiating factor. « Strategy per se did not separate the good-to-great companies from the comparison companies. Both sets of companies had welldefined strategies, and there is no evidence that the good-to-great companies spent more time on long-range strategic planning than the comparison companies. The good-to-great companies did not focus principally on what to do to become great; they focused equally on what not to do and what to stop doing. »
Technology does not move the needle. « Technology and technology-driven change has virtually nothing to do with igniting a transformation from good to great. Technology can accelerate a transformation, but technology cannot cause a transformation. »
M&A is not necessary. « Mergers and acquisitions play virtually no role in igniting a transformation from good to great; two big mediocrities joined together never make one great company. The good-to-great companies paid scant attention to managing change, motivating people, or creating alignment. Under the right conditions, the problems of commitment, alignment, motivation, and change largely melt away. »
Transformation plans are overrated. « The good-to-great companies had no name, tag line, launch event, or program to signify their transformations. Indeed, some reported being unaware of the magnitude of the transformation at the time; only later, in retrospect, did it become clear. Yes, they produced a truly revolutionary leap in results, but not by a revolutionary process. »
You can be great in any industry. « The good-to-great companies were not, by and large, in great industries, and some were in terrible industries. In no case do we have a company that just happened to be sitting on the nose cone of a rocket when it took off. Greatness is not a function of circumstance. Greatness, it turns out, is largely a matter of conscious choice. »
5 principles that make a difference
« First Who . . . Then What. « We expected that good-to-great leaders would begin by setting a new vision and strategy. We found instead that they first got the right people on the bus, the wrong people off the bus, and the right people in the right seats—and then they figured out where to drive it. »
« To be clear, the main point is not just about assembling the right team—that’s nothing new. The main point is to first get the right people on the bus (and the wrong people off the bus) before you figure out where to drive it. The second key point is the degree of sheer rigor needed in people decisions in order to take a company from good to great. »
« Those who build great companies understand that the ultimate throttle on growth for any great company is not markets, or technology, or competition, or products. It is one thing above all others: the ability to get and keep enough of the right people. »
Confront the Brutal Facts (Yet Never Lose Faith). « You must maintain unwavering faith that you can and will prevail in the end, regardless of the difficulties, AND at the same time have the discipline to confront the most brutal facts of your current reality, whatever they might be. »
« All good-to-great companies began the process of finding a path to greatness by confronting the brutal facts of their current reality. When you start with an honest and diligent effort to determine the truth of your situation, the right decisions often become self-evident. It is impossible to make good decisions without infusing the entire process with an honest confrontation of the brutal facts. A primary task in taking a company from good to great is to create a culture wherein people have a tremendous opportunity to be heard and, ultimately, for the truth to be heard. Creating a climate where the truth is heard involves four basic practices:
- Lead with questions, not answers.
- Engage in dialogue and debate, not coercion.
- Conduct autopsies, without blame.
- Build red flag mechanisms that turn information into information that cannot be ignored.
The good-to-great companies faced just as much adversity as the comparison companies, but responded to that adversity differently. They hit the realities of their situation head-on. As a result, they emerged from adversity even stronger. A key psychology for leading from good to great is the Stockdale Paradox: Retain absolute faith that you can and 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. »
A Culture of Discipline. « All companies have a culture, some companies have discipline, but few companies have a culture of discipline. When you have disciplined people, you don’t need hierarchy. When you have disciplined thought, you don’t need bureaucracy. When you have disciplined action, you don’t need excessive controls. When you combine a culture of discipline with an ethic of entrepreneurship, you get the magical alchemy of great performance. »
« They’re not ruthless cultures, they’re rigorous cultures. And the distinction is crucial. »
Technology Accelerators. « Good-to-great companies think differently about the role of technology. They never use technology as the primary means of igniting a transformation. Yet, paradoxically, they are pioneers in the application of carefully selected technologies. We learned that technology by itself is never a primary, root cause of either greatness or decline. »
Good-to-great organizations think differently about technology and technological change than mediocre ones. Good-to-great organizations avoid technology fads and bandwagons, yet they become pioneers in the application of carefully selected technologies.
The key question about any technology is, 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 you can settle for parity or ignore it entirely.
The good-to-great companies used technology as an accelerator of momentum, not a creator of it. None of the good-to-great companies began their transformations with pioneering technology, yet they all became pioneers in the application of technology once they grasped how it fit with their three circles and after they hit breakthrough.
You could have taken the exact same leading-edge technologies pioneered at the good-to-great companies and handed them to their direct comparisons for free, and the comparisons still would have failed to produce anywhere near the same results. How a company reacts to technological change is a good indicator of its inner drive for greatness versus mediocrity.
Great companies respond with thoughtfulness and creativity, driven by a compulsion to turn unrealized potential into results; mediocre companies react and lurch about, motivated by fear of being left behind.
The idea that technological change is the principal cause in the decline of once-great companies (or the perpetual mediocrity of others) is not supported by the evidence. Certainly, a company can’t remain a laggard and hope to be great, but technology by itself is never a primary root cause of either greatness or decline.
Across eighty-four interviews with good-to-great executives, fully 80 percent didn’t even mention technology as one of the top five factors in the transformation. This is true even in companies famous for their pioneering application of technology, such as Nucor. “Crawl, walk, run” can be a very effective approach, even during times of rapid and radical technological change. »
The Flywheel and the Doom Loop. Those who launch revolutions, dramatic change programs, and wrenching restructurings will almost certainly fail to make the leap from good to great. No matter how dramatic the end result, the good-to-great transformations never happened in one fell swoop. There was no single defining action, no grand program, no one killer innovation, no solitary lucky break, no miracle moment. Rather, the process resembled relentlessly pushing a giant heavy flywheel in one direction, turn upon turn, building momentum until a point of breakthrough, and beyond. »
« Good-to-great transformations often look like dramatic, revolutionary events to those observing from the outside, but they feel like organic, cumulative processes to people on the inside. The confusion of end outcomes (dramatic results) with process (organic and cumulative) skews our perception of what really works over the long haul.
No matter how dramatic the end result, the good-to-great transformations never happened in one fell swoop. There was no single defining action, no grand program, no one killer innovation, no solitary lucky break, no miracle moment. Sustainable transformations follow a predictable pattern of buildup and breakthrough.
Like pushing on a giant, heavy flywheel, it takes a lot of effort to get the thing moving at all, but with persistent pushing in a consistent direction over a long period of time, the flywheel builds momentum, eventually hitting a point of breakthrough.
The comparison companies followed a different pattern, the doom loop. Rather than accumulating momentum— turn by turn of the flywheel—they tried to skip buildup and jump immediately to breakthrough. Then, with disappointing results, they’d lurch back and forth, failing to maintain a consistent direction.
The comparison companies frequently tried to create a breakthrough with large, misguided acquisitions. The good-to-great companies, in contrast, principally used large acquisitions after breakthrough, to accelerate momentum in an already fast-spinning flywheel.
Those inside the good-to-great companies were often unaware of the magnitude of their transformation at the time; only later, in retrospect, did it become clear. They had no name, tag line, launch event, or program to signify what they were doing at the time. The good-to-great leaders spent essentially no energy trying to “create alignment,” “motivate the troops,” or “manage change.”
Under the right conditions, the problems of commitment, alignment, motivation, and change largely take care of themselves. Alignment principally follows from results and momentum, not the other way around.
The short term pressures of Wall Street were not inconsistent with following this model. The flywheel effect is not in conflict with these pressures. Indeed, it is the key to managing them. »
Being the best in the world. « The key is to understand what your organization can be the best in the world at, and equally important what it cannot be the best at— not what it “wants” to be the best at. It is not a goal, strategy, or intention; it is an understanding. If you cannot be the best in the world at your core business, then your core business cannot form the basis of your greatness. »
The “best in the world” understanding is a much more severe standard than a core competence. You might have a competence but not necessarily have the capacity to be truly the best in the world at that competence. Conversely, there may be activities at which you could become the best in the world, but at which you have no current competence. To get insight into the drivers of your economic engine, search for the one denominator (profit per x or, in the social sector, cash flow per x) that has the single greatest impact. »
« Good-to-great companies set their goals and strategies based on understanding; comparison companies set their goals and strategies based on bravado. Getting the Hedgehog Concept is an iterative process. «
« The good-to-great companies are more like hedgehogs—simple, dowdy creatures that know “one big thing” and stick to it. The comparison companies are more like foxes—crafty, cunning creatures that know many things yet lack consistency. It took four years on average for the good-to-great companies to get a Hedgehog Concept. »
Level 5 leadership
Good to great companies were led by « Level 5 » leaders. « A level 5 leader is « an individual who blends extreme personal humility with intense professional will. Humility + Will = Level 5 Level 5 leaders are a study in duality: modest and willful, humble and fearless.
As one Level 5 leader said, “I want to look out from my porch at one of the great companies in the world someday and be able to say, ‘I used to work there.’” In contrast, the comparison leaders, concerned more with their own reputation for personal greatness, often failed to set the company up for success in the next generation.
During interviews with the good-to-great leaders, they’d talk about the company and the contributions of other executives as long as we’d like but would deflect discussion about their own contributions. »
« 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.
It is not just false modesty. Those who worked with or wrote about the good-to-great leaders continually used words like quiet, humble, modest, reserved, shy, gracious, mild-mannered, self-effacing, understated, did not believe his own clippings; and so forth. »
« Level 5 leadership is not just 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. Level 5 leaders are fanatically driven, infected with an incurable need to produce results. They will sell the mills or fire their brother, if that’s what it takes to make the company great. »
A few elements of level 5 leadership :
- Demonstrates a compelling modesty, shunning public adulation; never boastful.
- Demonstrates an unwavering resolve to do whatever must be done to produce the best long-term results, no matter how difficult.
- Acts with quiet, calm determination; relies principally on inspired standards, not inspiring charisma, to motivate.
- Sets the standard of building an enduring great company; will settle for nothing less.
- Channels ambition into the company, not the self ; sets up successors for even greater success in the next generation.
- Looks in the mirror, not out the window, to apportion responsibility for poor results, never blaming other people, external factors, or bad luck.
- Looks out the window, not in the mirror, to apportion credit for the success of the company—to other people, external factors, and good luck.
« Level 5 leaders embody a paradoxical mix of personal humility and professional will. They are ambitious, to be sure, but ambitious first and foremost for the company, not themselves. Level 5 leaders set up their successors for even greater success in the next generation, whereas egocentric Level 4 leaders often set up their successors for failure. Level 5 leaders display a compelling modesty, are self-effacing and understated. »
« In contrast to the good-to-great companies, which built deep and strong executive teams, many of the comparison companies followed a “genius with a thousand helpers” model. In this model, the company is a platform for the talents of an extraordinary individual.
In these cases, the towering genius, the primary driving force in the company’s success, is a great asset— as long as the genius sticks around. The geniuses seldom build great management teams, for the simple reason that they don’t need one, and often don’t want one. If you’re a genius, you don’t need a Wells Fargo–caliber management team of people who could run their own shows elsewhere. No, you just need an army of good soldiers who can help implement your great ideas.»
What to do in order to move from good to great
Here are a few actions we can do to move from good to great. The list is not exhaustive, but may serve as a solid base.
#01. Practical Discipline #1: When in doubt, don’t hire—keep looking. « “who” questions come before “what” decisions —before vision, before strategy, before organization structure, before tactics. First who, then what—as a rigorous discipline, consistently applied. »
#02. When you know you need to make a people change, act. But how do you know when you know? Two key questions can help. First, if it were a hiring decision (rather than a “should this person get off the bus?” decision), would you hire the person again? Second, if the person came to tell you that he or she is leaving to pursue an exciting new opportunity, would you feel terribly disappointed or secretly relieved?
#03. Put your best people on your biggest opportunities, not your biggest problems. There is an important corollary to this discipline: When you decide to sell off your problems, don’t sell off your best people. This is one of those little secrets of change. If you create a place where the best people always have a seat on the bus, they’re more likely to support changes in direction.
#04. Instill a culture of debate AND execution. One of the crucial elements in taking a company from good to great is somewhat paradoxical. You need executives, on the one hand, who argue and debate—sometimes violently—in pursuit of the best answers, yet, on the other hand, who unify fully behind a decision, regardless of parochial interests.
#05. Stick to your hedgehog concept. It is based on three elements : what you can be the best in the wold at, what drives your economic engine, and what you are deeply passionate about.
« Sustained great results depend upon building a culture full of self-disciplined people who take disciplined action, fanatically consistent with the three circles. Bureaucratic cultures arise to compensate for incompetence and lack of discipline, which arise from having the wrong people on the bus in the first place.
If you get the right people on the bus, and the wrong people off, you don’t need stultifying bureaucracy. A culture of discipline involves a duality. On the one hand, it requires people who adhere to a consistent system; yet, on the other hand, it gives people freedom and responsibility within the framework of that system. A culture of discipline is not just about action. It is about getting disciplined people who engage in disciplined thought and who then take disciplined action.
The good-to-great companies appear boring and pedestrian looking in from the outside, but upon closer inspection, they’re full of people who display extreme diligence and a stunning intensity (they “rinse their cottage cheese”). Do not confuse a culture of discipline with a tyrant who disciplines—they are very different concepts, one highly functional, the other highly dysfunctional. Savior CEOs who personally discipline through sheer force of personality usually fail to produce sustained results.
The single most important form of discipline for sustained results is fanatical adherence to the Hedgehog Concept and the willingness to shun opportunities that fall outside the three circles.
The more an organization has the discipline to stay within its three circles, with almost religious consistency, the more it will have opportunities for growth. The fact that something is a “once-in-a-lifetime opportunity” is irrelevant, unless it fits within the three circles. A great company will have many once-in-alifetime opportunities.
The purpose of budgeting in a good-to-great company is not to decide how much each activity gets, but to decide which arenas best fit with the Hedgehog Concept and should be fully funded and which should not be funded at all. “Stop doing” lists are more important than “to do” lists. »