16 Jun

Chapter 1 - Good is the Enemy of Great

Collins and his research team identified 11 companies  out of 1,435 that appeared on the Fortune 500 list that transitioned from financially mediocre companies to financially great companies averaging cumulative financial returns greater than the general market and sustained that success for at least 15 years. These are Good-to-Great (GTG) companies. 

They compared these to companies that either never made that transition or who made it but didn't sustain it. These are referred to as comparison companies.

The bulk of Chapter 1 discusses why he undertook this study and his research methodology.

What they did not find in great companies:

  • Celebrity leaders
  • No pattern linking executive compensation to performance
  • Spent no more effort on strategic planning than mediocre companies
  • Focused equally on what not to do or what to stop doing as well as what to do
  • Technology had nothing to do with igniting a transformation from good to great. It might have accelerated it, but it didn't cause it.
  • Mergers and acquisitions played no role in the transformation
  • They paid no attention to managing change, motivating people, or creating alignment.
  • No big launch to signify their transformation
  • None of the great companies were in remarkable industries.

Chapter 2 - Level 5 Leadership

Key Points

Every good-to-great company had Level 5 leadership during the pivotal transition years.

"Level 5" refers to a five-level hierarchy of executive capabilities, with Level 5 at the top. Level 5 leaders embody a paradoxical mix of personal humility and professional will. They are ambitious, 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, two thirds of the comparison companies had leaders with gargantuan personal egos that contributed to the demise or continued mediocrity of the company.

Level 5 leaders are fanatically driven, infected with an incurable need to produce sustained results. They are resolved to do whatever it takes to make the company great, no matter how bit or hard the decisions.

Level 5 leaders display a workmanlike diligence--more plow horse than show horse.

Level 5 leaders look out the window to attribute success to factors other than themselves. When things go poorly, however, they look in the mirror and blame themselves, taking full responsibility. The comparison CEOs often did just the opposite--they looked in the mirror to take credit for success, but out the window to assign blame for disappointing results. 

One of the most damaging trends in recent history is the tendency (especially by boards of directors) to select dazzling, celebrity leaders and to de-select potential Level 5 leaders.

The author believes that potential Level 5 leaders exist all around us, if we just know what to look for, and that many people have the potential to evolve into Level 5.

Unexpected Findings

Larger-than-life, celebrity leaders who ride in from the outside are negatively correlated with going from good to great. Then of eleven good-to-great CEOs came from inside the company, whereas the comparison companies tried outside CEOs six times more often.

Level 5 leaders attribute much of their success to good luck, rather than personal greatness.

The author was not looking for Level 5 leadership in their research, or anything like it, but the data was overwhelming and convincing. It is an empirical, not an ideological, finding.

Chapter 3 - First Who...Then What

Key Points

The good-to-great leaders began the transformation by first getting the right people on the bus (and the wrong people off the bus) and then figured out where to drive it.

The key point of this chapter is not just the idea of getting the right people on the team. The key point is that "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.

The comparison companies frequently followed the "genius with a thousand helpers" model--a genius leader who sets a vision and then enlists a crew of highly capable "helpers" to make the vision happen. This model fails when the genius departs.

The good-to-great leaders were rigorous, not ruthless, in people decisions. They did not rely on layoffs and restructuring as a primary strategy for improving performance. The comparison companies used layoffs to a much greater extent.

The author uncovered three practical disciplines for being rigorous in people decisions:

  1. When in doubt, don't hire--keep looking. (Corollary: A company should limit its growth based on its ability to attract enough of the right people.)
  2. When you know you need to make a people change, act. (Corollary: First be sure you don't simply have someone in the wrong seat. Try moving them around to different departments 2 or 3 times before you let them go.)
  3. Put your best people on your biggest opportunities, not your biggest problems. (Corollary: If you sell off your problems, don't sell off your best people.)

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.

Unexpected Findings

We found no systematic pattern linking executive compensation to the shift from good to great. The purpose of compensation is not to "motivate" the right behaviors from the wrong people, but to get and keep the right people in the first place.

The old adage "People are your most important asset" is wrong. People are not your most important asset. The right people are.

Whether someone is the "right person" has more to do with character traits and innate capabilities than with specific knowledge, background, or skills.

Chapter 4 - Confront the Brutal Facts (Yet Never Lose Faith)

Key Points

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:

  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. (Ex: author used red paper that students could use once per quarter for any reason to bring the class to a stop to listen to what they had to say.)

The good-to-great companies faced just as much adversity as the comparison companies, but responded to that diversity differently. They hit the realities of their situation head-on. As a result, they emerged from adversity event 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.

Unexpected Findings

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.

Chapter 5 - The Hedgehog Concept (Simplicity within the Three Circles)

Key Points

To go from good to great requires a deep understanding of three intersecting circles translated into a simply, crystalline concept (the Hedgehog Concept): 

The Hedgehog Concept

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 in the world at--not what it "wants" to be the best at. The Hedgehog Concept 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 Hedgehog Concept.

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 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 Council can be a useful device.

  1. The Council exists as a device to gain understanding about important issues facing the org.
  2. The Council is assembled by the leading executive and usually consists of 5-12 people.
  3. Each member has the ability to argue and debate in search of understanding, not from the egoistic need to win a point or protect a parochial interest.
  4. Each member retains the respect of every other member, without exception.
  5. Members come from a range of perspectives, but each member has deep knowledge about some aspect of the org and/or the environment in which it operates.
  6. The Council includes key members of the management team but is not limited to members of the management team, nor is every executive automatically a member.
  7. The Council is a standing body, not an ad hoc committee assembled for a specific project.
  8. The Council meets periodically, as much as once a week or as infrequently as once per quarter.
  9. The Council does not seek consensus, recognizing that consensus decisions are often at odds with intelligent decisions. The responsibility for the final decision remains with the leading executive.
  10. The Council is an informal body, not listed on any formal org chart or in any formal documents.

Unexpected Findings

The good-to-great companies are more like hidgehogs--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.

Strategy per se did not separate the good-to-great companies from the comparison companies. Both sets had strategies, and there is no evidence that the good-to-great companies spent more time on strategic planning than the comparison companies.

You absolutely do not need to be in a great industry to produce sustained great results. No matter how bad the industry, every good-to-great company figured out how to produce truly superior economic returns.

Chapter 6 - A Culture of Discipline

Key Points

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.

Unexpected Findings

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-a-lifetime 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.

Chapter 7 - Technology Accelerators

Key Points

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.

Unexpected Findings

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 tope 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.

Chapter 8 - The Flywheel and the Doom Loop

Key Points

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.

Unexpected Results

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.

Chapter 9 - From Good to Great to Built to Last

Surveying across the two studies (Built to Last is a previous study completed by the author on companies who have been continuously successful from their founding), the author found four conclusions:

  1. There is substantial evidence that the leaders of the Built to Last companies followed the good-to-great framework as entrepreneurs in small, early-stage enterprises trying to get off the ground, rather than as CEOs trying to transform established companies from good to great.
  2. Good to Great is actually a prequel to Built to Last, rather than a sequel. Apply the findings in this book to create sustained great results as a start-up or an established organization, and then apply the findings in Built to Last to go from great results to an enduring great company.
  3. To make the shift from a company with sustained great results to an enduring great company of iconic stature, apply the central concept from Built to Last: Discover your core values and purpose beyond just making money (core ideology) and combine this with the dynamic of preserve the core/stimulate progress.
  4. A tremendous resonance exists between the two studies; the ideas from each enrich and inform the ideas in the other. In particular, Good to Great answers a fundamental question raised, but not answered, in Built to Last: What is the difference between a "good" BHAG (Big Hairy Audacious Goal) and a "bad" BHAG?

Enduring great companies don't exist merely to deliver returns to shareholders. Indeed, in a truly great company, profits and cash flow become like blood and water to a healthy body: They are absolutely essential for life, but they are not the very point of life.

An important caveat to the concept of core values is that there are no specific "right" core values for becoming an enduring great company. Core values are essential for enduring greatness, but it doesn't seem to matter what those core values are.

Enduring great companies preserve their core values and purpose while their business strategies and operating practices endlessly adapt to a changing world. This is the magical combination of "preserve the core and stimulate progress."

To create an enduring great company requires all the key concepts from both studies, tied together and applied consistently over time. Furthermore, if you ever stop doing any one of the key ideas, your organization will inevitably slide backward toward mediocrity.

Why greatness?

  1. It is no harder to build something great than to build something good. It does not require more suffering or more work than building something mediocre.
  2. If you're engaged in work that you love and care about, for whatever reason, then the question needs no answer. Indeed, the real question is not, "Why greatness?" but "What work makes you feel compelled to try for 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.

Where and how should I begin?

First, familiarize yourself with all the findings. Remember, no single finding by itself, makes a great organization; you need to have them all working together as an integrated set. Then work sequentially through the framework, starting with "first who" and moving through all the major components. Meanwhile, work continuously on your own development toward Level 5 leadership.

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