Good to Great: Why Some Companies Make the Leap...And Others Don't by Jim Collins
November 30, 2016
In this edition-o-Kathy's CliffNote's we look at the book Good to Great: Why Some Companies Make the Leap...And Others Don't by Jim Collins. There are a lot of summaries of this book online, and many of them are shorter than the following 15 page version. However, since we're on the internet, page numbers don't really matter. I've included a number of examples in the below to help illustrate the points made. I've also included some personal notes. However, if you are interested in a MORE abbreviated CliffNotes option than what I'm providing, I would suggest this one.
However, with the shorter summary, not only do you miss the examples included in the below, but you also won't get this BONUS image. I know, you're feeling pretty lucky and spoiled right now....as you should be.
In his previous bestseller, Built to Last, Jim Collins explored what made great companies great and how they sustained that greatness over time. One point kept nagging him, though — great companies have, for the most part, always been great, while a vast majority of good companies remain just that: good, but not great. What could merely good companies do to become great? Collins and his team of researchers used strict benchmarks to identify a group of eleven elite companies that made the leap from good to great and sustained that greatness for at least fifteen years (i.e. to ensure success couldn’t be attributed to one CEO). The companies that made the list might surprise you as much as those left off (the likes of Intel, GE and Coca Cola are nowhere to be found). The real surprise of Good to Great isn’t so much what good companies do to propel themselves to greatness — it’s why more companies haven’t done the same things more often.
Celebrity executives almost never lead good companies to greatness. Good-to-great leaders embody a paradoxical mix of personal humility and professional will.
You can’t achieve great things without great people. Many companies create strategy, then try to rally people around it; good-to-great companies start with great people and build great results from their efforts.
Simplicity rules. To go from good to great requires leaders to know what their organizations are passionate about, what drives their economic engine, and at what they can (and cannot) be the best in the world.
Enterprise-wide discipline is essential. When you combine a culture of discipline with an ethic of entrepreneurship, you are more likely to achieve great results.
Technology is an accelerator. Good-to-great companies do not jump on technological bandwagons or chase after fads. They determine what technology makes the most sense for them, then pioneer its application
Research Methodology & Selecting Good-to-Great Companies
Good is the enemy of great. And that is one of the key reasons why we have so little that becomes great.
The vast majority of companies never become great, precisely because the vast majority become quite good—and that is their main problem.
In essence, we identified companies that made the leap from good results to great results and sustained those results for at least fifteen years. We compared these companies to a carefully selected control group of comparison companies that failed to make the leap, or if they did, failed to sustain it. We then compared the good-to-great companies to the comparison companies to discover the essential and distinguishing factors at work.
Companies that showed the following basic pattern: fifteen-year cumulative stock returns at or below the general stock market, punctuated by a transition point, then cumulative returns at least three times the market over the next fifteen years. We picked fifteen years because it would transcend one-hit wonders and lucky breaks (you can’t just be lucky for fifteen years) and would exceed the average tenure of most chief executive officers (helping us to separate great companies from companies that just happened to have a single great leader). We picked three times the market because it exceeds the performance of most widely acknowledged great companies.
The crucial question the book tackles is: What did the good-to-great companies share in common that distinguished them from the comparison companies?
The 11 Good-to-Great Companies Identified and Studied:
Some Surprising Findings:
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.
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.
Strategy per se did not separate the good-to-great companies from the comparison companies. Both sets of companies had well-defined 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 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.
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.
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.
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.
Every primary concept in the final framework showed up as a change variable in 100 percent of the good-to-great companies and in less than 30 percent of the comparison companies during the pivotal years. Any insight that failed this test did not make it into the book as a chapter-level concept.
Think of the transformation as a process of buildup followed by breakthrough, broken into three broad stages: disciplined people, disciplined thought, and disciplined action. The rest of the summary takes you through each section.
Level 5 Leadership
You can accomplish anything in life, provided that you do not mind who gets the credit. —HARRY S. TRUMAN
Larger-than-life, celebrity leaders who ride in from the outside are negatively correlated with going from good to great. Ten of eleven good-to-great CEOs came from inside the company.
Kathy’s Note: This matches the research in Work Rules! that found being successful in one company does not guarantee/predict success in another.
A key trait of Level 5 leaders: ambition first and foremost for the company and concern for its success rather than for one’s own riches and personal renown. Level 5 leaders want to see the company even more successful in the next generation, comfortable with the idea that most people won’t even know that the roots of that success trace back to their efforts. 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. After all, what better testament to your own personal greatness than that the place falls apart after you leave.
Kimberly-Clark Example: Smith brought that same ferocious resolve to rebuilding Kimberly-Clark, especially when he made the most dramatic decision in the company’s history: Sell the mills. Shortly after he became CEO, Smith and his team had concluded that the traditional core business—coated paper—was doomed to mediocrity. Its economics were bad and the competition weak. But, they reasoned, if Kimberly-Clark thrust itself into the fire of the consumer paper-products industry, world-class competition like Procter & Gamble would force it to achieve greatness or perish. So, like the general who burned the boats upon landing, leaving only one option (succeed or die), Smith announced the decision to sell the mills, in what one board member called the gutsiest move he’d ever seen a CEO make. Sell even the mill in Kimberly, Wisconsin, and throw all the proceeds into the consumer business, investing in brands like Huggies and Kleenex. The business media called the move stupid and Wall Street analysts downgraded the stock. Smith never wavered. Twenty-five years later, Kimberly-Clark owned Scott Paper outright and beat Procter & Gamble in six of eight product categories. In retirement, Smith reflected on his exceptional performance, saying simply, “I never stopped trying to become qualified for the job”. We found leaders of this type at the helm of every good-to-great company during the transition era. Like Smith, they were self-effacing individuals who displayed the fierce resolve to do whatever needed to be done to make the company great.
Level 5 leaders are a study in duality: modest and willful, humble and fearless.
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
Kathy’s Note: This might also imply giving a lot of autonomy and empowerment to the team and specialists. Having talent in key positions (Work Rules! also talks about the importance of finding the right people first, not the right jobs/structure first).
It wasn’t 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.
It is very important to grasp that 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.
Abbott Example: Cain didn’t have an inspiring personality to galvanize the company, but he had something much more powerful: inspired standards. He could not stand mediocrity in any form and was utterly intolerant of anyone who would accept the idea that good is good enough. Cain then set out to destroy one of the key causes of Abbott’s mediocrity: nepotism. Systematically rebuilding both the board and the executive team with the best people he could find, Cain made it clear that neither family ties nor length of tenure would have anything to do with whether you held a key position in the company.
The great irony is that the animus and personal ambition that often drive people to positions of power stand at odds with the humility required for Level 5 leadership. When you combine that irony with the fact that boards of directors frequently operate under the false belief that they need to hire a larger-than-life, egocentric leader to make an organization great, you can quickly see why Level 5 leaders rarely appear at the top of our institutions. The problem is not, in my estimation, a dearth of potential Level 5 leaders. They exist all around us, if we just know what to look for. And what is that? Look for situations where extraordinary results exist but where no individual steps forth to claim excess credit. You will likely find a potential Level 5 leader at work.
We found a symbiotic relationship between Level 5 and the remaining findings. On the one hand, Level 5 traits enable you to implement the other findings; on the other hand, practicing the other findings helps you to become Level 5. Think of it this way: This chapter is about what Level 5s are; the rest of the book describes what they do. Leading with the other disciplines can help you move in the right direction. There is no guarantee that doing so will turn you into a full-fledged Level 5, but it gives you a tangible place to begin.
First Who…Then What
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. They said, in essence, “Look, I don’t really know where we should take this bus. But I know this much: If we get the right people on the bus, the right people in the right seats, and the wrong people off the bus, then we’ll figure out how to take it someplace great.” The old adage “People are your most important asset” turns out to be wrong. People are not your most important asset. The right people are.
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 good-to-great leaders understood three simple truths.
First, if you begin with “who,” rather than “what,” you can more easily adapt to a changing world.
Second, if you have the right people on the bus, the problem of how to motivate and manage people largely goes away. The right people don’t need to be tightly managed or fired up; they will be self-motivated by the inner drive to produce the best results and to be part of creating something great.
Third, if you have the wrong people, it doesn’t matter whether you discover the right direction; you still won’t have a great company. Great vision without great people is irrelevant.
The good-to-great leaders were rigorous, not ruthless, in people decisions. And the distinction is crucial. To be ruthless means hacking and cutting, especially in difficult times, or wantonly firing people without any thoughtful consideration. To be rigorous means consistently applying exacting standards at all times and at all levels, especially in upper management. To be rigorous, not ruthless, means that the best people need not worry about their positions and can concentrate fully on their work.
Wells Fargo Example: Like a professional sports team, only the best made the annual cut, regardless of position or tenure. Summed up one Wells Fargo executive: “The only way to deliver to the people who are achieving is to not burden them with the people who are not achieving.”
How to Be Rigorous We’ve extracted three practical disciplines from the research for being rigorous rather than ruthless.
Practical Discipline #1: When in doubt, don’t hire—keep looking. 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.
Practical Discipline #2: When you know you need to make a people change, act. The moment you feel the need to tightly manage someone, you’ve made a hiring mistake. The best people don’t need to be managed. Guided, taught, led—yes. But not tightly managed. 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. The good-to-great leaders, however, would not rush to judgment. Often, they invested substantial effort in determining whether they had someone in the wrong seat before concluding that they had the wrong person on the bus entirely. Level 5 leaders spent a lot of time thinking and talking about who sits where on the bus. Instead of firing honest and able people who are not performing well, it is important to try to move them once or even two or three times to other positions where they might blossom.
Practical Discipline #3: Put your best people on your biggest opportunities, not your biggest problems. The good-to-great companies made a habit of putting their best people on their best opportunities, not their biggest problems. The comparison companies had a penchant for doing just the opposite, failing to grasp the fact that managing your problems can only make you good, whereas building your opportunities is the only way to become great.
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.
Indeed, 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.
Members of the good-to-great teams tended to become and remain friends for life. In many cases, they are still in close contact with each other years or decades after working together. It was striking to hear them talk about the transition era, for no matter how dark the days or how big the tasks, these people had fun! They enjoyed each other’s company and actually looked forward to meetings.
The good-to-great companies placed greater weight on character attributes than on specific educational background, practical skills, specialized knowledge, or work experience. Not that specific knowledge or skills are unimportant, but they viewed these traits as more teachable (or at least learnable), whereas they believed dimensions like character, work ethic, basic intelligence, dedication to fulfilling commitments, and values are more ingrained.
Kathy’s Note: In Work Rules! It's noted that Google uses the same approach. And uses real work problems in the interview since past job success is not strongly correlated with future job success (especially across companies)
Wells Fargo Example: They focused on “injecting an endless stream of talent” directly into the veins of the company. They hired outstanding people whenever and wherever they found them, often without any specific job in mind. “That’s how you build the future”. Wells Fargo’s approach was simple: You get the best people, you build them into the best managers in the industry, and you accept the fact that some of them will be recruited to become CEOs of other companies.
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.
Whether someone is the “right person” has more to do with character traits and innate capabilities than with specific knowledge, background, or skills .
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.
Confront the Brutal Facts
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.
The good-to-great leaders made particularly good use of informal meetings where they’d meet with groups of managers and employees with no script, agenda, or set of action items to discuss. Instead, they would start with questions like: “So, what’s on your mind?” “Can you tell me about that?” “Can you help me understand?” “What should we be worried about?” These non-agenda meetings became a forum where current realities tended to bubble to the surface.
“We established an ongoing series of general manager meetings, and my role was more as a mediator,” commented Iverson. “They were chaos. We would stay there for hours, ironing out the issues, until we came to something....”
The moment a leader allows himself to become the primary reality people worry about, rather than reality being the primary reality, you have a recipe for mediocrity, or worse. This is one of the key reasons why less charismatic leaders often produce better long-term results than their more charismatic counterparts.
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.
Graniterock Short Pay Example For Consumer Feedback: Short pay gives the customer full discretionary power to decide whether and how much to pay on an invoice based upon his own subjective evaluation of how satisfied he feels with a product or service. Short pay is not a refund policy. The customer does not need to return the product, nor does he need to call Graniterock for permission. He simply circles the offending item on the invoice, deducts it from the total, and sends a check for the balance. When I asked Woolpert his reasons for short pay, he said, “You can get a lot of information from customer surveys, but there are always ways of explaining away the data. With short pay, you absolutely have to pay attention to the data. You often don’t know that a customer is upset until you lose that customer entirely. Short pay acts as an early warning system that forces us to adjust quickly, long before we would lose that customer.”
Going Against Strong Competition Makes You Stronger: Kimberly-Clark, on the other hand, viewed competing against Procter & Gamble not as a liability, but as an asset. Darwin Smith and his team felt exhilarated by the idea of going up against the best, seeing it as an opportunity to make Kimberly-Clark better and stronger. “Could we have a better adversary than P&G? Not a chance. I say that because we respect them so much. They are bigger than we are. They are very talented. They are great at marketing. They beat the hell out of every one of their competitors, except one, Kimberly-Clark. That is one of the things that makes us so proud.”
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.
The Hedgehog Concept
The Hedgehog Concept (Simplicity within the Three Circles). To go from good to great requires transcending the curse of competence. Just because something is your core business—just because you’ve been doing it for years or perhaps even decades—does not necessarily mean you can be the best in the world at it. And if you cannot be the best in the world at your core business, then your core business absolutely cannot form the basis of a great company. It must be replaced with a simple concept that reflects deep understanding of three intersecting circles.
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. The Hedgehog Concept is not a goal, strategy, or intention; it is an understanding.
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.
Good-to-great companies set their goals and strategies based on understanding; comparison companies set their goals and strategies based on bravado.
“Economic Denominator”: we did notice one particularly provocative form of economic insight that every good-to-great company attained, the notion of a single “economic denominator.” Think about it in terms of the following question: If you could pick one and only one ratio—profit per x (or, in the social sector, cash flow per x)—to systematically increase over time, what x would have the greatest and most sustainable impact on your economic engine? We learned that this single question leads to profound insight into the inner workings of an organization’s economics.
Fannie Mae Example: Fannie Mae grasped the subtle denominator of profit per mortgage risk level, not per mortgage (which would be the “obvious” choice). It’s a brilliant insight. The real driver in Fannie Mae’s economics is the ability to understand risk of default in a package of mortgages better than anyone else. Then it makes money selling insurance and managing the spread on that risk. Simple, insightful, unobvious—and right.
Kathy’s Note: Except that probably lead to the economic crash in 2008…but hey.
Do you need to have a single denominator? No, but pushing for a single denominator tends to produce better insight than letting yourself off the hook with three or four denominators. The denominator question serves as a mechanism to force deeper understanding of the key drivers in your economic engine. As the denominator question emerged from the research, we tested the question on a number of executive teams. We found that the question always stimulated intense dialogue and debate. Furthermore, even in cases where the team failed (or refused) to identify a single denominator, the challenge of the question drove them to deeper insight. And that is, after all, the point—to have a denominator not for the sake of having a denominator, but for the sake of gaining insight that ultimately leads to more robust and sustainable economics.
The good-to-great companies did not say, “Okay, folks, let’s get passionate about what we do.” Sensibly, they went the other way entirely: We should only do those things that we can get passionate about. Kimberly-Clark executives made the shift to paper-based consumer products in large part because they could get more passionate about them. As one executive put it, the traditional paper products are okay, “but they just don’t have the charisma of a diaper.”
Kathy’s Note: I don't believe this is the right interpretation based on the information in the book So Good They Can't Ignore You that "follow your passion" is poor career advice and instead it's establishing the craftsman mindset, career capitol and expertise that make someone love what they do. I think the same applies to a whole business. Being great at what you do will lead to winning, and everyone wants to be the best
In response to the question, “How should we go about getting our Hedgehog Concept?” I would say: “Build the Council, and use that as a model. Ask the right questions, engage in vigorous debate, make decisions, autopsy the results, and learn—all guided within the context of the three circles. Just keep going through that cycle of understanding.”
Getting the Hedgehog Concept is an iterative process. The Council can be a useful device.
Characteristics of the Council
1. The council exists as a device to gain understanding about important issues facing the organization.
2. The Council is assembled and used by the leading executive and usually consists of five to twelve people.
3. Each Council 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 Council member retains the respect of every other Council member, without exception.
5. Council members come from a range of perspectives, but each member has deep knowledge about some aspect of the organization 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 organization chart or in any formal documents.
11. The Council can have a range of possible names, usually quite innocuous. In the good-to-great companies, they had benign names like Long-Range Profit Improvement Committee, Corporate Products Committee, Strategic Thinking Group, and Executive Council.
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 about four years on average for the good-to-great companies to clarify their Hedgehog Concepts. Like scientific insight, a Hedgehog Concept simplifies a complex world and makes decisions much easier. But while it has crystalline clarity and elegant simplicity once you have it, getting the concept can be devilishly difficult and takes time. Recognize that getting a Hedgehog Concept is an inherently iterative process, not an event.
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.
A Culture of Discipline
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.
The good-to-great companies at their best followed a simple mantra: “Anything that does not fit with our Hedgehog Concept, we will not do. We will not launch unrelated businesses. We will not make unrelated acquisitions. We will not do unrelated joint ventures. If it doesn’t fit, we don’t do it. Period.”
Discipline Implications for Success Metrics:
What I got from Abbott was the idea that when you set your objectives for the year, you record them in concrete. You can change your plans through the year, but you never change what you measure yourself against
You never just focus on what you’ve accomplished for the year; you focus on what you’ve accomplished relative to exactly what you said you were going to accomplish—no matter how tough the measure.
Simplify Based on Hedgehog Concept: Start a “Stop Doing’ list
Kathy’s Note: Get feedback from the entire group (open idea submission) on items we should no longer do/spend time on: products, processes, markets, events, assets, sponsorships, etc.
Budgeting Implications: In a good-to-great transformation, budgeting is a discipline to decide which arenas should be fully funded and which should not be funded at all. In other words, the budget process is not about figuring out how much each activity gets, but about determining which activities best support the Hedgehog Concept and should be fully strengthened and which should be eliminated entirely. If you look back on the good-to-great companies, they displayed remarkable courage to channel their resources into only one or a few arenas.
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.
Kathy’s Note: Simplicity is key in everything, including organizational structure (who has accountability for what, aligning structure with business focus, etc.), as well as aligning worker interests with management/company interests.
Empowerment Implication: 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.
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.
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.
Throughout business history, early technology pioneers rarely prevail in the end. This pattern of the second (or third or fourth) follower prevailing over the early trailblazers shows up through the entire history of technological and economic change. This pattern underscore a basic truth: Technology cannot turn a good enterprise into a great one, nor by itself prevent disaster.
If you had the opportunity to sit down and read all 2,000+ pages of transcripts from the good-to-great interviews, you’d be struck by the utter absence of talk about “competitive strategy.” Yes, they did talk about strategy, and they did talk about performance, and they did talk about becoming the best, and they even talked about winning. But they never talked in reactionary terms and never defined their strategies principally in response to what others were doing. They talked in terms of what they were trying to create and how they were trying to improve relative to an absolute standard of excellence.
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.
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
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.
Stop and think about it for a minute. What do the right people want more than almost anything else? They want to be part of a winning team. They want to contribute to producing visible, tangible results. They want to feel the excitement of being involved in something that just flat-out works. When the right people see a simple plan born of confronting the brutal facts—a plan developed from understanding, not bravado—they are likely to say, “That’ll work. Count me in.” When they see the monolithic unity of the executive team behind the simple plan and the selfless, dedicated qualities of Level 5 leadership, they’ll drop their cynicism.
We identified BHAGs as a key way to stimulate progress while preserving the core. A BHAG is a huge and daunting goal—like a big mountain to climb. It is clear, compelling, and people “get it” right away. A BHAG serves as a unifying focal point of effort, galvanizing people and creating team spirit as people strive toward a finish line. Like the 1960s NASA moon mission, a BHAG captures the imagination and grabs people in the gut.
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.
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.
Abbott Example to manage these short-term pressures. One particularly elegant method for doing so came from Abbott Laboratories, using a mechanism it called the Blue Plans. Each year, Abbott would tell Wall Street analysts that it expected to grow earnings a specified amount—say, 15 percent. At the same time, it would set an internal goal of a much higher growth rate—say, 25 percent, or even 30 percent. Meanwhile, it kept a rank-ordered list of proposed entrepreneurial projects that had not yet been funded—the Blue Plans. Toward the end of the year, Abbott would pick a number that exceeded analyst expectations but that fell short of its actual growth. It would then take the difference between the “make the analysts happy” growth and the actual growth and channel those funds into the Blue Plans. It was a brilliant mechanism for managing short-term pressures while systematically investing in the future. Tremendous power exists in the fact of continued improvement and the delivery of results. Point to tangible accomplishments—however incremental at first— and show how these steps fit into the context of an overall concept that will work. When you do this in such a way that people see and feel the buildup of momentum, they will line up with enthusiasm.