Good to Great: Why some companies make the leap and others don’t

Summary of the book Good to great: The business practices and behaviour found in companies that are considered to be excellent.

By Jim Collins, 2009, 320 pages.

Note: This is a guest chronicle written by Dany, from the blog Le Manager Urbain . I will let him introduce himself:

Today, more than ever, Managers have to play multiple roles. They are simultaneously leaders, parents, spouses, partners and friends. They have to rally their troops, produce results and offer value to shareholders. Managers represent the company in various activities and they do volunteer work in their communities. They also have to find time for personal and professional development while taking care of their own physical and mental well-being. It is obviously difficult to strike a balance among all these priorities, don’t you agree!

The objective of my blog is to help readers build a balanced lifestyle as they occupy their position as a high-performance executive and to reach level 5 leadership as described by Jim Collins in his book.

Chronicle and summary of the book Good to Great:

Good is the enemy of great. Precisely because they focus on what they do well, a majority of companies demonstrate decent performance… but never exceptional performance.  Under these conditions, which path leads to supremacy?

Good to Great helps us to understand why some companies or institutions will never excel; they will even counter-perform.

Jim Collins is a teacher and researcher in management in Colorado. He brought together a team of 20 people who spent more than 15,000 hours working to produce this best-seller that has sold more than 3 million copies.

Chapter 1 – Good is the enemy of great

Why do some companies, even if they have always shown average results, take off one day and sustainably join the leaders of the pack? The author and his team conducted an empirical study of a vast amount of data.

The approach:

• Establish a list of companies whose results went from good to excellent and which were able to maintain this level for at least fifteen (15) years;
• Just 11 companies were ranked excellent after the many selection filters on 1,435 Fortune 500 companies between 1965 and 1995 (Abbott Laboratories, Circuit City, Fannie Mae, Gillette, Kimberly-Clark, Kroger, Nucor, Philip Morris, Pitney Bowes, Walgreens and Wells Fargo);
• They compared these companies to similar companies (several references per company ranked excellent);
• Along with a group of similar companies that produced variable results;
• The objective was to highlight the essential differentiating factors.

What Jim Collins discovered:

1. A level 5 leader is retiring, calm, reserved, even shy. This leader offers a blend of humility at a personal level and drive at a professional level;
2. First who…and then what… in other words, instead of defining a project and recruiting a team to carry it out, these leaders in excellence get the staff they need on the bus and then decide where to drive it;
3. Know how to face the brutal facts…without losing faith – believe in success and keep your feet on the ground;
4. The “Hedgehog Concept”: do not believe that being a specialist in your field or having a lot of experience doing something makes you the best in that field;
5. A culture of discipline – “all companies have a culture and some have discipline, but few of them possess a culture of discipline”;
6. Technology – even if these companies are pioneers in the use of carefully chosen technologies, it is clear that the technology in itself does not trigger change in the excellent companies;
7. The flywheel – symbol of change – is to demonstrate that transformations never happen overnight. The process resembles the action of constantly turning an enormous flywheel in one direction until the desired result is achieved.

Chapter 2 – Level 5 leadership

In a cutting-edge company, there is a 5-level hierarchy:

• Level 1 — The highly capable individual:

Making a productive contribution through their talent, their knowledge, their skills and their good working methods.

• Level 2 — The contributing team member:

Efficiently placing their individual abilities at the service of achieving a set of objectives and working as part of a group.

• Level 3 — The competent manager:

Organising staff and resources with a view to the genuine and efficient pursuit of pre-established objectives.

• Level 4 — The effective leader:

Catalysing commitment and the vigorous pursuit of a clear and undisputed vision by stimulating the highest level of results.

• Level 5 — The level 5 executive:

Building lasting excellence through a paradoxical blend of personal humility and professional ambition.

Surprisingly, all the successful companies that made lasting progress had the same type of leadership. You may have expected them to be run by charismatic, highly visible leaders with strong personalities. Nothing of the sort. The people running these companies are leaders who combine genuine personal humility with a high degree of professional will.

These leaders possess the following qualities:

• They prepare successors capable of perpetuating the success When a CEO leaves, this often spells the end of an organisation’s success, because the replacement is not generally up to the job. It’s true that there is nothing more flattering to the ego that to observe the decline of a company just after you leave it… Level 5 leaders do not make this small-minded calculation. And they make sure that the person who comes after them will continue the good work at the company.
• They are extremely modest A million miles from the usual ego-centric behaviour of company chiefs, level 5 leaders are calm and efficient. Leaders prefer to draw attention to the other members of the organisation and steer clear of the limelight and produce extraordinary results without seeking a crown of laurels.
• They have unshakeable determination. Do not imagine that these leaders lack self-esteem or self-interest. They are considerably ambitious, but that ambition is directed towards the organisation. They are resolute when it comes to doing everything necessary to ensure that the company remains in excellent health.

The presence of famous CEOs recruited outside of companies correlates negatively to the move from good to great. Almost all companies that make the leap to greatness favour internal promotion. Level 5 leaders tend to attribute their success to luck and external factors, but systematically accept full responsibility in the event of poor performance.

Chapter 3 – First who… then what

CEOs that excel understand three simple truths:

• Who before what is a means of adapting to a changing world;
• Good associates are autonomous and motivated and do not need much supervising;
• If you are not working with the right staff, then no matter what your company project, you will never become an excellent company.

Businesses that reach great heights in a fast and sustainable manner do not define a particularly fascinating strategy or vision in order to get all the members of the organisation on board. In fact, their directors begin by carefully choosing … the staff. They first figure out who they wanted to take on the trip with them, and go on to precisely determine the destination. These companies prefer personality over diplomas, practical skills or professional experience.

The reasoning is as follows: if you are surrounded by mediocre people, then it doesn’t matter whether you are heading in the right direction – you will never achieve excellence. That is why the businesses that perform best apply rigorous criteria when it comes to managing human resources. The higher you go up the chain of command, the stricter the criteria. This rigour essentially boils down to observing three rules:

1. No company can develop in a healthy way unless it has enough good people to ensure its growth.

The best companies are more profitable, not because they work more, but because they work better. At the time of hiring, keep in mind that skills can be learned. This is not necessarily the case with character, ethics or openness of mind.

Real case no. 1: In case of doubt, do not recruit – observe the Packard law:

“No company can grow revenues consistently faster than its ability to get enough of the right people to implement that growth and still become a great company.”

2. Be sure that each person is in the position that best suits their talents.

If necessary, set up solutions to compensate for any eventual defects. But remember that only the poor elements need constant surveillance. To decide whether you need to separate from a worker, ask yourself two questions:

If I had to do it again, would I still hire this person?

If they announce that they are leaving the company, would I feel secretly relieved?

Real case no. 2: When you are sure you need to change a person, do it.

Because while you are waiting, your best people are wondering what is taking so long…

3. Set your best people to work on the choicest opportunities, not on the biggest problems.

Never forget that we improve by fixing problems. In addition to this, by seizing opportunities, a company can attain excellence.

Real case no. 3: Put the best people on the best opportunities, not the worst problems.

“If you want to get rid of your problems, don’t pass them to the best people”.

Good workers do not need to be motivated constantly. They perform quality work whatever the incentives planned. Having said that, remuneration and incentive bonuses are crucial when it comes to keeping the best people working for your company. In itself, the worry of bringing together the perfect working team is nothing new. What goes against general thinking is that in companies that excel, this search for the perfect team comes before drawing up a strategy.

Chapter 4 – Confront the brutal facts

“There is no worse mistake in public leadership than to hold out false hopes soon to be swept away.”  Winston Churchill

The path to excellence involves accepting reality as it is, no matter how unpleasant it may be. Once a company recognises, in complete honesty, its real situation, the decisions that need to be made become obvious. That is why it is crucial to install a culture in which the people working for the company have the opportunity to be heard.

Four basic practices to recommend:

1. Excellence is not acquired by offering ready-made answers and rallying teams to your providential vision. You need to be humble enough to recognise that some things still elude you. Then ask the questions that will lead you to optimal understanding.
2. The best companies have a taste for lively debate and frank discussions. Far from being a sham intended to let each person believe that they have the right to add their input, dialogue is an opportunity to find the best answers to problems. Managers must be able to defend their point of view and get on board with the decisions that are taken in the end.
3. What distinguishes excellence from mediocrity is not the absence of problems, but the ability to resolve them. Decisions are taken in the light of results, without wasting time blaming anyone for them. That is how a climate of confidence and truth can be installed and how it spreads.
4. Activate alert mechanisms so that the information cannot be ignored. The best companies do not have different information channels. They do, however, offer employers and customers several opportunities to provide unfiltered data that can be used as warning signs that there may be deeper problems.

Whatever the difficulties involved, you need to be certain that you can (and will) succeed in your endeavours in the end. At the same time, you need to demonstrate discipline to accept to look squarely at the reality on the ground and face the problems that need to be resolved. Jim Collins writes: “Leaders of excellence know how to shut out the noise and clamour and focus on the facts that have the biggest consequences.”

Beware of leaders who are too charismatic.

They can deform reality. Charisma can either be an asset or a handicap. A strong personality can cause problems if the person dissuades people from reporting information that makes for unpleasant hearing.

Trying to motivate your troops all the time is a waste of time. If you have the right people, they will motivate themselves. The trick is to not de-motivate them. Not seeing problems is the most common way of de-motivating people. How to not DE-MOTIVATE your staff? By creating a climate in which they are heard:

• Lead with questions, not with answers;
• Engage dialogue and debate forcefully;
• Conduct the autopsy (the diagnosis) without blaming.

Jim Collins, author of the book Good to Great

Chapter 5 – The hedgehog concept

“Know thyself” Plato

In one of his essays, the philosopher Isaiah Berlin divided the world into two groups:

1. Foxes pursue several goals at once and take on the world in all its complexity. They spread around, move from one thing to another, without ever gathering their thoughts into a unified vision.
2. Hedgehogs, in contrast, simplify the world around them into a single unifying principle. Without worrying about complexity, they reduce all the challenges they encounter into simple ideas.

The best companies espouse the hedgehog habit. They develop a simple, unifying concept that they use to guide them in all their actions.

The “Hedgehog Concept” is located at the crossroads of three fundamental dimensions:

1- Circle 1 – What you can be the best in the world at doing

It is not because you are skilled in one area that you are going to be the best on the international stage. Equally, there may be areas in which you could become the best in the world, even though you do not currently possess the skills. Doing what you are good at can only lead your company to be… good. On the other hand, focusing on what you can do better than anyone else is the true path to excellence. The Hedgehog Concept is not an objective, nor is it an intention or a plan. It is clear knowledge of the area in which you can excel. This is the mantra of Wells Fargo (obviously one of the 11 excellent companies):

“It wasn’t that complicated. We just took a hard-nosed look at our business to limit ourselves to what we knew best in the world without letting ourselves get distracted by our ego.”

2- Circle 2 – What keeps the economic engine running

For good understanding of your economic model, look for the denominator that has the most impact on your growth: if you can only act on a single ratio to significantly increase your profitability, which one would you choose? This denominator may be subtle, sometimes even hidden. Here is the new Wells Fargo indicator:

Evolution: move from profitability per loan to profitability per employee reflecting our consideration of the harsh reality of deregulation: the bank is nothing but a commodity.

3- Circle 3 – What you are most passionate about

As great as your efforts may be, it will be impossible for you to get people to feel passionate about a project that they are not interested in. Passion is not something you can command. The best companies have a very different approach and they only do what they feel passionate about. Passion at Kimberly-Clark:

The management carried out a slide towards mass consumer products because they sensed that there was more interest in them. According to one of them, traditional stationery products are interesting, “but they don’t have the charisma of a diaper”.

There is no need to be in a particularly buoyant sector in order to achieve spectacular results. If it impossible for you to dominate the market in your sector, this means that your main business will not allow you to achieve excellence. That is why it takes several years to draft your Hedgehog Concept.

Chapter 6 – A culture of discipline

“Freedom is only part of the story and half of the truth… That is why I recommend that the Statue of Liberty on the east coast be supplemented by a Statue of Responsibility on the west coast.”   Viktor Frankl, Man’s Search for Meaning

Anyone can achieve excellence, but only rarely do organisations offer themselves the means to achieve it. When it comes to turning potential into reality, most companies fall down due to a lack of discipline. As companies grow, they tend to sacrifice creativity and energy to hierarchical structure and bureaucratic constraints. Promising businesses become ordinary and mediocrity becomes the norm.

In fact, the bureaucratic culture appears to compensate for incompetence and lack of discipline, which is what happens when mediocre people are in position. Most companies set bureaucratic rules to manage a low percentage of bad members.

This problem can be avoided by implementing a culture of discipline:

• The constraints should be clear, all the while leaving the latitude necessary to be creative and take initiatives;
• Surround yourself with people who are willing to take the trouble. Workers at the best companies possess the self-discipline that is necessary to excel in their field.

Do not confuse a culture of discipline with tyranny. Companies that do not manage to guarantee sustainable success often have “tyrants” at their helm. These people impose discipline through force. As soon as the executives leave, the pressure goes away and disorder soon reappears. The culture of discipline is not tyranny, but it does demand strict adherence to the Hedgehog Concept.

Be perfectly coherent with the Hedgehog Concept. Focus on this unifying concept. Everything else is irrelevant. Do not launch onto markets simply in order to diversify. If people are methodical, there is no need for a hierarchy. If the reasoning is methodical, there is no need for bureaucracy. And if the actions are methodical, there is no need for excessive control. When you combine this culture of discipline with an enterprising spirit, you will obtain the alchemy required for exceptional performance.

Here are a few examples of the vocabulary used by excellent companies: rigorous, determined, professional, coherent and responsible.

Companies of excellence have followed a simple maxim to reach their best level:

• “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.”
• “Nor will we start an unrelated joint-venture.”
• “If it doesn’t fit, we don’t do it.” Simple as that.

You need to know how to turn down tempting offers that are not related to your main business. “Opportunities of the century” are irrelevant if they are not part of your Hedgehog Concept. The list of things to stop doing is just as crucial as the list of operations to accomplish.

Chapter 7 – Technology accelerators

“Most people would sooner die than think; in fact they do so.”  Bertrand Russell

New technology is going to change everything – that is the new way of thinking. In reality, technology is often more of a hindrance than of help. When poorly used, it can even precipitate the decline of a company. The way in which a company reacts to technological change is a good indicator of its position on the path to excellence. The companies that take the leap can imagine any kind of innovation serenely.

While driven by a strong desire to tap into unexploited potential, they take no hasty measures. They do not adopt any strategy that is simply a response to initiatives taken by the competition, afraid of not “keeping up”. They remain faithful to their values, and they are not distracted by fads and fashions. The real question is not to know the role of technology, but to know how the thinking of excellent companies is different when it comes to this subject.

It is impossible to make good use of a technical innovation when you do not understand its relevance to your main market.

That is why the only question that concerns the best companies is to determine whether the new technology is in coherence with their Hedgehog Concept. If this is the case, they will be forerunners in implementing this technology creatively. In the opposite case, they will simply pay no attention to it.

Walgreens has always been perfectly clear. Technology will be used in relation to the Hedgehog Concept, and not the opposite. Here is the technological catalyst for this excellent company:

• Lead the field in the application of satellite communications and computer networks in line with its concept of being a local pharmacy, adapted to the specific needs of each site. Investment in a satellite system that links the entire network into a single local pharmacy.

Chapter 8 – The flywheel and the doom loop

“Revolution means turning the wheel” Igor Stravinsky

For outside observers, moving from good to great often looks like a revolution. Seen from within, it is more like a slow, evolving process. This confusion between the spectacular nature of the results and the process blurs our perception of the properties required to generate long-term impact.

The impressive metamorphosis of flourishing companies has never been subject to an official opening or an advertising campaign. There is no miraculous moment when everything changes. Each of these companies has determined, calmly and in a thoughtful way, the steps to follow to obtain remarkable performance in the future. They then embark upon them one after another.

What excellent companies say:

• Abbott “It wasn’t a blinding flash or a sudden revelation that appeared out of nowhere. It was more like a series of successive changes.”
• Philip Morris “…because our success didn’t come from a revolution, but from evolution, success after success.”
• Pitney Bowes “We didn’t talk so much about change. We accepted quite early that we needed to evolve rather than change…”
• Wells Fargo “it wasn’t a brutal about-turn… it happened quietly.”

The flywheel effect

Imagine a gigantic inert flywheel: an enormous wheel mounted horizontally to an axis. In order to turn the wheel, several people have to get together and everyone has to push in the same direction. At first the movement of the wheel is imperceptible. But as the effort continues, the wheel starts to turn and it becomes easier and easier to keep it going. After a while, the weight of the wheel itself is enough to keep it turning, thanks to the force of inertia.

All companies that have made the leap to excellence have experience of this phenomenon. The initial efforts are barely noticeable. Later, coordinated and disciplined actions generated a knock-on effect that led to lasting transformation. People want to be part of a winning team. When they feel that change is in progress and they begin to notice the results, they naturally want to push the wheel in the same direction.

The doom loop

Ordinary companies have a very different appearance. Instead of launching a slow, organic process, they regularly launch new programmes of radical change and restructuring. This is usually accompanied by major communication efforts, in the hope of “motivating the troops”. Because these programmes deny themselves the essential period of maturation, they produce no results. Everything happens as if they are first pushing the flywheel in one direction, then in the other direction, and so on. After years of incoherent trepidation, these companies end up in decline.

To check whether your company is “pushing the wheel” in the right direction, ask yourself if you:

• Observe a period of transition before implementing significant change;
• Move forward gently, proceeding step by step;
• Accept to face the real problems in order to determine how to fix them as soon as possible;
• Ensure complete coherence through a clearly defined Hedgehog Concept;
• Maintain a culture of discipline through people, reasoning and methodical actions;
• Painstakingly choose the most appropriate technology;
• Only envisage mergers and acquisitions as eventual catalysts for deep change;
• Only spend a small amount of time trying to motivate or get people on board within the organisation;
• Let the results speak for themselves;
• Remain coherent over time, with each generation relying on the work of the previous generation.

The flywheel effect is built on sustained progress and good results that allow people to feel the upward momentum.

Book critique of “Good to Great”

Jim Collins has trained CEOs and senior managers at hundreds of companies, among them Starbucks Coffee and American General. He is a former researcher and professor at the school of business at Stanford University. In 1995 he founded a management research laboratory in Boulder, Colorado. This led him to take on important projects in both the public and private sector.

The fruit of an in-depth study into eleven formally ordinary and now elite companies, Jim Collins’s book is a mine of information that no business person can afford to ignore. The resulting conclusions are astonishing: a million miles from flamboyant strategies conducted using major means of communication, the transition to excellence happens discreetly. There is no prior strategy and it takes place under the impetus of leaders with modest profiles.

Instead of imposing their vision, these leaders seek out the best staff, and then encourage intense and on-going debate within the company team.

This point sets things straight and is the very essence of my blog: Le Manager Urbain

In fact, when I started reading From good to great, my first thought was that the contents would be of interest to my management team. As I am in charge of a region for a major bank, I supervise a large team and I am always on the lookout for development ideas for my managers in order to allow them to excel. We recently experimented with the Jim Collins’s concept of “Facing the brutal facts”.

One of our performance indicators had been under the desired levels for some time and some of the managers ran things in the hope of seeing a miraculous reversal of the trend.  We laid out the facts, made our observations and wrought important changes. We are now experiencing positive change. As I said to my team “It hurts, but it doesn’t hurt for as long”.

I also decided to buy several copies of From good to great to give to our entrepreneur customers. As I only handed them over recently, I don’t have much feedback for the moment. However, one of our specialists on the consulting team who has applied several From good to great examples in his interventions told us that one of our customers had experimented with the benefits of the Hedgehog Concept and is now convinced of its impact on their business.  They even reproduced a graph of the concept in a visual format that hangs in their meeting room.

While they are all important, the chapters on Level 5 Leadership and the Hedgehog Concept are, for me, the chapters that offer the most to my organisation. They demonstrate that leadership is a vital element for a company to go from good to great. This is accompanied by a strategic vision based on a unifying concept and turned towards action.

Strong Points:

• Founded on a very serious study and abundantly illustrated with examples, this is a tool to help the thought process of any company manager who wants to “boost” their company;
• In-depth and filled with long case studies, the effectiveness of organisations is at the heart of this book;
• This is illustrated by the summaries at the end of each chapter to allow readers to retain the essential points;
• From good to great is vital reading for managers who want to rethink their company or want to implement fundamental, long-term changes to their approach with a view to achieving excellence.

Weak Points:

• From good to great suffers from a classic defect of this kind of book. There is a risk of generalisation based on a small number of cases, where correlation often takes the place of cause;
• Fans of winning formulas will be delighted because Collins studies and describes his discoveries in a talented way. However, he risks repeating the experience of his book “Beyond entrepreneurship” where he applauded a number of American champions, several of whom disappeared afterwards.

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