Management lesons from Good To Great by Jim Collins

Posted on June 22, 2010 By bookguide Topic: Greatbooks, Book summary

In Good To Great - Why Some Companies Make the Leap… and Others Don’t, author Jim Collins and his team explore what goes into a company’s transformation from mediocre to excellent. Moreover, this all-time great management book is based on empirical evidence and volumes of data. The book goes into the some timeless principles on how the Good to Great companies produced sustained great results and achieved enduring greatness.

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Chapter 1: The companies that made the final cut into the ‘Good to Great’ study had to satisfy the following criteria:
1. 15-year cumulative stock returns at or below the general stock market, punctuated by a transition point.
2. Cumulative returns at least three times the market over the next 15 years, weeding out the ‘one-hit-wonders’ and the average tenure of CEOs, removing the possibility that the company would crumble without the same leader.
3. A company has to demonstrate a good-to-great pattern, independent of its industry.

Key Questions: What did the good-to-great companies share in common that distinguished them from the comparison companies? .
The Collins team buckles down and selects 2 sets of comparison companies:
1. Direct comparisons – Companies in the same industry with the same resources and opportunities as the good-to-great group but showed no leap in performance.  Abbott versus Upjohn, Circuit City vs. Silo, Fannie Mae vs. Great Western, Gillette vs. Warner-Lambert, Kimberly-Clark vs. Scott Paper, Kroger vs. A&P, Nucor vs. Bethlehem Steel, Philip Morris vs. RJ Reynolds, Pitney Bowes vs. Addressograph, Walgreens vs. Eckerd, Wells Fargo vs. Bank of America
2. Unsustained comparisons – Companies that made a short- term shift from good to great but failed to maintain the trajectory.  Burroughs, Chrysler, Harris, Hasbro, Rubbermaid, and Teledyne

The Research Findings:
1. Ten out of eleven good-to-great company leaders or CEOs came from the inside. They were not outsiders hired in to ‘save’ the company. They were either people who worked many years at the company or were members of the family that owned the company.
2. The data does not support any link to executive compensation in the process of going from good to great.
3. Strategy per se did not separate the good to great companies from the comparison groups.
4. Good to great companies focus on what Not to do and what they should stop doing.
5. Technology has nothing to do with the transformation from good to great. It may help accelerate it but is not the cause of it.

And,
1. Mergers and acquisitions do not cause a transformation from good to great.
2. Good to great companies paid little attention to managing change or motivating people. Under the right conditions, these problems would naturally go away.
3. Good to great transformations did not need any new name, tagline, or launch program. The leap was in the performance results, not a revolutionary process.
4. Greatness is not a function of circumstance; it is clearly a matter of conscious choice.


Three Stages of Breakthrough
1. Disciplined People: Level 5 Leadership, First Who, Then What
2. Disciplined Thought: Confront the Brutal Facts Hedgehog Concept 1. Disciplined Action Culture of Discipline
3. Technology Accelerators

Chapter 2: Level 5 leaders channel their ego needs away from themselves and into the larger goal of building a great company. Their ambition is first and foremost for the institution/organization, not themselves.  Level 1 Highly Capable Individual - Makes productive contributions through talent, knowledge, skills, and good work habits
Level 2 Contributing Team Member - Contribute individual capabilities to the group objective, works well in a group setting
Level 3 Competent Manager - Organizes people and resources toward efficient and effective pursuit of objectives
Level 4 Effective Leader - Catalyst, vigorous pursuit of vision, stimulates higher performance standards
Level 5 Executive - Builds enduring greatness through a paradoxical blend of personal humility and professional will

Level 5 leaders:
Are result-oriented
Possess inspired standards. - They do not tolerate mediocrity.
Never allow nepotism or seniority. - They will fire non-performing family members and friends.
Are Insiders. - They worked many years inside the company or are from the family that owns the company. - They are not saviors hired in from the outside.
Are Diligent. - They are not show horses but plow horses.
Choose good successors because of their concern for the future of the company. - They want to see it endure for generations.
Possess Determination.

Level 5 leaders give credit to outside factors - when things go well, (looking out the window) - when things go poorly, (looking at the mirror).
Two Sides of Level 5 Leader
Professional Will Personal Humility Creates superb results Modest. Shuns public adulation. Never boastful. A catalyst in good to great transition Unwavering resolve. Does whatever it Acts with quiet, calm determination. Relies takes to produce long-term results on inspired standards, not charisma, to motivate. Sets the standard for building an enduring Channels ambition into the company not company. Settles for nothing less. the self. Sets up successors for success in the next generation.

Key points:
1. Every good to great company had Level 5 leadership during pivotal transition years.
2. Level 5 leaders set up their successors for even greater success in the future, while egocentric level 4 leaders often set up their successors for failure.
3. 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.
4. 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 big or hard the decisions.

Notes
1. One of the most damaging trends in recent history is the tendency (especially of boards of directors) to select dazzling, celebrity leaders and to de-select potential Level 5 leaders.
2. Potential Level 5 leaders exist all around us, we just have to know what to look for.

Unexpected findings:
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, whereas the comparison companies tried outsider CEOs six times more often. Level 5 leaders attribute much of their success to good luck,

Chapter 2: “First Who, Then What”
“Get the right people on the bus first, and the wrong people off the bus, then figure out what direction to drive the company.” •
The Wells Fargo approach: Get the best people, build them into the industry’s best managers, and accept the fact some of them will be recruited to become CEOs of other companies.
Exercise sheer rigor in people decisions

Good to great companies build deeply committed, strong management teams.

Comparison companies had the “genius with a thousand helpers” model. This model fails when the genius departs.
Their moral code is “Excellence for its own sake”.

“The right people will do the right things and deliver the best results regardless of the incentive system.”
Good to great companies were rigorous, but not ruthless. People who did not fit the mold eventually quit or were told to find opportunities elsewhere.
Good to great companies know people aren’t your most important asset, the right people are.
Good to great companies placed greater weight on character than education, skills, or experience when hiring.

The most rigorous discipline was found at the top, where the largest burden of responsibility lies.

Findings: Six out of eleven good to great companies had zero layoffs ten years before breakthrough dates until 1998.

Three Practical Disciplines
1. When in doubt, don’t hire. Keep looking. 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. First, make sure you simply don’t have someone in the wrong seat.
3. Put your best people on your biggest opportunities, not your biggest problems. If you sell off your problems, don’t sell off your best people.

Key points:
1. Before answering the “what” questions of vision and strategy, ask first “who” are the right people for the team.
2. Comparison companies used layoffs much more than the good-to-great companies. Although rigorous, the good-to- great companies were never ruthless and did not rely on layoffs or restructuring to improve performance.
3. The research revealed the three practical disciplines for being rigorous in people decisions.
4. 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:
1. There is no link between executive compensation and 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.
2. The old adage “People are your most important asset” is wrong. People are not your most important asset. The right people are.
3. Whether someone is the right person has more to do with character and innate capabilities than specific knowledge, skills or experience.

Chapter 4: “Confront the Brutal Facts” (Yet Never Lose Faith)
“Create a climate where the truth is heard.”
Forget charisma. The moment a leader allows himself to become the primary reality people worry about, rather than the reality being the primary reality, you have got a recipe for mediocrity.
People filter the brutal facts from a charismatic leader. When you come on too strong it becomes a problem.
They worry more about how the leader will react to the facts rather than speaking up for the good of the company.

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

How do you create a climate where the truth is heard?

1. Lead with questions, not answers.
2. In order to gain an understanding of the facts, leaders use questions to gain information, not as a way to manipulate or put down others.
3. Holding non-agenda forums or informal meetings is a good way to let current realities bubble to the surface.
4. Leading from good to great does not mean coming up with answers and motivating people to follow your messianic vision.
5. Have the humility to grasp the fact you do not yet understand enough to have the answers and then ask questions that will lead to the best possible results.
6. Engage in dialogue and debate, not coercion.  good decisions were the fruit of countless debates and heated discussions – all in search of the best possible answers.

1. Conduct autopsies, without blame.  Philip Morris used its failed 7Up venture to study what went wrong, executives related stories to the research team with no finger-pointing.
2. Build ‘red flag’ mechanisms: The key lies not in better information, but in turning information into information that simply cannot be ignored.

Focus on one simple, unifying concept, everything else is irrelevant.
Foxes pursue many ends at the same time, and see the world in all its complexity, so they are scattered rather than focused on one simple organizing idea or principle.
Hedgehogs simplify a complex world into a single basic organizing principle that unifies or guides its daily life. Everything else outside this basic concept is irrelevant and not worth wasting energy on.
The essence of profound insight is simplicity. Hedgehogs see what is essential, and ignore the rest.

Chapter 5: “The Hedgehog Concept” (Simplicity Within the Three Circles)
Those who built good-to-great companies were in varying degrees, hedgehogs. Comparison companies behaved like foxes, never clarifying a single concept, tending to be scattered, diffused, and inconsistent.
“The Walgreens breakthrough strategy could be stated in one line: ‘The best, most convenient drugstores, with high profit per customer visit.’ “
This hedgehog concept guided their decisions to gradually move all stores to corner lots for multiple exits and entries for customers, thereby increasing their convenience. (Something like Starbucks Coffee, a shop on almost every corner)

Good to great companies founded strategies on a deep understanding of 3 key circles 5. Good to great companies translated understanding into a simple crystal clear concept that guided all efforts and decision-making

The hedgehog concept is a simple, crystalline concept that flows from the deep understanding about the intersection of the following three circles:
1. What you can be best in the world at, realistically, and what you cannot be best in the world at
2. What drives your economic engine
3. What you are deeply passionate about
To achieve greatness, the three circles need to intersect.
“You can’t motivate people to feel passionate.” \

One company did not hire a top business school graduate because she didn’t show enough passion for deodorant.

Chapter 6: “A Culture of Discipline”
Avoid bureaucracy and hierarchy. Instead, create a culture of discipline with an ethic of entrepreneurship. This will lead to superior performance and sustained great results.
Build a culture around the idea of freedom and responsibility, within a framework of the three circles.
Fill that culture with self-disciplined people willing to go to extreme lengths to fulfill their responsibilities.
Don’t confuse a culture of discipline with a tyrannical disciplinarian.
Adhere with great consistency to the Hedgehog concept.
Create a “Stop Doing” list as well as a “To-do” list. Unplug any extraneous activities.
Have clear constraints.
Hire people who don’t need to be managed, so you manage the system, not the people.

Disciplined Thought
Disciplined Action

The good to great vocabulary
Disciplined
Fastidious
Focused
Rigorous
Systematic
Accountable
Determined
Methodical
Responsible
Dogged
Workmanlike
Precise
Diligent
Demanding
Consistent

PAUSE  THINK  CRAWL  WALK  RUN

Chapter 7: “Technology Accelerators”

If you ever find yourself thinking technology alone holds the key to success, then think of the US-Vietnam war. The Americans lost to the vietnamese despite superior technology.
“The good-to-great are motivated by a deep creative urge and inner compulsion for sheer excellence For its own sake. Those who build and perpetuate Mediocrity are motivated more by fear of being left behind.”

Good to great companies reactions to new technology are calm, quiet, and deliberate steps in the right direction, sticking closely to their hedgehog concepts. Mediocre companies react in a frantic, fearful, Chicken Little manner.
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.

Does the technology fit in with your Hedgehog concept? If yes, you need to pioneer in the application of that technology. If no, then you can ignore it entirely.
Good to great companies use technology as an accelerator of momentum, not a creator of it.
Across 84 interviews with good to great executives, fully 80% didn’t even mention technology as one of the top five factors in the transformation.

Chapter 8: “The Flywheel and the Doom Loop”
Similar to pushing a massive flywheel laid horizontally on its axle, with every push the wheel turns one rotation.
It goes faster and faster, gaining momentum until the accumulated overall effort over time, pushing consistently in one direction, carries the speed into a breakthrough momentum, moving by itself.

This is how the good-to-great companies process of transformation is best described. There was no defining action, innovation, launch event, clever tagline or miracle moment.
The breakthrough came from an overall accumulation of consistent effort over time. Under the right conditions, problems of motivation and alignment simply melt away.

“An overnight success is usually the result of a decade of hard work.”

On mergers and acquisitions:
Good to great companies used them as accelerators of momentum, not creators of momentum, while still adhering to their hedgehog concepts.
Two big mediocrities joined together do not make one great company.
You cannot buy your way to greatness

Chapter 9: “From Good-to-Great to Built to Last”
Conclusions:
1. The leaders of the enduring great companies featured in Built to Last followed the good-to-great framework, in small, early-stage enterprises, not as CEOs trying to transform established companies from good to great
2. Good to Great is not a sequel to Built to Last. It is actually a prequel. The findings in this book are applied 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. Discover your core values and purpose beyond just making money and combine this with the dynamic of preserve the core/stimulate progress, as shown for example by Disney.

PRESERVE Core Values
Stimulate progress/CHANGE

1. Level 5 leadership, First Who, then What, and The Stockdale Paradox are all concepts very much related to Built to Last concepts like Clock Building, Genius of AND, Core Ideology, Preserve the Core/Stimulate Progress.


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