Good to Great by Jim Collins

For five years, Jim Collins and his team of researchers studied the differences between good companies and exceptional companies. Through their research, they discovered 28 companies, such as Walgreens and Gillette, that had returns seven times greater than the general stock market over fifteen years on average. Jim and his team decipher the steps each of those companies took before they “broke away” from their competitors.

This is a fantastic book because each statement in the book is not an opinion, but is a fact that is supported by scientific research. If you are interested in learning about what makes a company succeed, look no further than Good to Great.

**Disclaimer: I do not claim to own the rights to any of the material below. All rights and material belong to Jim Collins and Harper Collins Publishing.**

Read the bolded statements twice.

Level 5 Leadership

Level 5 Leaders, as Jim’s team calls them, lead every great company through their build up phase before their break through to greatness. Jim’s criteria for a Level 5 Leader are below:

  • L5L’s embody a paradoxical mix of personal humility and professional will.
  • L5L’s set up their successors for even greater success.
  • L5L’s are fanatically driven, infected with the need to produce sustained results.
  • L5L’s are more plow horse than work horse.
  • L5L’s attribute their success to factors other than themselves and when things go poorly they take full responsibility.
  • L5L’s attribute much of their success to luck rather than personal greatness.
  • L5L’s show ambition first and foremost for the company and concern for its success rather than for one’s own riches and personal gain.

First Who…Then What

Jim’s team found that it is more important to find the right people for your company rather than the right product/service. The quote below summarizes the concept perfectly:

“I do not really know where we should take this bus. But I know this much: If we ge the right people on the bus, the right people in the right seats, and the wrong people off the bus, then we will figure out how to take it someplace great.”

  • Great management teams consist of people who debate vigorously in search of the best answers, yet who unify behind decisions regardless of personal interests.
  • Great leaders are rigorous, not ruthless.
  • Great leaders do not rely on layoffs or restructuring to improve performance.
  • Whether someone is the “right” person has more to do with character traits and innate capabilities than with specific knowledge or skills.

Three Practical Disciplines for Being Rigorous in People Decisions

  1. When in doubt, do not hire – keep looking.
    1. 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 change, act.
  3. Put you best people on your biggest opportunities, not your biggest problems.

Confront the Brutal Facts

This chapter is related to the Level 5 Leader section, but the key difference is how leaders specifically approach current realities that enables them to position their company appropriately in the market.

  • Facts are better than dreams
  • When you start with an honest and diligent effort to determine the truth of your situation, the right decisions often become self-evident.
  • A primary task of a great company is to create a culture wherein people have a tremendous opportunity to be heard, and ultimately, for the truth to be heard.
  • Hit your realities head on and you will emerge from adversity even stronger than before.
  • Embrace 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.
  • Spending time and energy trying to “motivate” people is a waste of effort. If you have the right people, they will be self-motivated.
  • Great leaders use questions for only one reason: To gain understanding.
  • Informal, non-agenda meetings can become a forum where current realities bubble to the surface.
  • Great leaders play the role of Socratic moderator in raging debates.
  • Great leaders strip away the noise and just focus on the few things that would have the greatest impact.

Four Practices to Create a Climate Where Truth is Heard

  1. Lead with questions, not answers
  2. Engage in dialogue and debate, no coercion
  3. Conduct autopsies without blame
  4. Build red flag mechanisms that turn information into information that cannot be ignored.

The Hedgehog Concept

Hedgehogs simplify a complex world into a single organized idea, a basic principle or concept that unifies and guides everything.

The hedgehog concept is not a goal, strategy or intention, it is an understanding. Great companies set goals and strategies based on understanding. The concept has three equally weighted circles that need to balance perfectly to achieve success:

Circle 1: What are you deeply passionate about?

Circle 2: What can you be best in the world at?

Circle 3: What drives your economic engine?

  1. To get insight into what drives your economic engine, search for one denominator that has the single greatest impact on your business (profit per square foot, cost per click, etc.).

Getting the Hedgehog concept is an iterative process:

  1. Ask questions guided by the three circles
  2. Dialogue that is guided by the three circles
  3. Executive decisions guided by the three circles
  4. Autopsies and analysis guided by the three circles
  5. Repeat

**Each step the in the process is made by “The Council.” The characteristics of The Council are as follows:

  1. Exists as a device to gain understanding of important issues facing the organization.
  2. Members come from a range of perspectives, each having a deep understand and knowledge about some aspect of the organization.
  3. Usually consists of 5 to 12 people.
  4. Each member argues and debates with company interests, not ego.

A Culture of Discipline

  • Sustained great results depend upon building a culture full of self-disciplined people who take disciplined action, fanatically consistent with the three circles.
  • A culture of discipline requires duality: It requires people who adhere to a consistent system, yet it gives people freedom and responsibility within the framework of that system.
  • The purpose of budgeting 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.
  • The most effective investment strategy is a highly undiversified portfolio when you are right.
  • Great companies align workers interests with management’s interests.

Technological Accelerators

  • Great companies avoid technology fans 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?”
  • Great companies used technology as an accelerator of momentum, not a creator of it.
  • Great companies respond to technology with thoughtfulness and creativity.
  • “Crawl, walk, run” can be an effective approach, even during times of rapid and radical technological change.
  • Thoughtless reliance on technology is a liability, not an asset.

 The Flywheel and the Doom Loop

  • No matter how dramatic the end result, the good to great transformation never happens in one fell swoop.
  • With persistent pushing in a consistent direction over a long period of time, the flywheel builds momentum, eventually hitting a point of breakthrough.
  • Great companies make acquisitions after their point of breakthrough.
  • Tremendous power exists within continued improvement and the delivery of results.

The Flywheel Process is a cycle and includes the following steps:

  1. Steps forward, consistent with hedgehog concept
  2. Accumulation of visible results
  3. People line up, energized by results
  4. Flywheel buildings momentum
  5. Repeat

Notes from Jim’s book Built to Last

  • Clock building, not time telling
    • Build an organization that can endure and adapt through multiple generations of leaders and product life cycles.
  • Genius of AND
    • Instead of choosing A or B, figure out how to have A and B.
  • Core Ideology
    • Instill core values and core purpose as principles to guide decisions and inspire people throughout the organization over a long period of time.
  • Preserve the core/stimulus progress
    • Change practices and strategies while holding core values and purpose fixed.