Good to Great: Why Some Companies Make the Leap... and Others Don't
Jim Collins, already established as one of the most influential management consultants, further established his credibility with the wildly popular Good to Great: Why Some Companies Make the Leap...and Others Don’t, originally published in 2001. The book went on to be one of the bestsellers in the genre, and it is now widely regarded as a modern classic of management theory.
Collins takes up a daunting challenge in the book: identifying and evaluating the factors and variables that allow a small fraction of companies to make the transition from merely good to truly great. ‘Great,’ an admittedly subjective term, is operationally defined according to a number of metrics, including, specifically, financial performance that exceeded the market average by several orders of magnitude over a sustained period of time. Using these criteria, Collins and his research team exhaustively catalogued the business literature, identifying a handful of companies that fulfilled their predetermined criteria for greatness. Then, the defining characteristics that differentiated these ‘great’ firms from their competitors were quantified and analyzed.
The resulting data are presented in Good to Great in compelling detail. Over the course of 9 chapters, Collins addresses a number of management, personnel, and operational practices, behaviors, and attitudes that are both conducive and antithetical to the good-to-great transition. One overarching theme that links together virtually all of Collins’ arguments is the need to define a narrowly focused objective and field of competency and then focus all of the company’s resources toward that area of strength. Repeatedly, Collins warns that straying too far from a company’s established strengths is inimical to the attainment of greatness. Finally, Collins links the findings of Good to Great to the conclusions he reached in his previous book, Built to Last, which focused on the factors that define companies that survive in the long-term, meshing both sets of results into an overarching framework for enduring success.
Chapter 1: Good is the Enemy of Great
The first chapter of the book lays out the criteria that Collins and his research team used in selecting the companies that served as the basis of the meta-analysis that provided the findings set forth in the book. The most important factor in the selection process was a period of growth and sustained success that far outpaced the market or industry average. Based on the stated criteria, the companies that were selected for inclusion were Abbott, Fannie Mae, Circuit City, Gillette, Kimberly-Clark, Kroger, Nucor, Philip Morris, Pitney Bowes,Walgreens, and Wells Fargo.
Collins also offers a few of the most significant findings gleaned from the study. Of particular note are the many indications that factors such as CEO compensation, technology, mergers and acquisitions, and change management initiatives played relatively minor roles in fostering the Good to Great process. Instead, Collins found that successes in three main areas, which he terms disciplined people, disciplined thought, and disciplined action, were likely the most significant factors in determining a company’s ability to achieve greatness.
Chapter 2: Level 5 Leadership
In this chapter, Collins begins the process of identifying and further explicating the unique factors and variables that differentiate good and great companies. One of the most significant differences, he asserts, is the quality and nature of leadership in the firm. Collins goes on to identify "Level 5 leadership" as a common characteristic of the great companies assessed in the study. This type of leadership forms the top level of a 5-level hierarchy that ranges from merely competent supervision to strategic executive decision-making.
By further studying the behaviors and attitudes of so-called Level 5 leaders, Collins found that many of those classified in this group displayed an unusual mix of intense determination and profound humility. These leaders often have a long-term personal sense of investment in the company and its success, often cultivated through a career-spanning climb up the company’s ranks. The personal ego and individual financial gain are not as important as the long-term benefit of the team and the company to true Level 5 leaders. As such, Collins asserts that the much-touted trend of bringing in a celebrity CEO to turn around a flailing firm is usually not conducive to fostering the transition from Good to Great.
Chapter 3: First Who, Then What
The next factor that Collins identifies as part of the Good to Great process is the nature of the leadership team. Specifically, Collins advances the concept that the process of securing high-quality, high-talent individuals with Level 5 leadership abilities must be undertaken before an overarching strategy can be developed. With the right people in the right positions, Collins contends that many of the management problems that plague companies and sap valuable resources will automatically dissipate. As such, he argues, firms seeking to make the Good to Great transition may find it worthwhile to expend extra energy and time on personnel searches and decision-making.
Collins also underscores the importance of maintaining rigorousness in all personnel decisions. He recommends moving potentially failing employees and managers to new positions, but not hesitating to remove personnel who are not actively contributing. He also recommends that hiring should be delayed until an absolutely suitable candidate has been identified. Hewing to both of these guidelines, Collins claims, will likely save time, effort, and resources in the long-term.
Chapter 4: Confront the Brutal Facts (Yet Never Lose Faith)
Another key element of some companies’ unique ability to make the transition from Good to Great is the willingness to identify and assess defining facts in the company and in the larger business environment. In today’s market, trends in consumer preferences are constantly changing, and the inability to keep apace with these changes often results in company failure. Using the example of an extended comparative analysis of Kroger and A & P, Collins observes that Kroger recognized the trend towards modernization in the grocery industry and adjusted its business model accordingly, although doing so required a complete transformation of the company and its stores. A & P, on the other hand, resisted large-scale change, and thus guaranteed its own demise.
Collins outlines a four-step process to promote awareness of emerging trends and potential problems: 1) Lead with questions, not answers; 2) Engage in dialogue and debate, not coercion; 3) Conduct autopsies without blame; and 4) Build red flag mechanisms that turn information into information that cannot be ignored.
Chapter 5: The Hedgehog Concept (Simplicity Within the Three Circles)
In this chapter, Collins uses the metaphor of the hedgehog to illustrate the seemingly contradictory principle that simplicity can sometimes lead to greatness. When confronted by predators, the hedgehog’s simple but surprisingly effective response is to roll up into a ball. While other predators, such as the fox, may be impressively clever, few can devise a strategy that is effective enough to overcome the hedgehog’s simple, repetitive response.
Similarly, Collins asserts, the way to make the transformation from Good to Great is often not doing many things well, but instead, doing one thing better than anyone else in the world. It may take time to identify the single function that will be a particular firm’s "hedgehog concept," but those who do successfully identify it are often rewarded with singular success. In order to help expedite this process, Collins suggests using the following three criteria: 1) Determine what you can be best in the world at and what you cannot be best in the world at; 2) Determine what drives your economic engine; and 3) Determine what you are deeply passionate about.
Chapter 6: A Culture of Discipline
Another defining characteristic of the companies that Collins defined as great in his study was an overarching organizational culture of discipline. He is quick to point out that a culture of discipline is not to be confused with a strict authoritarian environment; instead, Collins is referring to an organization in which each manager and staff member is driven by an unrelenting inner sense of determination. In this type of organization, each individual functions as an entrepreneur, with a deeply rooted personal investment in both their own work and the company’s success.
Although this discipline will manifest itself in a high standard of quality in the work that is produced by managers and employees alike, its most significant outcome will be an almost fanatical devotion to the objectives outlined in the "hedgehog concept" exercises. Disciplined workers will be better equipped to hew to these goals with a single-minded intensity that, according to Collins, will foster the transformation from merely Good to Great. In addition, the author asserts, it is important that within this overarching culture of discipline, every team member is afforded the degree of personal empowerment and latitude that is necessary to ensure that they will be able to go to unheard-of extremes to bring the firm’s envisioned objectives into existence.
Chapter 7: Technology Accelerators
Today, many businesses have come to depend upon technology to increase efficiency, reduce overhead, and maximize competitive advantage. However, Collins cautions that technology should not be regarded as a potential panacea for all that ails a company. The folly of this kind of thinking was revealed in the aftermath of the crash of the tech bubble in the early 2000s. The market correction threw into sharp relief the differences between sustainable uses of the Internet to extend established businesses and ill-planned, unviable online start-ups.
Collins contends that the good-to-great companies approach the prospect of new and emerging technologies with the same prudence and careful deliberation that characterizes all of their other business decisions. Further, these companies tend to apply technology in a manner that is reflective of their "hedgehog concepts" -- typically by selecting and focusing solely upon the development of a few technologies that are fundamentally compatible with their established strengths and objectives. Collins characterizes the ideal approach to technology with the following cycle: "Pause -- Think -- Crawl -- Walk -- Run."
Chapter 8: The Flywheel and the Doom Loop
In this chapter, Collins describes two cycles that demonstrate the way that business decisions tend to accumulate incrementally in either an advantageous or a disadvantageous manner. Both, the author emphasizes, accrue over time. Despite the popular misperception that business success or failure often occurs suddenly, Collins asserts that it more typically occurs over the course of years, and that both only transpire after sufficient positive or negative momentum has been accrued.
Collins describes the advantageous business cycle that, in some cases, can foster the transition from Good to Great as "the flywheel effect." By making decisions and taking actions that reinforce and affirm the company’s "hedgehog" competencies, executives initiate positive momentum. This, in turn, results in the accumulation of tangible positive outcomes, which serve to energize and earn the investment and loyalty of the staff. This revitalization of the team serves to further build momentum. If the cycle continues to repeat in this manner, the transition from Good to Great is likely to transpire. In contrast, the doom loop is characterized by reactive decision-making, an overextension into too many diverse areas of concentration, following short-lived trends, frequent changes in leadership and personnel, loss of morale, and disappointing results.
Chapter 9: From Good to Great to Built to Last
In the concluding chapter of Good to Great, Collins makes a connection between this book and his previous work, Built to Last, which represented the findings of a six-year study into the factors that determined whether a new company would survive in the long-term. First and foremost, Collins contends that companies need a set of core values in order to achieve the kind of long-term, sustainable success that may lead to greatness. Companies need to exist for a higher purpose than mere profit generation in order to transcend the category of merely good. According to Collins, this purpose does not have to be specific -- even if the shared values that compel the company toward success are as open-ended as being the best at what they do and achieving excellence consistently, that may be sufficient as long as the team members are equally dedicated to the same set of values.
Although many of the conclusions of both of the books overlap, Collins notes that Good to Great should not be seen as the follow-up to Built to Last, which focuses on sustaining success in the long-term. Instead, Good to Great actually functions as the prequel to Built to Last. First, a company should focus on developing the foundation that is necessary to work toward greatness. Then, they can begin to apply the principles of longevity that are set forth in Built to Last.