Good to Great

Regardless of how many business books I go through, the one that I keep referring back to is Good to Great.

The book is based on an interesting premise. Jim Collins and a team of researchers identified and studied eleven companies that made the leap from good to great, and then sustained that greatness for at least fifteen years. Both the results of the study and the way in which Collins presents said results contributed to this book quickly becoming one of my favorites.

What is surprising, considering the simplicity of the ideas presented in the book, is how few companies actually adhere to the principles that were developed based on the findings. The companies that fit the strict criteria that Collins laid out didn’t include the big names that we usually read about (Coca Cola, McDonalds, Microsoft), but rather, the likes of Wells Fargo or Gillette- companies which rarely seem to be brought up in case discussions.

Even more interesting is that whenever you read about a company performing poorly, they are usually in violation of one or more of the principles that Collins found all eleven good-to-great companies shared.

So, what are these principles?

While I highly recommend that you read the book for yourself, I’ve summarized the seven key points below. A few, which I will discuss later on, have really stuck with me.

1. Level 5 Leadership

Your company’s leader should be ambitious for the company rather than for themselves. In addition, a fanatical work ethic and resolve are important.

2. First Who, Then What

Getting the right people comes before vision or strategy (and, as an extension, getting rid of the wrong people). Once you have the right people, factors such as employee motivation become much easier to deal with. Additionally, a company should put the best people on the biggest opportunities rather than the biggest problems.

3. Confront the Brutal Facts

One thing that companies all had in common was a realization that they had to confront their often brutal reality, rather than trying to continue with their current methods. When a company starts with a honest effort to analyze its’ situation, the right decisions seem to present themselves. This means leading with questions, building early warning mechanisms, and conducting autopsies without blame.

4. The Hedgehog Concept

Companies should understand their Hedgehog concept. In Isaiah Berlin’s famous essay, “The Hedgehog and the Fox”, the world is divided into two groups- hedgehogs and foxes. Foxes pursue and know many things at the same time and move on many levels. Hedgehogs, on the other hand, are simple creatures that simplify the world into a single idea. They know one big thing well and stick to it. The approach that these good-to-great companies had was that of the hedgehog. Companies should figure out what they 1.) can be the best at, 2.) can make money doing, and 3.) have a passion for doing. Once they have an intersecting focus, they should stick to that.

5. A Culture of Discipline

This relates to the previous principle. A company should adhere to the focus that was found through the Hedgehog concept, and avoid attempting to go for opportunities outside of that focus.

In addition, companies should rely on self-disciplined people, rather than developing strict bureaucratic rules once the company has developed. This helps in avoiding the ever so common problem of the entrepreneurial spirit being killed after growth and success.

6. Technology Accelerators

Good-to-great companies avoid technological fads and bandwagons. Instead, they aim to become pioneers of carefully selected technologies which adhere to their Hedgehog concept. The technology should not be relied upon to create momentum, but rather, should act as an accelerator of it.

An example of this is Circuit City pioneering sophisticated point-of-sales and inventory tracking technologies, allowing them to better serve customers in the big-ticket retailing space. Similarly, Philip Morris pioneered one of the first innovations in tobacco packaging in twenty years when it introduced flip-top boxes.

7. The Flywheel and Doom Loop

The success experienced by the eleven good-to-great companies can be described with a great example by Collins. Imagine a large, heavy wheel. In order to get it moving, you need to push. Your progress will be slow at first, but slowly, momentum will build up and it will become easier and easier.

Continued improvements, rather than a single factor leading to overnight success, were important here. The companies didn’t constantly introduce new initiatives, hoping that the latest effort would make their company great.

 

Again, great stuff.

While every concept was interesting, there were a few that I keep returning to when reading about either successful companies or companies that are faltering and could do better. They are expanded upon below.

Level 5 Leadership

One surprising result was the quality of the leader that was common among these companies. Rather than a high profile individual, these leaders shunned the spotlight, and instead focused their ambitions toward their company’s future. In short, they showed personal humility.

In addition, they were all extremely hard workers and showed immense resolve. An example, presented in the book, is George Cain’s actions after becoming the CEO of Abbott Laboratories. He didn’t lead the company by inspiring his employees or showing off charisma, but rather, by deciding that good wasn’t enough. He set high standards for the company, and began replacing underperforming managers- among which were his relatives.  This change in policy lead to new momentum, and by 1978, the company had achieved Collins’ standard of greatness.

First Who, Then What

Another common factor which these companies all shared was a focus on people. Before a brilliant strategy or appealing vision could be set in place, the companies had to take care of the “who” factor (as seen in the Abbott example).  Collins outlined three simple truths which Good-to-great leaders adhere to:

  1. If you begin with “who” rather than “what,” you can more easily adapt to a changing world.
  2. If you have the right people on the bus, the problem of how to motivate and manage people largely goes away.
  3. If you have the wrong people, it doesn’t matter whether you’re going in the right direction. You still won’t have a great company.

This makes sense, and the underlying notion is probably what has led to so many companies being just as concerned with fit as they are with performance these days.

Another interesting point Collins makes in this segment is that a company should put its best people on the biggest opportunities, not the biggest problems. This goes against the conventional wisdom of having the A-team solve the problem. He argues that having the best people manage the problems will make your company good, but having the best people work on the opportunities will help your company become great.

This goes along with the popular concept of good execution being incredible important when it comes to starting a company. It’s easy to imagine that when you have your best people working on something, the execution will not disappoint.

The Hedgehog Concept

Again, every company had a single core idea that it focused on. The core idea is developed at the intersection of three elements:

  1. What you can be the best at. Now, this doesn’t mean what you want to be the best at, but rather, what your company is uniquely positioned to do. An understanding of this is extremely important, and is often echoed elsewhere- especially in marketing, when people stress the importance of finding a niche.
  2. What drives your economic engine. Developing a proper economic model is essential. One way to go about this is to ask which factor has the greatest impact (profit per x, or cash flow per x), and to then focus on that.
  3. What you are passionate about. This might sound a little trite, but in the end, encouraging people to become passionate about something will not work as well as discovering what your team actually cares about.

 

The principles laid out in Good to Great seem to be echoed in most successful companies, at least in some form or another. Similarly, companies which seem to be doing poorly commonly lack one or more of these principles.

Overall, the book is easy to read, provides great examples of real life companies, and provides more substance than a lot of other bestsellers. I’d recommend it to anybody interested in business strategy.

 

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