Good to Great

Book by Jim Collins

Good to Great

 Good is the enemy of great.

 Why is that true?

 Companies Studied
(15-year return compared to general stock market)

 Abbott (3.98)  Upjohn

 Circuit City (18.5)  Silo
 Fannie Mae (7.56)  Great Western
 Gillette (7.39)  Warner-Lambert
 Kimberly-Clark (3.42)  Scott Paper
 Kroger (4.17)  A&P
 Nucor (5.16)  Bethlehem Steel
 Philip Morris (7.06)  R.J. Reynolds
 Pitney Bowes (7.16)  Addressograph
 Walgreens (7.34)  Eckerd
 Wells Fargo (3.99)  Bank of America

Unsustained: Burroughs, Chrysler, Harris, Hasbro, Rubbermaid, Teledyne

 #1

Lesson #1: Leadership

 Humility + Will = Level 5 leadership
 Modest, willful, humble, fearless
 Ego-driven, genius-types, may produce short-
term positive results, but cannot sustain results
 1=highly capable; 2= contributing team
member, 3= competent manager, 4= effective
leader, 5=executive that builds enduring
greatness thru personal humility & professional
 #1
Leadership
Professional Will
 Creates superb results, a clear
catalyst in the transition from
good to great
 Demonstrates an unwavering
resolve to do whatever must
be done to produce the best
long-term results, no matter
how difficult
 Sets the standard of building
an enduring great company;
will settle for nothing less
 Looks in the mirror, not out the
window, to apportion
responsibility for poor results,
never blaming other people,
external factors, or bad luck
Personal Humility
 Demonstrates a compelling
modesty, shunning public
adulation; never boastful
 Acts with quiet, calm
determination; relies
principally on inspired
standards, not inspiring
charisma to motivate
 Channels ambition into the
company, not the self; sets up
successors for even greater
success in the next generation
 Looks out the window, not in
the mirror, to apportion credit
for the success of the
company—to other people,
external factors, and good luck
 #2

Lesson 2: First who…then what.

 There are going to be times when we can’t wait

for somebody. Now, you’re either on the bus or
off the bus.(Ken Kesey, The Electric Kool-Aid Acid Test)

 What did the 11 successful companies find

out?
 You don’t first figure out where to drive the bus
and then get people to take it there.
 No, first get the right people on the bus (and
the wrong people off) and then figure out
where to take the bus.
 #2

Why you get the right people on the

bus first…
1. If you begin with “who” rather than “what” you
can more easily adapt to a changing world.
2. If you have the right folks on the bus, the
problem on how to motivate & manage people
largely goes away.
3. If you have the wrong people, it doesn’t
matter whether you discover the right
direction, you still won’t have a great
organization. Great vision without great
people is irrelevant.
 #2

Level 5 thinking…on getting

folks on/off the bus…
 “I don’t know where we should take this
commission, but I do now that if I start with the
right people, ask them the right questions, and
engage them in vigorous debate, we’ll find a
way to make this organization great.”
 David Maxwell (CEO, Fannie Mae) made it
absolutely clear that there would only be seats
for A players who were willing to put forth an A+
effort, and if you weren’t up for it, you had
better get off the bus, and get off now.
 #2

Rigorous, not ruthless

 To be rigorous means consistently applying
exacting standards at all times and at all levels,
especially in upper management. To be
rigorous, not ruthless, means that the best
people need not worry about their positions
and can concentrate fully on their work.
 To let people languish in uncertainty for months
or years when in the end they aren’t going to
make it anyway—that is ruthless. To deal with it
right up front and let people get on with their
lives—that is rigorous.
 #2

How to be rigorous
1. When in doubt, don’t hire—keep looking.
2. When you know you need to make a people
change—act.
 The moment you feel the need to tightly manage someone, you’ve made a hiring
mistake. The best people don’t need to be managed. Guided, taught, led—yes. But not
tightly managed.
 Waiting too long before acting is equally unfair to the people who need to get off the
bus.
 How to know: Would you hire the person again? Would you be relieved if they left the
organization?

3. Put your best people on your biggest

opportunities not your biggest problems.
 Corollary: When you decide to sell off your problems, don’t sell of
your best people. Make a place on the bus for the best people, and
they’ll be more likely to support changes in direction.
 #2
Discuss: How do you need
to be rigorous?
1. When in doubt, don’t hire—keep looking.
2. When you know you need to make a people
change—act.
 The moment you feel the need to tightly manage someone, you’ve made a hiring
mistake. The best people don’t need to be managed. Guided, taught, led—yes. But not
tightly managed.
 Waiting too long before acting is equally unfair to the people who need to get off the
bus.
 How to know: Would you hire the person again? Would you be relieved if they left the
organization?

3. Put your best people on your biggest

opportunities not your biggest problems.
 Corollary: When you decide to sell off your problems, don’t sell of
your best people. Make a place on the bus for the best people, and
they’ll be more likely to support changes in direction.
 #3

Lesson 3: Confront the Brutal Facts

Yet never lose faith

 Two choices: confront brutal facts and change

or stick head in sand
 Kroger and A&P…superstores vs. low prices
 You have to be number one or two in each
market or you have to exit.
 You absolutely cannot make a series of good
decisions without first confronting the brutal
facts.
 #3

Confront the Brutal Facts

Yet never lose faith

 Your job is to turn over rocks and look at the

squiggly things, even if what you see can scare
you!
 Some organizations (Bank of America) have
climates where managers will not even make a
comment until they know how the boss felt.
 The moment a leader allows himself to become
the primary reality people worry about, rather
than reality being the primary reality, you have
a recipe for mediocrity, or worse.
 #3

How to confront the Brutal Facts

Yet never lose faith

1. Lead with questions, not answers

 Put more questions to board members than they put to you
 Raise questions for one reason only: to gain understanding (not
manipulation)
2. Engage in dialogue and debate, not coercion.
 Good-to-great companies have a penchant for intense dialogue
3. Conduct autopsies, without blame.
 No finger-pointing.
4. Build red-flag mechanisms.
 Good-to-great companies don’t have better information,
necessarily. The key is turning information into info that can’t be
ignored.
 Red cards in meetings: folks hold it up to deal with real issues
 Short-pay: allow customers to circle items on invoice they don’t
want to pay due to bad service
Attitude: We will never give up. We will never capitulate. It might take
a long time, but we will find a way to prevail.
 #3

How do you need to confront the Brutal Facts?

Yet never lose faith

1. Lead with questions, not answers

 Put more questions to board members than they put to you
 Raise questions for one reason only: to gain understanding (not
manipulation)
2. Engage in dialogue and debate, not coercion.
 Good-to-great companies have a penchant for intense dialogue
3. Conduct autopsies, without blame.
 No finger-pointing.
4. Build red-flag mechanisms.
 Good-to-great companies don’t have better information,
necessarily. The key is turning information into info that can’t be
ignored.
 Red cards in meetings: folks hold it up to deal with real issues
 Short-pay: allow customers to circle items on invoice they don’t
want to pay due to bad service
Attitude: We will never give up. We will never capitulate. It might take
a long time, but we will find a way to prevail.
 #3

The Stockdale Paradox

Research by the Int’l Committee for the Study of
Victimization found that those facing serious
adversity generally fall into one of three
categories:
1. Those who were permanently dispirited by
the event
2. Those who got their life back to normal
3. Those who used the experience as a defining
event that made them stronger.
 #3

The Stockdale Paradox

 Jim Stockdale stoically
accepted the brutal facts of
reality while maintaining an
unwavering faith in the
endgame—that he would
prevail despite the brutal
facts.
 Who didn’t make it out?
The optimists.
 Those who think it will all
be a quick fix and everyone
will be out by Christmas are
the ones that lose heart
and fail.
 #4

Lesson 4: The Hedgehog Concept

 “The fox knows many things, but

the hedgehog knows one big
thing.”
 Foxes pursue many ends at the
same time and see the world in all
its complexity. They are scattered
or diffused, moving on many
levels.
 Hedgehogs simplify a complex
world into a single organizing idea,
a basic principle or concept that
unifies and guides everything.
 For a hedgehog, anything that
does not somehow relate to the
hedgehog idea holds no
relevance.
 #4

The Hedgehog Concept

Examples
 Walgreens: the best, most convenient drugstores, with high
profit per customer visit (viz., also Starbucks)
 Wells Fargo: running a bank like a business, with a focus on
the Western U.S.

Strategy, per se did not distinguish the good-to-great companies

from the comparison companies. Both sets had strategic
plans, and there is no evidence that the good-to-great
companies invested more time/energy in strategy
development & long-range planning.
All the G2G companies attained a very simple concept that
they used as a frame of reference for all their decisions.
A Hedgehog Concept is a simple, crystalline concept that
flows from deep understanding about the intersection of the
following three circles…
 #4

Developing The Hedgehog Concept

1. What can you be the best in the world at (and, equally

important, what you cannot be the best in the world at)
 What you can be the best at might not even be something in
which you are currently engaged.
2. What drives your economic engine?
 Must discover the single denominator (profit per X ) that has the
greatest impact on your economics/budgeting.
3. What are you deeply passionate about?
 What do you have a genetic or God-given talent to do?
 What are you well-paid to do?
 What do you enjoy doing that you absolutely love to do,
enjoying the actual process for its own sake?
 #4

The Hedgehog Concept

You can be passionate about all you want, but if
you can’t be the best at it or if it doesn’t make
economic sense, then you might have a lot of
fun, but you won’t get great results.
If we can’t be the best at it, then why are we
doing it at all?
A Hedgehog Concept is not a goal to be the best,
a strategy to be the best, an intention to be the
best, a plan to be the best. It is an
understanding of what you can be the best at.
 #4

Develop your Hedgehog Concept!

 What can you be the best in the world at (and, equally

important, what you cannot be the best in the world at)
 What you can be the best at might not even be
something in which you are currently engaged.
 What drives your economic engine?
 Must discover the single denominator (profit per X ) that
has the greatest impact on your economics/budgeting.
 What are you deeply passionate about?
 What do you have a genetic or God-given talent to do?
 What are you well-paid to do?
 What do you enjoy doing that you absolutely love to do,
enjoying the actual process for its own sake?

A Hedgehog Concept is not a goal to be the best, a strategy to

be the best, an intention to be the best, a plan to be the best.
It is an understanding of what you can be the best at.
 #4

A few hedgehog facts…

 Growth is not a Hedgehog Concept
 You can’t just go off-site for 2 days and come
back with it
 On average, it took 4 years for G2G companies
to clarify theirs
 It is an inherently iterative process
 Useful mechanism is a Council that
consistently meets to review the 3 aspects of
the Hedgehog Concept (and they should
get/read the book!)
 An interesting note on
bureaucracy…
 Most companies build their bureaucratic
rules to manage the small percentage of
wrong people on the bus, which in turn
drives away the right people on the bus,
which increases the need for more
bureaucracy to compensate for
incompetence and lack of discipline,
which then further drives the right people
away and…
 #5

Lesson 5: The Flywheel and the

Doom Loop
 G2G comes about by a
cumulative process—step by
step, action by action,
decision by decision, turn by
turn of the flywheel—that
adds up to sustained and
spectacular results.
 Media attention often comes
to G2G organizations after
years of slow build-up and
then break-through.
 #5

Flywheel & Doomloop

 Flywheel transitions look like dramaticm
revolutionary breakthroughs from the
outside (when the wheel is fully turning).
 From the inside they feel completely
different, more like an organic
development process.
 #5

Flywheel & Doomloop

 Egg sitting there.
 No one pays attention.
 Egg cracks open.
 Out jumps chick.
 Media:
 “The transformation of
Egg to Chicken!”
 “The remarkable
revolution of the Egg!”
 “Stunning turnaround at
Egg!”
 #5

Flywheel & Doomloop

 The point?
 G2G companies had no name for their
transformations. There was no launch event,
no tag line, no programmatic feel whatsoever.
There was no miracle moment.
 #5

Flywheel…
 UCLA won 10 NCAA
championships and
61 games in a row.
 How many years did
Wooden coach UCLA
before the 1st
championship?
 15
 #5

Flywheel…
 Point to tangible
accomplishments—however
incremental at first—and
show how these steps fit into
the context of an overall
working concept.
 Step forward, consistent with
hedgehog concept
 Accumulate visible results
 People line up, energized by
results
 Flywheel momentum builds
 #5

Doomloop
 Instead of a quiet, deliberate process
of figuring out what needed to be
done and then simply doing it, the
comparison companies frequently
launched new programs—often with
great fanfare and hoopla aimed at
“motivating the troops”—only to see
the programs fail to produce
sustained results.
 They sought the single defining
action, the grand program, the one
killer innovation, the miracle moment
that would allow them to skip the
arduous buildup stage and jump right
to breakthrough.
 Guess what happened…
 #5

Two popular doomloops to avoid…

 Misguided use of acquisitions—making deals for the

sake of making deals.
 “When the going gets tough, we go shopping!”
 G2G companies did acquisitions after the Hedgehog Concept
and after the flywheel had significant momentum.
 Acquisitions are accelerators not creators of flywheel
momentum.
 Leaders who stop the flywheel—leaders who step in,
stop an already spinning flywheel, and throw the
organization in entirely different direction.
What’s the diff between
flywheel & doom loop
organizations?
 (in)consistency
 (non)confrontal
 (un)disciplined
 (un)motivated (self)
 (talk)results