BSML’s Summary of Principles from:

GOOD TO GREAT

By Jim Collins

2001

From the BSML Business Wisdom Series

Introduction

Jim Collins describes himself as a student of great companies. He is the co- author of the best seller Built to Last and serves as a teacher to leaders throughout the corporate and social sectors.

The aim of this book was not “the study of business … I see my work as being about discovering what creates enduring organizations of any type. I’m curious to understand the fundamental differences between great and good, between excellent and mediocre.”

BSML’s intention in compiling this summary is to share the wisdom of this great researcher with our clients and prospective clients, to encourage them to read the full work, and to help them use its principles to improve management practices and business performance.

Please feel free to share this document with your colleagues and friends, who have an interest in the topic.

Nick Bentley, Managing Director, BSML

BUY NOW: GOOD TO GREAT

Contents

  1. Context and key questions
  2. Basis of research
  3. The Good to Great frame work
  4. Principles of Great
    1. Level 5 Leadership
    2. First who…then what
    3. Confront the brutal facts (yet never lose faith)
    4. The Hedgehog concept (simplicity within the 3 circles)
    5. A culture of discipline
    6. Technology accelerators
    7. The fly wheel and doom loop
  5. Un-sustained great companies
  6. Afterword

1. Context and key questions

Good to Great” is a 5 year research project focused on the core question:

Can a good company become a great company and, if so, how?

Great companies are defined as those that made the leap from good results to great results and sustained those results for at least 15 years

Good results are defined as 15 year cumulative stock returns at or below the general stock market

Great results are defined as cumulative stock returns at least 3 times the market over the 15 years

2.1 Research basis – building a theory from the ground up

A population of just 11 good to great cases was identified, using the study criteria, from the 1,435 companies on the 1965, 1975, 1985 and 1995 Fortune 500 listings, 11 direct comparison companies were selected based on the same business, size, age, stock chart, profitability at the time of transition of the great companies, and weakness at study end 6 un-sustained companies were included, which made a short- term shift to great criteria, but failed to maintain the trajectory 10.5 person years of effort was then expended on coding 6,000 articles, 2,000 pages of interview transcripts and 384Gb of computer data to understand the good to great process and to understand the difference between good and great

2.2 The study cases

Great

Abbott
Circuit City
Fannie Mae
Gillette
Kimberley-Clark
Kroger
Nucor
Philip Morris
Pitney Bowes
Walgreens
Wells Fargo

Direct Comparisons

Upjohn
Silo
Great Western
Warner-Lambert
Scott Paper A&P
Bethlehem Steel
RJ Reynolds
Addressograph
Eckerd
Bank of America

 

Un-sustained Comparisons

Burroughs
Chrysler
Harris
Hasbro
Rubbermaid
Teledyne 

 

2.3 The good to great company results

Company

Abbott
Circuit City
Fannie Mae
Gillette
Kimberley-Clark
Kroger
Nucor
Philip Morris
Pitney Bowes
Walgreens
Wells Fargo

15 year Results (times the market)

3.98
18.5
7.56
7.39
3.42
4.17
5.16
7.06
7.16
7.34
3.99


15 years of Great

1974 – 1989
1982 – 1997
1984 – 1999
1980 – 1995
1972 – 1987
1973 – 1988
1975 – 1990
1964 – 1979
1973 – 1988
1975 – 1990
1983 – 1998

 

2.4 Good versus great results

3.1 The Good to Great framework

3.2 Key findings on getting to Great

  • The cornerstones are humble, but determined leadership, plus the right people on the bus, in the right seats, and the wrong people off the bus
  • Where the bus needs to go is not as important as having the right team
  • Great companies have a crystal clear understanding of their business model, values and profit drivers (the hedgehog concept). Decision making within this simple clarity, then becomes easy
  • Getting to the hedgehog concept is an iterative process and may take many years. Most companies never achieve this clarity
  • Great companies confront reality with hard data and never give in. They see adversity as an opportunity to improve.
  • Disciplined people, thought and action, coupled with consistency and staying within the 3 circles of the hedgehog concept, eventually deliver breakthrough performance
  • The momentum of the business, relentlessly driving in the same direction, is described as a flywheel
  • Technology ,consistent with the 3 wheels, can accelerate performance gains. Great companies selectively pioneer their own special technologies

Principles of Great

– Concept models

– Great company behaviours

– Comparison company behaviours

4.1.1 Level 5 leadership - concept model

4.1.2 Level 5 leadership - principles

  • Paradoxical mix of personal humility and professional will
  • Ambitious for the greatness or their companies, not themselves
  • Came through the ranks and set up their successors for even greater success in the next generation
  • Display compelling modesty, are self effacing and understated
  • Fanatically driven to produce sustained results
  • More plough horse than show pony
  • Workmanlike diligence
  • Attribute success to factors other than themselves, including luck
  • Take full responsibility for failures
  • Ferocious resolve, inspired standards and consistency

4.1.3 Comparison companies – level 4 leadership

  • Larger than life, celebrity CEs, normally from outside the culture, who ride in and then ride out again
  • Ambitious for themselves, not the company
  • Often set up their successors to fail
  • Gargantuan egos that contributed to the demise or continued mediocrity of their companies
  • Fanatically driven to promote themselves
  • More show pony than plough horse
  • Inconsistency, big bets, cost cutting, restructuring, fads, acquisitions, mediocrity, nepotism
  • Attribute success to themselves
  • Failure attributed to external factors, bad luck or others

4.2.1 First who...then what - concept model

4.2.2 First who...then what - principles

  • First get the right people on the bus and in the right seats; the wrong people off the bus and then figure out where to drive it
  • The right people are the main constraint on growth (Packard’s Law)
  • The right people don’t need to be managed; they have character, work ethic and values – better than specific knowledge, background or skills
  • “Who” comes before vision, strategy, organisation structure, tactics – as a rigorous discipline, consistently applied at all levels
  • Rigour in people hiring :

     – When in doubt don’t hire

     – When you need to make people changes, act

     – Put your best people on your biggest opportunities, not your biggest problems

  • Management teams engage in vigorous debate in search of the best answers, in the interests of the organisation, and unify behind decisions
  • They generally become friends for life, respect and admire each other – leads to a balanced and happy life
  • Compensation is needed to attract the right people, not to motivate them

4.2.3 Comparison companies – first who... then what

  • Generally used the “genius with a thousand helpers model” – the genius sets the vision and the helpers make the vision happen. This model fails when the genius departs
  • Ruthless, rather than rigorous
  • Tended to rely on acquisitions, layoffs and restructuring as a primary strategy for improving performance – quick results without understanding what is being destroyed along the way
  • Compensation used to motivate the right behaviours from the wrong people
  • Inconsistent standards
  • Bad behaviours – little debate, patch protection, decisions not taken in the best interests of the company, no collective responsibility, often avoidance of responsibility, seeing where the wind is blowing, what the boss decides
  • The best people are put on biggest problems – managing your problems can only make you good; building your opportunities is how to become great

4.3.1 Confront the brutal facts (yet never lose faith) – concept model

Admiral Jim Stockdale was the highest ranking US military officer in the “Hanoi Hilton” prisoner of war camp at the height of the Vietnam war. He was tortured over 20 times during his 8 year imprisonment between 1965 and 1973. “I never doubted.. I would get out…that I would prevail in the end and turn the experience into the defining event of my life…which I would not trade. Optimists didn’t make it out…They died of a broken heart…This is a very important lesson. You must never confuse faith …which you can never afford to lose…with the discipline to confront the brutal facts of your current reality. We’re not getting out by Christmas; deal with it!”

4.3.2 Confront the brutal facts (yet never lose faith) - principles

Begin the process to greatness by confronting the brutal facts of your current reality – extensive research, openness to questions and challenge

  • With an honest and diligent effort to find the truth of the current situation, direction and decisions become self-evident
  • Create a culture where people and the truth can be heard by :

    – Leading with questions not answers – Why? Why? Why?

    – Engaging in dialogue and debate, not coercion – energise to find solutions

    – Conducting autopsies, without blame – learn from mistakes and improve

    – Building red flag mechanisms, that turn information into information that cannot be ignored – early warning systems and paramaters

  • Energy comes from hitting reality and adversity head on and emerging stronger
  • Follow the Stockdale paradox – faith and realism
  • Leadership is not just about vision, but also getting people to confront reality using hard data
  • Great companies do not need to motivate their people

4.4.3 Comparison companies - confront the brutal facts (yet never lose faith)

  • Charismatic , egotistical or tyrannical leadership can deter people from bringing the brutal facts

  • Not liking the facts, so ignoring them

  • Lurching from one strategy to the next without doing the analysis

  • Pep rallies, programmes, fads, single stroke solutions

  • Fired CEOs, hired CEOs, more fired and hired CEOs

  • Management worried more about the leader than the external world

  • Victim mentality – demoralised by fear and lack of control

  • Noise, clutter, lack of clarity

4.4.1 The Hedgehog concept model - (simplicity within the 3 circles)

4.4.2 The Hedgehog concept - principles

  • Hedgehogs display consistency; foxes go from one thing to another, lacking the consistency to be great, always seeking short cuts
  • The key to profound insight is simplicity – e=mc2
  • To go from good to great requires deep understanding of the three intersecting circles, translated into a simple, crystalline concept (the hedgehog concept) , done with excellence and imagination
  • The key is what the organisation can be best in the world at, rather than wants to be best at – used as a frame of reference for all decisions
  • The hedgehog concept is not a goal, strategy or intention; it is an understanding . Simple concepts implemented with fanatical consistency
  • Best in the world is probably not your current core competence and may be something you currently have no competence in at all
  • The drivers of your economic engine may be categorised in one denominator e.g. profit per customer or per employee or visit
  • Good to great strategy is based on understanding; comparators : bravado
  • Getting the hedgehog principle is an iterative process; the council can help. On average a 4 year process to understanding then superior returns

4.4.3 The Council – getting to the hedgehog concept iteratively and collaboratively

4.4.4 Comparison companies - the hedgehog concept

  • Foxes going from one idea to the next
  • Short cuts to greatness
  • No profound understanding of their business model
  • Tyranny rather than vigorous debate among equals – no council
  • Never gaining the clarifying advantage of a hedgehog concept
  • No obvious unifying theme or mantra. groping through the fog and never emerging
  • Ego driven, mindless pursuit of growth
  • Not understanding what it could be best in the world at and what it couldn’t
  • No genetic ability or wiring; not asking the right questions
  • Lack of discipline to find piercing insight and egoless clarity to stay within the 3 circles – always straying to something else
  • No passion for the product or customers – just a way to make money
  • No focus on discovering the one economic denominator

4.5.1 A culture of discipline – concept model

4.5.2 A culture of discipline – principles

  • Sustained great results come from a culture full of self disciplined people, who take disciplined action, fanatically consistent with the 3 circles and continuous improvement
  • Duality of discipline and freedom within a framework – like airline pilots – management manage the system; pilots manage the flight
  • Discipline is also about disciplined thought not just action – having “stop doing lists” as well as “to do lists” i.e. staying within the 3 circles and hedgehog concept, with freedom to innovate and take responsibility – “if it doesn’t fit with our hedgehop concept we don’t do it. Period.”
  • Outward appearance of being boring and pedestrian, but containing people of extreme diligence and intensity – rinsing their cottage cheese
  • Religious consistency results in more opportunities for growth
  • Many once in a lifetime opportunities accrue to great companies, so they don’t bet the farm on one
  • Full funding is directed at priority opportunities, consistent with the 3 circles; ones outside the 3 circles are not funded at all
  • Objectives are set in concrete and achievement measured against them; return on investment is understood at the individual level

4.5.3 Comparison companies - a culture of discipline

  • Editorialising and re-adjusting objectives to make things look better

  • Lack of a framework and system based on a hedgehog concept

  • Straying and investing outside the hedgehog concept/ 3 circles

  • Managing the people, not the system

  • Lack of transparent accountability and responsibility

  • Continuous improvement in non-carefully selected arenas, so too broad an area to be excellent at

  • Failing to make cuts at the top, whilst making everyone else suffer

  • Level 4 leaders who personally disciplined the organisation through force of personality and will

  • Culture of discipline dependent on a tyrant, loses focus when he is gone

  • Highly undisciplined acquisitions, binges of diversification and growth

  • No “stop doing” list

  • Insufficient discipline to stop funding initiatives and activities that should not be done at all

4.6.1 Technology accelerators – concept model

4.6.2 Technology accelerators – principles

  • Technology is an accelerator, no different to good people, products or distribution
  • Great companies pioneer carefully selected technologies to directly further their hedgehog concept; not as the driver of their business
  • They avoid fads and bandwagons and understand there will always be technological advances and change – electricity, flight, the internet
  • They carefully analyse and understand new technologies and do not fear them, but use only relevant ones to their advantage
  • Great companies respond with thoughtfulness and creativity, driven by a desire to turn potential into results
  • Technological change as the principal cause of the demise of great companies is not supported by the evidence – the cause is generally poor management
  • Over 80% of the great company executives interviewed did not even mention technology as a factor in their success
  • They use crawl, walk, run as their approach during times of rapid and radical technological change and stick to their knitting

4.6.3 Comparison companies - technology accelerators

  • Mediocre organisations fear technology change as they don’t know what they don’t know. They don’t take the time to understand technological change and its application. They react and lurch through fear of being left behind
  • Technology without a hedgehog concept does not deliver great results, since it is how it is used that counts
  • Technology pioneers have historically been overtaken by others : Ford and Toyota (cars); De Haviland and Boeing (jets); Osbourne Computers and Dell/Sony (PCs); Visicalc and Excel (spreadsheets); Bebo and Facebook (social computing)
  • In the Vietnam War the USA had the most technologically advanced fighting force the world has ever known. The Vietcong had only AK47s plus a simple, coherent concept – a guerrilla war of attrition aimed at methodically wearing down public support for the war at home
  • When grasped as an easy solution, without deep understanding of how it links to a clear and coherent concept, technology simply accelerates an organisation’s self-created demise

4.7.1 The flywheel and the doom loop – concept models

4.7.2 The flywheel - principles

  • Good to great transformations often look like revolutionary events from the outside – the result of one defining miracle moment, grand programme or killer innovation. On the inside they result from long-term cumulative, organic effort often evolving over decades
  • Sustainable transformations follow a predictable pattern of build up and breakthrough. This is similar to a flywheel, which takes a long time to build up, but with consistent effort ,in the same direction over a long period, builds momentum until hitting a point of breakthrough
  • There is no single, discernible tipping point, rather a vast number of small pushes, which through consistency finally enable the organisation to take flight
  • Often the point of transformation only became clear later
  • There was no focus on motivation, alignment or managing change. This all happened organically from the results and momentum, since people want to be part of a winning team, where success is tangible and visible
  • The consistency of the fly wheel, improving each year, makes forecasting forward, managing shareholder expectations and planning growth much easier

4.7.3 Comparison companies - the doom loop

  • Mediocre organisations are characterised by new CEs :

    – Bringing in their own programmes and halting those of their predecessors

    – Restructuring and cost cutting

    – Searching for quick break-through results, without doing the research

    – Misguided use of acquisitions and search for growth

    – Undoing the work of previous generations by making the flywheel grind to a halt, then throwing it in the opposite direction

  • Inconsistency, incoherence, failing to use the magnifying effect of momentum in the long term
  • Skipping build up and trying to jump to breakthrough
  • Seeking miracle moments, fads, hoopla
  • Jumping to action, without disciplined thought and the right people
  • Selling the future, rather than harnessing the past
  • Not pushing the flywheel in a consistent direction, until eventually it hits breakthrough

5. Un-sustained great companies

  • Un-sustained great companies generally exhibited the following patterns

    – They had Level 4 leaders who took them to greatness based on a genius and a thousand helpers model

    – Talented people left as they had no say, leaving “yes men” in their place

    – These leaders drove the company through force of their own will and often made all the key decisions

    – They failed to plan for succession or actively sabotaged it

    – When they left, died or retired, the greatness was not sustainable

  • The detailed text of the book provides many insights and anecdotes into the special characteristics and approaches of all the 11 great, 11 comparison and 6 un-sustained great companies
  • It is well worth a detailed read.

6. Afterword

  • Since 2001 when, Good to Great, was written, many of the 11 Great Companies have declined
  • Circuit City and Fanny Mae collapsed in the 2008 stock market crash, Wells Fargo hit troubles and overall the 11 companies under-performed the stock market over the next decade
  • Jim Collins’ first book Built to Last (1994) looked at 18 “visionary” companies, including Ford, Disney and Hewlett Packard, and sought to understand the roots of their success, longevity and iconic status
  • His next book How the Mighty Fall (2009) explored the causes of the collapse of great companies, and his latest book Great by Choice (2011) explores the role of uncertainty and luck – good and bad – in the fate of companies
  • The principles from these research studies will form the basis of future editions of the BSML Business Wisdom Series
  • We welcome your thoughts and feedback

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