Good to Good to GreatGreatBook by Jim CollinsBook by Jim Collins

Good to GreatGood to Great

Good is the enemy of great.Good is the enemy of great.

Why is that true?Why is that true?

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

Abbott (3.98)Abbott (3.98) Circuit City (18.5)Circuit City (18.5) Fannie Mae (7.56)Fannie Mae (7.56) Gillette (7.39)Gillette (7.39) Kimberly-Clark Kimberly-Clark

(3.42)(3.42) Kroger (4.17)Kroger (4.17) Nucor (5.16)Nucor (5.16) Philip Morris (7.06)Philip Morris (7.06) Pitney Bowes (7.16)Pitney Bowes (7.16) Walgreens (7.34)Walgreens (7.34) Wells Fargo (3.99)Wells Fargo (3.99)

UpjohnUpjohn SiloSilo Great WesternGreat Western Warner-LambertWarner-Lambert Scott PaperScott Paper A&PA&P Bethlehem SteelBethlehem Steel R.J. ReynoldsR.J. Reynolds AddressographAddressograph EckerdEckerd Bank of AmericaBank of America

Lesson #1: LeadershipLesson #1: Leadership

Humility + Will = Level 5 leadershipHumility + Will = Level 5 leadership Modest, willful, humble, fearlessModest, willful, humble, fearless Ego-driven, genius-types, may produce Ego-driven, genius-types, may produce

short-term positive results, but cannot short-term positive results, but cannot sustain resultssustain results

1=highly capable; 2= contributing team 1=highly capable; 2= contributing team member, 3= competent manager, 4= member, 3= competent manager, 4= effective leader, 5=executive that builds effective leader, 5=executive that builds enduring greatness thru personal humility & enduring greatness thru personal humility & professional professional

#1

LeadershipLeadershipProfessional WillProfessional Will Creates superb results, a Creates superb results, a

clear catalyst in the transition clear catalyst in the transition from good to greatfrom good to great

Demonstrates an unwavering Demonstrates an unwavering resolve to do whatever must resolve to do whatever must be done to produce the best be done to produce the best long-term results, no matter long-term results, no matter how difficulthow difficult

Sets the standard of building Sets the standard of building an enduring great company; an enduring great company; will settle for nothing lesswill settle for nothing less

Looks in the mirror, not out Looks in the mirror, not out the window, to apportion the window, to apportion responsibility for poor results, responsibility for poor results, never blaming other people, never blaming other people, external factors, or bad luckexternal factors, or bad luck

Personal HumilityPersonal Humility Demonstrates a Demonstrates a

compelling modesty, compelling modesty, shunning public adulation; shunning public adulation; never boastfulnever boastful

Acts with quiet, calm Acts with quiet, calm determination; relies determination; relies principally on inspired principally on inspired standards, not inspiring standards, not inspiring charisma to motivatecharisma to motivate

Channels ambition into the Channels ambition into the company, not the self; sets company, not the self; sets up successors for even up successors for even greater success in the next greater success in the next generationgeneration

Looks out the window, not Looks out the window, not in the mirror, to apportion in the mirror, to apportion credit for the success of credit for the success of the company—to other the company—to other people, external factors, people, external factors, and good luckand good luck

#1

Lesson 2: First who…then Lesson 2: First who…then what.what.

There are going to be times when we can’t There are going to be times when we can’t wait for somebody. Now, you’re either on wait for somebody. Now, you’re either on the bus or off the bus. the bus or off the bus. (Ken Kesey, (Ken Kesey, The Electric Kool-Aid Acid Test)The Electric Kool-Aid Acid Test)

What did the 11 successful companies find What did the 11 successful companies find out?out?

You don’t first figure out where to drive the You don’t first figure out where to drive the bus and then get people to take it there. bus and then get people to take it there.

No, first get the right people on the bus No, first get the right people on the bus (and the wrong people off) and (and the wrong people off) and thenthen figure figure out where to take the bus.out where to take the bus.

#2

Why you get the right people on the Why you get the right people on the bus first…bus first…

1.1. If you begin with “who” rather than If you begin with “who” rather than “what” you can more easily adapt to a “what” you can more easily adapt to a changing world.changing world.

2.2. If you have the right folks on the bus, the If you have the right folks on the bus, the problem on how to motivate & manage problem on how to motivate & manage people largely goes away.people largely goes away.

3.3. If you have the wrong people, it doesn’t If you have the wrong people, it doesn’t matter whether you discover the right matter whether you discover the right direction, you still won’t have a great direction, you still won’t have a great organization. Great vision without great organization. Great vision without great people is irrelevant.people is irrelevant.

#2

Level 5 thinking…on getting Level 5 thinking…on getting folks on/off the bus…folks on/off the bus…

““I don’t know where we should take this I don’t know where we should take this commission, but I do now that if I start with commission, but I do now that if I start with the right people, ask them the right the right people, ask them the right questions, and engage them in vigorous questions, and engage them in vigorous debate, we’ll find a way to make this debate, we’ll find a way to make this organization great.”organization great.”

David Maxwell (CEO, Fannie Mae) made it David Maxwell (CEO, Fannie Mae) made it absolutely clear that there would only be absolutely clear that there would only be seats for A players who were willing to put seats for A players who were willing to put forth an A+ effort, and if you weren’t up for it, forth an A+ effort, and if you weren’t up for it, you had better get off the bus, and you had better get off the bus, and get off get off nownow..

#2

Rigorous, not ruthlessRigorous, not ruthless

To be rigorous means consistently applying To be rigorous means consistently applying exacting standards at all times and at all exacting standards at all times and at all levels, especially in levels, especially in upper management.upper management. To To be rigorous, not ruthless, means that the be rigorous, not ruthless, means that the best people need not worry about their best people need not worry about their positions and can concentrate fully on their positions and can concentrate fully on their work.work.

To let people languish in uncertainty for To let people languish in uncertainty for months or years when in the end they aren’t months or years when in the end they aren’t going to make it anyway—that is ruthless. going to make it anyway—that is ruthless. To deal with it right up front and let people To deal with it right up front and let people get on with their lives—that is rigorous.get on with their lives—that is rigorous.

#2

How to be rigorousHow to be rigorous

1.1. When in doubt, don’t hire—keep looking.When in doubt, don’t hire—keep looking.2.2. When you know you need to make a When you know you need to make a

people change—act.people change—act. The moment you feel the need to tightly manage someone, you’ve made a 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, hiring mistake. The best people don’t need to be managed. Guided, taught, led—yes. But not tightly managed.led—yes. But not tightly managed.

Waiting too long before acting is equally unfair to the people who need to Waiting too long before acting is equally unfair to the people who need to get off the bus.get off the bus.

How to know: Would you hire the person again? Would you be relieved if How to know: Would you hire the person again? Would you be relieved if they left the organization?they left the organization?

3.3. Put your best people on your biggest Put your best people on your biggest opportunities not your biggest problems.opportunities not your biggest problems.

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

#2

Discuss: How do you Discuss: How do you need to be rigorous?need to be rigorous?

1.1. When in doubt, don’t hire—keep looking.When in doubt, don’t hire—keep looking.2.2. When you know you need to make a When you know you need to make a

people change—act.people change—act. The moment you feel the need to tightly manage someone, you’ve made a 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, hiring mistake. The best people don’t need to be managed. Guided, taught, led—yes. But not tightly managed.led—yes. But not tightly managed.

Waiting too long before acting is equally unfair to the people who need to Waiting too long before acting is equally unfair to the people who need to get off the bus.get off the bus.

How to know: Would you hire the person again? Would you be relieved if How to know: Would you hire the person again? Would you be relieved if they left the organization?they left the organization?

3.3. Put your best people on your biggest Put your best people on your biggest opportunities not your biggest problems.opportunities not your biggest problems.

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

#2

Lesson 3: Confront the Brutal Lesson 3: Confront the Brutal FactsFactsYet never lose faithYet never lose faith

Two choices: confront brutal facts and Two choices: confront brutal facts and change or stick head in sand change or stick head in sand

Kroger and A&P…superstores vs. low Kroger and A&P…superstores vs. low pricesprices

You have to be number one or two in You have to be number one or two in each market or you have to exit.each market or you have to exit.

You absolutely cannot make a series of You absolutely cannot make a series of good decisions without first confronting good decisions without first confronting the brutal facts.the brutal facts.

#3

Confront the Brutal FactsConfront the Brutal FactsYet never lose faithYet never lose faith

Your job is to turn over rocks and look at the Your job is to turn over rocks and look at the squiggly things, even if what you see can squiggly things, even if what you see can scare you!scare you!

Some organizations (Bank of America) have Some organizations (Bank of America) have climates where managers will not even make climates where managers will not even make a comment until they know how the boss felt.a comment until they know how the boss felt.

The moment a leader allows himself to The moment a leader allows himself to become the primary reality people worry become the primary reality people worry about, rather than reality being the primary about, rather than reality being the primary reality, you have a recipe for mediocrity, or reality, you have a recipe for mediocrity, or worse.worse.

#3

How to confront the Brutal FactsHow to confront the Brutal FactsYet never lose faithYet never lose faith

1.1. Lead with questions, not answersLead with questions, not answers Put more questions to board members than they put to youPut more questions to board members than they put to you Raise questions for one reason only: to gain understanding (not Raise questions for one reason only: to gain understanding (not

manipulation)manipulation)2.2. Engage in dialogue and debate, not coercion.Engage in dialogue and debate, not coercion.

Good-to-great companies have a penchant for intense dialogueGood-to-great companies have a penchant for intense dialogue3.3. Conduct autopsies, without blame.Conduct autopsies, without blame.

No finger-pointing.No finger-pointing.4.4. Build red-flag mechanisms.Build red-flag mechanisms.

Good-to-great companies don’t have better information, Good-to-great companies don’t have better information, necessarily. The key is turning information into info that can’t be necessarily. The key is turning information into info that can’t be ignored.ignored.

Red cards in meetings: folks hold it up to deal with real issuesRed cards in meetings: folks hold it up to deal with real issues Short-pay: allow customers to circle items on invoice they don’t Short-pay: allow customers to circle items on invoice they don’t

want to pay due to bad servicewant to pay due to bad serviceAttitude: We will never give up. We will never capitulate. It might Attitude: We will never give up. We will never capitulate. It might

take a long time, but we take a long time, but we willwill find a way to prevail. find a way to prevail.

#3

How do you need to confront the Brutal Facts?How do you need to confront the Brutal Facts?Yet never lose faithYet never lose faith

1.1. Lead with questions, not answersLead with questions, not answers Put more questions to board members than they put to youPut more questions to board members than they put to you Raise questions for one reason only: to gain understanding (not Raise questions for one reason only: to gain understanding (not

manipulation)manipulation)2.2. Engage in dialogue and debate, not coercion.Engage in dialogue and debate, not coercion.

Good-to-great companies have a penchant for intense dialogueGood-to-great companies have a penchant for intense dialogue3.3. Conduct autopsies, without blame.Conduct autopsies, without blame.

No finger-pointing.No finger-pointing.4.4. Build red-flag mechanisms.Build red-flag mechanisms.

Good-to-great companies don’t have better information, Good-to-great companies don’t have better information, necessarily. The key is turning information into info that can’t be necessarily. The key is turning information into info that can’t be ignored.ignored.

Red cards in meetings: folks hold it up to deal with real issuesRed cards in meetings: folks hold it up to deal with real issues Short-pay: allow customers to circle items on invoice they don’t Short-pay: allow customers to circle items on invoice they don’t

want to pay due to bad servicewant to pay due to bad serviceAttitude: We will never give up. We will never capitulate. It might Attitude: We will never give up. We will never capitulate. It might

take a long time, but we take a long time, but we willwill find a way to prevail. find a way to prevail.

#3

The Stockdale ParadoxThe Stockdale Paradox

Research by the Int’l Committee for the Research by the Int’l Committee for the Study of Victimization found that those Study of Victimization found that those facing serious adversity generally fall facing serious adversity generally fall into one of three categories:into one of three categories:

1.1. Those who were permanently dispirited Those who were permanently dispirited by the eventby the event

2.2. Those who got their life back to normalThose who got their life back to normal3.3. Those who used the experience as a Those who used the experience as a

defining event that made them defining event that made them stronger.stronger.

#3

The Stockdale ParadoxThe Stockdale Paradox

Jim StockdaleJim Stockdale stoically stoically accepted the brutal accepted the brutal facts of reality while facts of reality while maintaining an maintaining an unwavering faith in the unwavering faith in the endgame—that he endgame—that he would prevail despite would prevail despite the brutal facts.the brutal facts.

Who didn’t make it out? Who didn’t make it out? The optimists. The optimists.

Those who think it will Those who think it will all be a quick fix and all be a quick fix and everyone will be out by everyone will be out by Christmas are the ones Christmas are the ones that lose heart and fail.that lose heart and fail.

#3

Lesson 4: The Hedgehog Lesson 4: The Hedgehog ConceptConcept

““The fox knows many things, The fox knows many things, but the hedgehog knows one but the hedgehog knows one big thing.”big thing.”

Foxes pursue many ends at the Foxes pursue many ends at the same time and see the world in same time and see the world in all its complexity. They are all its complexity. They are scattered or diffused, moving scattered or diffused, moving on many levels.on many levels.

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

For a hedgehog, anything that For a hedgehog, anything that does not somehow relate to the does not somehow relate to the hedgehog idea holds no hedgehog idea holds no relevance.relevance.

#4

The Hedgehog ConceptThe Hedgehog Concept

ExamplesExamples Walgreens: the best, most convenient drugstores, with Walgreens: the best, most convenient drugstores, with

high profit per customer visit (viz., also Starbucks)high profit per customer visit (viz., also Starbucks) Wells Fargo: running a bank like a business, with a focus Wells Fargo: running a bank like a business, with a focus

on the Western U.S.on the Western U.S.

Strategy, per se did not distinguish the good-to-great Strategy, per se did not distinguish the good-to-great companies from the comparison companies. companies from the comparison companies. BothBoth sets sets had strategic plans, and there is no evidence that the had strategic plans, and there is no evidence that the good-to-great companies invested more time/energy in good-to-great companies invested more time/energy in strategy development & long-range planning.strategy development & long-range planning.

All the G2G companies attained a very simple concept All the G2G companies attained a very simple concept that they used as a frame of reference for all their that they used as a frame of reference for all their decisions. decisions.

A Hedgehog Concept is a simple, crystalline concept that A Hedgehog Concept is a simple, crystalline concept that flows from deep understanding about the intersection of flows from deep understanding about the intersection of the following three circles…the following three circles…

#4

Developing The Hedgehog Developing The Hedgehog ConceptConcept

1.1. What can you be the best in the world at (and, What can you be the best in the world at (and, equally important, what you cannot be the best in equally important, what you cannot be the best in the world at)the world at) What you can be the best at might not even be What you can be the best at might not even be

something in which you are currently engaged.something in which you are currently engaged.2.2. What drives your economic engine?What drives your economic engine?

Must discover the single denominator (profit per Must discover the single denominator (profit per XX ) ) that has the greatest impact on your that has the greatest impact on your economics/budgeting.economics/budgeting.

3.3. What are you deeply passionate about?What are you deeply passionate about? What do you have a genetic or God-given talent to do?What do you have a genetic or God-given talent to do? What are you well-paid to do?What are you well-paid to do? What do you enjoy doing that you absolutely love to do, What do you enjoy doing that you absolutely love to do,

enjoying the actual process for its own sake?enjoying the actual process for its own sake?

#4

The Hedgehog ConceptThe Hedgehog Concept

You can be passionate about all you want, but You can be passionate about all you want, but if you can’t be the best at it or if it doesn’t if you can’t be the best at it or if it doesn’t make economic sense, then you might have make economic sense, then you might have a lot of fun, but you won’t get great results.a lot of fun, but you won’t get great results.

If we can’t be the best at it, then why are we If we can’t be the best at it, then why are we doing it at all?doing it at all?

A Hedgehog Concept is not a goal to be the A Hedgehog Concept is not a goal to be the best, a strategy to be the best, an intention best, a strategy to be the best, an intention to be the best, a plan to be the best. It is an to be the best, a plan to be the best. It is an understanding of understanding of what you can be the best what you can be the best at.at.

#4

Develop your Hedgehog Concept!Develop your Hedgehog Concept!

What can you be the best in the world atWhat can you be the best in the world at (and, equally (and, equally important, what you cannot be the best in the world at)important, what you cannot be the best in the world at) What you can be the best at might not even be What you can be the best at might not even be

something in which you are currently engaged.something in which you are currently engaged. What drives your economic engine?What drives your economic engine?

Must discover the single denominator (profit per Must discover the single denominator (profit per XX ) ) that has the greatest impact on your that has the greatest impact on your economics/budgeting.economics/budgeting.

What are you deeply passionate about?What are you deeply passionate about? What do you have a genetic or God-given talent to do?What do you have a genetic or God-given talent to do? What are you well-paid to do?What are you well-paid to do? What do you enjoy doing that you absolutely love to do, What do you enjoy doing that you absolutely love to do,

enjoying the actual process for its own sake?enjoying the actual process for its own sake?

A Hedgehog Concept is not a goal to be the best, a strategy 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 to be the best, an intention to be the best, a plan to be the best. It is an understanding of best. It is an understanding of what you can be the best at.what you can be the best at.

#4

A few hedgehog facts…A few hedgehog facts…

Growth is not a Hedgehog ConceptGrowth is not a Hedgehog Concept You can’t just go off-site for 2 days and You can’t just go off-site for 2 days and

come back with itcome back with it On average, it took 4 years for G2G On average, it took 4 years for G2G

companies to clarify theirscompanies to clarify theirs It is an inherently iterative processIt is an inherently iterative process Useful mechanism is a Council that Useful mechanism is a Council that

consistently meets to review the 3 consistently meets to review the 3 aspects of the Hedgehog Concept (and aspects of the Hedgehog Concept (and they should get/read the book!)they should get/read the book!)

#4

An interesting note on An interesting note on bureaucracy…bureaucracy…

Most companies build their Most companies build their bureaucratic rules to manage the bureaucratic rules to manage the small percentage of wrong people on small percentage of wrong people on the bus, which in turn drives away the bus, which in turn drives away the right people on the bus, which the right people on the bus, which increases the need for more increases the need for more bureaucracy to compensate for bureaucracy to compensate for incompetence and lack of discipline, incompetence and lack of discipline, which then further drives the right which then further drives the right people away and…people away and…

Lesson 5: The Flywheel and the Lesson 5: The Flywheel and the Doom LoopDoom Loop

G2G comes about by a G2G comes about by a

cumulative process—step cumulative process—step by step, action by action, by step, action by action, decision by decision, turn decision by decision, turn by turn of the flywheel—by turn of the flywheel—that adds up to sustained that adds up to sustained and spectacular results.and spectacular results.

Media attention often Media attention often comes to G2G comes to G2G organizations after years organizations after years of slow build-up and then of slow build-up and then break-through.break-through.

#5

Flywheel & DoomloopFlywheel & Doomloop

Flywheel transitions look like Flywheel transitions look like dramaticm revolutionary dramaticm revolutionary breakthroughs from the outside breakthroughs from the outside (when the wheel is fully turning).(when the wheel is fully turning).

From the inside they feel completely From the inside they feel completely different, more like an organic different, more like an organic development process.development process.

#5

Flywheel & DoomloopFlywheel & Doomloop

Egg sitting there.Egg sitting there. No one pays No one pays

attention.attention. Egg cracks open.Egg cracks open. Out jumps chick.Out jumps chick. Media: Media:

““The transformation of The transformation of Egg to Chicken!” Egg to Chicken!”

““The remarkable The remarkable revolution of the Egg!” revolution of the Egg!”

““Stunning turnaround Stunning turnaround at Egg!”at Egg!”

#5

Flywheel & DoomloopFlywheel & Doomloop

The point?The point? G2G companies had no name for their G2G companies had no name for their

transformations. There was no launch transformations. There was no launch event, no tag line, no programmatic feel event, no tag line, no programmatic feel whatsoever. whatsoever.

There was no miracle moment.There was no miracle moment.

#5

Flywheel…Flywheel…

UCLA won 10 NCAA UCLA won 10 NCAA championships and championships and 61 games in a row.61 games in a row.

How many years How many years did Wooden coach did Wooden coach UCLA before the 1UCLA before the 1stst championship?championship?

1515

#5

Flywheel…Flywheel…

Point to tangible Point to tangible accomplishments—accomplishments—however incremental at however incremental at first—and show how these first—and show how these steps fit into the context steps fit into the context of an overall working of an overall working concept.concept. Step forward, consistent Step forward, consistent

with hedgehog conceptwith hedgehog concept Accumulate visible resultsAccumulate visible results People line up, energized by People line up, energized by

resultsresults Flywheel momentum buildsFlywheel momentum builds

#5

DoomloopDoomloop Instead of a quiet, deliberate process Instead of a quiet, deliberate process

of figuring out what needed to be of figuring out what needed to be done and then simply doing it, the done and then simply doing it, the comparison companies frequently comparison companies frequently launched new programs—often with launched new programs—often with great fanfare and hoopla aimed at great fanfare and hoopla aimed at “motivating the troops”—only to see “motivating the troops”—only to see the programs fail to produce the programs fail to produce sustained results.sustained results.

They sought the single defining They sought the single defining action, the grand program, the one action, the grand program, the one killer innovation, the miracle moment killer innovation, the miracle moment that would allow them to skip the that would allow them to skip the arduous buildup stage and jump right arduous buildup stage and jump right to breakthrough.to breakthrough.

Guess what happened…Guess what happened…

#5

Two popular doomloops to avoid…Two popular doomloops to avoid…

Misguided use of acquisitions—making deals for Misguided use of acquisitions—making deals for the sake of making deals.the sake of making deals. ““When the going gets tough, we go shopping!”When the going gets tough, we go shopping!” G2G companies did acquisitions G2G companies did acquisitions afterafter the Hedgehog the Hedgehog

Concept and Concept and afterafter the flywheel had significant the flywheel had significant momentum.momentum.

Acquisitions are accelerators not creators of flywheel Acquisitions are accelerators not creators of flywheel momentum.momentum.

Leaders who stop the flywheel—leaders who Leaders who stop the flywheel—leaders who step in, stop an already spinning flywheel, and step in, stop an already spinning flywheel, and throw the organization in entirely different throw the organization in entirely different direction.direction.

#5

What’s the diff between What’s the diff between flywheel & doom loop flywheel & doom loop organizations?organizations?

(in)consistency(in)consistency (non)confrontal(non)confrontal (un)disciplined(un)disciplined (un)motivated (un)motivated

(self)(self) (talk)results(talk)results