good to great

BAKERSTRATEGY GROUP

A leader, a hedgehog and a flywheel

Ann Arbor, MI

February 20, 2003

MAKE IT HAPPEN

Good to Great

Book Review

February 20, 2003 Page 1

BAKERSTRATEGY GROUP

Good to Great


Book Summary

Our Discussion Today

1 Introduction – a summary of the book and the process of analysis

2 Key Ideas – a look at three ideas we find intriguing


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Good to Great


Book Summary1] Introduction

“Our five-year quest yielded many insights, a number

of them surprising and quite contrary to conventional

wisdom, but one giant conclusion stands above the

others: We believe that almost any organization can

substantially improve its stature and performance,

perhaps even become great, if it conscientiously

applies the framework of ideas we’ve uncovered.”

- Jim Collins, Good to Great

The main premise of Good to Great is that any company can become a “great” company by systematically implementing key principles outlined in the book

Main Premise


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Good to Great



We will focus on three:

- Level 5 Leadership

- Hedgehog Concept

- Flywheel

Collins’ “framework of ideas” for steering a company from good to great involves six key learnings wrapped in a continual process he calls the “flywheel”

Framework


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Good to Great



Why should

I care?

Could be a good discussion point with a client

Reference to the book may be made in a meeting

It’s fun to see what business books out there are popular

The concepts may have implications for your strategy

Being familiar with the basic concepts at best allows you to incorporate concepts into program discussions and at worst make you more informed about a popular book

Why Care


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Good to Great



1,435 companiesSelected from the Fortune 500, 1965 - 1995

126 companiesSelected into full CRSP data

pattern analysis

19 companies

Selected into industry analysis

11 companiesSelected into good-to-great

set

Screening Process for Selecting Good-to-Great Companies

Main Test

11 EliminationCriteria

IndustryComparisons

The good-to-great companies were selected through a careful evaluation process that began with 1,435 companies taken from Fortune 500 lists since it began in 1965

How Good-to-Great Companies were Selected

Cut1

Cut 2

Cut 3

Cut 4


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Good to Great



Compound annual return is 1.3 times that of Fortune Industrial and Service listings

1.Continual upward trend

2.Flat gradual rise

3. Insufficient “good” period

4.Transition was from “terrible”

5.Transition was after 1985

6.Unsustained transition

7.Volatile returns patterns

8. Incomplete research data

9.Evidence of already being great

10.Acquired or merged

11.Short of 3 times the market

The good-to-great companies were selected through a careful evaluation process that began with 1,435 companies taken from Fortune 500 lists since it began in 1965

Cut Criteria

Main Test 11 Elimination CriteriaCut 2 Cut 3


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Good to Great



CompanyResults from Transition point to 15 Years beyond Transition Point

T Year toT year + 15

Abbott 3.98 times the market 1974 -1989

Circuit City 18.50 times the market 1982 -1997

Fannie Mae 7.56 times the market 1984 -1999

Gillette 7.39 times the market 1980 -1995

Kimberly-Clark 3.42 times the market 1972 -1987

Kroger 4.17 times the market 1973 -1988

Nucor 5.16 times the market 1975 -1990

Philip Morris 7.06 times the market 1964 -1979

Pitney Bowes 7.16 times the market 1973 -1988

Walgreens 7.34 times the market 1975 -1990

Wells Fargo 3.99 times the market 1983 -1998

ABT

CC

FNM

G

KMB

KR

NUE

PBI

WAG

WAG

NYSETicker

The 11 good-to-great companies had to have 15 years of “good” results, followed by 15 years of “great” results, which translates into a return at lease 3 times the market

Good-to-Great Companies

Good to Great Cases


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Good to Great



Each of the good-to-great companies showed a clear transition point, after which they showed steady growth that outpaced the market and their industry

Great Companies vs. Good Companies


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Good to Great



Gillette, for example, had at least 15 years before 1980 of “good” performance, with “great” performance in the 80’s and early 90’s after the Transition Point in 1980

Gillette Example


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Good to Great



Looking at Gillette since 1995, however, it is not easy to conclude that they are a “great” company today, since they have underperformed the market these past 7 years

Gillette Example


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Good to Great



• Larger-than-life, celebrity leaders who ride in from the outside are

negatively correlated with taking a company from good to great.

• The structure of executive compensation is not a key driver in

corporate performance

• Strategy per se did not separate the good-to-great companies from

the comparison companies.

• Good-to-great companies paid attention to what not to do and what

to stop doing

• Technology can accelerate a transformation, but it cannot cause a

transformation

• M&A plays virtually no role in igniting a transformation from good to

great

• Good-to-great companies paid scant attend to managing change,

motivating people, or creating alignment.

• Good-to-great companies had no name, tag line, launch event, or

program to signify their transformations.

• Good-to-great companies were not, by and large, in great industries,

and some were in terrible industries.

There were a number of things that Collins and his team expected to find, but it turned out that the data proved their instincts wrong

Dogs that Didn’t Bite


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Good to Great


Book Summary12] Key Ideas

The

Hedgehog

The

Leader

The

Flywheel

Leader

Everything start with a qualified, Level 5 leader; one who’s ambition is first and foremost for the institution, not himself or herself

Level 5 Leadership


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Good to Great



The

Hedgehog

The

Leader

The

Flywheel

Leader

Level 5 leaders demonstrate two remarkable qualities: a humble and generally selfless manner, and a steely resolute fixation on quality results.

Yin and Yang


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Good to Great



• Scattered

• Diffused

• Moving on many levels

• Never integrating their thinking into an

overall concept or unifying vision

• Simplifies a concept

• Reduces all challenges to

simple ideas

Foxes pursue many ends at the same time and

see all the world in its complexity

Hedgehogs simply a complex world into a

single organizing idea, a basic principle or

concept that unifies and guides everything

Fox

Hedgehog

The

Hedgehog

The

Leader

The

Flywheel

Hedgehog

The Hedgehog Concept, drawn from the Isaiah Berlin essay, is that great companies tend to think of their strategy and corporate vision in clear and simple terms

Fox vs. Hedgehog


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Good to Great



“Those who built the good-to-great companies were, to one degree or another,

hedgehogs. They used their hedgehog nature to drive toward what we came to

call a Hedgehog Concept for their companies. Those who led the comparison

companies tended to be foxes, never gaining the clarifying advantage of a

Hedgehog Concept, being instead scattered, diffused, and inconsistent.


The

Hedgehog

The

Leader

The

Flywheel

Hedgehog

Level 5 leaders used the Hedgehog Concept to create an organization that is clear in its purpose and focused on delivering results

Hedgehog Concept


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Good to Great



What are You Deeply Passionate About

What You can Be the Best in the World At

What Drives Your Economic Engine

2

1

3

1

This is beyond core competence. Just because you have a competence does not mean that you can be the best

3 All good-to-great companies have piercing insight into the single denominator – profit per x – that had the greatest impact on their economies.

2

Good-to-great companies focused on those activities that ignited their passion.

The

Hedgehog

The

Leader

The

Flywheel

Hedgehog

The three main questions in the Hedgehog Concept involve tapping your passion, determining if you can be the best, and understanding your economic engine.

Three Elements of the Hedgehog Concept

The Hedgehog Concept Notes


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Good to Great



“No matter how dramatic the end result, the good-to-great transformations never

happened in one fell swoop. The was no single defining action, no grand

program, no one killer innovation, no solitary lucky break, no wrenching

revolution. Good to great 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.”


The

Hedgehog

The

Leader

The

Flywheel

Flywheel

The Flywheel concept emphasizes the fact hate the transformation of good-to-great companies was not a sudden event, but rather a steady, ongoing process

Flywheel


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Good to Great


Book Summary

Implications for

Your Company

Implications for

Your Clients

• Could combine Level 5

leadership learnings

with internal staff

feedback

The

Leader

The

Hedgehog

The

Flywheel

• Continued efforts to

build the your business

step-by-step

• Encourage Level 5

leadership in clients on

projects, especially as it

pertains to focusing on

how to improve, rather

than who to blame

• Encourage year-to-year,

ongoing dedication to

high-Impact areas to see

“breakthrough” results

over time

TakeawaysThe Flywheel concept emphasizes the process, but, as we know, companies still need to know the “what” in order to effectively direct the companies resources

• Could apply something

similar to the Hedgehog

Concept of simplicity

when thinking of how to

compete in the

marketplace

• Be clear about the

economic engine when

determining Customer

Behaviors in the model

• Measure aspects of what

they could be best at


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Good to Great


Book Summary

“After completing the research, I am convinced that many organizations can

make the journey from good to great if they apply the lessons in this book. The

problem is not the statistical odds; the problem is that people are squandering

their time and resources on the wrong things.”


Final ThoughtThe Flywheel concept emphasizes the process, but, as we know, companies still need to know the “what” in order to effectively direct the companies resources

good to great

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