good to great - book summary

Waleed El-Naggar,

May 2011

Good to Great - Book Summary

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Good to Great – Book Summary

https://www.facebook.com/waleed.naggar 1

Good is the Enemy of Great ........................................................................................................ 2

Level 5 Leadership ..................................................................................................................... 2

First Who … Then What ............................................................................................................ 3

Confront the Brutal Facts ............................................................................................................ 5

The Hedgehog Concept .............................................................................................................. 7

A Culture of Discipline ............................................................................................................... 9

Technology Acceleration .......................................................................................................... 11

The Flywheel and the Doom Loop ............................................................................................ 12

From Good to Great to Built to Last ......................................................................................... 15




Good is the Enemy of Great

In this book, Collins offers a few of the most significant findings gleaned from the study. Of

particular note are the many indications that factors such as CEO compensation, technology,

mergers and acquisitions, and change management initiatives played relatively minor roles in

fostering the Good to Great process. Instead, Collins found that successes in three main areas,

which he terms disciplined people, disciplined thoughts, and disciplined action, were likely the

most significant factors in determining a company’s ability to achieve greatness.

The author and his team of researchers established a benchmark for good-to-great as follows:

- The companies had experienced 15-year cumulative stock returns hat were at or below

the stock market index, punctuated by a transition point, then cumulative returns at least

three times the market over the next fifteen years.

- Each of the companies demonstrated the good-to-great pattern independent of its

industry.

- Each company demonstrated a pattern of results.

- Each company was compared to a similar company that either did not make the good-to-

great leap or made it but did not sustain it. This is used to compare and find out what

distinguished good-to-great companies from other companies.

Level 5 Leadership

One of the most surprising results of the research is the discovery of new level of leadership,

although it was never the target of the research.




All 11 good-to-great companies were led by level 5 leaders. Leaders of this type combine

extreme personal humility with intense professional will. “Level 5 leaders channel their ego

needs away from themselves and into the larger goal of building a great company. It’s not that

Level 5 leaders have no ego or self-interest. Indeed, they are incredibly ambitious, but their

ambition is first and foremost for the institution, not themselves”1.

Despite they run different companies in different markets, they exemplify the same basic set of

qualities:

- Ambitious for the company (setup successor for more success): They setup their companies

up for success when they leave. They make sure their successors are poised to continue a

successful path, or to exceed the expectations that arise as a result of that success. Maxwell

(Fannie Mae) gave up $5.5 million, saving the company from a potentially bad relationship

with Washington.

- Compellingly modest: In contrast with the I-centric style of level 4 leaders, level 5 leaders do

not typically talk about themselves. They prefer to direct the attention to other individuals, or

to the whole company. They don’t aspire to be larger that-than-life heroes.

- They have unwavering resolve: they have determination to do whatever it needs to be done to

make the company great. George Cain (Abbott Labs CEO) destroyed the major cause of the

company’s mediocrity, nepotism. He rebuilt the board and executive teams with the best

people available, not family connections.

This chapter describes what level 5 leaders are. The next chapters describe what they do.

First Who … Then What “I don’t know where we should take this company, but I do know that if I start with the right

people, ask them the right questions, and engage them in vigorous debate, we will find a way to

make this company great”2.

Executives who led transformation from good to great got the right people on the bus and the

wrong people off the bus and then figured out where to drive the bus. The main truths adopted by

good-to-great leaders are:

- If you start with the “who” question, rather that the “what”, you can easily adapt to a

changing environment. The right people can adapt to changes and learnt how to be great in a

new world.

- If the right people are on the bus, motivating and managing people problems are minimal,

ideally go away.

1 Jim Collins, Good to Great: Page 21. 2 Jim Collins, Good to Great: 5




- If you discover the right direction, it will do no good if the bus has the wrong people. Great

vision without the right people is irrelevant.

People are not the most important assets. The right people are.

Whether a person is the right one is related to character traits and innate capabilities rather than

specific knowledge, background, or skills.

Not a Genius with a Thousand helpers

Comparison companies frequently followed this model - a genius leader who sets vision and then

enlists a crew of highly capable “helpers” to make the vision happen. When this genius leaves,

the company fails.

It’s who you Pay, Not How You Pay Them

The research found no systematic difference on the use of stock, high salary, bonus incentives, or

long-term compensation between the good-to-great and comparison companies.

Rigorous, Not Ruthless

The culture of good-to-great companies tend to be rigorous, not ruthless. Leaders consistently

apply exacting standards all time and all levels. The best people need not worry about their

positions to concentrate fully on doing what they do best. Three practical disciplines were

extracted from the research for being rigorous, rather than ruthless:

1. When in doubt, don’t hire – keep looking. No company can grow revenues consistently faster

than its ability to get enough of the right people to implement that growth and still become a




great company. If the growth rate in revenues consistently outpaces the growth rate in people,

you cannot build a great company.

2. When you know you need to make a people change, act. The moment you feel the need to

closely manage someone, you’ve made a hiring mistake. The right people do not need to be

managed. They may need to be guided, taught, led, but not tightly managed. Letting the

wrong people hang around is unfair to all the right people, who often find they are

compensating for the wrong people’s inadequacies. This does not mean trying a lot of people

and keep the good ones. Rather they adopt the approach “Let’s take the time to make

rigorous A+ selections right up front. If we get it right, we’ll do everything we can to try to

keep them on board for a long time. If we make a mistake, then we’ll confront that fact so

that we can get on with out work and they can get on with their lives”3.

3. Put the best people on the biggest opportunities, not the biggest problems. Many people think

that putting the best people in bad situations will help turn bad situations around. Good

management of problems can make the company good, but building opportunities in the only

way to become great. Selling off your problems does not mean selling off the best people.

The best people must always have a seat on the bus, which will make them more likely to

support changes in directions.

Good-to-great executive teams have people who debate vigorously in search for the best

answers, but at the end they unify behind decisions regardless of parochial interests.

Confront the Brutal Facts On the road to greatness starts by confronting the brutal facts of current reality. With an honest

diligent effort to determine the truth of current situation, the right decisions often become self-

evident. A&P had a perfect business model fir the first half of the 20th century: cheap, plentiful

groceries sold in utilitarian stores. In the second half of the century, Americans began to demand

bigger stores, more options, fresh baked goods, fresh flowers, banking services and other

services. They wanted superstores.

Rather than ignoring the brutal truth, as A&P did, Kroger grocery chain acted on it, eliminating,

changing, or replacing every single store that did not fit the new reality.

Good-to-great companies displayed 2 distinctive forms of disciplined thought. The first is that

they infused the entire process with the brutal facts of reality. The second (next chapter) is that

they developed a simple, deeply insightful, frame of reference for all decisions.

Both good-to-great and comparison companies had a vision for greatness. Unlike comparison

companies, good-to-great companies continually refined the path to greatness with the brutal

facts of reality.

3 Jim Collins, Good to Great: Page 57




Good-to-great companies’ management meetings usually focus on talking about the scary things

that may have negative impacts on the company’s results.

Leadership is only about vision, but also is equally about creating a climate where the truth is

heard and the brutal facts confronted.

Talking a company from good to great requires a culture wherein people have a tremendous

opportunity to be heard and, ultimately, for the truth to be likewise heard. To create this

environment, the following basic practices must be used:

1. Lead with questions, not answers. Leaders do not come up with answers. It means having the

humility to grasp the fact that the leader does not understand enough to have the answers, and

then to ask questions that will lead to the possible insights.

2. Engage in dialogue and debate, not coercion. Dialogues are used to engage people in the

search for the best answers. Good-to-great companies had a great tendency for intense

debates, discussions and healthy conflicts.

3. Conduct autopsies, without blame. It’s one of the major pillars of building a climate where

truth is heard. Having the right people on the bus, there is will almost be no need to assign

blame, but rather need to search for understanding and learning.

4. Build red flag mechanism. Good-to-great companies had no better access to information than

comparison companies; they simply gave their people the customer ample opportunities to

provide unfiltered information and insight that can act as an early warning for potentially

deeper problem.

The Stockdale Paradox

"This is a very important lesson. You must never confuse faith that you will prevail in the end-

which you can never afford to lose-with the discipline to confront the most brutal facts of your

current reality, whatever they might be.4"

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.

In every case, the management team responded with a powerful psychological duality. On the

one hand, they stoically accepted the brutal facts of reality. On the other hand, they maintained

an unwavering faith in the endgame, and a commitment to prevail as a great company despite the

brutal facts

4 Jim Collins, “Good to Great”: Page 85




The Hedgehog Concept In 1953, the Isaiah Berlin published his very famous essay “The Hedgehog and the Fox.

According to the essay, the world is divided into two groups, based on an ancient Greek proverb.

Foxes pursue many ends at the same time and see the world in all its complexities; the scattered,

diffused and moving on many levels, never integrating their thinking into one overall concept or

unifying vision. On the other hand, hedgehogs simplify a complicated world into a single idea or

principle that unifies and guides everything. Regardless of the world complexities, the hedgehog

reduces all challenges and dilemmas to simple ideas. Anything that does not relate to the

hedgehog idea holds no relevance. The hedgehog always wins against the fox in real life.

“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, or

inconsistent.”5

The Three Circles

The major strategic difference between the good-to-great companies and comparison companies

lay in two fundamental distinctions: the good-to-great companies based their strategies on deep

understanding along three dimensions and they translated this understanding into a simple and

clear concept that guided all their efforts.

The good-to-great looked at the intersection of the next three circles:

1. What you can be the best in the world at (and what you cannot be the best in the world

at). It’s not setting a goal to be the best, a strategy to be the best, an intention to be the

best or a plan to the best. It is an understanding what you can be the best at. The good-to-

great companies realize the distinction. Just because something is your core business does

not necessarily mean you can be number one at this business.

5 Jim Collins, “Good to Great”: Page 92




2. What drives your economic engine. To get insight into the drivers of the economic

engine, look for one denominator (profit per x, e.g., profit per customer visit) that has the

greatest impact. The denominator can be subtle and unobvious. The key is using the

denominator to gain deep understanding and insight into economic model. Good-to-great

companies do not have to be in a great industry. They attained profound insight into their

economies regardless of their weak industries.

3. What you are deeply passionate about. Good-to-great companies focused on activities

that ignited their passion. You have to discover what makes you passionate.

Growth is not a Hedgehog Concept. If you the right Hedgehog Concept, you will create such a

momentum that your problem will not be how to grow, but how not to grow too fast.

It took about four years on average for good-to-great companies to clarify their Hedgehog

Concept. Getting the Hedgehog Concept is an inherently iterative process, not an event. The

essence of the process is to get the right people engaged in strong and deep discussions and

debates, infused with the brutal facts and guided by questions formed by the three circles.

A useful mechanism for moving the process along is a device called the Council.




Characteristics of the Council

1. The council exists as a device to gain understanding about important issues facing the

organization.

2. The Council is assembled and used by the leading executive and usually consists of five

to twelve people.

3. Each Council member has the ability to argue and debate in search of understanding, not

from the egoistic need to win a point or protect a parochial interest.

4. Each Council member retains the respect of every other Council member, without

exception.

5. Council members come from a range of perspectives, but each member has deep

knowledge about some aspect of the organization and/or the environment in which it

operates.

6. The Council includes key members of the management team but is not limited to

members of the management team, nor is every executive automatically a member.

7. The Council is a standing body, not an ad hoc committee assembled for a specific project.

8. The Council meets periodically, regardless of frequency (weekly, quarterly, etc).

9. The Council does not seek consensus, recognizing that consensus decisions are often at

odds with intelligent decisions. The responsibility for the final decision remains with the

leading executive.

10. The Council is an informal body, not listed on any formal organization chart or in any

formal documents.

11. The Council can have a range of possible names, usually quite innocuous. In the good-to-

great companies, they had names like Long-Range Profit Improvement Committee,

Corporate Products Committee, Strategic Thinking Group, and Executive Council

A Culture of Discipline The purpose of bureaucracy is to compensate for incompetence and lack of discipline – a

problem that largely goes away if you have the right people in the first place. Most companies

build rules to manage the small percentage of wrong people on the bus, which in turn drives the

rights people of the bus, which then increases the percentage of wrong people on the bus, which

then increases the need for bureaucracy to compensate for incompetence and lack of discipline

and so forth. Good-to-great companies avoided bureaucracy and hierarchy and instead created a

culture of discipline.




A culture of discipline requires duality – on one hand it requires people to adhere to a consistent

system, on the other hand, it gives freedom and responsibility within the system.

As defined by Collins: “Build a culture full of people who take disciplined action within the three

circles, fanatically consistent with the Hedgehog Concept”. This means:

1. Build a culture based on freedom and responsibility, within a framework.

2. Fill the bus with self-disciplined people.

3. Don’t confuse a culture of discipline with a tyrannical disciplinarian.

4. Adhere with great consistency to the Hedgehog Concept.

Good-to-great companies built a consistent system with clear constraints, at the same time; they

gave people freedom and responsibility within the framework of the system. They hired self-

disciplined employees who don’t need to be managed, and then managed the system, not people.

To create a culture of discipline starts by getting self-disciplined people rather than trying to

discipline the wrong people on the bus. Next we have disciplined thoughts. You need the

discipline to persist in the search for understanding until you get your Hedgehog Concept.

Finally, you need the disciplined action. Comparison companies tried to jump to disciplined

action which failed. Disciplined action without self-disciplined people is impossible to sustain

and disciplined action without disciplined thought is a receipt for disaster.




Rinsing Your Cottage Cheese

Doing whatever it takes to become the best within carefully selected arenas and then to seek

continual improvement from there. Every company wants to be the best, but most of them lack

the discipline to figure out with egoless clarity what they can be the best at and the will to do

whatever it takes to turn that potential into reality.

Level 4 leaders who personally disciplined their organizations create unsustainable environment.

Once they leave, the company will have no culture to endure as lower level people are frozen by

indecision.

Fanatical Adherence to the Hedgehog Concept

Every step if diversification and innovation should stay within the three circles. This is called

disciplined diversification. Good-to-great strictly followed a simple rule: We will not do

anything that does not fit with our Hedgehog Concept. No unrelated business, no unrelated

acquisitions, and no unrelated joint venture. In contrast, all comparison companies either lacked

the discipline to understand their three circles or lacked the discipline to stay within the 3 circles.

A great company is much more likely to die of indigestion of too much opportunity than

starvation from too little. The challenge becomes not opportunity creation, but opportunity

selection. It needs discipline to say no for a too big opportunity. The fact that something is an

“once-in-a-lifetime opportunity” is irrelevant unless it fits within the three circles.

The Hedgehog Concept needs to align worker interest to firm’s interests.

Start Creating a “Stop Doing” List.

In a good-to-great company, budgeting is a discipline to decide which arenas should be fully

funded and which should not be funded at all. Budgeting is not deciding how much to allocate

for each activity, but about determining which activities best support the Hedgehog Concept and

should be strengthened and which should be eliminated.

The “Stop Doing” lists are much more important than “To Do” lists.

Technology Acceleration The research did not ask what the role of technology is. The real question was: how do good-to-

great companies think differently about technology.

Good to great companies tied technology directly with their Hedgehog Concepts. It’s not

technology for technology itself, but pioneering application of carefully selected technologies.

When used correctly, technology becomes an accelerator of momentum, not a creator of it.

Good-to-great companies never began their transitions with pioneering technology, for the

simple reason that you cannot make good use of technology until you know which technologies

are relevant — the ones that link directly to the three intersecting circles of the Hedgehog




Concept. If a specific technology fits directly with your Hedgehog Concept, you have to become

a pioneer in the application of that technology. If not, you need to ask, do you need this

technology at all? If yes, then all you need is parity. If no, you can totally ignore that technology.

How a company reacts to technological change is a good indicator of its inner drive for greatness

versus mediocrity.

Leaders of good-to-great companies respond with thoughtfulness and creativity, driven by a

compulsion to turn unrealized potential into results. They act with calm equanimity, taking quiet,

deliberate steps forward, with great discipline. They do not take reactionary measures, defining

strategy in response to what others are doing. They act in terms of what they want to create, and

how to improve their companies, relative to an absolute standard of excellence.

Mediocre companies, on the other hand, react and lurch about, motivated chiefly by the fear of

what they don’t understand — a fear of watching others hit it big while they’re left behind.

During the technology bubble of the late 1990s, mediocre companies moved from one

technological scheme to the next, always reacting; never pioneering.

The Flywheel and the Doom Loop Good-to-great transformations may look like dramatic and revolutionary events to those

observing from the outside, but they feel like organic, cumulative processes to people on the

inside. Those companies had no name for their transformations; there was no launch event, no

tag line, and no programmatic feel whatsoever.

There was, in other words, no miracle moment in the transformation of each company from good

to great. Each went through a quiet, deliberate process of figuring out what needed to be done to

create the best future results, then they simply took those steps, one by one over time, until they

hit their breakthrough moments

The Flywheel Effect

Imagine an enormous, heavy flywheel — a massive disc mounted horizontally on an axle,

measuring 30 feet in diameter, two feet in thickness and 5,000 pounds in weight. In order to get

the flywheel moving, you must push it. Its progress is slow; your consistent efforts may only

move it a few inches at first. Over time, however, it becomes easier to move the flywheel, and it

rotates with increasing ease, carried along by its momentum. The breakthrough comes when the

wheel’s own heavy weight does the bulk of the work for you, with an almost unstoppable force.

All of the good-to-great companies experienced the flywheel effect in their transformations. The

first efforts in each transformation were almost unnoticeable. However, over time, with

consistent, disciplined actions pushing it forward, each company was able to build on its

momentum and make the transformation — a build-up that led to a breakthrough. The

momentum they built was then able to sustain their success over time.




The major truth behind the success of good-to-great companies came from the simple truth:

Tremendous power exists in the fact of continued improvement and the delivery of results. Point

to tangible accomplishments - however incremental at first - and show how those steps fit into

the context of an overall concept that will work. When this is done in such a way that people see

and feel the build-up of momentum, they will line up with enthusiasm.

The Doom Loop

Comparison companies had a totally different pattern. Instead of quiet, deliberate process of

figuring out what needed to be done, then doing it, comparison companies frequently launched

ne programs – often loudly, with the aim of motivating the troops – only to see those program

fail to produce sustained results. They pushed the flywheel in one direction, stopped, changed

course and pushed it in a new direction, a process they repeated continually. After years of

lurching back and forth, those companies failed to build sustained momentum and fell into doom

loop.




While the specific variation of the doom loop varied from company to company, there were

some highly common patterns, two of which deserve particular note: the misguided use of

acquisitions and the selection of leaders who undid the work of previous generations.

Good-to-great companies has higher success rate with acquisitions because their big acquisitions

came after the development of Hedgehog Concepts and after the flywheel had built significant

momentum. Acquisitions were used as an accelerator of the flywheel momentum, not a creator of

it. Comparison companies on the other hand used acquisitions to increase growth, diversify away

their troubles, or make a CEO look good.

How to tell if you’re on the Flywheel or in the Doom Loop

Good-to-Great Companies (Flywheel) Comparison Companies (Doom loop)

Follow a pattern of build-up leading to

breakthrough.

Reach breakthrough by an accumulation of

steps, one after the other, turn by turn of the

flywheel; feels like an organic evolutionary

process.

Skip build-up and jump right to

breakthrough.

Implement big programs, radical change

efforts, dramatic revolutions; chronic

restructuring-always looking for a miracle

moment.

Confront the brutal facts to see clearly what

steps must be taken to build momentum.

Embrace fads and engage in management

hoopla, rather than confront the brutal facts.

Attain consistency with clear Hedgehog

Concept, resolutely staying within the three

circles.

Demonstrate chronic inconsistency-lurching

back and forth and out of the three circles.

Follow the pattern of disciplined people (“first

who”), disciplined thought, disciplined action.

Jump right to action, without disciplined

though and without first getting the right

people on the bus.

Harness appropriate technologies to your

Hedgehog Concept, to accelerate momentum.

Run about like Chicken Little in reaction to

technology.

Make major acquisitions after breakthrough (if

at all)

Make major acquisitions before

breakthrough.

Spend little energy trying to motivate or align

people.

Spend a lot of energy trying to align and

motivate people.

Let results do the most of the talking. Sell the future.

Maintain consistency over time. Inconsistency over time.




From Good to Great to Built to Last First and foremost, companies need a set of core values in order to achieve the kind of long-term,

sustainable success that may lead to greatness. Companies need to exist for a higher purpose than

mere profit generation in order to transcend the category of merely good. According to Collins,

this purpose does not have to be specific - even if the shared values that compel the company

toward success are as open-ended as being the best at what they do and achieving excellence

consistently, that may be sufficient as long as the team members are equally dedicated to the

same set of values.

Although many of the conclusions of both of the books overlap, Collins notes that Good to Great

should not be seen as the follow-up to Built to Last, which focuses on sustaining success in the

long-term. Instead, Good to Great actually functions as the prequel to Built to Last. First, a

company should focus on developing the foundation that is necessary to work toward greatness.

Then, they can begin to apply the principles of longevity that are set forth in Built to Last.

The “Big Hairy Audacious Goal”, a concept introduced in Built to Last can be either good (as

motivation, something to pursue), or bad (if it’s impossible or a bad fit). Good BHAGs are those

formulated from a deep understanding, whereas bad ones come from brash recklessness without

regard for the actual values and capabilities of the company.

Why greatness?

Because it’s not really that much harder to be great than good, and if you’re not motivated to

greatness, perhaps you should consider doing something else where you are.

The point of the study is to realize that much of what you’re doing is at best a waste of energy. I

we organized the majority of our work time around applying those principles, and pretty much

ignored or stopped doing everything else, our lives would be simpler and our results vastly

improved. This does not mean it’s easy. It takes some energy, but the building of the momentum

adds more energy back into the pool than it takes out.


good to great - book summary

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