1 2010/1/4

Good to GreatGood to GreatWhy Some Companies Why Some Companies

Make the LeapMake the Leap……

And others donAnd others don’’tt

Jim Collins

2 2010/1/4

Good Is the Enemy of GreatGood Is the Enemy of Great

Are we building great or

are we settling for good?

3 2010/1/4

Ratio of Cumulative Stock Returns to General MarketRatio of Cumulative Stock Returns to General Market

Built to LastCompanies

18

16

14

12

10

8

6

4

2ComparisonCompanies0

4 2010/1/4

Ratio Of Cumulative Stock Returns Ratio Of Cumulative Stock Returns to General Marketto General Market

Good to GreatCompanies

8

7

6

5

4

3

2

1

ComparisonCompanies0

T-15 T+15Transition point

5 2010/1/4

Great results

What’s Inside the Black Box

Good results

6 2010/1/4

From Good to Great

DISPLINED PEOPLE DISPLINED THOUGHT DISPLINED ACTION

LEVEL 5 LEADERSHIP

FIRST WHO…THEN WHAT

CONFRONT THE BRUTAL FACTS

HEDGEHOG CONCEPT

CULTURE OF DISCIPLINE

TECHNOLOGY ACCELETATORS

BUILDUP...BREAKTHROUGH !...

FLYWHEEL

7 2010/1/4

Level 5 LeadershipLevel 5 Leadership

Setting up successors for success“I used to work there”: Level 5 leaders want to see the company even more successful in the next generationcomfortable with the idea that most people won’t even know that the roots of that success trace back to their efforts.Compare with comparison companies,

• Executives who set their successors up for failure or chose weak successor, or both.

• “Biggest dog” syndrome

8 2010/1/4

From Good to GreatFrom Good to Great

The “egg & chicken” story

Fly wheel vs doom loop

Not an overnight dramatic revolution!!

9 2010/1/4

Level 5 LeadershipLevel 5 Leadership

Highly Capable Individual

Contributing Team Member

Competent Manager

Level 5 Level 5 Executive

Effective LeaderLevel 4

Level 3

Level 2

Level 1

10 2010/1/4

Level 5 Leadership

HIGHLY CAPABLE INDIVIDUALMakes productive contributions through talent, knowledge, skills and good work habits

CONTRIBUTING TEAM MEMBERContributes individual capabilities to the achievement of group objectives and works effectively with others in a group setting

COMPETENT MANAGEROrganized people and resources toward the effective and efficient pursuit of predetermined objectives

EFFECTIVE LEADERCatalyzes commitment to and vigorous pursuit of a clear and compelling vision, stimulating higher performance standards

LEVEL 5 EXECUTIVEBuilds enduring greatness through a paradoxical blend of personal humility and professional will

Not what we expected:Level 5 leaders are incredibly ambitious- but their ambition is first and foremost for the institution, not themselves

Humility + Will = Level 5Research explicit instructions: downplay the role of top executives to avoid the simplistic “credit the leader” or “blame the leader thinking

Level 1

Level 2

Level 5

Level 4

Level 3

LEVEL 5 HIERARCHY

11 2010/1/4

The Difference Between Level 5 and Level 4The Difference Between Level 5 and Level 4

“Humility + Will”A compelling modesty

• Credit others, external factors, and good luck for their companies’ success

• Blame themselves for poor results

A unwavering resolve• Act quietly, calmly, and determinedly• Rely on inspired standards, not inspiring charisma

12 2010/1/4

The 2 Sides of Level 5 leadership The 2 Sides of Level 5 leadership

Professional Will Personal Humility

Creates superb results, a clear catalyst in the transition from good to great

Demonstrates a compelling modesty, shunning public evaluation

Demonstrates an unwavering resolve to do whatever must be done to produce the best long term results

Acts with quiet, calm determination, relies principally on inspired standards to motivate

The standard of building an enduring company, will settle for nothing less

Channels ambition into the company, not the self, sets up successors for even greater success

Looks in the mirror, not out the window, to apportion responsibility for poor results.

Looks in the mirror, not out the window, to apportion credit for the success of the company

13 2010/1/4

Rigorous not Ruthless Rigorous not Ruthless

Be rigorous about top management decisions

Apply rigor first at the top, focused on those who hold the largest burden of responsibility

Not burden good people with people who are not achieving

RuthlessRigorous

Hacking and cutting

Let people languish in an uncertainty for a prolonged period

Chronic layoffs or restructuring

14 2010/1/4

Great life for Great Leaders Great life for Great Leaders

First who, Great Companies, and Great LifeFirst who, Great Companies, and Great Life

Colman Mocker, CEO of Gilettee - He was so good at assembling the right people around him, and putting the right people in the right slots, that he just did’t need to be there all hours of the day and nite.

This was a man who spent nearly all his waking hours with people who loved him, who loved what they were doing, and who loved one another , at work, at home, in his charitable work.

15 2010/1/4

The Difference Between level 5 and Level 4The Difference Between level 5 and Level 4

Show horse vs. plow horse

The window and the mirrorLevel 5 leaders look out the window to apportion credit, while look in the mirror to apportion responsibility

16 2010/1/4

First WhoFirst Who……Then WhatThen What

In a good-to-great transformation, people are not your most important asset. The right people are.

3 practical discipline

When in doubt, don’t hire-keep lookingWhen in doubt, don’t hire-keep looking

When you know you need to make a people change, actWhen you know you need to make a people change, act

Put your best people on your biggest opportunities, not your biggest problem

Put your best people on your biggest opportunities, not your biggest problem

17 2010/1/4

A Culture of Discipline A Culture of Discipline

DISCIPLINE people who engage in DISCIPLINE thought, who then take DISCIPLINE actionDuality: on the one hand, it required people who adhere to a consistent system, yet, on the other hand, it gives people freedom and responsibility

18 2010/1/4

First Who, then WhatFirst Who, then What

The first question：

WHO should be on the bus?

WHO should be off the bus?

WHO should be on what seat?

And then, Where/What to drive it

19 2010/1/4

3 truths: …Not a “genius with a thousand helpers”

LEVEL 5 + MANAGEMENT TEAM

LEVEL 5 LEADER

FIRST WHO

THEN WHAT

A “GENIUS WITH A 1000 HELPERS”

LEVEL 4 LEADER

FIRST WHAT

THEN WHO

Begin with “who,” rather than “what.” You are a bus driver. Bus is your company. First thing to decide: Who is going with you?

It will be easy to motivate/manage people when having the right people

If you have the wrong people, it doesn't’t matter whether you discover the right direction.

31 2

20 2010/1/4

Confront the Brutal FactsConfront the Brutal Facts

Yet Never Lose Faith

Facts are Better Than

Dreams

21 2010/1/4

Confront the Brutal FactsConfront the Brutal Facts

Leadership is about vision

But Leadership is equally about creating a

climate where the truth is heard and the

brutal facts confronted

= Opportunity to be heard

Have Your Say

22 2010/1/4

Case Study of Darwin SmithCase Study of Darwin Smith

CEO of Kimberly-Clark from 1971-1991

Shy, awkward, shunning attention; also shows iron will and fierce resolve

Not defeated by the cancer; keep working for his demanding schedules while flying weekly for therapy

Made the most dramatic decision in the company’s history: Sell the mills

Turned Kimberly-Clark into the leading paper-based consumer products company in the world

23 2010/1/4

Confront the Brutal FactsConfront the Brutal Facts

Charisma?Your strength of personality can sow the seeds of problems, when people filter the brutal facts from you. You can overcome the liabilities of having charisma, but it does require conscious attention.

Four practices to create a climate where the truth is heard

1. Lead with questions, not answers2. Engage in dialogue and debate, not coercion3. Conduct autopsies, without blame4. Build “red flag” mechanisms

24 2010/1/4

4 Practices to Create a Climate4 Practices to Create a Climatewhere the Truth is heardwhere the Truth is heard

Spent much of the time just trying to understand Good use of informal meeting “Can you tell me about that ? ”What’s on your mind ?“What should we worry about

Lead with Questions, not answers

1Intense dialogue – loud debates, heated discussions and healthy conflictSearch for the best answers Iron out the issues, until came up to something

Engage in dialogue and debate, not coercion

2

Doesn't hold back embarrassing truthBring up debacle on their own and discussed it openly Never need to assign blame but need only to search for understanding and learning

Conduct autopsies, without blame3

The key is turning information into information that cannot be ignored“Short Pay” practice from Bruce Woolpert – customers have the full discretionary power

Build red flag mechanism 4

25 2010/1/4

The Stockdale Paradox The Stockdale Paradox

Retain faith that you will prevail

in the end, regardless of the

difficulties

Confront the most brutal facts of your current reality,what ever they might be

AND at the same

time

26 2010/1/4

Are You a Hedgehog or a Fox?Are You a Hedgehog or a Fox?

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

Simple, dowdy Cunning, sleek, complex

27 2010/1/4

The Hedgehog Concept The Hedgehog Concept

Pursues many ends at the same time

See the world in all its complexity

“Scattered” and “confused”

Did not integrate their thinking into one overall concept

Understand that the essence of profound insight is simplicity

Translate the complex world into a simple, crystalline concept that guided all their concept

Fox Hedgehog

28 2010/1/4

The Hedgehog ConceptThe Hedgehog Concept

Produce sustain great superior economic return

Gain profound insights into their economics

An intensity and passion on what you do

Not getting passionate about what we do, but we should do only those things that we can passionate about

Goes far beyond core competence. Just because you process a core competency does not necessarily mean you can be best in the world in it

The hedgehog concept is not a goal, strategy, or intention, it is an understanding

It took 4 years in average for the good to great companies to get a hedgehog concept

The hedgehog concept is not a goal, strategy, or intention, it is an understanding

It took 4 years in average for the good to great companies to get a hedgehog concept

29 2010/1/4

The Hedgehog Concept The Hedgehog Concept

The Council

Ask Questions, guided by the 3 circles

Dialogue by Debate, guided by the 3 circles

Autopsies and Analysis, guided by the 3 circles

Executive Decisions guided by the 3 circles

Getting the Hedgehog Concept, An Iterative Process

30 2010/1/4

Characteristics of the Council Characteristics of the Council

Decision

Making

Members

-ship

Function

1. As a device to gain understanding about important issues facing the organization

2. Assembled and used by the leading executive, consists of five to twelve people

3. Each council member has the ability to argue and debate in search of understanding, not from egoistic need to win a point

4. Each council member retains the respect of every other council member with out exception

5. Council members come from a range of perspectives

6. Include key members of the management team, but is not limited to members of management team

7. The council is a standing body, not an ad hoc committee

8. The council meets periodically

9. The council does not seek consensus. The responsibility remains with the leading executive

10. The council is an informal body, not listed in the organization chart

31 2010/1/4

Rinsing Your Cottage CheeseRinsing Your Cottage Cheese

DISPLINED People

DISPLINED Thought

BREAKTHOUGH!

BUILDUP...

DISPLINED Action

32 2010/1/4

Disciplined People Disciplined People

DISPLINED People

DISPLINED Thought

DISPLINED Action

BREAKTHOUGH!

BUILDUP...

What went wrong –Build 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 then increases the percentage of wrong people on the bus, which increase the need for more bureaucracy to compensate for incompetence and lack of discipline, which then further drives the right people away

33 2010/1/4

The Good to Great Matrix of Creative DisciplineThe Good to Great Matrix of Creative Discipline

High

Hierarchical Organization

Great Organization

Culture of Discipline

Bureaucratic Organization

Start up Organization

Low

Low Ethic of Entrepreneurship

High

34 2010/1/4

A Culture of DisciplineA Culture of Discipline

Freedom and responsibility, within a frameworkExample, air pilot

Self-disciplined people who are willing to “rinse their cottage cheese”

Example, Dave Scott, world class athlete

A culture, not a tyrantDiscipline does not die after a distinguishing CEO, eg. Lee Iaocca, Chrysler

Fanatical adherence to the Hedgehog conceptStart a stop doing list – the discipline to do the right thing and equally important, to stop doing the wrong thing

Stop Doing list is more

important the “To do List

35 2010/1/4

NucorNucor’’s 3 Circles s 3 Circles –– 1970 to 19951970 to 1995

Economic denominator of profit per ton of finished steel

Eliminate class distinction

Create an egalitarian meritocracy that aligns management, labor, and financial interest

Could become the best in the world at harnessing culture and technology to produce low cost steel

It takes discipline to say “No, thank you” to big opportunities. The fact that something is a “once-in-a-life opportunity” is irrelevant if it does not fit the 3 circles

It takes discipline to say “No, thank you” to big opportunities. The fact that something is a “once-in-a-life opportunity” is irrelevant if it does not fit the 3 circles

36 2010/1/4

The Flywheel VS the Doom LoopThe Flywheel VS the Doom Loop

New Direction, Program, Leader,

Event, Fad, or Acquisition

Disappointing Results

No buildup;No accumulated

Momentum

Reaction, Without

understudying

Flywheel BuildsMomentum

People Line Up,energized by Results

Steps Forward,Consistent With

Hedgehog Concept

Accumulation ofVisible Results

The Flywheel Effect The Doom Effect

37 2010/1/4

The Flywheel The Flywheel

Not dramatic or revolutionary event

Organic and cumulative

Step by step, action by action, decision by decision, turn by turn of flywheel --- that adds up to sustained and spectacular results

Flywheel BuildsMomentum

People Line Up,energized by Results

Steps Forward,Consistent With

Hedgehog Concept

Accumulation ofVisible Results

The Flywheel Effect

38 2010/1/4

From Good to Great From Good to Great to Build to Lastto Build to Last

Established Company or Start-up

Good toGreatConcepts

Sustained GreatResults

Built to LastConcepts

Enduring GreatCompany

+ +

39 2010/1/4

From Good to Great to Build to LastFrom Good to Great to Build to Last

PRESERVE• Core Value• Core Purpose

CHANGE• Cultural and Operating

Practices• Specific Goals and

Strategies

Four ideas from Build to Last

1. Clock Building

2. Genius of AND

3. Core Ideology

4. Preserve the Core/Stimulate Progress

40 2010/1/4

Clock Building, Not Time TellingClock Building, Not Time Telling

Level 5 leaders build a company that can tick along without them, rather than feeding their egos by becoming indepensible

Practice “first who” is clock building, practice “first what” is time telling

Creating a climate where truth is heard

Use the council mechanism

Building an enduring culture of discipline, not by operating sheer force of personality

The flywheel effect creates the sustained building of momentum, and does not depend on the presence of a charismatic visionary to motivate people

Relationship to

concepts in “Built to Last”

41 2010/1/4

Genius of Genius of ANDAND

Personal humility Professional will

Confront the brutal facts Retain unwavering faith

Evolutionary, incremental Revolutionary, dramatic results

Freedom Responsibility

Get the right people on the bus

Deep understanding

Shun technology fads

The wrong people off the bus

Incredible simplicity

Pioneer the application of technology

Relationship to

concepts in “Built to Last”

42 2010/1/4

Core IdeologyCore Ideology

Level 5 leaders are ambitious for the company and what it standsfor

Practice “first who” means selecting people more on their fit with the core values and purpose than on their skills and knowledge

Confront the brutal facts clarifies the values an organization truly hold as core values

The “what you passionate” about circle overlaps nicely with core values and purpose

A culture of discipline ejects those who do not share the valuesand standards of an organization

The doom loop makes it almost impossible to instill core values and purpose, as people chronically wonder “who are we ? What do we stand for ?”

Relationship to

concepts in “Built to Last”

43 2010/1/4

Preserve the Core/Stimulate ProgressPreserve the Core/Stimulate Progress

Level 5 leaders are rentless in stimulating progress toward tangible results

Practicing “first who” means a bias for promoting from within, which reinforces the core values

Brutal facts clarify what must be done to stimulate progress

Good BHAGs flow from understanding, bad BHAGS flow from bravado.

When you have a culture of discipline, you can give people more freedom to experiment and their own best path to results

The smooth consistency of the flywheel and the cumulative building of momentum to a point of breakthrough create the perfect conditions for instilling core values while stimulating change and progress

Relationship to

concepts in “Built to Last”