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 Good to Great: Why some companies make the leap… and others don’t

By Jim Collins
Random House 2001.

Reviewed by Janet Wiles, February 2005

Collins and a team of students studied companies that made the leap from mediocre to outstanding performance. He compared them to companies that were in comparable positions but didn’t make a transformation or that made a transformation that wasn’t sustained. The book is written in a clear style that makes it easy to read, and it turned out to be packed with insight. Collins describes the characteristics of the successful companies as a series of factors:

  1. “humble but ferocious” leadership
  2. the right people are more important than top-down direction setting
  3. the right mix of brutal reality with optimism
  4. focusing on a core concept that combines economic driver, excellence and passion (creating a flywheel)
  5. fostering a culture of discipline ( “don’t do” lists are as important as “to do” lists)
  6. using technology to accelerate momentum not as a random booster rocket.

Each of these areas is illustrated by interesting vignettes about the companies studied. Collins talks about the leadership qualities that make for sustained excellence, and has scathing comments to make on charismatic leaders and their negative effects that make for entertaining reading.

Another message that really hit home talked about finding the intersection between “what you are passionate about”, “your economic engine” and “what you can be best in the world at”. Collins’ message is to find a simple concept to drive behaviour. He calls this intersection the Hedgehog concept: A fox wants to eat a hedgehog, and has many tricky ways to ambush the hedgehog. Every time, the hedgehog has one tried and true response – curl up in a ball. It’s a simple strategy that can be repeated ad nauseum and works every time. The hedgehog concept is not a goal, strategy, intention or plan to be the best. It’s an understanding of what you can be the best at. It’s a frame of reference for all decisions.

A good read, and lessons that are easy to put into practice.
Some quotes with common and uncommon sense:

p. 69 “Facts are better than dreams”
Two forms of disciplined thought:

  1. “[Infuse] the entire process with the brutal facts of reality”.
  2. “[Develop] a simple, yet deeply insightful, frame of reference for all decisions.”

p. 72 “The moment a leader allows himself to become the primary reality people worry about, rather than reality being the primary reality, you have a recipe for mediocrity, or worse. This is one of the key reasons why less charismatic leaders often produce better long-term results than their more charismatic counterparts.”

p. 77 “Conduct autopsies, without blame.”
In the good companies, the leaders would look in the mirror to assign blame, and look out their window at the company to assign credit. In the comparison companies, the reverse happened. One of the company leaders, Joe Cullman, said of a high profile mistake, “I will take responsibility for this bad decision. But we will all take responsibility for extracting the maximum learning from the tuition we’ve paid.”

p. 77 “all the good-to-great companies had a penchant for intense dialogue. Phrases like “loud debate”, “heated discussions”, and “healthy conflict” peppered the articles and interview transcripts from all the companies. They didn’t use discussion as a sham process to let people “have their say” so that they could “buy in” to a predetermined decision. The process was more like a heated scientific debate, with people engaged in a search for the best answers.”

p. 79 Highlight information so that it cannot be ignored.
“Indeed, we found no evidence that the good-to-great companies had more or better information than the comparison companies. None. Both sets of companies had virtually identical access to good information. The key, then, lies not in better information, but in turning information into information that cannot be ignored.

In one of Collin’s Stanford Business school MBA class, all students were given a red flag (A4 sheet of bright red paper) that they could use once in the quarter to interrupt proceedings and be heard. On any topic. At any time. He got the idea from a company that allowed customers to circle items on an invoice and not pay for them if they didn’t feel satisfied with a product or service. It was a particularly vivid and dramatic method for getting the company’s attention before losing a customer.

p. 85 The Stockdale Paradox: optimists don’t make it
There is a seeming paradox in the duality of “unwavering faith in the endgame” with “stoic acceptance of the brutal facts of reality”. Collins calls it “the Stockdale paradox” after Admiral Stockdale who survived eight years as a prisoner of war under horrendous conditions. “I never doubted not only that I would get out, but also that I would prevail in the end and turn the experience into the defining event of my life, which, in retrospect, I would not trade.”

Stockdale went on to explain that optimists didn’t survive as prisoners of war. “[Optimists] were the ones who said, ‘We’re going to be out by Christmas.’ And Christmas would come, and Christmas would go. Then they’d say, ‘We’re going to be out by Easter.’ And Easter would come, and Easter would go. And then Thanksgiving, and then it would be Christmas again. And they died of a broken heart.”

“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 may be.”

p.97 Three Circles of the Hedgehog concept

The interesting thing about the driving concept of the good to great companies is how varied they were. To understand what you can be the best at, it’s also necessary to understand what you cannot be the best at. That is, what your competitors will be able to do faster, cheaper, better. The concept is not to “be the best”. “It’s an understanding – with piercing insight and egoless clarity – of what you can be the best at. The distinction is absolutely crucial.” P. 97

p. 106 Economic denominators
Different companies had quite different drivers for their economic engines. The profit per X denominator varied enormously: profit per employee, profit per customer, profit per geographic region, profit per customer visit, profit per brand, profit per ton of finished steel, profit per local population.

How could this work in a university?

Not all the companies structured their profit directly on their customers or products: GE’s Hedgehog concept was that they could develop first-rate general managers. Their economic denominator was “Profit per top-quartile management talent” (p. 215-6). “Think about it this way: You have two business opportunities, both that might generate $X million in profits. But suppose one of those businesses would drain three times the amount of top-quartile management talent to achieve those profits as the other business. The one that drains less management talent would fit with the Hedgehog concept and the other would not.” This concept “enables the company to operate in a diverse set of businesses yet remain squarely focused on the intersection of the three circles.”

So how could this work in a university? Is the focus per student, per staff member, per project, per KPI? Engineering schools are entrepreneur factories. What does that mean in practice? It’s a discussion that may be worth having.

It takes 2-4 years for a company to develop the deep insights into the three circles and how they intersect. Most didn’t do it consciously, apart from a few key leaders, though all recognized it after the fact.

p. 183 The fly wheel or the doom loop?
Constant change outside organizations is a fact of life. All large organizations are coping with “permanent whitewater” as their industries are swept into the global economy. Constant reorganization inside organizations was an indication of what Collins called “the doom loop”.

When the flywheel was moving consistently in one direction, the great companies had high morale despite constantly confronting the brutal facts. They had high discipline that wasn’t imposed top-down, although in all the companies the top brass did lead with disciplined thinking, decisions and action. They didn’t have radical change programs or spend energy trying to align and motivate people around new visions. Meaningful work is its own motivation.