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Good to Great

#### Introduction

## What’s in it for me? Take your company from good to great.

Jim Collins' Good to Great In Jim Collins' previous bestseller, Built to Last, he explains how great companies sustain high performance and stay great. But most companies aren't great, which leads to the burning question, how do companies go from good to great? And what do they do differently than their competitors who stay mediocre? Small caveat here, while I'm sure anyone can learn something from this book, it's probably most useful to those who already work for a company they would consider at least good.
Now, that being said, this is the methodology Jim Collins used to answer the question, how do companies go from good to great and stay that way? Jim and his research team studied three groups of public US companies over a five-year project. First, good to great companies. These are the companies which had been performing at or below average stock market performance for 15 years, before making the transition to greatness. Now, what is greatness? When Jim says greatness, he means a company that's generating cumulative returns of at least three times the general stock market over the next 15 years.
The second group of companies were direct comparison companies, which remained mediocre or even dwindled, although they had the same possibilities as the good to great companies during the same time of transition. And the third group were the unsustained comparison companies, which made a short-lived transition from good to great, but slid back to performing at a level sustainably below the stock market average. Over the course of their five years of research, Collins and his team examined over 6,000 press articles and 2,000 pages of executive interviews. The goal was to discover what the good to great companies had done differently and thus help other companies make the same leap. Jim has this analogy for a strategy that good to great businesses use to clarify their business decisions.

#### Chapter 1 of 8

## Finding your “hedgehog concept” will give you a clear path to follow.

It goes like this. Imagine a cunning fox hunting a hedgehog, coming up with a plethora of surprise attacks and sneaky tactics each day to try and devour it. And each time, the hedgehog responds in the same way, curl up in a spiky, unbreathable, ball. Its adherence to this simple strategy is the reason that the hedgehog prevails day after day.
Good to great companies all found their own simple hedgehog concept by asking themselves these three key questions. What can we be the best in the world at? What can we be passionate about? And what are the key economic indicators we should concentrate on? At the intersection of the questions, after an average of four years of iteration and debate, good to great companies eventually discovered their own simple hedgehog concept. After that point, every decision a company made was made in line with it and success followed.
The hedgehog concept is about knowing yourself as a company, acting in line with that identity and focusing on a clear goal. By asking and answering these questions, you can stop yourself from growing sporadically into several directions. It's about simplicity. When you look at it from a distance, good to great companies seem to go through a sudden and dramatic transformation.

#### Chapter 2 of 8

## Success comes from many tiny, incremental pushes in the right direction.

The companies themselves, however, were often unaware that they were even in the midst of changing at the time. Their transformation had no defined slogan, launch event, or goal. Rather, their success was the sum of tiny, incremental pushes in the direction of their simple strategy, the hedgehog concept. Like pushing a flywheel, these small improvements generated results which motivated people to push further until enough speed was gathered for a breakthrough.
Unwavering faith and adherence to the hedgehog concept was rewarded by a virtuous circle of motivation and progress. Here's an example. Consider Nucor, a steel manufacturer that in 1965 was battling the threat of bankruptcy. Nucor understood that they could make steel better and cheaper than anyone else by using mini mills, a cheaper, more flexible form of steel production. Then they built a mini mill, gained some customers, built another one, gained some more customers, and so on. In 1975, a decade later, CEO Ken Iverson realized that if they just kept doing the exact same thing, kept pushing in the same direction, they could one day be the most profitable steel company in the U.S.
It took over two decades, but eventually the goal was reached, and they went on to outperform the general stock market by a factor of five. Comparison companies didn't strive to consistently build momentum in one direction. Instead, they were trying to change their fortunes with dramatic shifts and hasty acquisitions. When these didn't create the results they were looking for, they became discouraged, and they were forced once again to attempt to change direction, not letting the flywheel gather any momentum.
Once you form your hedgehog concept, stick with it. That's the only way to see results. Good to great companies primarily use technology to accelerate their momentum in the direction they're already going in.

#### Chapter 3 of 8

## New technology should be viewed as an accelerator toward a goal – not as a goal itself.

But they never let that technology indicate the direction itself. They see technology as a means to an end, not the other way around. When a good to great company is contemplating whether to adopt a particular technology, they stack it up against their larger company goals and direction. If the technology could help them on that path, they will become pioneers in it.
Otherwise, they'll either ignore it or merely match the industry pace in adoption. Comparison companies often felt that new technologies were a threat and worried about being left behind in a technology fad, scrambling to adopt them with no real overarching plan. Walgreens, a major drugstore chain, provides an excellent example of how new technologies can be harnessed. At the beginning of the e-commerce boom, the online drugstore company, Drugstore.com, was launched amid major market hype. The mere perception of being slower in adopting online business cost Walgreens 40% of its share value, and the pressure was on for them to lunge at this new technology. Rather than yielding, they considered how an online presence could help them in their original strategy of making the drugstore experience more convenient and further raising profits per customer.
Just over a year later, they launched Walgreens.com, which advanced their original strategy of convenience by creating online prescriptions. Drugstore.com lost nearly all of its original value in a year. Walgreens bounced back and almost doubled its stock price in that same time. I'm going to guess that you know that company leadership is important.

#### Chapter 4 of 8

## Level 5 leaders drive successful transformations from good to great.

But in Jim Collins' research, he found out how critical it is. Each company that went from good to great had level five leadership during his transition. Level five leaders are not only excellent individuals, team members, managers, and leaders, but also single-mindedly ambitious on behalf of the company, fanatically driven towards results, and want their company to continue to perform long after they leave. But they're also humble.
Far from being ego-driven, level five leaders are modest and understated. They're slow to take credit for their company's achievements, always looking for an opportunity to praise their team, but also they're quick to shoulder the blame and responsibility for any shortcomings. I know this sounds like a magical person, but great companies are built by great leaders. Take, for example, Darwin Smith, who transformed Kimberly Clark into one of the leading paper consumer goods companies in the world. He refused to cultivate an image of himself as a hero or celebrity. He dresses like a farm boy, spent his holidays working on his Wisconsin farm, and often found his favorite companions among plumbers and electricians.
By contrast, two of the three comparison company CEOs had gargantuan egos that were counterproductive for the long-term success of the company. This was most evident in the lack of succession planning. For example, Stanley Galt, the legendary, tyrannical, and successful CEO of Rubbermaid, left behind a management team so shallow that under his successor, Rubbermaid went from being Fortune Magazine's most admired company to being acquired by a competitor in just five years.

#### Chapter 5 of 8

## The right people in the right place are the foundation of greatness.

The importance of hiring the right people doesn't stop with the CEO and top leadership. It's also found that it made a huge impact when companies prioritize hiring good people throughout the entire company. And when hiring, asking who must take precedence over asking what. The transformation from good to great always begins with getting the right people into the company and the wrong people out of it, even before defining a clear path forward.
That's because the right people will eventually find a path to success. When Dick Cooley took over as CEO of Wells Fargo, pre-scandal, he realized he could never anticipate the major changes that would follow from the deregulation of the banking industry. But he reasoned that if he got the best and brightest into the company, somehow, together, they would find a way to prevail. And he was right. Warren Buffett subsequently called Wells Fargo's executives the best management team in business as the company prospered spectacularly. Good to great companies focused more on finding people with the right character traits rather than professional abilities, figuring they could always be trained and educated.
With the right people, companies never needed to worry about how to motivate them. They focused on who they paid, not how they paid, and created an environment where hard workers thrived and lazy workers left. And in top management, people either jumped right off or stayed in for the long run. Good to great companies never hired the wrong person, even if the need was dire, and hired as many of the right people as were available, even without a specific job for them in mind.
When good to great companies did see that they had the wrong person, they acted immediately. They would either get rid of them or try and cycle them to a suitable position. Delaying dealing with the wrong people only frustrates the rest of the organization.

#### Chapter 6 of 8

## Success requires confronting reality – and never losing faith.

Good to great companies constantly walked the line of something called the Stockdale Paradox, named after the U.S. admiral captured during the Vietnam War. As a high-ranking officer detained in the infamous Hanoi Hotel prison, Stockdale was tortured repeatedly by the enemy. Not knowing if he would ever see his family again, and despite the dire circumstances, he never lost faith that he would somehow get home. Neither did he indulge in the foolish optimism like some of his fellow prisoners, who believed that they'd be home by Christmas, and when they weren't, they were heartbroken.
Later, Stockdale credited his survival to his ability to confront the facts of his situation while still retaining faith. This is something good to great companies do as well. Confront the brutal facts of their reality, and yet still retain unwavering faith that somehow, they will prevail in the end. Whether they're faced with stiff competition or radical regulatory changes, good to great companies mastered the delicate balance of being able to acknowledge these realities without becoming defeatist. In fact, some took it as a challenge. For example, when Procter & Gamble invaded the paper-based goods market, the two major existing players reacted very differently.
The market leader, Scott Paper, felt their game was up, and that they could never compete with a giant like P&G. They tried to diversify and stay in categories where P&G did not compete. While at the same time, Kimberly Clark relished the opportunity to compete against the best, and even held a moment of silence for Procter & Gamble in one of their executive meetings. The result, two decades later, Kimberly Clark actually owned Scott Paper and dominated P&G in six out of eight product categories.

#### Chapter 7 of 8

## Leaders must create an environment where harsh facts can be aired without hesitation.

A company can't face the brutal facts if they're never heard. Leaders have to create an environment where brutal facts are aired without hesitation. A strong, charismatic leader can be more of a liability than an asset if it means that others want to hide the unpleasant truth from them. In management meetings, leaders must take the role of Socratic moderator, asking questions to uncover truthful opinions, not giving ready answers.
Leaders must also encourage debates to be had in the meetings so that the best possible decisions can be reached. When mistakes are made, they have to be studied carefully to understand what went wrong without placing blame, because blame will discourage people from airing the truth. Create a red flag mechanism which raises alerts at critical business signals and can force managers to pay attention to the harsh facts. Maybe most interestingly, the Collins team found out that good to great companies didn't have more or better information than the comparison companies. They merely confronted it and dealt with it more honestly.

#### Chapter 8 of 8

## Foster a culture of rigorous self-discipline to adhere to the simple hedgehog concept.

I want to bring you back to the hedgehog concept for a moment. Remember, this is the idea that by asking yourself a few questions as an organization, you can create a compass that will help you get your company from good to great. But to get the most out of this hedgehog concept, you need a culture of rigorous self-discipline. It's not enough to just know what direction you're going in, because you still need to actively take the steps to get there.
A culture of self-discipline is not the same thing as a single disciplinary tyrant. Tyrannical CEOs did sometimes manage a temporary spell of greatness for their companies, but when the discipline in a company is enforced by a tyrant, it simply isn't sustainable. People will take the opportunity to be undisciplined anytime they aren't under the watchful eye of the tyrant. And when they're gone, the discipline will soon crumble entirely. That actually happened at Rubbermaid. When the self-proclaimed sincere tyrant and CEO Stanley Gall left, Rubbermaid lost 59% of its value in the next few years.
Knowing better, good to great companies were filled with people who had high levels of diligence and intensity. People working towards the simple strategy, the hedgehog concept, which their company was following. Consider Wells Fargo, a bank which understood that operating efficiency was going to be an important factor in the deregulation of the banking world. They froze executive salaries, sold corporate jets, replaced the executive dining room with a cheap college dorm caterer.
The CEO even began reprimanding people who handed in reports with fancy expensive binders. All of this may not have been necessary for Wells Fargo to become a great company, but it demonstrates that they were willing to go the extra mile. And they did it all because they knew that these luxuries weren't helping them with their simple hedgehog goal. And they had the self-discipline to sacrifice those comforts.

#### Conclusion

## Final summary

You've just heard the blinks for good to great by Jim Collins. The key takeaway here is that companies that go from good to great do so by creating a simple strategic concept, hiring the right people, especially the leaders, and pursuing their simple strategy with a culture of rigor and self-discipline. As a reminder, the questions that help you form this hedgehog concept are, what can we be the best in the world at? What can we be passionate about?
And what are the key indicators we should concentrate on? So, if you like what you heard, please rate it and leave a comment. Thank you for listening.
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Good to Great
Jim Collins
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