Key Messages
How Companies Go From Good To Great: The Lessons Learned From Jim Collins’ Study
Good-to-great companies have something to offer the world: they can teach others how to make a successful transition from good to great.
This was the main focus of Jim Collins and his research team’s five-year project which examined three groups of public US companies.
The first group was the good-to-great companies who, starting at the average stock market performance for 15 years, made the leap to generate cumulative returns of at least three times over their major competitors in the next 15 years.
The second group were direct comparison companies who were much less successful, staying mediocre or deteriorating with about same opportunities as the good-to-great companies.
And finally, there were unsustained comparison companies who improved for a short period but couldn’t stay there in the long run and eventually dropped significantly below their competitors’ growth rate.
Through studying over 6,000 press articles and 2,000 pages worth of executive interviews, Collins’ research team has identified what it takes to be classified as one of these “good-to-great” companies and used this information to help other businesses make the same leap.
This is invaluable knowledge – if you want your business to become extraordinary compared to its rivals then taking advice from those that have done so is a surefire way of getting results!
The Power Of Having A Simple “Hedgehog Concept” For Business Success
Finding a simple “Hedgehog concept“ truly is the key for success.
As Jim Collins points out in his book Good to Great, successful companies often discover their own unique Hedgehog concept by pondering three essential questions: What can we be the best in the world at? What can we be passionate about? And, what is the key economic indicator we should concentrate on?
In achieving a Hedgehog concept there are no shortcuts.
It takes time and effort as companies iterate and debate to find their true focus.
For example, Walgreens decided it would strive to be the best and most convenient drugstore with a high customer profit per visit.
This became their Hedgehog concept and guided every decision thereafter which led them to outperform the general stock market by seven times.
Conversely, Eckerd Pharmacy was unable to come up with an effective Hedehog concept and went defunct as an independent company.
By determining a Hedgehog concept that fits your company’s goals, you will provide yourself with an achievable path for success going forward.
Success Comes From Many Incremental Pushes In The Right Direction
Success doesn’t come overnight; it requires patience and persistence.
There are no shortcuts or quick fixes, only many small incremental pushes in the right direction.
The good-to-great companies that embodied this notion were often unaware they were even in the midst of slowly transforming until the final results began to take shape.
Take Nucor, for example.
By using mini-mills, they were able to produce steel better and cheaper than their competition, gradually building customers and their reputation.
With unwavering faith and focus on their simple strategy – the Hedgehog concept – every small improvement was rewarded by a virtuous circle of motivation and progress until eventually becoming the most profitable steel company in the US after two decades of consistent effort.
In contrast, comparison companies tried to change their fortunes in dramatic leaps with acquisitions or rushed plans – a strategy which ultimately failed them time and time again as these unsuccessful attempts hindered progress rather than promoted it.
It’s important to remember that a successful outcome is just made up of many tiny incremental pushes towards a goal over a period of time – success doesn’t happen instantly unless you’re extremely lucky!
Good-To-Great Companies Embrace Technology Carefully For Maximum Impact
When it comes to adopting new technologies, it’s important not to get distracted by the allure of the latest trends and instead focus on how it fits in with your original strategy.
Instead of viewing technology merely as an indication of a direction, view it as a means to an end.
Good-to-great companies understand this concept and they make sure that any technological advancement is used to accelerate them along their predetermined path.
The major drugstore chain Walgreens provides an excellent example of how best to utilize new technology.
When their online rival Drugstore.com was launched, Walgreens carefully considered whether an online presence could help them with their main goal of increasing convenience for customers and raising profits-per-customer.
Knowing the answer, they immediately launched their own website, which offered features such as online prescriptions and outreach programs – all designed to help meet their core goals.
Their wise decision paid off: within a year, their stock prices almost doubled while Drugstore.com saw nearly all of its value wiped out!
These examples show us that when it comes to using new technology, don’t just jump into it without considering how it fits into our overarching goal – instead, let it function as an accelerator toward that goal!
Level 5 Leadership Is Humility Coupled With Ambition For Lasting Corporate Success
When it comes to transforming a good company into a great one, having the right leadership is essential.
This is where Level 5 leaders come in.
They exhibit all the qualities you want in a leader – they’re excellent individuals, team members, and managers; they’re driven towards results without being ego-driven; and they are humble, sharing credit for the company’s successes and taking responsibility for any mistakes made.
A great example of a Level 5 leader is Darwin Smith, who transformed Kimberly-Clark into one of the leading paper consumer goods companies in the world.
Despite his enormous success, he was known for his modesty, opting to dress like a farm boy and spending his holidays on his Wisconsin farm rather than indulging in celebrity status.
By contrast, many comparison CEOs have egos so large that their lack of succession planning fails to secure a long-term successful outcome for their companies.
Stanley Gault’s tyrannical reign at Rubbermaid resulted in its acquisition by a competitor just five years after he left office due to lack of proper management under him.
Level 5 leaders are not only essential for sustained success but also drive successful transformations from good to great.
Hiring The Right People Is Essential For Achieving Greatness
Getting the right people in the right place is essential for a business to reach greatness.
This is something good-to-great companies understand and strive for.
They focus on hiring people that have the proper traits, not necessarily just skills; believing that with the right character traits, training and education can always fill any gaps in professional abilities.
If a company has the wrong person, even if it’s due to dire circumstances, they quickly take action to fix the problem – either getting rid of them entirely or trying to cycle them into a more suitable role.
After all, failing to deal with the wrong person will only frustrate everyone else in the organization.
Likewise, when looking for employees at this high level, these organizations prefer long-term commitments as opposed to short spurts of progress; knowing full well that hard work will rise to and stay at the top.
Therefore, getting great people in your corner not only provides stability but also helps ensure a successful future – making it clear why “The right people in the right place are the foundation of greatness.”
Success Requires Confronting The Brutal Facts Of Reality While Retaining Faith In A Better Future
The key to success, according to the Good-to-Great book, is learning to live by the Stockdale paradox.
This concept was famously used by U.S.
Admiral James Stockdale, who survived being captured during the Vietnam War.
Admiral Stockdale refused to be crippled by dread instead facing the harsh reality of his circumstances while never losing faith.
Likewise, good-to-great companies have proven that success requires confronting difficult and sometimes cruel facts, while maintaining their hope for a positive outcome.
Kimberly-Clark is a shining example of this – when P&G threatened their market share they responded not with fear but with determination and faith in their product’s capability to compete!
In the end they rose above even P&G’s status and now own Scott Paper as well as dominate most categories!
This practical optimism pays off and is something we can all learn from; facing reality does not mean giving in to hopelessness or letting go of your dreams for success – it means having faith in yourself and finding a way around even the harshest realities.
Leaders Should Create An Environment Of Openness And Honesty To Find Success
Leadership is about more than just charisma and inspiring others – it’s about creating an environment where the truth of any situation, no matter how difficult or unpleasant, can be freely discussed without fear of reprisal.
According to the book Good to Great, leaders must take on the role of a Socratic moderator in management meetings, asking questions to uncover truthful opinions and encouraging debates so that the best decisions are made.
At Pitney Bowes, a company that went from being a postage meter producer to being an outperforming major document handling solutions provider, most of their time was spent discussing worrying facts rather than acknowledging their successes.
Rather than blaming people when mistakes happen, they must focus on understanding what went wrong and how to fix it.
Red flag mechanisms which alert managers to potential issues can also help direct their focus when needed.
Ultimately, it’s up to the leader to create a culture where everyone feels safe enough to bring up difficult opinions or hard truths without hesitation.
That way, even when things get tough–the business can succeed in the long run.
The Necessity Of Self-Discipline To Achieve Greatness In Business
At the heart of the Good to Great philosophy lies the idea that a strong culture of rigorous self-discipline is necessary in order to adhere to the simple Hedgehog concept.
This is evidenced in companies such as Wells Fargo, who were willing to go the extra mile when it came to creating an efficient and effective operation.
Executives at Wells Fargo implemented measures such as freezing executive salaries, selling corporate jets and replacing the executive dining room with cheaper options, all for the sake of being more economical and efficient.
Even something as small as reprimanding people who submit reports in expensive binders demonstrates their commitment to discipline.
The importance of having a disciplined culture rather than relying on one individual is also noteworthy.
It’s been proven time and time again that having a tyrannical CEO only yields short-term success, rather than long-term sustainability.
Without an entrenched culture of self-discipline within an organization, it won’t be able make any real strides towards greatness.
Wrap Up
The Good to Great book is an enlightening read that provides us with key information on creating companies that go from mediocrity to greatness.
It has answers to why good-to-great companies should be identified and studied, how strategic management differs between good-to-great and mediocre companies, what the Hedgehog concept is, and more.
Each answer provides a clear path to achieving the goal of becoming a successful business.
The people and culture within an organization play a huge role in success or failure.
Good to Great mandates that only Level 5 leaders drive successful transformations from good to great, the right people must be in the right place, brutal facts must be aired without hesitation, and an environment of rigorous self discipline must take hold for progress to be made.
To conclude, this book allows us to gain insight into how we can strive for success in our businesses by effectively following its teachings.
