Chapter 1: Good is the Enemy of Great
The first
chapter of the book lays out the criteria that Collins and his research team
used in selecting the companies that served as the basis of the meta-analysis
that provided the findings set forth in the book. The most important factor in
the selection process was a period of growth and sustained success that far
outpaced the market or industry average. Based on the stated criteria, the
companies that were selected for inclusion were Abbott, Fannie Mae, Circuit
City, Gillette, Kimberly-Clark, Kroger, Nucor, Philip Morris, Pitney Bowes,
Walgreens, and Wells Fargo.
Collins also
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 thought, and disciplined action, were likely the most significant
factors in determining a company’s ability to achieve greatness.
Chapter 2: Level 5 Leadership
In this
chapter, Collins begins the process of identifying and further explicating the
unique factors and variables that differentiate good and great companies. One
of the most significant differences, he asserts, is the quality and nature of
leadership in the firm. Collins goes on to identify "Level 5
leadership" as a common characteristic of the great companies assessed in
the study. This type of leadership forms the top level of a 5-level hierarchy
that ranges from merely competent supervision to strategic executive
decision-making.
By further
studying the behaviors and attitudes of so-called Level 5 leaders, Collins
found that many of those classified in this group displayed an unusual mix of
intense determination and profound humility. These leaders often have a
long-term personal sense of investment in the company and its success, often
cultivated through a career-spanning climb up the company’s ranks. The personal
ego and individual financial gain are not as important as the long-term benefit
of the team and the company to true Level 5 leaders. As such, Collins asserts
that the much-touted trend of bringing in a celebrity CEO to turn around a
flailing firm is usually not conducive to fostering the transition from Good to
Great.
Chapter 3: First Who, Then What
The next
factor that Collins identifies as part of the Good to Great process is the
nature of the leadership team. Specifically, Collins advances the concept that
the process of securing high-quality, high-talent individuals with Level 5
leadership abilities must be undertaken before an overarching strategy can be
developed. With the right people in the right positions, Collins contends that
many of the management problems that plague companies and sap valuable
resources will automatically dissipate. As such, he argues, firms seeking to
make the Good to Great transition may find it worthwhile to expend extra energy
and time on personnel searches and decision-making.
Collins also
underscores the importance of maintaining rigorousness in all personnel
decisions. He recommends moving potentially failing employees and managers to
new positions, but not hesitating to remove personnel who are not actively
contributing. He also recommends that hiring should be delayed until an
absolutely suitable candidate has been identified. Hewing to both of these
guidelines, Collins claims, will likely save time, effort, and resources in the
long-term.
Chapter 4: Confront the Brutal Facts (Yet
Never Lose Faith)
Another key
element of some companies’ unique ability to make the transition from Good to
Great is the willingness to identify and assess defining facts in the company
and in the larger business environment. In today’s market, trends in consumer
preferences are constantly changing, and the inability to keep apace with these
changes often results in company failure. Using the example of an extended
comparative analysis of Kroger and A & P, Collins observes that Kroger
recognized the trend towards modernization in the grocery industry and adjusted
its business model accordingly, although doing so required a complete
transformation of the company and its stores. A & P, on the other hand,
resisted large-scale change, and thus guaranteed its own demise.
Collins outlines
a four-step process to promote awareness of emerging trends and potential
problems: 1) Lead with questions, not answers; 2) Engage in dialogue and
debate, not coercion; 3) Conduct autopsies without blame; and 4) Build red flag
mechanisms that turn information into information that cannot be ignored.
Chapter 5: The Hedgehog Concept (Simplicity
Within the Three Circles)
In this
chapter, Collins uses the metaphor of the hedgehog to illustrate the seemingly
contradictory principle that simplicity can sometimes lead to greatness. When
confronted by predators, the hedgehog’s simple but surprisingly effective
response is to roll up into a ball. While other predators, such as the fox, may
be impressively clever, few can devise a strategy that is effective enough to
overcome the hedgehog’s simple, repetitive response.
Similarly,
Collins asserts, the way to make the transformation from Good to Great is often
not doing many things well, but instead, doing one thing better than anyone
else in the world. It may take time to identify the single function that will
be a particular firm’s "hedgehog concept," but those who do
successfully identify it are often rewarded with singular success. In order to
help expedite this process, Collins suggests using the following three
criteria: 1) Determine what you can be best in the world at and what you cannot
be best in the world at; 2) Determine what drives your economic engine; and 3)
Determine what you are deeply passionate about.
Chapter 6: A Culture of Discipline
Another
defining characteristic of the companies that Collins defined as great in his
study was an overarching organizational culture of discipline. He is quick to
point out that a culture of discipline is not to be confused with a strict
authoritarian environment; instead, Collins is referring to an organization in
which each manager and staff member is driven by an unrelenting inner sense of
determination. In this type of organization, each individual functions as an
entrepreneur, with a deeply rooted personal investment in both their own work
and the company’s success.
Although
this discipline will manifest itself in a high standard of quality in the work
that is produced by managers and employees alike, its most significant outcome
will be an almost fanatical devotion to the objectives outlined in the
"hedgehog concept" exercises. Disciplined workers will be better
equipped to hew to these goals with a single-minded intensity that, according
to Collins, will foster the transformation from merely Good to Great. In
addition, the author asserts, it is important that within this overarching
culture of discipline, every team member is afforded the degree of personal
empowerment and latitude that is necessary to ensure that they will be able to
go to unheard-of extremes to bring the firm’s envisioned objectives into
existence.
Chapter 7: Technology Accelerators
Today, many
businesses have come to depend upon technology to increase efficiency, reduce
overhead, and maximize competitive advantage. However, Collins cautions that
technology should not be regarded as a potential panacea for all that ails a
company. The folly of this kind of thinking was revealed in the aftermath of
the crash of the tech bubble in the early 2000s. The market correction threw
into sharp relief the differences between sustainable uses of the Internet to
extend established businesses and ill-planned, unviable online start-ups.
Collins
contends that the good-to-great companies approach the prospect of new and
emerging technologies with the same prudence and careful deliberation that
characterizes all of their other business decisions. Further, these companies
tend to apply technology in a manner that is reflective of their "hedgehog
concepts" -- typically by selecting and focusing solely upon the
development of a few technologies that are fundamentally compatible with their
established strengths and objectives. Collins characterizes the ideal approach
to technology with the following cycle: "Pause -- Think -- Crawl -- Walk
-- Run."
Chapter 8: The Flywheel and the Doom Loop
In this
chapter, Collins describes two cycles that demonstrate the way that business
decisions tend to accumulate incrementally in either an advantageous or a
disadvantageous manner. Both, the author emphasizes, accrue over time. Despite
the popular misperception that business success or failure often occurs
suddenly, Collins asserts that it more typically occurs over the course of
years, and that both only transpire after sufficient positive or negative
momentum has been accrued.
Collins
describes the advantageous business cycle that, in some cases, can foster the
transition from Good to Great as "the flywheel effect." By making
decisions and taking actions that reinforce and affirm the company’s
"hedgehog" competencies, executives initiate positive momentum. This,
in turn, results in the accumulation of tangible positive outcomes, which serve
to energize and earn the investment and loyalty of the staff. This
revitalization of the team serves to further build momentum. If the cycle
continues to repeat in this manner, the transition from Good to Great is likely
to transpire. In contrast, the doom loop is characterized by reactive
decision-making, an overextension into too many diverse areas of concentration,
following short-lived trends, frequent changes in leadership and personnel,
loss of morale, and disappointing results.
Good is the
Enemy of Great
This idea is
similar to the “good is never enough” concept from Built to Last. In this
section of the book, Collins urges companies to focus equally on what to do,
what not to do, and what to stop doing. He believes that most companies focus
too much on what to do and ignore what not to do or what they should stop
doing. What are you doing based on tradition or industry standards? What
assumptions or processes have you rested on because they were “good enough?”
Good should be viewed as horrible because neither “great”.
Level 5
Leadership
This term
“Level 5 Leadership” is used to describe a certain type of leader who was seen
among many of the companies, which made the leap from good to great. They were
more than just “clock builders”, they had unique characteristics such as
humility and professional will towards excellence. This type of a leader is
known for taking credit for bad performance while giving credit to others when
things go well.
First Who…
Then What
Collins
says, “People are not your most important asset. The right people are.” He uses
the analogy of a bus driver to while describing how to create a winning team
within your organization. He recommends that you first get the right people on
the bus, and then you get the wrong people off the bus, then the right people
in the right seats, and then figure out where you want to drive that bus. Hire
people with characteristics you cannot easily instill. Focus on who you are
paying, not how. He also recommends analyzing someone’s character, work ethic,
intelligence, and dedication to their values before deeply analyzing
credentials and practical skills.
Confront the
Brutal Facts
Collins
found that companies that made the leap from good to great, had a consistent
belief in their ability to succeed in the end. He believes that if companies do
their due diligence and gather all of the facts, the right path will often
unfold in front of them. He recommends the following four ways to build a
culture where the truth is always heard:
Lead with
questions, not answers. Engage in dialogue and debate, not coercion. Conduct
autopsies without blame. Build “red flag” mechanisms for turning information
into information that cannot be ignored. The Hedgehog Concept
Every
morning the fox wakes up and starts crafting elaborate plans on how it will
finally catch it’s nemesis, the hedgehog. It uses creative strategies,
combining old ideas and trying to catch the hedgehog off guard. Yet every time
the fox approaches the hedgehog, the small animal simply rolls up into a ball
and waits until the fox leaves it alone. It does this on a daily basis, without
fail. If it tried to run or use one of the fox’s tactics it would die, however
it can consistently rely on it’s hedgehog strategy to save it’s hide and move
forward with it’s life.
Your
company’s hedgehog concept is the “one big thing” for your organization to
understand and stick to. What does or can your organization do, understand, or
use as your core solution to competitive threats and changes in the industry?
The concept itself is similar to your core ideology (which never changes),
differing only in the sense that it can be slightly less permanent. Your hedgehog
concept must be something you are deeply passionate about, best at in the
world, and are able to make a profit by doing. Figure out what falls into all
three of these categories, and obtain an understanding and strategy based on
it.
“Behold the
turtle; he makes progress only when he sticks his neck out.”
– James
Bryant Conant
A Culture of
Discipline
Hire people
who are disciplined in their own right. The second you need to manage someone,
you have made a hiring mistake. Manage systems, not people. Collins believes
this is superior to managing people because:
When you
have disciplined people, you do not need hierarchy. When you have disciplined
thought, you do not need bureaucracy. When you have disciplined action, you do
not need excessive controls. The Flywheel Concept
A flywheel
takes relentless pushing to get it to turn over even once, but after a while of
pushing in the same direction it starts to gain momentum until it is a very
powerful force. Collins contends that “Good to Great” transformations never
happen all at once. They are the result of years of persistence. It might look
dramatic and revolutionary from the outside, but on the inside it is more of an
organic development process.
Chapter 9: From Good to Great to Built to
Last
In the
concluding chapter of Good to Great, Collins makes a connection between this
book and his previous work, Built to Last, which represented the findings of a
six-year study into the factors that determined whether a new company would
survive in the long-term. First and foremost, Collins contends that 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.
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