Great products/ services, strong management, big vision…. are these what you’d expect to be the ingredients for phenomenal success in business?
Well, maybe not, according to Jim Collins and his team.
After examining the performance of some 1,435 good companies over 40 years, they found 6 ingredients that helped 11 of these companies (e.g. Gillette and Abbott) to break away from the pack and consistently outperform the market by at least 3 times, for the next 15 years and more. Get more details in our book summary of Good to Great.
In many ways, these ingredients run counter-intuitive to what we think we know about business and success. Let’s find out what what they are:
At the time of their big transition, all the good-to-great companies had “Level 5 leadership”.
No, these were NOT larger-than-life “celebrity” leaders, propelled in from the outside to save the companies and bring them to greatness. They were NOT charismatic leaders who wowed and motivated people with their great vision and speeches.
Instead, they were seemingly ordinary people who brought their companies to greatness through sheer resolve and compelling humility. Level 5 leaders have huge ambitions for their organizations (but not themselves), and are fanatically-driven (with a quiet doggedness) to do whatever it takes to bring their companies to greatness. They put their egos aside, and focus on the companies’ long term interests, setting up successes and systems so that the company could be great without them.
In 1971, a mild-mannered in-house lawyer by the name of Darwin E. Smith was named chief executive of Kimberly-Clark. The paper company’s stock had fallen 36% behind the market for some 20 years by that time, and Smith wasn’t sure he was up to the task.
Yet, in the 20 years that he was CEO, Smith transformed Kimberly-Clark to become the leading consumer paper products company in the world, beating big names like Procter & Gamble and Scott Paper. Kimberly-Clark’s cumulative stock returns were 4.1x bigger than the market in general, and even outperformed companies like General Electric, Coca-Cola, Hewlett-Packard, and 3M in that period.
Smith was quiet, shy and self-effacing, hardly the type that you’d notice in a crowded room. Yet, he had the courage and conviction to make some bold and difficult decisions. Early in his tenure, he made the tough decisions to sell off the traditional paper mills which accounted for the bulk of Kimberly Clark’s business. The resources were redirect into the consumer business, with heavy investments in brands like Huggies and Kleenex. This move was widely condemned by Wall Street, media and analysts alike, and upset just as many people within the company. But, Smith unflinchingly stuck to his decision, and spent the next decades building up Kimberly Clark – he redefined and raised corporate goals, identified and developed strong leadership and successors, invested in people, R&D and geographical diversification etc.
Yet, despite his stellar performance, most of us have never heard of the name Darwin E. Smith (and that’s probably the way he would have liked it). Even at the end of his successful tenure, Smith humbly said, “I never stopped trying to become qualified for the job.” Now, that’s true modesty.
If you want a short-term boost in your stocks and performance, bringing in a “celebrity-type” leader could work. But, if you want to build a company with strong, stellar performance for the long term, think again. You can check out Jim’s Collin’s pick of the top 10 CEOs of all time for more great leadership examples.
You want to steer your company in a new direction. So, you gather your management team, devise a grand vision and strategy, then find the right people and rally them to meet your goals.
Well, Collins’ research suggest that may NOT be the best approach. In fact, the companies that successfully made the breakthrough from “good” to “great” had 1 thing in common – they got the right people onboard first, then figured out which direction to take.
That’s not a big deal, you may say.
Well, financial company Fannie Mae was $56 billion in debt and losing $1 million each business day. Yet, its CEO David Maxwell resisted pressure from the board and held back on his strategy until he had the right team in place. Few CEOs could have made that call.
Why does this approach work? First, the “right people” are A-team players who are driven by their own desire for excellence. They are intrinsically motivated to produce the best possible results and be part of something great. So, once you get them onboard, you’ve solved most of the potential management and motivation issues that companies face. Second, because they did not come onboard for a specific direction, they are often ready to adapt to external changes and switch direction if necessary. And changes are an inevitable part of the ever-evolving business landscape.
On the other hand, when people – however talented they may be – are rallied behind a certain charismatic leader, an incentive package, or a specific product or service, things can (and often do) fall apart when the leader leaves, or when there’s a need for the company to make a strategic shift. Worse, if you have the wrong people onboard, you cannot succeed even if you had the best direction.
If you are an optimist, you may feel frustrated by the naysayers who are constantly highlighting the doom and gloom. On the other hand, if you are a pragmatist, you may dismiss the dreamers and optimists around you as being totally unrealistic.
Well, here’s the 3rd ingredient: You need both unyielding faith in your future/ vision, and the discipline to deal with the brutal realities of the present. The companies who made their breakthroughs were able to embrace this paradox.
Tough, but necessary.
To get this ingredient right, you need to create a climate of truth (where it’s okay to question status quo, have dialogues, conduct autopsies without blame, and face crucial information and issues head-on). At the same time, because people know that they are doing what’s necessary today, and have faith that they will prevail in the end, there’s an inexplicable sense of euphoria as people push boundaries, confront challenges, and in the process, create a stronger and more resilient company.
Many successful brands / companies seem to have so many products, services and subsidiaries that it may be easy to miss an important ingredient – that the most successful amongst them have ONE strong core that drives everything they do. Just like the hedgehog – when faced with any kind of danger, the hedgehog simply rolls itself into a ball of spikes – the 1 main defense mechanism that guides its actions.
This core lies at the intersection of 3 important questions (which can only be answered with time and deliberate effort):
• What you can be the best in the world at?
Most of us are familiar with the brand Abbott. But, do we know how they got to where they are? Well, in 1940s and 1950s, the trend for big companies like Merck was to focus on R&D, developing great research teams. As an established player in the pharmaceutical industry, Abbott was also on the R&D bandwagon. However, by 1964, CEO George Cain realized that Abbot could not become the best in the world in R&D. The team spent 3 years exploring : where/what can the company be the best in the world at?
By 1967, Cain had the solution: Abbott can be the best in the world in manufacturing products that minimize the cost of effective health care. Abbott went on to become the best in the world in 2 categories: hospital nutritional products (helping patients who undergo surgery to gain strength quickly) and diagnostic devices (that help reduce health care costs).
• What drives your economic engine?
Identifying your economic indicators also help you to measure their performance, and ensure you give due attention to developing continuous and healthy cash flows, and profitability. Here, you employ a single denominator: “profit per X” where X can be an employee, a branch, a region, etc.
• What are you deeply passionate about?
What are you and your employees deeply passionate about? Former-CEO of Philip Morris, George Weissman, describes working at Philip Morris as having a love affair of a life time. Most of the executives are passionate consumers of their products, and identify themselves with the lone and fiercely independent cowboys depicted in Marlboro billboards. So yes, you can be fiercely passionate about any product, service, cause or value that your company stands for. The key is to fire up that passion and bring it to life.
As a start-up begins to grow, guidelines, rules and processes are necessary to create some semblance of order and system at the workplace.
However, if your team doesn’t have the right attitudes and disciplines, bureaucracy and rules can quickly build up to make up for incompetence and lack of discipline.
The 4th ingredient is also a powerful blend – A culture of discipline (achieved through disciplined people, thought and action) and an ethnic of entrepreneurship.
When you hire self-disciplined people who will go that extra mile to fulfil their responsibilities, you have already won half the battle – with the right people, you need to only manage the systems but not the people.
With this discipline, you can afford to cut people some slack to experiment freely, fail forward, and exercise their entrepreneurial spirit. All you need to do is to provide a framework or system with clear parameters, and ensure that your team adheres fanatically to the Hedgehog Concept to maintain focus.
Technology has no doubt transformed the world we live in. From steam mowers to eCommerce and smartphones, there are so many case studies of how technology advancement dethroned market leaders or even wiped out entire industries (in their traditional form). Read more about disruptive technology in The Innovator’s Dilemma.
Still, those companies that managed to make and sustain breakthrough results were able to do so with this 6th ingredient – They understood that technology cannot create momentum; instead, they used technology as a powerful accelerator of momentum.
What this means is simply: Transformations must start with the other 5 ingredients above, including the right leadership, people, culture & philosophy, and the Hedgehog concept. Technology merely acts as a multiplier to increase the speed and magnitude of their impact, to accelerate phenomenal success.
So, before you decide to jump on the next technology bandwagon that comes along, ask yourself:
• Are you trying to use technology as the key success factor in your transitions, or are you strategically using technology as a tool to amplify what already works?
• In selecting the technology to invest in, did you ensure that it fits tightly with your Hedgehog Concept and strengthens rather than dilutes your area of focus?
So here you are, the 6 powerful ingredients that could determine whether your company will thrive for the next decades. Read the entire book summary here, buy a copy of the book online, or download a copy of our book summary and Reading Graphic to digest the book highlights in just minutes!