Can a company make the transition from good to great? If so, how? Through extensive research and analysis, Jim Collins identified a number of timeless principles that helped a small group of companies to break away from the rest and consistently outperform the market. In this Good to Great summary, we’ll give a synopsis the 6 ingredients to transit from good to great, and how they come together with the Flywheel/ Doom Loop to generate massive momentum over time.
Do check out our full book summary bundle, or get a copy of the book for more details!
To identify “great” companies, Collin and his research team started with 1,435 good companies, examined their performance over 40 years, and identified 11 companies that became great, namely Abbott, Circuit City, Fannie Mae, Gillette, Kimberly-Clark, Kroger, Nucor, Philip Morris, Pitney Bowes, Walgreens, Wells Fargo.
Defining Good vs Great
These good-to-great companies had:
• 15 years of cumulative stock returns at/ below the general stock market
• A distinct transition point
• Followed by cumulative stock returns of at least 3 times that of the general market over the next 15 years
This group of 11 companies were compared against 2 groups of comparison companies, the first group from same industry (with similar circumstances but didn’t make the leap), and the second group of “unsustained companies” that made the leap but didn’t sustain the performance.
Transiting from Good to Great
1. Level 5 Leadership
At the time of their big transition, all the good-to-great companies had Level 5 leadership. “Level 5 leaders” are at the top of a 5-level hierarchy, and exhibit the duality of personal humility and professional will. Some examples of level 5 leaders include Colman Mockler, David Maxwell, Darwin Smith, Joe Cullman, and Fred Allen.
Level 5 leaders have huge ambitions for their institutions (not themselves). They are fanatically-driven to deliver results, set exacting standards, demonstrate an unwavering resolve and a quiet doggedness to do whatever it takes to bring the company to greatness.
Level 5 leaders put their egos aside, and focus on the companies’ long term interests. They demonstrate a “compelling modesty”, talk about the company (not themselves), shun public praise, and are not boastful. They rely on inspired standards, not charisma, to motivate. They set up successors so that the company could be great without them.
2. First Who, Then What
Instead of setting a grand vision and strategy, then rallying people behind them, good-to-great companies got the right people onboard, then figured out which direction to take.
Right people, then direction/strategy
The Level 5 leaders first focus on finding the right people (A-team players who make a conscious decision to take on the challenges), then developed the strategy. By contrast, the comparison companies focus first on setting the vision, then putting people on the roadmap. Their leaders may be individually talented, but tend to enlist helpers rather than develop strong executives – the model falls apart when the leader leaves.
Be rigorous (but not ruthless) about people
Good-to-great companies exercise rigorousness in people-related decisions and in building a superior executive team. However, they do not carry out endless restructuring nor ruthlessly swing the axe. Layoffs were used 5x more frequently in comparison companies than good-to-great companies. Collins also identified 3 practical principles you can adopt to inject rigorousness. [See the book or our full summary for more details].
3. Confront the Brutal Facts
(Yet Never Lose Faith)
Good-to-great companies don’t just pursue a vision – they constantly refine their paths with brutal facts, with 2 types of disciplined thought:
• They face the brutal facts in all their decisions; and
• They apply a simple but insightful frame of reference (the Hedgehog Concept) for all their decisions.
This is called the “Stockdale Paradox” – and it involve 2 elements:
Confronting Brutal Facts…
• Confronting Brutal Facts.Good-to-great leaders create an environment where the truth can be heard. By contrast, larger-
than-life/ charismatic leaders can become a liability if the focus is on them rather than the true realities. Do check out the 4 basic practices recommended by Collins to achieve a climate of truth (get our complete 12-page summary or the book here).
…With Unwavering Faith
There is a sense of euphoria in good-to-great companies as they demonstrate a commitment to prevail, face the truths head on, and emerge stronger and more resilient.
They all demonstrate the “Stockdale Paradox” – they retain the faith that they will prevail in the end, and at the same time exhibit discipline to confront the most brutal facts of their current realities. They are not simply optimists who believe that things will work out on their own.
4. The Hedgehog Concept
This idea is built on the concept of the Greek Parable, The Hedgehog and the Fox. The fox pursues many ends, sees the world as complex, and is scattered/ diffused. The hedgehog, conversely, simplifies the world into a single idea or principle that guides everything it does. Good-to-great companies demonstrate a strategic difference in 2 areas:
• They build their strategies on a deep understanding of the “three circles”;
• They identify a simple, crystalline concept that guide all their efforts
The Hedgehog Concept lies at the intersection of the 3 circles:
• What you can be the best in the world at;
• What drives your economic engine; and
• What are you deeply passionate about.
Getting clarity on the Hedgehog Concept is an iterative process and takes time. The good-to-great companies took about 4 years on average to crystalize their concepts. Yet, when they find it, it has a quiet, obvious truth to it that is undeniable. This is a very powerful concept to help you find your niche and focus both in business and in life (get more details our full summary or the book here).
5. A Culture of Discipline
Most successful start-ups don’t grow into great companies. As they grow, they start to introduce bureaucracy and rules to make up for incompetence and lack of discipline. To avoid bureaucracy, hierarchy, and excessive controls, instill a culture of discipline (through disciplined people, thought and action). Combine the culture of discipline with an ethic of entrepreneurship to get superior performance.
In the book, Collins outlines several tips or components that you can use to build a great organization that has both a culture of discipline and an ethic of entrepreneurship. Do check out the details in our full book summary, or get the book here.
6. Technology Accelerators
Good-to-great companies think differently about technology. Specifically, good-to-great companies:
• Think of technology as accelerators, not creators, of momentum;
• Avoid the Technology Trap; and
• Adopt new technology due to their desire for excellence & creation, not fear.
So here you are once again, the 6 powerful ingredients for moving from good to great:
The Fly Wheel & The Doom Loop
The good to great transition is not a process of overnight metamorphosis, nor is there a single big success factor. It is an accumulation of many interlocking steps and factors that build on one another until a point of breakthrough is reached, much like how a flywheel picks up momentum turn by turn. The companies usually did not realize their own transformation until after the fact.
Essentially, the flywheel is a wraparound idea: every component in the book provides a push on the flywheel, and all the pieces work consistently and coherently together to create momentum and an eventual breakthrough.
The reverse holds through for comparison companies, who suffer the “Doom Loop” – A new direction/ program/ leader/ event kicks in, there is no build-up of momentum, creating disappointing results, and people react without understanding.
Other Details in “Good to Great”
For those who are into research methodology and details, Collins provides an outline of the research journey in Chapter 1 of the book, with research appendixes detailing the companies selection process, and breakdown of several analysis of CEOs, industries, acquisition strategies etc.
He also lists down the best practices for the 11 good-to-great companies including their “Best-in-the-world” list, their economic denominators, and their list of technology accelerators. He ends off the book with a detailed list of conceptual links between Good to Great and Built to Last, and some Q&As on common questions and clarifications asked about the Good to Great ideas.