Good to Great Summary

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Good to Great: Why Some Companies Make the Leap… and Others Don’t

Author: Jim Collins

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Leaders of paradoxical mix of personal humility and professional will… They are fanatically driven, infected with an incurable need to produce sustainable results. They display a workman like diligence, more plow horse than show horse. They look out of window to attribute success to factors other than themselves.

Chapter 1: Good Is the Enemy of Great

The concepts developed in this book were derived from empirical deductions directly from the data. They did not come to the table with some theory to vet.

Think of the transformation as a process of buildup followed by breakthrough, broken into three broad stages: disciplined people, disciplined thought, and disciplined action.

Chapter 2: Level 5 Leadership

You can accomplish anything in life, provided that you do not mind who gets the credit. – Harry S. Truman

Level 5 – Level 5 Executive – Builds enduring greatness through a paradoxical blend of personal humility and professional will.

Level 4 – Effective Leader – Catalyzes commitment to and vigorous pursuit of a clear and compelling vision, stimulating higher performance standards.

Level 3 – Competent Manager – Organizes people and resources toward the effective and efficient pursuit of pre-determined objectives.

Level 2 – Contributing Team Member – Contributes individual capabilities to the achievement of group objectives and works effectively with others in a group setting.

Level 1 – Highly capable individual – Makes productive contributions through talent, knowledge, skills, and good work habits.

Darwin Smith stands as a classic example of what we came to call a Level 5 Leader. They found leaders of this type at the helm of every good to great company during the transition era.

• L5’s ambition is first and foremost for the institution, not themselves.
• L5’s do not seek personal credit, they are a study in duality. Modest and willful, humble and fearless.
• L5’s look out the window to apportion credit to factors outside themselves when things go well (and if they can not find a specific person to give credit to, they credit good luck). At the same time, they look in the mirror to apportion responsibility, never blaming bad luck when things go poorly.

Look for situations where extraordinary results exist but where no individual steps forth to claim excess credit. You will likely find a potential L5 leader at work.

L5’s:

• Think about setting up a successor and ensuring there will be solid leadership in their absence.
• Are fanatically driven to produce sustained results. They are resolved to do whatever it takes to make the company great.
• Display workmen diligence, they are more like a workhorse than a show horse.

Chapter 3: First Who … Then What

The G2G leaders began the transformation by first getting the right people on the bus (and the wrong people off the bus) and then figured out where to drive it.

The key point of this chapter is not just the idea of getting the right people on the team. The key point is that “who” questions come before “what” decisions – before vision, before strategy, before organization structure, before tactics. First who, then what – as a rigorous discipline, consistently applied.

The comparison companies frequently followed the “genius with a thousand helpers” model – a genius leader who sets a vision and then enlists a crew of highly capable “helpers” to make the vision happen. This model fails when the genius departs.

The G2G leaders were rigorous, not ruthless, in people decisions. They did not rely on restructuring and layoffs as a primary strategy for improving performance. The comparison companies used layoffs to a much greater extent.

Three practical disciplines for being rigorous in people decisions:

1. When in doubt, don’t hire – keep looking. (Corollary: A company should limit its growth based on its ability to attract enough of the right people.)
2. When you know you need to make a people change, act. First be sure that they are not merely in the wrong seat.
3. Put your best people on your biggest opportunities, not your biggest problems. If you sell off your problems, do not sell off your best people.

G2G management teams consist of people who debate vigorously in search of the best answers, yet who unify behind the decision, regardless of parochial interests.

No systematic link was found between executive compensation and a transformation.

It is the right people who are your best asset.

Chapter 4: Confront the Brutal Facts (Yet Never Lose Faith)

There is no worse mistake in public leadership than to hold out false hopes soon to be swept away. Winston S. Churchill

The G2GC infused the process with the brutal facts of reality, allowing for communication between the lower and upper levels of management without the threat of retribution.

The moment a leader allows himself to become the primary reality people worry about, rather than reality being the primary reality, you have a recipe for mediocrity, or worse.

Charisma can be as much a liability as an asset, as the strength of your leadership personality can deter people from bringing you the brutal facts.

If you have the right people on the bus you will not have to spend a lot of time motivating them.

As a leader you must create an environment where the truth is heard and brutal facts are confronted. Four ways to do this:

1. Lead with questions not answers.
   • Only use questions as a means to obtain information
   • Do not use questions to coax or manipulate
2. Engage in dialogue and debate, not coercion.
3. Conduct autopsies without blame.
4. Build red flag mechanisms.
   • Short pay gives the customer the freedom to not pay the full amount on the invoice if they feel they got less value than the bill indicates.
   • Red flags should be designed in such a way that they can not be ignored.
   • For a more complete discussion on red flags see “Turning Goals Into Results: The Power of Catalytic Mechanisms,” Harvard Business Review, July-August 1999

The Stockdale Paradox – Retain faith that you will prevail in the end, regardless of the difficulties and at the same time confront the most brutal facts of your current reality, whatever they may be.

Chapter 5: The Hedgehog Concept (Simplicity within the Three Circles)

To go from good to great companies require a deep understanding of three intersecting circles translated into a simple, crystalline concept (the hedgehog concept)

1. What are you deeply passionate about
2. What can you be the best in the world at
3. What drives your economic engine

The key is to understand what your organization can be the best in the world at, and equally important what it cannot be the best at – not what it “wants” to be the best at. The Hedgehog Concept is not a goal, strategy, or intention; it is an understanding.

If you cannot be the best in the world at your core business; then your core business cannot on the basis of your Hedgehog Concept

The “best in the world” understanding is a much more severe standard than core competence. You might have a competence but not necessarily have the capacity to be truly the best in the world at that competence. Conversely, there may be activities at which you could become the best in the world at but do not presently have a competence.

To get insight into the drivers of your economic engine, search for the one denominator (profit per x or, in the social sector, cash flow per x) that has the single greatest impact.

G2GC’s set their goals and strategies based on understanding as opposed to bravado.

The concept of a “Council” (a method to determine your HC) is discussed at great length on page 117.

The G2GC’s focus on their strength (HC).

It took 4 years on average for companies to find their HC.

Retain faith that you will prevail in the end, regardless of the difficulties…..And at the same time ……Confront the most brutal facts of your current reality, whatever they might be.

Chapter 6: A Culture of Discipline

Most companies build their bureaucratic rules to manage the small percentage of wrong people on the bus, which in turn drives away the right people on the bus.

Avoid bureaucracy and hierarchy and instead create a culture of discipline.

Responsibility accounting – Where every dollar spent, earned, invested, etc. could be clearly identified with a single individual responsible for that item.

Building Discipline:

• Build a culture around the idea of freedom and responsibility, within a framework.
• Fill that culture with self-disciplined people who are willing to go to extreme lengths to fulfill their responsibilities.
• Don’t confuse a culture of discipline with a tyrannical disciplinarian.
• Adhere to your HC.

Disciplined action without self-disciplined people is impossible to maintain, and disciplined action without disciplined thought is a recipe for disaster.

Sub-par leaders discipline instead of creating a culture of discipline.

Budgeting should be seen as a way of determining which business activities are working toward the goal and should be funded, and which are not and should be starved.

Chapter 7: Technology Accelerators

Most men would rather die, than think. Many do.  Betrrand Russell

G2GC’s avoid technology fads and bandwagons, yet they become pioneers in the application of carefully selected technologies.

The key question about any technology is, Does the technology fit directly with your HC? If yes, then you need to become a pioneer in the application of that technology. If no, then you can settle for parity or ignore it.

G2GC’s use technology as an accelerator of momentum, not a creator of it.

How a company reacts to technological change is a good indicator of its inner drive for greatness versus mediocrity. Great companies respond with thoughtfulness and creativity; driven by a compulsion to turn unrealized potential into results; mediocre companies react and lurch about, motivated by fear of being left behind.

Chapter 8: The Flywheel and the Doom Loop

Good to great companies come about by a cumulative process- step by step, action by action, decision by decision, turn by turn of the flywheel – that adds up to sustained spectacular results.

Blue plans – Make projections to the outside world below what you think you can really do, then take the difference between those projections and what you really do and spend that on entrepreneurial projects that have not yet been funded.

Alignment, in large part, just happens when you get the right conditions.

Once you get the flywheel going, there is less of a burden to always be communicating your goals, people can extrapolate from what is already going on.

The Doom Loop – The institution of some new program, leader, or event to stimulate progress, followed by a lack of performance, followed by disappointing results, followed by more reaction without understanding.

Peter Drucker observed that the drive for mergers and acquisitions come less from sound reasoning and more from the fact that doing deals is a much more exciting way to spend your day than doing actual work.

Signs That You’re on the Flywheel

• Follow a pattern of buildup leading to a breakthrough.
• Reach breakthrough by an accumulation of steps, on after the other, turn by turn of the flywheel; feels like an organic evolutionary process.
• Confront the brutal facts to see clearly what steps must be taken to build momentum.
• Attain consistency with a clear Hedgehog Concept, resolutely staying within the three circles.
• Follow the pattern of disciplined people (“first who”), disciplined thought, disciplined action.
• Harness appropriate technologies to your Hedgehog Concept, to accelerate momentum.
• Make major acquisitions after breakthrough (if at all) to accelerate momentum.
• Spend little energy trying to motivate or align people; the momentum of the flywheel is infectious.
• Let the results do most of the talking.
• Maintain consistency over time; each generation builds on the work of previous generations; the flywheel continues to build momentum.

Signs Your in the Doom Loop

• Skip buildup and jump right into a breakthrough.
• Implement big programs, radical change efforts, dramatic revolutions; chronic restructuring – always looking for a miracle moment or new hero leader.
• Embrace fads and engage in management hoopla, rather than confront the brutal facts.
• Demonstrate chronic inconsistency – lurching back and forth and straying far outside the three circles
• Jump right to action, without disciplined thought and without first getting the right people on the bus.
• Make off the cuff reactionary decisions regarding technology for fear of being left behind.
• Make major acquisitions before the breakthrough, in a doomed attempt to create momentum.
• Spend a lot of energy trying to align and motivate people, rallying them around new visions.
• Sell the future, to compensate for lack of results.
• Each new leader brings a radical new path; the flywheel grinds to a halt, and the doom loop beings again.

Chapter 9: From Good to Great to Built to Last

There is a list of conceptual links between the two books starting on page 198

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