How to get your company from good to great
Do you ever wonder how companies transition from being good companies to great companies? And how do most companies fail to make the transition?
Jim Collins delves into the distinctions between good and great companies in his seminal work, "Good to Great." This book highlights the elements that elevate companies from mere adequacy to true greatness. "Good to Great" is an irreplaceable resource for those who oe day aspire to lead organizations of true excellence.
Collins and his team carefully studied successful companies for 15 years to identify common traits that the great companies shared.
According to J. Collins:
Companies that make the change from good to great have no name for their transformation—and absolutely no program. They neither rant nor rave about a crisis—and they don't manufacture one where none exists. They don't “motivate” people—their people are self-motivated. There’s no evidence of a connection between money and change mastery. And fear doesn't drive change—but it does perpetuate mediocrity.
We believe that this book offers essential insights for product managers, empowering them to evolve into more impactful leaders, enhance their strategic acumen, and become pivotal in steering product achievements.
So, read on to learn the top 5 key takeaways from the book.
Good is the enemy of great
Jim Collins claims that settling for good may be the greatest barrier to achieving greatness. This raises an intriguing question: What does it take to transition from mediocrity to excellence?
To delve into this mystery, Collins conducted a five-year study with a dedicated team of 25 researchers. Their mission was to dissect the inner workings of this transformation by examining a broad spectrum of 1,143 companies.
The objective was to identify instances where companies made a significant leap from average to outstanding performance. From this vast pool, they selected 11 companies that exemplified this journey from good to great, immersing themselves in a sea of articles and interviews to uncover the formula for success.
For a company to qualify as one transitioning from good to great, it had to include a certain pattern: achieving accumulative return that was at least three times greater than the market over the last 15 years. This criterion was there for a reason—it had to surpass the achievements of universally recognized successful companies and simultaneously eliminate the possibility of attributing success to mere luck, given the extensive timeframe of 15 years following a pivotal moment when their stock returns lagged behind the overall market.
The findings from this exhaustive research were surprising and a bit shocking.
After five years of analysis, the research team distilled their insights into a conceptual framework they dubbed "the flywheel." This framework's value lies not only in its innovative approach but also in its empirical validation: every principle it comprises was present in all the examined good-to-great companies, yet only in a mere 30% of the companies used for comparison. This contrast underscores the framework's efficacy in capturing the essence of what propels a company from mediocrity to greatness.
But what exactly are these transformative concepts?
Level 5 leadership
Level 5 leadership represents the highest level of leadership capability and effectiveness within an organization. Even though level 5 leaders can be different personality-wise they all possess two very specific characteristics:
- Personal humility
- Professional will to achieve greatness
“their ambition is, first and foremost, for the institution, not themselves”
Leaders who transform their companies from good to great with are described with words like "quiet," "polite," "reserved," and "shy." These leaders don't brag about their achievements. Instead, they focus on the company and genuinely care about its success.
When it comes to determination, these leaders have it in spades. They're all about getting results. If that means making tough decisions, like firing a family member for the company's good, they won't hesitate.
The study also challenged the common notion that an outsider leader, with new ideas, can turn everything around. In reality, nearly all the leaders who elevated their companies from good to great (10 out of 11) were already part of the company before their transformative roles.
The author reflects:
“My hypothesis is that there are two categories of people: those who do not have the seed of Level 5 and those who do. … The second category of people—and I suspect the larger group—consists of those who have the potential to evolve to Level 5; the capability resides within them, perhaps buried or ignored, but there nonetheless. And under the right circumstances—self-reflection, conscious personal development, a mentor, a great teacher, loving parents, a significant life experience, a Level 5 boss, or any number of other factors—they begin to develop.”
First the right people, then the direction
As Collins says:
Those who build great companies understand that the ultimate throttle on growth for any great company is not markets, or technology, or competition, or products. It is one thing above all others: the ability to get and keep enough of the right people.
It's commonly believed that success in business starts with a clear vision and strategy, followed by recruiting people committed to that direction. Collins reveals that leaders who transform their companies from good to great first ensure they have the right team ("get the right people on the bus") and only then decide where to go.
A classic case is Wells Fargo. In the 1970s, CEO Dick Cooley anticipated changes in banking but wasn't sure what they'd entail. He focused on attracting top talent, sometimes without a specific role in mind. This approach paid off, making Wells Fargo exceptionally adaptable when industry shifts occurred.
Unlike companies that excel, others often depend on a "genius with a thousand helpers" model, where a singular visionary leads, and everyone else follows. This model fails when the leader exits, leaving a void that the remaining team can't fill because they were dependent on one person's direction.
In companies that made the leap to greatness, compensation schemes didn't just aim to correct poor performance but to retain top performers. For example, Nucor paid its employees exceptionally well, linking over half of their pay to team productivity. This approach fostered a culture of high performance and accountability.
Collins describes the culture in these transformed companies as demanding but fair. The environment might seem tough, as underperformers are let go, but it's not heartless. Instead, it's characterized by rigor, where the best feel secure and focused on seizing opportunities rather than being bogged down by problems. Collins highlights three key practices for leaders aiming to create such a culture:
- Be patient in hiring to ensure only the right people are brought on board.
- Act decisively in letting go of those who don't fit.
- Allocate top talent to pursue opportunities, not just to solve issues.
Collins emphasizes that the principle of prioritizing "who" over "what" applies not just in business but in all aspects of life, underscoring the importance of surrounding oneself with the right people for a fulfilling existence.
The Hedgehog concept
Are you a hedgehog or a fox? In his famous essay “The Hedgehog and the Fox,” Isaiah Berlin divided the world into hedgehogs and foxes, based upon an ancient Greek parable: “The fox knows many things, but the hedgehog knows one big thing.”
The Hedgehog concept represents a strategic framework for achieving greatness in organizations. It revolves around the idea that to excel, a company must focus on three key dimensions visualized as circles.
- What is your company deeply passionate about
- What can your company be the world’s best, and equally important, what it cannot be best at
- What drives the economic engine of your company
Collins highlights a good example of Walgreens, an American pharmacy chain, and how they significantly outperformed the market by over 15 times by the year 2000. When questioning Cork Walgreen on the secret to their success, the reply was straightforward: it all clicked when they grasped one key concept—making their drugstores more convenient and ensuring high profits per customer visit.
To achieve this, Walgreens strategically relocated any stores that were in less accessible locations to more convenient spots. They also placed their stores closer to each other, reducing the distance customers had to travel from one store to another. This focus on convenience resulted in more customer visits and, importantly, higher profits with each visit.
Like a hedgehog's simple but effective defence mechanism, this concept emphasizes the importance of clarity, focus, and a deep understanding of one's strengths in achieving sustained success. The three circles are interconnected: earning a lot of money doesn't guarantee greatness if you're not the best; being the best at something won't sustain if there's no passion behind it; and passion alone won't lead to greatness if it's not economically viable or you're not the best at it.
This synergy forms the Hedgehog Concept. It's not merely about chasing a goal but understanding the essential elements that lead to greatness.
“A Hedgehog Concept is not a goal to be the best, a strategy to be the best, an intention to be the best, a plan to be the best. It is an understanding of what you can be the best at. The distinction is absolutely crucial”
The culture of discipline
The culture of discipline teaches us that to achieve greatness, one needs to have a strong commitment to being disciplined.
This discipline involves:
- Disciplined People: People who are very committed to what they do.
- Disciplined Thought: Thinking carefully and smartly about their actions.
- Disciplined Action: Acting with purpose and precision.
Collins outlines four key strategies to foster a culture of discipline:
- Balance freedom with responsibility: establish a framework where there's enough room for autonomy but within clear boundaries. Trusting your team is crucial.
- Recruit self-disciplined people the foundation of a disciplined culture lies in hiring people who naturally exhibit self-discipline, capable of working independently. This sequence is pivotal: it starts with self-disciplined people, progresses to disciplined thinking, and culminates in disciplined action. In standout companies, employees demonstrate exceptional responsibility, often going above and beyond. This is likened to the athlete Dave Scott, who would rinse his cottage cheese to remove extra fat — a metaphor for doing whatever it takes to improve.
- Discipline without dictatorship: discipline in an organization shouldn’t be enforced through intimidation or tyranny. While authoritative leaders might achieve short-term success, their departure often leaves the company rudderless. An example is Ray MacDonald of Burroughs, who led with a heavy hand to achieve significant market success, but his retirement left the company directionless.
- Embrace the hedgehog concept: adherence to the Hedgehog Concept requires unwavering commitment to what you do best, passionately, and what drives your economic engine. This may mean turning down seemingly lucrative opportunities that don't align with the company’s core principles.
These disciplined individuals should be free to do their tasks within a set of rules or responsibilities. In this culture, people don't just have to execute tasks; they have specific duties they are responsible for. Combined with a spirit of entrepreneurship (where people are creative and take initiative), it creates something unique that leads to outstanding performance.
The Stockdale Paradox
The Stockdale Paradox is a concept, along with its companion concept Confront the Brutal Facts. Productive change begins when you confront the brutal facts. Every good-to-great company embraced what we came to call the "Stockdale Paradox": you must maintain unwavering faith that you can and will prevail in the end, regardless of the difficulties, and at the same time, have the discipline to confront the most brutal facts of your current reality, whatever they might be.
The Stockdale Paradox is a concept named after Admiral James Stockdale, a United States Navy officer who was a prisoner of war in Vietnam for over seven years. It revolves around two fundamental beliefs:
- Unwavering Faith: On one hand, it's the belief that you will ultimately prevail and succeed in your goals or endeavours. It's about maintaining a positive outlook even when things get tough. Admiral Stockdale survived his captivity by never losing hope that he would eventually be free.
- Confronting the Brutal Facts: On the other hand, it involves confronting the realities of your circumstances with brutal honesty. This entails recognizing the challenges, obstacles, and setbacks without deceiving yourself. For Stockdale, it meant acknowledging the harsh realities of his captivity, uncertain of when or if he would ever regain his freedom.
The Stockdale Paradox teaches us that both of these beliefs are important. You can not be blindly optimistic and not acknowledge the difficulties your organization is facing. However, you won’t get far if you only focus on those difficulties without keeping hope.
Final Thoughts: Key Takeaways from "Good to Great"
Level 5 Leadership
The highest level of leadership involves a blend of personal humility and professional will. Great leaders focus not on personal glory but on the success of their organization. These leaders often emerge from within the ranks, possessing the unique capability to steer their companies from good to great through their understated yet determined approach.
First the Right People, Then the Direction
Contrary to popular belief, the sequence of building a great company starts with assembling the right team rather than setting the strategic direction. By prioritizing who is on the team, leaders ensure they have the right people to withstand the shifts in market and strategy, which often leads to sustained excellence.
The Hedgehog Concept
This concept stresses the importance of understanding and focusing on what a company can be the best at, deeply passionate about, and what drives its economic engine. Like the hedgehog’s simple but effective strategy for survival, companies must focus on these three intersecting areas to achieve greatness.
Culture of Discipline
Great companies foster a culture of discipline where disciplined people engage in disciplined thought leading to disciplined action. This culture does not rely on hierarchy or bureaucracy but on the commitment and responsibility of each team member to excel within a framework that balances freedom with accountability.
The Stockdale Paradox
Embracing this paradox involves maintaining unwavering faith that one will prevail, regardless of the difficulties, while simultaneously confronting the brutal facts of current reality. This balance of optimism and realism is crucial for navigating through challenging times and is a hallmark of all great enterprises.
