Book Summary 6: Good to Great
Today’s summary is for a book that outlines a model for turning a mediocre company in to a great one. The author, Jim Collins, and his research team put together a list of “good to great” companies, which were compared to other regular companies. This helped them find out what differentiates the elite from the rest.
A good-to-great company is one which successfully transitioned from a good to a great one (based on measurable data), which most companies fail to make.
The data is presented in the book in much detail. In this summary, though, we will not be covering the data which ‘proves’ the point, but directly present the applicable insights.
- Good is the Enemy of Great
In the first chapter, the author presents the methodology used to determine the ‘good to great’ companies versus the rest. He also covers some of the biggest findings in their research.
A significant one is: factors such as CEO compensation, technology, mergers and acquisitions, and change management initiatives play relatively small roles in the ‘good to great’ process.
Instead, the three areas which play the most role are: (1) disciplined people (2) disciplined thought and (3) disciplined vision. These factors cumulatively determine the company’s ability to achieve greatness.
- Level 5 Leadership
A rather surprising result of the research of good-to-great companies was the discovery of the type of leadership required to turn a good company into a great one. One might think that such companies are led by high-profile leaders with big personalities, those who make headlines and become celebrities. Yet such leaders do not form what the author calls “Level 5 Leaders”. Leaders of this type shun attention, have extreme personal humility, and intense professional will toward building a great company.
This unusual mix of intense determination and profound humility is what makes a “level 5” leader, the highest level in a hierarchy of leadership levels (shown below).
- First Who, Then What
The key insight in this chapter is: the process of securing highquality, hightalent individuals with Level 5 leadership abilities must be undertaken before an overarching strategy can be developed.
In simple words, great companies do not decide where the bus will go and then take in passengers. They take good passengers (employees) and then together decide where to take the bus.
This is not merely “hire good people” type of advice, but it is “hire good people even before you know in what ways you will use them”.
The author also advices to fire employees who are not actively contributing. Also, delay hiring if required, until an absolutely ideal employee is found. (Don’t settle for mediocrity.) A case in point: AirBnB took 5 months in interviewing candidates before hiring their first employee.
- Confront the Brutal Facts (but don’t lost hope)
The human habit of denial is widespread. If some fact is painful, our brains try to ignore it, even if ignoring it will cause even more pain in the future.
All good-to-great companies began the process of finding a path to greatness by confronting the brutal facts of their current reality. When a company starts with an honest and diligent effort to determine the truth of its situation, the right decisions often become self-evident. Good decisions are impossible without an honest confrontation of the brutal facts.
- The Hedgehog Concept (Simplicity)
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, the author 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.
He suggests the following three criteria:
a) At what you can be best in the world: This standard goes far beyond core competence — just because you possess a core competence doesn’t necessarily mean you are the best in the world at that competence.
b) What drives your economic engine: This requires a thorough understanding of your economic model.
c) What you are deeply passionate about: Passion cannot be manufactured. You cannot determine what you want to achieve as a company, and then get passionate about it. Rather, good-to-great companies decide to do only those things that they could get passionate about.
- A Culture of Discipline
An overarching organizational culture of discipline was one of the factors the author determined in good-to-great companies. In such an environment, every employee functions like an entrepreneur with a deep-rooted interest in their work and in the well-being of the company. In this culture of discipline, every member should be accorded a degree of personal freedom and empowerment.
Also it is important to hire disciplined people from the onset, instead of trying to convert undisciplined people into disciplined ones through training or incentives.
- Technology Accelerators
The author cautions that technology should not be regarded as a potential magic-solution for all that ails a company.
When used correctly, technology becomes an accelerator of momentum, not a creator of it. Good-to-great companies never began their transitions with pioneering technology, for the simple reason that you cannot make good use of technology until you know which technologies are relevant — the ones that link directly to the three intersecting circles of the Hedgehog Concept.
- The Flywheel and the Doom Loop
Here the author describes two cycles that demonstrate the way that business decisions tend to accumulate incrementally in either an advantageous or a disadvantageous manner.
He 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 of good-to-great companies initiate positive momentum.
Other companies exhibit very different patterns. Instead of a quiet, deliberate process of figuring out what needed to be done, then doing it, these companies frequently launched new programs — often loudly, with the aim of “motivating the troops” — only to see those programs fail to produce sustained results. They pushed the flywheel in one direction, stopped, changed course and pushed it in a new direction, a process they repeated continually. After years of lurching back and forth, these companies failed to build sustained momentum and fell into what could be termed the doom loop.
- From Good to Great to Built to Last
Here the author connects this book to his previous book, Built to Last. Although many of the conclusions in both books overlap, the author suggests that Good to Great is a 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.
He reasserts that companies need to exist for a higher purpose than mere profit generation in order to transcend the category of merely good.
IMPORTANT APPLICATIONS FOR STARTUPS:
Answer the following questions to determine if your approach to your startup (or future startup) has a good-to-great mindset or not:
- Do you have a clear, overarching mission for the company?
- Do you have the self-discipline to be able to lead a disciplined company?
- Do you go to great lengths to get the right people in your team, or do you settle for mediocrity when excellent people are hard to find?
- Do you have a habit of ignoring important but unpleasant facts?
- Are you starting something you’re good at, are passionate about, and which can be economically profitable?
- Do you see technology as an enabler, or as a quick-fix to all your problems? What factors do you consider before incorporating any technology into your business?
- Do you stick to your core competencies, and use everyday improvements, decisions and victories to gain momentum? Or do you keep swinging from one idea to another, from one way of doing things to another?