Good to Great: Notes & Review

good to great

In Good to Great author Jim Collins investigates and explains what’s the secret sauces that makes great companies great.
I found it to be very good and with some gold nuggets for personal self-development as well.

Bullet Summary

  • Find one thing you can do better than anyone else and stick to it
  • Focus on hiring and keeping the best people
  • Foster a culture where people feel free to speak their mind and were problems are addressed head-on

Full Summary

About the Author: Jim Collins is an American researcher, author, speaker, and consultant. He earned his bachelor in Mathematical Sciences at Stanford, worked a year and a half for McKinsey, and then return at Stanford to get an MBA.
Colling focuses on business management, business excellence, and business sustainable growth.

Intro: A Prequel to Built to Last

In his previous book Built to Last Jim Collins analyzes how the best companies manage to keep delivering great results over the long haul.

“Good to Great” follows “Built to Last” in chronological terms.
However, Collins says that “Good to Great” is more of a prequel to Built to Last.

Why?

Because first, a company should focus on achieving greatness, and then it should focus on how to make that greatness ever-lasting.

Methodology of Research

With Good to Great Collins wants to explain how to join the ranks of the elite companies.

To do so he examined US public companies and divided them into three groups. The main differentiator between each group was their stock market returns:

  • Good to great companies: companies that went from the market average return to 3 times or greater the market returns
  • Direct comparison companies: companies that stayed “just good” despite having the same shot at greatness
  • Unsustained comparison companies: companies that briefly became but slit back to mediocrity

Let’s see how they did it:

Hedgehog Tactic: Do One Great Thing, Over and Over

Think of the continuous competition of the hedgehog versus a fox.

A fox tries many different tactics to eat the critter, but the hedgehog always has the same powerful answer: curl up in a spikey ball.
And he wins over and over.
He can win with such high reliability because he has found one effective method of defense that he is so good at. He doesn’t need anything else, he simply repeats what he’s great at.

And that’s what companies that go from good to great do.
Companies that go from good to great have found the one thing they can excel at.
Here is what they ask themselves:

  • What will we be passionate about?
  • What will we be the best in the world at?
  • What is one key performance indicator we should concentrate on?

The Hedgehog Realization

The title is actually incorrect.

It’s because, Jim Collins explains, companies didn’t usually wake up one day and said: “this will be our thing”.
Great companies found their winning strategy randomly but stuck with it.

Sure, in retrospect and from the outside it seemed like a huge shift.
But there usually is no new strategy, launch event or mission statement change. Instead, the push in the new hedgehog direction was a sum of tiny steps.
Each step delivered better results and further justified and motivated people to keep going until a full-blown strategy became obvious.

One example is Zappos, which focused on selling shoes while delivering the best customer experience ever -read Delivering Happiness for the Zappos story-.

Poor Companies Try Without Sticking

Comparison companies instead did not strive to consistently build momentum in one direction.

Their method instead is to throw everything and “see what sticks”. They try several different changes, but since the following results are underwhelming, they change again and try something new.

New Tech Is a Means to An End

Companies that make the leap from good to great see new technology simply as a means to an end, not as an end in itself.

They have one strategy and one goal, and technology simply helps them get there faster.
And if the technology wasn’t helping them towards their goal, they didn’t even adopt the new tech.

Underperforming companies instead saw the new technology as a threat or as a competitive advantage in itself, and scrambled to adopt it without an overarching plan.

Lesson learned: use technology as a facilitator for your goal, not as a goal in itself.

Level 5 Leaders: Great Leaders = Great Companies

Jim Collins refers to leaders of great companies as “level 5 leaders”.
A level 5 leader:

  • Great people, leaders, and team players
  • Fanatically driven towards results
  • Want to see their company success even after they’re gone
  • Share credit and shoulder the blame
  • They are modest and understated
  • Most often come from within the organization

By contrast, two-thirds of underwhelming comparison companies had CEOs with huge egos.
These ego-driven leaders didn’t seem to care much about what would happen after them, and often had no succession plan.

Sometimes, highly charismatic leaders are also counterproductive when that means that people don’t have enough space to air their concerns and ideas.

Hiring Great People

Great companies make human resources a priority.

They want to put the right person in the right position, but they focus more on who to hire than what to hire for.

They never hire the wrong person even when they badly need professional skills, and hire more great people even when they don’t have a specific opening for them.

When they spotted the wrong person they acted immediately to keep their workplace as**ole free.

Three HR rules:

  1. When in doubt, don’t hire
  2. When you know you need to make people’s changes, act quickly
  3. Put your best people on biggest opportunities (not problems)

Lesson learned: put the right people in the right position and winning is almost assured.

Stay Realistically Optimistic

I particularly liked this part of “Good to Great”.

Collins says that great companies confront reality even when it’s ugly. But even when things seemed to go all wrong, they still retained unwavering faith that somehow they would make it and come out winning.

For more on the science of optimism check out some positive psychology books such as:

Lesson learned: success requires confronting the ugly realities while never losing faith.

Foster A Culture of Openness

To make sure people don’t hide from the truths great companies have a culture where people are free to express worries, concerns, and problems.

This is the same concept that Jack Welch’s Winning refers to as “candor” and Ray Dalio’s Principles refers to as “radical open-mindedness”.

Rigorous Self-Discipline

Companies going from good to great have strong self-discipline in pursuing their hedgehog strategy.

They work hard and single-mindedly on their goals.

However, this must be a culture institutionalized in the company that people are willing to adhere to.

Indeed when the culture is mandated top-down from a tyrannical leader, companies might enjoy a brief spell of greatness, but that usually doesn’t last.

The example is Stanley Gault, the CEO of Rubbermaid. A self-styled “sincere tyrant”, he took the company to new heights. But soon after he left the company lost 59% of its value because no real culture was established.

3 Levels of Discipline

To summarize what it takes to go from good to great, Collins says it’s discipline at the three key levels:

  • Disciplined people: great people focused on excellence and the hedgehog strategy
  • Disciplined thought: honesty and openness
  • Disciplined action: unrelenting focusing on what matters, putting first things first

good to great

Real-Life Applications

  • Stay Realistically Optimistic

I particularly loved what Jim Collins calls the “Stockdale Paradox“.
Such as, stay ground in reality while you keep being optimistic about the final result.

I find this concept to be immensely helpful since in the past, with the “self-esteem movement”, self-help used to be full of “feel good” and “reality distortion” BS.

The truth is that to move forward in life you must look at reality. But it’s also true that you must keep your faith, confidence and self-esteem even while things are not great.

Hence, you must do both: believe you’ll eventually prevail while you also stay hyper-realistic.

CONS

  • Is There No Recipe to Follow?

The moment I read that great companies had no initial strategy was the moment I thought Good to Great was an exercise on theory with limited applications.

Indeed, if poor companies just try different things without finding a great strategy and great companies stumble on their success… What’s the difference between good and great?
Because if the difference is “chance”, then what’s the use?

  • Some Romanticized Accounts

I found some stories to back the theories to be a bit “romanticized”.
Darwin Smith, CEO of Kimberly-Clark for example, who works on a farm during holidays and mingles with plumbers and electricians.

  • Stock Market Returns As Yardstick?

Of course it would be difficult for the author to find any data which is more readily available than stock returns to judge on a company’s effectiveness.

However, every time the author says that a company did well after X left or took office, I gotta wonder.
Did the whole market experience a bear or bull market? Did anything else occur? Was the market simply reacting to external events the company had no control over?

In brief: stock market returns to judge a company’s effectiveness is only a good yardstick if you also consider what happened to the rest of the stock market.
And even then, are you sure they are not doing great because they are following strategies that work today, but that will doom them tomorrow?
Case in point: Fannie Mae, and GE were the examples of great companies.

  • Abundant Inductive Reasoning & Statistically Not Iron-Clad

I personally felt that the scientific methods used for the analyses in “Good to Great” are not best in class.
There is a lot of inductive reasoning here and lots of correlation (and correlation does not mean causation).
Be aware of the limitations.

PROS

Great Wisdom!
The hedgehog strategy idea: awesome stuff!

Review

The deep observer will notice that quite a few of the companies listed as “great” in Jim Collins’ book didn’t turn out to be so great.

However, I wouldn’t take that against “Good to Great”.
As an old article of The Economist once said: “market domination is only a snapshot in time”.

Indeed, just because one company achieves greatness today, doesn’t mean it will stick with greatness forever. A hedgehog strategy won’t last forever and eventually, you gotta find a new one, and cultures can be lost over the years.

Overall, I give a big thumbs up to this book. I think it’s very good and a highly recommended read for, obviously, anyone who is or aspires to be, at top-level management of any organization.

But also a recommended reading for any entrepreneur and even for self-development.
The concept of “realistic optimism” is life-changing in my opinion.

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