What differentiates good companies from great companies? Why do some companies grow over time, while others seem to stay stagnant? How can a good company become great?
In today’s world, there are many solid companies.
Each quarter and each year, they are profitable, but they aren’t amazing. They are good, but aren’t going to be your portfolio’s all stars.
What is stopping companies like these from becoming the media’s darlings? Maybe, asked a better way, what is keeping these companies from going from good to great?
Good to Great, by Jim Collins, presents the conclusions after studying a certain subset of publicly traded companies to identify key attributes of how companies go from good to great.
Collins wanted to answer the question, “How can good companies, or even bad companies, achieve enduring greatness?”
The rest of this post includes a summary of Good to Great, takeaways from Good to Great, and a reading recommendation for you.
Book Summary of Good to Great
For many years, Jim Collins wondered if there were any companies that went from mediocre to great, and what made this transition possible.
He started forming the following research question:
If these companies existed, what were the defining attributes which allowed these companies to outperform their competitors and the general market?
In the late nineties, Collins and his team of researchers set out to answer this question.
First, they had to define what exactly mediocrity looked like, and what greatness looked like. They didn’t want to study companies that were always great – he did that in his book Built to Last.
Instead, he wanted to look at a set of companies that made a leap from average or below average results in the stock market, to great results which needed to be sustained at least 15 years.
What was surprising, was these good to great companies generated cumulative stock returns that beat the market by an average of seven times in fifteen years, better than the results delivered by an index of the world’s greatest companies (Coca-Cola, GE, Intel, etc.)
Next, the research team contrasted the good-to-great companies with a carefully selected set of comparison companies that failed to make the leap from good to great.
Over five years, the team analyzed the histories of all twenty-eight companies in the study.
After sifting through an absurd amount of data and thousands of pages of interviews, Collins and his crew discovered the key determinants of greatness.
How can Companies go from Good to Great?
After the study was completed, the research team found 7 main conclusions:
- Good to Great companies have level 5 leaders in their organization
- Good to Great companies get the right people on board, and then act
- Good to Great companies confront the brutal facts
- Good to Great companies apply the “hedgehog concept”
- Good to Great companies build a culture of discipline
- Good to Great companies employ technology effectively
- Going from good to great can take a long time
Let’s dive into the key findings in more detail.
Good to Great Companies have Level 5 Leaders in their Organization
The first finding in Good to Great is how Good to Great companies employ level 5 leaders in their organization.
Level 5 refers to a five level hierarchy of executive capabilities, with level 5 at the top. Level 5 leaders embody a paradoxical mix of personal humility and professional will. These leaders are ambitious, to be sure, but ambitious first and foremost for the company, not themselves.
Level 5 leaders look out the window to attribute success to factors other than themselves. When things go poorly, however, they look in the mirror and blame themselves, taking full responsibility.
The comparison CEOs often did just the opposite – they looked in the mirror to take credit for success, but out the window to assign blame for disappointing results.
Another finding in the study was how larger than life celebrity leaders who ride in from the outside are negatively correlated with going from good to great.
Ten of eleven good to great CEOs came from inside the company, whereas the comparison companies tried outside CEOs 6 times more often.
Good to Great Companies get the Right People on Board, and then Act
The second finding in Good to Great is how Good to Great companies get the right people employed, and then act.
The good-to-great 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 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 study uncovered three practical disciplines for being rigorous in people decisions:
- When in doubt, don’t hire – keep looking. (A company should limit its growth based on its ability to attract enough of the right people)
- When you know you need to make a people change, act. (First be sure you don’t simply have someone in the wrong seat.)
- Put your best people on your biggest opportunities, not your biggest problems. (If you sell off your problems, don’t sell off your best people.)
By having the right people on your team, you can accomplish so much.
Good to Great Companies Confront the Brutal Facts
The third finding in Good to Great is how Good to Great companies confront the brutal facts of their situation.
All good-to-great companies began the process of finding a path to greatness by confronting the brutal facts of their current reality.
When you start with an honest and diligent effort to determine the truth of your situation, the right decisions often become self-evident. It is impossible to make good decisions without infusing the entire process with an honest confrontation of the brutal facts.
Creating a climate where the truth is heard involves four basic practices:
- Lead with questions, not answers
- Engage in dialogue and debate, not coercion
- Conduct autopsies, without blame.
- Build red flag mechanisms that turn information into information that cannot be ignored.
Leadership does not begin just with vision. It begins with people willing to confront the brutal facts and to act to make things better.
Good to Great Companies Apply the Hedgehog Concept
The fourth finding in Good to Great is how Good to Great companies apply the Hedgehog Concept.
Going from good to great requires a deep understanding of three intersecting circles:
- What you are deeply passionate about
- What you can be the best in the world at
- 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.
The good to great companies are like hedgehogs – simple, dowdy creatures that know “one big thing” and stick to it.
The comparison companies are more like foxes – crafty, cunning creatures that know many things yet lack consistency.
By sticking to doing what the good companies know how to do, they set themselves up for greatness.
Good to Great Companies have Built a Culture of Discipline
The fifth finding in Good to Great is how Good to Great companies have built a culture of discipline.
To continually succeed and have sustained great results, companies depend on building and maintaining a culture full of self-disciplined people who take disciplined actions.
These disciplined actions need to also be consistent with the three circles of the Hedgehog Concept.
Bureaucratic cultures arise to compensate for incompetence and lack of discipline. Typically, cultures which lack discipline arise from having the wrong people on the bus in the first place.
If you get the right people on the bus, and the wrong people off, you won’t need to worry about bureaucracy.
Good to Great Companies Employ Technology Effectively
The sixth finding in Good to Great is how Good to Great companies employ technology effectively.
Good to Great organizations think differently about technological change when compared to mediocre ones. 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 to turn unrealized potential into results. On the other hand, mediocre companies react and jump around, motivated by fear of being left behind.
Good to Great organizations avoid technology fads and bandwagons, yet they become pioneers in the application of carefully selected technologies. The idea that technological change is the principal cause in the decline of once-great companies (or the perpetual mediocrity of others) is not supported by the results from the study.
Certainly, a company can’t ignore new technologies and hope to be great, but technology by itself is never a primary root cause of either greatness or decline.
Going from Good to Great can take a long time
The last finding in Good to Great is how going from good to great can take a long time.
Good to great transformations often look like dramatic, revolutionary events to those observing from the outside, but they feel like organic, cumulative processes to people on the inside.
The confusion of end outcomes (dramatic results) with process (organic and cumulative) skews our perception of what really works over the long haul.
No matter how dramatic the end result, the good-to-great transformations never happened in one fell swoop.
There was no single defining action, no grand program, no one killer innovation, no solitary lucky break, no miracle moment.
This just shows and proves once again how overnight success is 10 years in the making.
“You can accomplish anything in life, provided that you do not mind who gets the credit.” – Harry Truman
Takeaways from Good to Great
With every book you read, it is a must to have takeaways and actionable items to implement in life.
I really enjoyed Good to Great. As someone who is looking to work his way up in Corporate America, but also looking to pursue different entrepreneurial interests, Good to Great had a lot of fantastic points that I want to incorporate in my career going forward.
One of the most important things I’ve noticed in my career so far, both in my entrepreneurial efforts and at my day job, is having the right people in your organization.
Good to Great confirmed my assumption that having the right people is most important. Once you have the right people, then you can start to build towards your end result. Without the right people, you aren’t going to be able to do it.
It’s critical to find people who are going to be there for you and who are going to grind each and every day. People who don’t carry egos and want to be a part of something great.
Another takeaway for me was applying the Hedgehog Concept.
Essentially, I need to do what I know how to do, and do it well. Everything else is not important.
So many times I have a great idea, but need to stop and ask myself if I should be the one to take action on it.
Our Recommendation for Good to Great
Good to Great is a fantastic book for entrepreneurs and people interested in business.
If you are a business person or a manager in a corporation, Good to Great is a must read. Good to Great gives you a road map to building a great company.
If you are interested in business and history, Good to Great is a great history lesson of many public companies. If you are someone who is an investor, or manages others and is looking to build and grow your organization, Good to Great is a book worth reading.
There are so many amazing great tips and points Jim Collins makes which can be applied across a number of industries.
Check out Good to Great for more details on this book.