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Thursday, August 8, 2019

The follow-up to Built to Last, Jim Collins’s influential study of 18 of America’s enduringly great companies, Good to Great leverages a 20-person research team, dozens of interviews, and thousands of pages of documents to answer two questions: Can a good company become a great one? And, if it can, how?

Methods

To identify clear examples of good-to-great transitions, Collins and his team searched for companies with 15-year returns equal to or below the general market that, after a distinct transition point, recorded 15-year returns at least three times the general market. They found 11 companies that met this criteria.
Collins and his team then identified a “comparison company” for each good-to-great company. The criteria for comparison companies was that (1) they were similarly resourced and situated as their relative good-to-great companies and (2) their returns remained at or below the general market return after the transition point.
The researchers also examined six “unsustained comparisons”—companies that beat the market after the transition point but failed to sustain those results across the full 15-year threshold.

    What Distinguished the Great Companies from the Good Ones?

    The great companies followed six essential steps:

    1. Cultivating Singular Leadership

    Good-to-great companies have what Collins et al. call “Level 5” leaders. Level 5 leaders are personally humble, almost shy, but highly driven professionally—more like Lincoln than Patton.
    They avoid the limelight and tend to credit exterior forces or colleagues for their companies’ successes. Although they’re often personally likable and inspiring, they’re not usually “charismatic.”
    Their lack of ego enables them to concentrate on one thing and one thing only: the company’s success.
    How to achieve it: Collins admits that Level 5 characteristics are likely a product of both nature and nurture and so are difficult to create out of whole cloth; he also doesn’t have hard data to back up any suggestions he might make. His best advice for aspiring Level 5 leaders is to follow the other precepts he outlines. That way, even if you aren’t a Level 5 leader, you’ll at least be acting like one.

    2. Assembling the Right Team

    Good-to-great companies retain the right people before embarking on any specific program.
    A good-to-great team is composed of people who care deeply about the company and will argue passionately for the decisions they believe are right (but will come together to support whatever decision is eventually reached).
    Avoid at all costs the “genius with a thousand helpers” model; management teams should be composed of independent and critical thinkers, not “yes people.”
    How to achieve it: (1) Don’t hire until you’re sure you have the right person; (2) recognize when you need to make a change (whether by shifting a role or letting someone go) and act swiftly; and (3) assign your best people to your biggest opportunities rather than your biggest problems.

    3. Unearthing and Facing Facts

    Good-to-great companies are evangelical about recognizing market realities and reacting in kind.
    That said, no matter how dire the facts, they never lose faith that, eventually, they’ll prevail.
    The key is to be stoic yet hopeful, realistic without turning cynical.
    How to achieve it: With the right management team—one comprising sharp, critical thinkers—the facts should never be in short supply. Leaders can encourage truth-telling by: (1) Beginning meetings with questions, not answers; (2) cultivating, rather than stifling, debate among the team; and (3) conducting clear-eyed analyses of mistakes without assignation of blame.

    4. Thinking Like a Hedgehog

    “Foxes” know many things and see the world in all its complexity, whereas “Hedgehogs” know one big thing and order the world according to that thing.
    A good-to-great company thinks like a hedgehog by developing a “Hedgehog Concept”—an elegant, easy-to-understand guiding philosophy based on facts—that it adheres to fanatically.
    How to achieve it: A company’s “Hedgehog Concept” is derived from the answer(s) to three questions: (1) At what can I be the best in the world? (2) What is my financial engine? And (3) What am I profoundly passionate about?

    5. Maintaining Discipline

    Good-to-great companies make the jump because they constantly refer to and consistently realize their Hedgehog Concepts. Rigorous adherence to a Hedgehog Concept saves companies from panic acquisitions or misguided projects.
    Good-to-great companies also lack the administrative and managerial burdens of other companies—with the right people in place and an easy-to-understand Hedgehog Concept, the need for tight management or layers of bureaucracy withers away. Discipline does not mean a tyranny presided over by the executive.
    How to achieve it: (1) Allow individuals freedom within a clear framework of responsibility; (2) retain self-disciplined people who are driven to produce results; (3) recognize that a disciplined culture is different from a culture led by a tyrant or disciplinarian; and (4) adhere fanatically to hedgehog thinking. A key technique for staying true to your Hedgehog Concept? Create a “stop doing” list.

    6. Using Technology Tactically

    For good-to-great companies, technology isn’t the creator of great results but their accelerant.
    Rather than follow technological fads and adopt new technology for its own sake, good-to-great companies pioneer particular uses of new technology.
    How to achieve it: When evaluating a new technology, the key question to ask is: How does this technology impact my Hedgehog Concept? If it doesn’t, you can safely ignore it and/or accept parity in its use; if it does, you must figure out how you can lead in the application of that technology.

    Flywheels vs. Doom Loops

    Each step on the road to great takes timethere is no bolt from the blue or miracle moment.
    Collins likens the process of going from good to great to the turning of a heavy flywheel. To get the flywheel moving takes continuous effort and dedication, but once it’s spinning, its momentum keeps it going. Greatness is the result of the steady, disciplined adherence to the six steps described above.
    Unfortunately, many leaders are under the impression that massive success can happen overnight—by dint of a splashy initiative, big-ticket acquisition, or cutting-edge technology. These moves all too often fail and lead to further drastic measures—restructurings, layoffs—which lead to further declines and on and on. This painful cycle is the “doom loop,” and it can be avoided by the diligent observance of Collins’s six steps.