Good to Great

Book by Jim Collins

Good to Great
Good is the enemy of great.
Why is that true?

Companies Studied
(15-year return compared to general stock market)

Abbott (3.98) Circuit City (18.5) Fannie Mae (7.56) Gillette (7.39) Kimberly-Clark (3.42) Kroger (4.17) Nucor (5.16) Philip Morris (7.06) Pitney Bowes (7.16) Walgreens (7.34) Wells Fargo (3.99)

Upjohn Silo Great Western Warner-Lambert Scott Paper A&P Bethlehem Steel R.J. Reynolds Addressograph Eckerd Bank of America

Unsustained: Burroughs, Chrysler, Harris, Hasbro, Rubbermaid, Teledyne

#1

Lesson #1: Leadership

Humility + Will = Level 5 leadership Modest, willful, humble, fearless Ego-driven, genius-types, may produce shortterm positive results, but cannot sustain results 1=highly capable; 2= contributing team member, 3= competent manager, 4= effective leader, 5=executive that builds enduring greatness thru personal humility & professional

#1

Leadership
Professional Will Creates superb results, a clear catalyst in the transition from good to great Demonstrates an unwavering resolve to do whatever must be done to produce the best long-term results, no matter how difficult Sets the standard of building an enduring great company; will settle for nothing less Looks in the mirror, not out the window, to apportion responsibility for poor results, never blaming other people, external factors, or bad luck Personal Humility Demonstrates a compelling modesty, shunning public adulation; never boastful Acts with quiet, calm determination; relies principally on inspired standards, not inspiring charisma to motivate Channels ambition into the company, not the self; sets up successors for even greater success in the next generation Looks out the window, not in the mirror, to apportion credit for the success of the companyto other people, external factors, and good luck

#2

Lesson 2: First whothen what.

There are going to be times when we cant wait for somebody. Now, youre either on the bus or off the bus. What did the 11 successful companies find out? You dont first figure out where to drive the bus and then get people to take it there. No, first get the right people on the bus (and the wrong people off) and then figure out where to take the bus.
(Ken Kesey, The Electric Kool-Aid Acid Test)

#2

Why you get the right people on the bus first

1. If you begin with who rather than what you can more easily adapt to a changing world. 2. If you have the right folks on the bus, the problem on how to motivate & manage people largely goes away. 3. If you have the wrong people, it doesnt matter whether you discover the right direction, you still wont have a great organization. Great vision without great people is irrelevant.

#2

Level 5 thinkingon getting folks on/off the bus

I dont know where we should take this commission, but I do now that if I start with the right people, ask them the right questions, and engage them in vigorous debate, well find a way to make this organization great. David Maxwell (CEO, Fannie Mae) made it absolutely clear that there would only be seats for A players who were willing to put forth an A+ effort, and if you werent up for it, you had better get off the bus, and get off now.

#2

Rigorous, not ruthless

To be rigorous means consistently applying exacting standards at all times and at all levels, especially in upper management. To be rigorous, not ruthless, means that the best people need not worry about their positions and can concentrate fully on their work. To let people languish in uncertainty for months or years when in the end they arent going to make it anywaythat is ruthless. To deal with it right up front and let people get on with their livesthat is rigorous.

#2

How to be rigorous
1. When in doubt, dont hirekeep looking. 2. When you know you need to make a people changeact.
The moment you feel the need to tightly manage someone, youve made a hiring mistake. The best people dont need to be managed. Guided, taught, ledyes. But not tightly managed. Waiting too long before acting is equally unfair to the people who need to get off the bus. How to know: Would you hire the person again? Would you be relieved if they left the organization?

3. Put your best people on your biggest opportunities not your biggest problems.
Corollary: When you decide to sell off your problems, dont sell of your best people. Make a place on the bus for the best people, and theyll be more likely to support changes in direction.

Discuss: How do you need to be rigorous?

1. When in doubt, dont hirekeep looking. 2. When you know you need to make a people changeact.
The moment you feel the need to tightly manage someone, youve made a hiring mistake. The best people dont need to be managed. Guided, taught, ledyes. But not tightly managed. Waiting too long before acting is equally unfair to the people who need to get off the bus. How to know: Would you hire the person again? Would you be relieved if they left the organization?

#2

3. Put your best people on your biggest opportunities not your biggest problems.
Corollary: When you decide to sell off your problems, dont sell of your best people. Make a place on the bus for the best people, and theyll be more likely to support changes in direction.

#3

Lesson 3: Confront the Brutal Facts

Yet never lose faith

Two choices: confront brutal facts and change or stick head in sand Kroger and A&Psuperstores vs. low prices You have to be number one or two in each market or you have to exit. You absolutely cannot make a series of good decisions without first confronting the brutal facts.

#3

Confront the Brutal Facts

Yet never lose faith

Your job is to turn over rocks and look at the squiggly things, even if what you see can scare you! Some organizations (Bank of America) have climates where managers will not even make a comment until they know how the boss felt. The moment a leader allows himself to become the primary reality people worry about, rather than reality being the primary reality, you have a recipe for mediocrity, or worse.

#3

How to confront the Brutal Facts

Yet never lose faith

1.

Lead with questions, not answers

Put more questions to board members than they put to you Raise questions for one reason only: to gain understanding (not manipulation)

2.

Engage in dialogue and debate, not coercion.

Good-to-great companies have a penchant for intense dialogue

3.

Conduct autopsies, without blame.

No finger-pointing.

4.

Build red-flag mechanisms.

Good-to-great companies dont have better information, necessarily. The key is turning information into info that cant be ignored. Red cards in meetings: folks hold it up to deal with real issues Short-pay: allow customers to circle items on invoice they dont want to pay due to bad service

Attitude: We will never give up. We will never capitulate. It might take a long time, but we will find a way to prevail.

#3 How do you need to confront the Brutal Facts?

Yet never lose faith

1.

Lead with questions, not answers

Put more questions to board members than they put to you Raise questions for one reason only: to gain understanding (not manipulation)

2.

Engage in dialogue and debate, not coercion.

Good-to-great companies have a penchant for intense dialogue

3.

Conduct autopsies, without blame.

No finger-pointing.

4.

Build red-flag mechanisms.

Good-to-great companies dont have better information, necessarily. The key is turning information into info that cant be ignored. Red cards in meetings: folks hold it up to deal with real issues Short-pay: allow customers to circle items on invoice they dont want to pay due to bad service

Attitude: We will never give up. We will never capitulate. It might take a long time, but we will find a way to prevail.

#3

The Stockdale Paradox

Research by the Intl Committee for the Study of Victimization found that those facing serious adversity generally fall into one of three categories: 1. Those who were permanently dispirited by the event 2. Those who got their life back to normal 3. Those who used the experience as a defining event that made them stronger.

#3

The Stockdale Paradox

Jim Stockdale stoically accepted the brutal facts of reality while maintaining an unwavering faith in the endgamethat he would prevail despite the brutal facts. Who didnt make it out? The optimists. Those who think it will all be a quick fix and everyone will be out by Christmas are the ones that lose heart and fail.

#4

Lesson 4: The Hedgehog Concept

The fox knows many things, but the hedgehog knows one big thing. Foxes pursue many ends at the same time and see the world in all its complexity. They are scattered or diffused, moving on many levels. Hedgehogs simplify a complex world into a single organizing idea, a basic principle or concept that unifies and guides everything. For a hedgehog, anything that does not somehow relate to the hedgehog idea holds no relevance.

#4

The Hedgehog Concept

Examples Walgreens: the best, most convenient drugstores, with high profit per customer visit (viz., also Starbucks) Wells Fargo: running a bank like a business, with a focus on the Western U.S. Strategy, per se did not distinguish the good-to-great companies from the comparison companies. Both sets had strategic plans, and there is no evidence that the good-to-great companies invested more time/energy in strategy development & long-range planning. All the G2G companies attained a very simple concept that they used as a frame of reference for all their decisions. A Hedgehog Concept is a simple, crystalline concept that flows from deep understanding about the intersection of the following three circles

#4

Developing The Hedgehog Concept

1. What can you be the best in the world at (and, equally important, what you cannot be the best in the world at)
What you can be the best at might not even be something in which you are currently engaged.

2. What drives your economic engine?

Must discover the single denominator (profit per X ) that has the greatest impact on your economics/budgeting.

3. What are you deeply passionate about?

What do you have a genetic or God-given talent to do? What are you well-paid to do? What do you enjoy doing that you absolutely love to do, enjoying the actual process for its own sake?

#4

The Hedgehog Concept

You can be passionate about all you want, but if you cant be the best at it or if it doesnt make economic sense, then you might have a lot of fun, but you wont get great results. If we cant be the best at it, then why are we doing it at all? 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.

#4

Develop your Hedgehog Concept!

What can you be the best in the world at (and, equally important, what you cannot be the best in the world at) What you can be the best at might not even be something in which you are currently engaged. What drives your economic engine? Must discover the single denominator (profit per X ) that has the greatest impact on your economics/budgeting. What are you deeply passionate about? What do you have a genetic or God-given talent to do? What are you well-paid to do? What do you enjoy doing that you absolutely love to do, enjoying the actual process for its own sake? 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.

#4

A few hedgehog facts

Growth is not a Hedgehog Concept You cant just go off-site for 2 days and come back with it On average, it took 4 years for G2G companies to clarify theirs It is an inherently iterative process Useful mechanism is a Council that consistently meets to review the 3 aspects of the Hedgehog Concept (and they should get/read the book!)

An interesting note on bureaucracy

Most companies build their bureaucratic rules to manage the small percentage of wrong people on the bus, which in turn drives away the right people on the bus, which increases the need for more bureaucracy to compensate for incompetence and lack of discipline, which then further drives the right people away and

#5

Lesson 5: The Flywheel and the Doom Loop

G2G comes about by a cumulative processstep by step, action by action, decision by decision, turn by turn of the flywheelthat adds up to sustained and spectacular results. Media attention often comes to G2G organizations after years of slow build-up and then break-through.

#5

Flywheel & Doomloop

Flywheel transitions look like dramaticm revolutionary breakthroughs from the outside (when the wheel is fully turning). From the inside they feel completely different, more like an organic development process.

#5

Flywheel & Doomloop

Egg sitting there. No one pays attention. Egg cracks open. Out jumps chick. Media:
The transformation of Egg to Chicken! The remarkable revolution of the Egg! Stunning turnaround at Egg!

#5

Flywheel & Doomloop

The point? G2G companies had no name for their transformations. There was no launch event, no tag line, no programmatic feel whatsoever. There was no miracle moment.

#5

Flywheel
UCLA won 10 NCAA championships and 61 games in a row. How many years did Wooden coach UCLA before the 1st championship? 15

#5

Flywheel
Point to tangible accomplishmentshowever incremental at firstand show how these steps fit into the context of an overall working concept.
Step forward, consistent with hedgehog concept Accumulate visible results People line up, energized by results Flywheel momentum builds

#5

Doomloop
Instead of a quiet, deliberate process of figuring out what needed to be done and then simply doing it, the comparison companies frequently launched new programsoften with great fanfare and hoopla aimed at motivating the troopsonly to see the programs fail to produce sustained results. They sought the single defining action, the grand program, the one killer innovation, the miracle moment that would allow them to skip the arduous buildup stage and jump right to breakthrough. Guess what happened

#5

Two popular doomloops to avoid

Misguided use of acquisitionsmaking deals for the sake of making deals.
When the going gets tough, we go shopping! G2G companies did acquisitions after the Hedgehog Concept and after the flywheel had significant momentum. Acquisitions are accelerators not creators of flywheel momentum.

Leaders who stop the flywheelleaders who step in, stop an already spinning flywheel, and throw the organization in entirely different direction.

Whats the diff between flywheel & doom loop organizations?

(in)consistency (non)confrontal (un)disciplined (un)motivated (self) (talk)results