Good to Great by Jim Collins

I. Good Is The Enemy Of Great

a. It is tough for good companies to become great since they have little
incentive to change. Change is difficult for many people; they are usually
afraid of change.

II. Level 5 Leadership

a. Level 5 leaders channel their ego needs away from themselves and into the
larger goal of building a great company. It’s not that Level 5 leaders have
no ego or self-interest. Indeed they are incredibly ambitious-but their
ambition is first and foremost for the institution, not themselves.
b. Humility + Will = Level 5 Leader.
c. In over three quarters of the comparison companies, we found executives
who set their successors up for failure or chose weak successors, or both.
d. Ten out of eleven good-to-great CEOs came from inside the company,
three of them by family inheritance.
e. Level 5 leaders look out the window to apportion credit to factors outside
themselves when things go well (and if they cannot find a specific person
or event to give credit to, they credit good luck.) At the same time, they
look in the mirror to apportion responsibility, never blaming bad luck
when things go poorly.

III. First Who…Then What

a. First get the right people on the bus (and the wrong people off the bus)
before you figure out where to drive it. A great degree of sheer rigor is
needed in people decisions in order to take a company from good to great.
b. We found no systematic pattern linking executive compensation to the
process of going from good to great. The evidence simply does not
support the idea that the specific structure of executive compensation acts
as a key lever in taking a company from good to great.
c. The purpose of a compensation system should not be to get the right
behaviors from the wrong people, but to get the right people on the bus in
the first place, and to keep them there. Get people with a “farmer work
ethic” on the bus.
d. In determining “the right people”, the good-to-great companies placed
greater weight on character attributes (work ethic, basic intelligence,
dedication to fulfilling commitments, and values) than on specific
educational background, practical skills, specialized knowledge, or work
experience (these attributes are teachable or learnable).
e. Those who build great companies understand that the ultimate throttle on
growth for any great company is not markets, or technology, or
competition, or products. It is one thing above all others: the ability to get
and keep enough of the right people.

1
 f. People either stayed on the bus for a long time or got off the bus in a
hurry. In other words, the good-to-great companies did not churn more,
they churned better.
g. It might take time to know for certain if someone is simply in the wrong
seat or whether he needs to get off the bus altogether. Nonetheless, when
the good-to-great leaders knew they had to make a people change, they
would act.
i. “Putting square pegs in square holes and round pegs in round
holes”.
h. Put your best people on your biggest opportunities, not your biggest
problems.

IV. Confront The Brutal Facts (Yet Never Lose Faith)

a. The Good To Great (G2G) companies displayed two distinctive forms of
disciplined thought:
i. They infused the entire process with the brutal facts of reality.
ii. They developed a simple, yet deeply insightful, frame of reference
for all decisions.
b. How do you create a climate where the truth is heard?
i. Lead with questions, not answers.
1. You don’t need to find the answers first and to motivate
everyone to follow your messianic vision. You should ask
questions that will lead to the best possible insights.
ii. Engage in dialogue and debate, not coercion.
1. Don’t use discussion as a sham process to let people “have
their say” so that they could “buy in” to a predetermined
decision.
iii. Conduct autopsies, without blame.
1. Examine bad decisions closely and try to extract some truth
without assigning blame, except for yourself if you were
the one who made the bad decision in question.
iv. Build “Red Flag” mechanisms.
1. Ex: “Short Pay” – Customer deducts items from the invoice
that did not meet its specifications. This will definitely
make you take notice and turn this information into
information that cannot be ignored.
c. The Stockdale Paradox.
i. Retain faith that you will prevail in the end, regardless of the
difficulties, and at the same time confront the most brutal facts of
your current reality, whatever they might be.

V. The Hedgehog Concept (Simplicity Within the Three Circles)

a. A Hedgehog Concept is a simple, crystalline concept that flows from deep
understanding about the intersection of the following three circles:
i. What you can be the best in the world at.

2
 1. This discerning standard goes far beyond core competence;
just because you possess a core competence doesn’t
necessarily mean you can be the best in the world at it.
Conversely, what you can be the best at might not even be
something in which you are currently engaged.
ii. What drives your economic engine.
1. All the G2G companies discovered the single denominator
– profit per x – that had the greatest impact on their
economics.
iii. What you are deeply passionate about.
b. Strategy per se did not separate the G2G companies from the comparison
companies. Both sets had strategies, and there is no evidence that the
good-to-great companies spent more time on strategic planning than the
comparison companies.

VI. A Culture Of Discipline

a. When you put together a culture of discipline with an ethic of
entrepreneurship, you get a magic alchemy of superior performance and
sustained results. Bureaucracy and hierarchy are not needed in this
environment.
b. The G2G companies built a consistent system with clear constraints, but
they also gave people freedom and responsibility within the framework of
that system. They hired self-disciplined people who didn’t need to be
managed, and then managed the system, not the people.
c. “Rinse the cottage cheese”: Much of the answer to the question of good to
great lies in the discipline to do whatever it takes (rinsing the cottage
cheese) to become the best within carefully selected arenas and to seek
continual improvement (kaizen) from there.

VII. Technology Accelerators

a. Technology as an accelerator, not a creator, of momentum.
i. You cannot make good use of technology until you know which
technologies are relevant. The relevant technologies are those that
link directly to the three intersecting circles of the Hedgehog
Concept.

VIII. The Flywheel (vs. The Doom Loop)

a. G2G companies slowly build up momentum until the “flywheel” starts
spinning on its own.
b. For G2G companies, their big acquisitions took place after development of
the Hedgehog Concept and after the flywheel had built significant
momentum. They used acquisitions as an accelerator of flywheel
momentum, not a creator of it.