When Good to Great first published in 2001, it quickly became one of the most popular business publications of all time. In Good to Great, he pursues one fundamental question:
“Can a good company become a great company and, if so, how?”
The Principles of Good-to-Great still hold up
The principles of his good-to-great formula still hold up. Yet, interestingly, many of the companies he and his research team identified as great didn’t last.
Why is that?
Collins’ good-to-great tenets identify sound management practices: Hire the right people, specify your purpose, focus on results and make the tough decisions – the basic precepts now taught in any business management course.
Yet unpredictable & unquantifiable forces, such as cumbersome bureaucracy, CEO ego, unanticipated markets and economic change, can push many successful firms off the cliff. They slide from great to good to bad to out of business.
A Common Theme: Fail or Thrive
Collins’s books share a common theme that is how and why businesses fail or thrive. That’s his expertise.
Anyone looking for ideas on how to build a great organization with a culture to match will gain wisdom from information in Good to Great.
One Thousand Four Hundred and Thirty-Five
Collins and his researchers sifted through 1,435 Fortune 500 companies to find the few that met their study’s criteria for greatness, which were: “15-year cumulative stock returns at or below the general stock market, punctuated by a transition point, then cumulative returns at least three times the market over the next 15 years.”
Who made the grade?
The 11 companies that made the grade in 2001 were Abbott, Circuit City, Fannie Mae, Gillette, Kimberly-Clark, Kroger, Nucor, Philip Morris, Pitney Bowes, Walgreens and Wells Fargo. Researchers directly compared these companies with 11 firms in the same industries that had similar resources and challenges but failed to become great. They also compared their 11 winners with six firms that achieved greatness for a time but didn’t sustain it.
Path of Good to Great
Good to Great structures the path of good-to-great firms as a process of buildup followed by a breakthrough in three stages of corporate development.
Stage 1, disciplined people, requires Level 5 Leadership, featuring professionally driven, humble leaders who put corporate results ahead of personal success, accept responsibility and choose great successors.
Stage 2, disciplined thought, requires leaders to confront the brutal facts.
Make fact-based decisions and accept the truth using these four protocols:
- Lead with questions, not answers
- Engage in dialogue and debate, not coercion
- Conduct autopsies without blame
- Build red-flag mechanisms to alert you to data you can’t ignore.
Stage 3, disciplined action, companies inculcate a culture of discipline. Successful start-ups often fall into a hazardous cycle. Early on, it’s the creativity and passion fuel growth. But growth brings the need to organize operations, with dependable staffing, production processes and corporate systems. All of which stifle the creativity that built the enterprise in the first place. Also known as the Doom Loop.
A way out?
Instead of falling down that rabbit hole, Collins advises, create a disciplined managerial framework and promote creativity within it.
The strategy doesn’t ensure greatness, nor does technology or acquisitions. Great companies found that the transformation from Good to Great evolves in a careful, deliberate cycle of development followed by a leap forward.
This process functions within the Flywheel, a holistic frame of accumulated effort applied in a consistent direction.
Good to Great: The Flywheel and the Doom Loop
When Alan Wurtzel took over Circuit City as CEO in 1973, it was near bankruptcy. He and his team developed the company’s warehouse-retailing concept slowly.
In the late 1970s, they converted its traditional stereo and electronics stores into superstores. The superstore concept took hold and built momentum through the 1980s and ’90s.
The Circuit City pattern of development and growth offers a good-to-great paradigm. Its success sprang from a gradual buildup, the cumulative effect of small victories and right decisions made over time.
Meanwhile, it’s important to note that they never had a meteoric rise or a miracle moment – such as a single transformational development. This pattern of steady buildup and breakthrough is analogous to a flywheel that builds momentum. This flywheel effect is circular which relies on the accumulation of effort applied in a consistent direction.
On top of that, companies that Collins compared with good-to-great corporations but that didn’t make the grade usually fell into the doom loop. They launched new miracle programs, tried to buy success with acquisitions or mergers, and underwent frequent restructuring & leadership change.
Good to Great: The Hedgehog Concept
A Greek fable pits a fox against a hedgehog.
The story goes like this.
The fox is cunning, smart and sneaky; the hedgehog is plodding and slow. But no matter how much ingenuity the fox shows in its attack, the hedgehog rolls into a ball with its spikes sticking outward. Finally, the fox leaves, defeated. The hedgehog knows its strengths and sticks to what it does best.
Moral from the fox and the hedgehog fable
Good-to-great companies are like hedgehogs, concentrating on what they do better than any other organization.
Walgreens left Eckerd, a rival drugstore chain, in the dust between 1975 and 2000 by focusing on one hedgehog concept with clarity and consistency — That is to become America’s most convenient drugstore.
It chose high-traffic sites and pioneered the idea of drive-through prescription pickups. By combining its focus on convenience with its goal of increasing its profit per customer visit. Its zeal in these two areas fueled its rise to the top.
Others can find their hedgehog concept by considering what asset emerges at the intersection of three ideas:
- What can you do better than any other company – and what are you unable to do better?
- How do you make money?
- What work evokes your heartfelt dedication?
The organizational steps taken in alignment with its hedgehog concept would lead to both big and small accomplishments. These steps produce a record of visible results, which then energize everyone involved.
Thus, everyone involved will push the flywheel harder and faster as the organization gains strength and momentum. On the road to greatness, the flywheel builds momentum through consistency and commitment to the focused hedgehog concept.
The simplicity of the language used
Collins’s language can cloud how insightful, on-target, unsentimental and practicable his discoveries are. He became a widely respected best-selling author by carefully researching the questions he explores and presenting his perceptive answers with no axe to grind.
The simplicity with which Collins explains complex forces, ideas and solutions make his insights all the more valuable, memorable and a template for all businesses to follow.
Good to Great achieves a rare distinction: a management book full of vital ideas that read as well as a fast-paced novel. It is widely regarded as one of the most important business books ever written.