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|Why Some Companies Make the Leap …..and Others Don’t |
|Good to Great |
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|Matt Weber |
|3/21/2012 |

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Jim Collins who was able to create the aura that he was one of the most influential management consultants, through his credibility with the very popular Good to Great: Why Some Companies Make the Leap….and Others Don’t, which was published in 2001. The book became a national bestseller in the business genre, and it is now looked at as the classic of management theory. Collins attempts to identify and evaluate the factors and variables that allow a very small percentage of companies to move from being a good company to a great company. The word “Great” is obviously a very general word, and that is why Collins uses a number of formulas to differentiate the great from the good companies. He uses a figure as the benchmark to show what kind of financial performance that surpassed the market average by several times over a sustained period of time.

Collins was able cover many topics concerning management, personnel, and operational tactics, behaviors, and personal attitudes that are both helpful and adversative to the good-to-great transition. The one theme that seems to tie all the themes together is the need for a company to find the one thing that they can do better than anyone in the world and to put all their attention and effort into that particular area. Throughout the book Collins warns the reader that taking the company to far from the companies established strength is detrimental for them to achieve greatness. In the end he relates his research in Good to Great, to one of his previous books Built to Last, which narrowed in on the factors that allowed companies to survive for the long haul, this allowed him to fully capitalize on the framework for everlasting success.

Collins first starts out in the book establishing the type of personality that the eleven companies had a certain type of leader running the company. He created a type of pyramid that had five levels to it. Level 1 being a highly capable individual who makes productive contributions through talent, knowledge, skills, and good work habits to Level 5 Executive who builds enduring greatness through paradoxical blend of personal humility and professional will.[1] He established that the eleven companies all had “Level 5 Leaders” running them. These individuals had characteristics such as “personal humility” and “professional will” according to Collins. The leaders tend to not be “the rock star” type or tyrant dictators that would rather see the company fail after they leave in order to secure their place in history. The CEO’s are attentive and meticulous – carry a big stick type. Collins had also seen through his research that the “Celebrity” caliber could be a short term fix, but history showed that it did not last. The Level 5 Leaders also believed that the long term condition of the company was way more important than rewarding themselves with big bonuses and a fancy lifestyle. An example of this from the book was, David Maxwell (CEO of Fannie Mae at the time) was supposed to receive a $20 million dollar retirement package, but it became a hot topic in Congress. Therefore he decided to have the remaining balance ($5.5 million) redistributed amongst Fannie Mae’s low income housing foundation. The most interesting idea that Collin’s presented in this book was, “the window and the mirror effect.”[2] This idea stated that the Level 5 Leaders look out a window in order to give the credit outside themselves when things are going well (many times in the case of the book the CEO just credited plain old luck), but look in the mirror to give himself his fair share of the blame when things go bad. Obviously, the opposite thought process worked for many CEO’s that failed to bring their respective companies from good to great.

After explaining how the CEO’s had such a huge influence on the direction of the company in either a positive or negative way, he went onto say that one of the biggest contributions may have been deciding on who stays and who goes in the company. Collin’s would use a bus to present this concept. He would say the CEO would decide to get the right people on the bus, well before he would decide where the bus is actually going. The company that had the right people on the bus was able to avoid the drawback of the “lone genius affect.” This was shown by the Eckerd Corporation. Eckerd Corporation was led by Jack Eckerd, who was a very successful business man when it came to drugstores. When Jack left to pursue politics, the company just was not able to sustain the success and was eventually bought out by J.C. Penney. In retrospect the “Great” companies are able to establish a solid foundation of people and do not rely on just one person to guide the company. In this section the research also showed that a CEO’s individual compensation did not guarantee success for the company. The “Great” companies created a couple of guidelines to follow when it came to choosing the right people on the bus.

1. Don’t hire anyone unless you are 100% sure they are the right one, if not wait.

2. Once the realization that you need to let someone go, do not hesitate. Do it quickly and fairly.

3. Give good people good opportunities, instead of the biggest problems.[3]

The next big step in taking a company from good to great is accepting reality. The companies that took this approached positioned themselves to grow and expand in a productive market. In large corporations like the ones that were being researched in this book, you must create an environment that is entrenched in honesty and honor. Collin’s was able to come up with a few tips on how to do that;

1. Ask questions instead of giving answers.

2. Encourage healthy discussions amongst co-workers.

3. When mistakes happen study them so you do not repeat them.

4. Create a way where people are not afraid to give their honest opinion even if it makes people mad.

5. If all else fails you must have complete faith in your goals.[4]

Companies that went from good to great developed this concept known as, “the hedgehog.” The companies were created by leaders that took the “hedgehog” approach. They focused on one big significant thing that made their companies great. This thought process really showed the true genius of the gentlemen that could see through all the darkness and find the light at the end of the tunnel. The “three circles” idea gives the great companies advantage of finding that light. The circles represent 1.) what you are passionate about, 2.) what you can make money at and 3.) what can you be best at. The intersection between all the rings is the answer to those questions. If you can bring all three categories together you have now put into effect a successful plan. If there is something along that road that you want to do but cannot be the best at then you must avoid this at all cost. The one consistent idea that was used throughout by each company was to identify a ratio (profit per x). Examples of what X could stand far are per customer, web site user, per unit sold, per employee, etc.)[5] This chapter of the book also discusses about creating a council of 5 to 12 people. This council would discuss and bring insights to the organization. The council should meet regularly, members should be able to have deep understanding of their field, the freedom for them to share their minds, and always have the respect of other council members. The council’s main job is to share the utter truth to the CEO.

The Great companies have both an entrepreneurial spirit and sense of discipline. They are both necessary- without the drive to try new things, and some degree of independence, a company becomes a rigid, stifling hierarchy. If the company does not create a sense of discipline, things begin to break down as the company grows. The great companies have both latitude for individual action, as well as a culture of disciplined behavior. This correlates back to what we discussed earlier it comes down to having the right people in the right spot. The Great companies found out that it is useless to try to force the wrong people to behave correctly, it just simply does not work. Instead, you need to find people who have the ability to self-motivate. There is a big difference between having a “tyrant” enforces a culture of discipline by fear, and finding people who adhere to a disciplined approach. This type of mentality tends to fall apart when the tyrant leader leaves the company.

Great companies adapt and endure when it comes to technology because they found that it is not the thing that is going to separate themselves from their competition. Technology is only something that enhances your product or service. The company uses it to further increase their position in the market. The CEO’s of these companies took a walk, crawl, run approach over the companies that just jumped at the next best thing. Technology alone will not light a fire where there is none, but where there is already good momentum, smart use of technology can accelerate it. Collin’s believes that technology is an crutch for change, not the actual cause of it. In the end the “people factors” must still be in place before you can successfully apply technology.

The “flywheel” and “doom loop” were concepts that represented positive and negative momentum. A flywheel is a heavy wheel that takes a lot of energy to get it in motion, in order to achieve that you must provide it with constant, steady work, rather than a quick burst of energy. Great companies’ transitions were like this. There was not some light bulb going off or some get rich scheme that was put into place, rather there was hard work and dedication from the top to bottom to achieve the best results for the company. In retrospect the “doom loop” is the vicious circle that the unsuccessful companies fell into. They would rush in one direction, then another, in the hope of creating a sudden, sharp change from the past in order to create them type of success. The difference between the two approaches is characterized by the slow, steady, methodical preparation inherent in the flywheel, as compared to the abrupt, radical, and often revolutionary, rather than evolutionary changes within the company.

The results from this book were obtained without regards to Collin’s earlier work, Built to Last, but when all was said and done, Good to Great is what has to happen before a company becomes Built to Last. Much of what is present in Good to Great was present during the creation by their founders of the Built to Last firms. Companies that have endured have goals that go well beyond just making money. The core values are preserved, while tactics change continuously to deal with an restless, tumultuous world that never stops. The “Big Hairy Audacious Goal,” a concept introduced in Built to Last can be either good (as motivation, something to pursue), or bad (if it’s impossible or a bad fit). Good BHAGs are those formulated from deep understanding, whereas bad ones come from a form of cockiness without regard for the actual values and capabilities of the company.[6]

The book described a variety of great concepts that show not only how to improve your company but also showed how you can improve as a person. I truly felt that the chapter on the levels of leadership showed not only what separates good and great businesses, but successful people from unsuccessful ones. It gave me a true insight on how I can improve on the inside and in my thought process in order to be successful. The book was a great read because it allowed for you to put yourself in the shoes of the CEO’s that were in the discussion. Most business books just give you a bunch of theories, charts, and graphs to look at, where this book went deeper into the core of the business. I truly believe that the best way to be successful is to have great people around you or working for you. The world is continuing to grow and become such a what have you done for me lately concept that it was nice to see a book that went back to the core ideas, treat people the way you want to be treated. The book did become a little redundant as you went through it. I know the author was trying to tie everything together, but it almost seemed like he was becoming a fortune teller who just uses general statements to convince you that it is the truth. Also a few of the companies ended up failing later after the book was written, but I feel that it was because of the things that Collin’s warned us about throughout his book. Overall, I really enjoyed the book and feel that if you can understand the core values that the book establishes then you can easily improve your company but more importantly improve yourself.

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[1] Page 20

[2] Page 33,34

[3] Page 63

[4] Page 88

[5] Page 118

[6] Page 207