Good to Great: Why Some Companies Make the Leap...And Others Don't by Jim Collins Flashcards
(290 cards)
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Few people attain great lives, in large part because it is just so easy to settle for a good life.
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nothing I find more exciting than picking a question that I don’t know the answer to and embarking on a quest for answers.
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What did the good-to-great companies share in common that distinguished them from the comparison companies?
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Ten of eleven good-to-great CEOs came from inside the company, whereas the comparison companies tried outside CEOs six times more often.
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The good-to-great companies did not focus principally on what to do to become great; they focused equally on what not to do and what to stop doing.
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Greatness is not a function of circumstance. Greatness, it turns out, is largely a matter of conscious choice.
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We all have a strength or two in life, and I suppose mine is the ability to take a lump of unorganized information, see patterns, and extract order from the mess—to go from chaos to concept.
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the good-to-great leaders seem to have come from Mars. Self-effacing, quiet, reserved, even shy—these leaders are a paradoxical blend of personal humility and professional will. They are more like Lincoln and Socrates than Patton or Caesar.
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First Who … Then What.
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Stockdale Paradox: You must maintain unwavering faith that you can and will prevail in the end, regardless of the difficulties, AND at the same time have the discipline to confront the most brutal facts of your current reality, whatever they might be.
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A Culture of Discipline.
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When you have disciplined people, you don’t need hierarchy. When you have disciplined thought, you don’t need bureaucracy. When you have disciplined action, you don’t need excessive controls.
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“The best students are those who never quite believe their professors.”
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You can accomplish anything in life, provided that you do not mind who gets the credit. —HARRY S. TRUMAN
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Smith reflected on his exceptional performance, saying simply, “I never stopped trying to become qualified for the job.”
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Level 5 leader—an individual who blends extreme personal humility with intense professional will.
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they were self-effacing individuals who displayed the fierce resolve to do whatever needed to be done to make the company great.
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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.
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every time we attribute everything to “Leadership,” we’re no different from people in the 1500s. We’re simply admitting our ignorance. Not that we should become leadership atheists (leadership does matter), but every time we throw our hands up in frustration—reverting back to “Well, the answer must be Leadership!”—we prevent ourselves from gaining deeper, more scientific understanding about what makes great companies tick.
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HUMILITY + WILL = LEVEL 5
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a key trait of Level 5 leaders: ambition first and foremost for the company and concern for its success rather than for one’s own riches and personal renown.
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key point—Gault did not leave behind a company that would be great without him.
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Those who worked with or wrote about the good-to-great leaders continually used words like quiet, humble, modest, reserved, shy, gracious, mild-mannered, self-effacing, understated,
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The good-to-great leaders never wanted to become larger-than-life heroes. They never aspired to be put on a pedestal or become unreachable icons. They were seemingly ordinary people quietly producing extraordinary results.
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the company would show a leap in performance under a talented yet egocentric leader, only to decline in later years.
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Unwavering Resolve ... to Do What Must Be Done
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Level 5 leaders are fanatically driven, infected with an incurable need to produce results. They will sell the mills or fire their brother, if that’s what it takes to make the company great.
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Cain didn’t have an inspiring personality to galvanize the company, but he had something much more powerful: inspired standards.
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He could not stand mediocrity in any form and was utterly intolerant of anyone who would accept the idea that good is good enough.
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The evidence does not support the idea that you need an outside leader to come in and shake up the place to go from good to great.
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“The show horse and the plow horse—he was more of a show horse, whereas I was more of a plow horse.”
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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.
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Everyone outside the window points inside, directly at the Level 5 leader, saying, “He was the key; without his guidance and leadership, we would not have become a great company.” And the Level 5 leader points right back out the window and says, “Look at all the great people and good fortune that made this possible; I’m a lucky guy.” They’re both right, of course. But the Level 5s would never admit that fact.
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The great irony is that the animus and personal ambition that often drive people to positions of power stand at odds with the humility required for Level 5 leadership.
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Look for situations where extraordinary results exist but where no individual steps forth to claim excess credit. You will likely find a potential Level 5 leader at work.
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Every good-to-great company had Level 5 leadership during the pivotal transition years.
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“Level 5” refers to a five-level hierarchy of executive capabilities, with Level 5 at the top. Level 5 leaders embody a paradoxical mix of personal humility and professional will. They are ambitious, to be sure, but ambitious first and foremost for the company, not themselves.
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Level 5 leaders set up their successors for even greater success in the next generation, whereas egocentric Level 4 leaders often set up their successors for failure.
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Level 5 leaders display a compelling modesty, are self-effacing and understated. In contrast, two thirds of the comparison companies had leaders with gargantuan personal egos that contributed to the demise or continued mediocrity of the company.
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Level 5 leaders are fanatically driven, infected with an incurable need to produce sustained results. They are resolved to do whatever it takes to make the company great, no matter how big or hard the decisions.
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Level 5 leaders display a workmanlike diligence—more plow horse than show horse.
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Level 5 leaders look out the window to attribute success to factors other than themselves. When things go poorly, however, they look in the mirror and blame themselves, taking full responsibility. The comparison CEOs often did just the opposite—they looked in the mirror to take credit for success, but out the window to assign blame for disappointing results.
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Ten of eleven good-to-great CEOs came from inside the company, whereas the comparison companies tried outside CEOs six times more often.
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Level 5 leaders attribute much of their success to good luck, rather than personal greatness.
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The executives who ignited the transformations from good to great did not first figure out where to drive the bus and then get people to take it there. No, they first got the right people on the bus (and the wrong people off the bus) and then figured out where to drive it.
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First, if you begin with “who,” rather than “what,” you can more easily adapt to a changing world.
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Second, if you have the right people on the bus, the problem of how to motivate and manage people largely goes away. The right people don’t need to be tightly managed or fired up; they will be self-motivated by the inner drive to produce the best results and to be part of creating something great.
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Third, if you have the wrong people, it doesn’t matter whether you discover the right direction; you still won’t have a great company. Great vision without great people is irrelevant.
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To be clear, the main point of this chapter is not just about assembling the right team—that’s nothing new. The main point is to first get the right people on the bus (and the wrong people off the bus) before you figure out where to drive it. The second key point is the degree of sheer rigor needed in people decisions in order to take a company from good to great.
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In contrast to the good-to-great companies, which built deep and strong executive teams, many of the comparison companies followed a “genius with a thousand helpers” model.
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IT’S WHO YOU PAY, NOT HOW YOU PAY THEM
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We found no systematic pattern linking executive compensation to the process of going from good to great.
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It’s not how you compensate your executives, it’s which executives you have to compensate in the first place.
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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.
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In a good-to-great transformation, people are not your most important asset. The right people are.
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The good-to-great companies probably sound like tough places to work— and they are. If you don’t have what it takes, you probably won’t last long. But they’re not ruthless cultures, they’re rigorous cultures.
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To be rigorous in people decisions means first becoming rigorous about top management people decisions.
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Practical Discipline #1: When in doubt, don’t hire—keep looking.
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No company can grow revenues consistently faster than its ability to get enough of the right people to implement that growth and still become a great company. If your growth rate in revenues consistently outpaces your growth rate in people, you simply will not—indeed cannot—build a great company.
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‘You don’t compromise. We find another way to get through until we find the right people.’ ”
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Same strategy, different people, different results.
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Practical Discipline #2: When you know you need to make a people change, act.
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The best people don’t need to be managed. Guided, taught, led—yes. But not tightly managed.
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Waiting too long before acting is equally unfair to the people who need to get off the bus. For every minute you allow a person to continue holding a seat when you know that person will not make it in the end, you’re stealing a portion of his life, time that he could spend finding a better place where he could flourish.
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The good-to-great companies showed the following bipolar pattern at the top management level: 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.
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“Let’s take the time to make rigorous A+ selections right up front. If we get it right, we’ll do everything we can to try to keep them on board for a long time. If we make a mistake, then we’ll confront that fact so that we can get on with our work and they can get on with their lives.” The good-to-great leaders, however, would not rush to judgment. Often, they invested substantial effort in determining whether they had someone in the wrong seat before concluding that they had the wrong person on the bus entirely.
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I spent a lot of time thinking and talking about who sits where on the bus.
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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.
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Practical Discipline #3: Put your best people on your biggest opportunities, not your biggest problems.
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When you decide to sell off your problems, don’t sell off your best people.
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The company might be getting rid of the paper business, but it would keep its best people.
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“What’s the difference between a Level 5 executive team member and just being a good soldier?” A Level 5 executive team member does not blindly acquiesce to authority and is a strong leader in her own right, so driven and talented that she builds her arena into one of the very best in the world. Yet each team member must also have the ability to meld that strength into doing whatever it takes to make the company great.
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You need executives, on the one hand, who argue and debate—sometimes violently—in pursuit of the best answers, yet, on the other hand, who unify fully behind a decision, regardless of parochial interests.
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“Oh, it really wasn’t that hard for him. He was so good at assembling the right people around him, and putting the right people in the right slots, that he just didn’t need to be there all hours of the day and night. That was Colman’s whole secret to success and balance.”
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Members of the good-to-great teams tended to become and remain friends for life.
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if we don’t spend the vast majority of our time with people we love and respect, we cannot possibly have a great life.
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The good-to-great leaders began the transformation by first getting the right people on the bus (and the wrong people off the bus) and then figured out where to drive it.
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The key point of this chapter is not just the idea of getting the right people on the team. The key point is that “who” questions come before “what” decisions—before vision, before strategy, before organization structure, before tactics. First who, then what—as a rigorous discipline, consistently applied.
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The comparison companies frequently followed the “genius with a thousand helpers” model—a genius leader who sets a vision and then enlists a crew of highly capable “helpers” to make the vision happen. This model fails when the genius departs.
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The good-to-great leaders were rigorous, not ruthless, in people decisions. They did not rely on layoffs and restructuring as a primary strategy for improving performance. The comparison companies used layoffs to a much greater extent.
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When in doubt, don’t hire—keep looking. (Corollary: A company should limit its growth based on its ability to attract enough of the right people.)
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When you know you need to make a people change, act. (Corollary: First be sure you don’t simply have someone in the wrong seat.)
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Put your best people on your biggest opportunities, not your biggest problems. (Corollary: If you sell off your problems, don’t sell off your best people.)
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Good-to-great management teams consist of people who debate vigorously in search of the best answers, yet who unify behind decisions, regardless of parochial interests.
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Whether someone is the “right person” has more to do with character traits and innate capabilities than with specific knowledge, background, or skills.
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Unlike A&P, however, Kroger confronted this brutal truth and acted on it.
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breakthrough results come about by a series of good decisions, diligently executed and accumulated one on top of another.
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The good-to-great companies displayed two distinctive forms of disciplined thought. The first, and the topic of this chapter, is that they infused the entire process with the brutal facts of reality. (The second, which we will discuss in the next chapter, is that they developed a simple, yet deeply insightful, frame of reference for all decisions.)
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There is nothing wrong with pursuing a vision for greatness. After all, the good-to-great companies also set out to create greatness. But, unlike the comparison companies, the good-to-great companies continually refined the path to greatness with the brutal facts of reality.
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managers would not even make a comment until they knew how the CEO felt.
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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. This is one of the key reasons why less charismatic leaders often produce better long-term results than their more charismatic counterparts.
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for those of you with a strong, charismatic personality, it is worthwhile to consider the idea that charisma can be as much a liability as an asset. Your strength of personality can sow the seeds of problems, when people filter the brutal facts from you. You can overcome the liabilities of having charisma, but it does require conscious attention.
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“I... had no need for cheering dreams,” he wrote. “Facts are better than dreams.”
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If you have the right people on the bus, they will be self-motivated.
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the single most de-motivating actions you can take is to hold out false hopes, soon to be swept away by events.
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creating a culture wherein people had a tremendous opportunity to be heard and, ultimately, for the truth to be heard.
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Lead with questions, not answers.
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Wurtzel stands as one of the few CEOs in a large corporation who put more questions to his board members than they put to him.
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Leading from good to great does not mean coming up with the answers and then motivating everyone to follow your messianic vision. It means having the humility to grasp the fact that you do not yet understand enough to have the answers and then to ask the questions that will lead to the best possible insights.
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Engage in dialogue and debate, not coercion.
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all the good-to-great companies had a penchant for intense dialogue.
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The process was more like a heated scientific debate, with people engaged in a search for the best answers.
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Conduct autopsies, without blame.
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When you conduct autopsies without blame, you go a long way toward creating a climate where the truth is heard. If you have the right people on the bus, you should almost never need to assign blame but need only to search for understanding and learning.
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Build “red flag” mechanisms.
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The key, then, lies not in better information, but in turning information into information that cannot be ignored.
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suffer the liability of charisma,
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In confronting the brutal facts, the good-to-great companies left themselves stronger and more resilient, not weaker and more dispirited.
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the “hardiness” research studies done by the International Committee for the Study of Victimization. These studies looked at people who had suffered serious adversity—cancer patients, prisoners of war, accident victims, and so forth—and survived. They found that people fell generally into three categories: those who were permanently dispirited by the event, those who got their life back to normal, and those who used the experience as a defining event that made them stronger.53 The good-to-great companies were like those in the third group, with the “hardiness factor.”
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In every case, the management team responded with a powerful psychological duality. On the one hand, they stoically accepted the brutal facts of reality. On the other hand, they maintained an unwavering faith in the endgame, and a commitment to prevail as a great company despite the brutal facts. We came to call this duality the Stockdale Paradox.
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In Love and War, the book Stockdale and his wife had written in alternating chapters, chronicling their experiences during those eight years.
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“I never lost faith in the end of the story,” he said, when I asked him. “I never doubted not only that I would get out, but also that I would prevail in the end and turn the experience into the defining event of my life, which, in retrospect, I would not trade.”
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“Who didn’t make it out?” “Oh, that’s easy,” he said. “The optimists.”
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You must never confuse faith that you will prevail in the end—which you can never afford to lose—with the discipline to confront the most brutal facts of your current reality, whatever they might be.”
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What separates people, Stockdale taught me, is not the presence or absence of difficulty, but how they deal with the inevitable difficulties of life.
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(you must retain faith that you will prevail in the end and you must also confront the most brutal facts of your current reality)
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they all maintained unwavering faith that they would not just survive, but prevail as a great company. And yet, at the same time, they became relentlessly disciplined at confronting the most brutal facts of their current reality.
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The good-to-great leaders were able to strip away so much noise and clutter and just focus on the few things that would have the greatest impact.
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All good-to-great companies began the process of finding a path to greatness by confronting the brutal facts of their current reality.
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When you start with an honest and diligent effort to determine the truth of your situation, the right decisions often become self-evident. It is impossible to make good decisions without infusing the entire process with an honest confrontation of the brutal facts.
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A primary task in taking a company from good to great is to create a culture wherein people have a tremendous opportunity to be heard and, ultimately, for the truth to be heard.
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Creating a climate where the truth is heard involves four basic practices: 1. Lead with questions, not answers. 2. Engage in dialogue and debate, not coercion. 3. Conduct autopsies, without blame. 4. Build red flag mechanisms that turn information into information that cannot be ignored.
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The good-to-great companies faced just as much adversity as the comparison companies, but responded to that adversity differently. They hit the realities of their situation head-on. As a result, they emerged from adversity even stronger.
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A key psychology for leading from good to great is the Stockdale Paradox: Retain absolute faith that you can and 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.
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Charisma can be as much a liability as an asset, as the strength of your leadership personality can deter people from bringing you the brutal facts.
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Leadership does not begin just with vision. It begins with getting people to confront the brutal facts and to act on the implications.
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“The fox knows many things, but the hedgehog knows one big thing.”
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despite the greater cunning of the fox, the hedgehog always wins.
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divide people into two basic groups: foxes and hedgehogs. 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,” says Berlin, never integrating their thinking into one overall concept or unifying vision. Hedgehogs, on the other hand, simplify a complex world into a single organizing idea, a basic principle or concept that unifies and guides everything. It doesn’t matter how complex the world, a hedgehog reduces all challenges and dilemmas to simple— indeed almost simplistic—hedgehog ideas. For a hedgehog, anything that does not somehow relate to the hedgehog idea holds no relevance.
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hedgehogs are not stupid. Quite the contrary. They understand that the essence of profound insight is simplicity.
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Hedgehogs see what is essential, and ignore the rest.
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Those who built the good-to-great companies were, to one degree or another, hedgehogs. They used their hedgehog nature to drive toward what we came to call a Hedgehog Concept for their companies. Those who led the comparison companies tended to be foxes, never gaining the clarifying advantage of a Hedgehog Concept, being instead scattered, diffused, and inconsistent.
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it’s refreshing to see a company succeed so brilliantly by taking one simple concept and just doing it with excellence and imagination.
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While Walgreens executives understood that profitable growth would come by pruning away all that did not fit with the Hedgehog Concept, Eckerd executives lurched after growth for growth’s sake.
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all the good-to-great companies attained a very simple concept that they used as a frame of reference for all their decisions,
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What you can be the best in the world at (and, equally important, what you cannot be the best in the world at).
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What drives your economic engine.
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What you are deeply passionate about.
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First, you are doing work for which you have a genetic or God-given talent, and perhaps you could become one of the best in the world in applying that talent. (“I feel that I was just born to be doing this.”) Second, you are well paid for what you do. (“I get paid to do this? Am I dreaming?”) Third, you are doing work you are passionate about and absolutely love to do, enjoying the actual process for its own sake. (“I look forward to getting up and throwing myself into my daily work, and I really believe in what I’m doing.”)
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To have a fully developed Hedgehog Concept, you need all three circles.
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It wasn’t that complicated. We just took a hard-nosed look at what we were doing and decided to focus entirely on those few things we knew we could do better than anyone else, not getting distracted into arenas that would feed our egos and at which we could not be the best.”
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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.
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Stockdale Paradox (There must be a way for us to prevail as a great company, and we will find it!),
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the difference between a “core business” and a Hedgehog Concept. Just because something is your core business—just because you’ve been doing it for years or perhaps even decades—does not necessarily mean that you can be the best in the world at it. And if you cannot be the best in the world at your core business, then your core business cannot form the basis of your Hedgehog Concept.
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a Hedgehog Concept is not the same as a core competence. You can have competence at something but not necessarily have the potential to be the best in the world at it.
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understanding what your organization truly has the potential to be the very best at and sticking to it.
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To go from good to great requires transcending the curse of competence. It requires the discipline to say, “Just because we are good at it—just because we’re making money and generating growth—doesn’t necessarily mean we can become the best at it.” The good-to-great companies understood that doing what you are good at will only make you good; focusing solely on what you can potentially do better than any other organization is the only path to greatness.
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Our study clearly shows that a company does not need to be in a great industry to become a great company. Each good-to-great company built a fabulous economic engine, regardless of the industry. They were able to do this because they attained profound insights into their economics.
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If you could pick one and only one ratio—profit per x (or, in the social sector, cash flow per x)—to systematically increase over time, what x would have the greatest and most sustainable impact on your economic engine?
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it lost the discipline to stay within the three circles,
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But throughout the good-to-great companies, passion became a key part of the Hedgehog Concept. You can’t manufacture passion or “motivate” people to feel passionate. You can only discover what ignites your passion and the passions of those around you.
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The good-to-great companies did not say, “Okay, folks, let’s get passionate about what we do.” Sensibly, they went the other way entirely: We should only do those things that we can get passionate about.
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The passion circle can be focused equally on what the company stands for.
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Over two thirds of the comparison companies displayed an obsession with growth without the benefit of a Hedgehog Concept.
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not one of the good-to-great companies focused obsessively on growth. Yet they created sustained, profitable growth far greater than the comparison companies that made growth their mantra.
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“Growth!” is not a Hedgehog Concept. Rather, if you have the right Hedgehog Concept and make decisions relentlessly consistent with it, you will create such momentum that your main problem will not be how to grow, but how not to grow too fast.
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It took about four years on average for the good-to-great companies to clarify their Hedgehog Concepts.
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a Hedgehog Concept simplifies a complex world and makes decisions much easier.
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getting a Hedgehog Concept is an inherently iterative process, not an event.
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“Build the Council, and use that as a model. Ask the right questions, engage in vigorous debate, make decisions, autopsy the results, and learn—all guided within the context of the three circles. Just keep going through that cycle of understanding.”
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“How do we accelerate the process of getting a Hedgehog Concept?” I would respond: “Increase the number of times you go around that full cycle in a given period of time.”
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Characteristics of the Council 1. The council exists as a device to gain understanding about important issues facing the organization. 2. The Council is assembled and used by the leading executive and usually consists of five to twelve people. 3. Each Council member has the ability to argue and debate in search of understanding, not from the egoistic need to win a point or protect a parochial interest. 4. Each Council member retains the respect of every other Council member, without exception. 5. Council members come from a range of perspectives, but each member has deep knowledge about some aspect of the organization and/or the environment in which it operates. 6. The Council includes key members of the management team but is not limited to members of the management team, nor is every executive automatically a member. 7. The Council is a standing body, not an ad hoc committee assembled for a specific project. 8. The Council meets periodically, as much as once a week or as infrequently as once per quarter. 9. The Council does not seek consensus, recognizing that consensus decisions are often at odds with intelligent decisions. The responsibility for the final decision remains with the leading executive. 10. The Council is an informal body, not listed on any formal organization chart or in any formal documents. 11. The Council can have a range of possible names, usually quite innocuous. In the good-to-great companies, they had benign names like Long-Range Profit Improvement Committee, Corporate Products Committee, Strategic Thinking Group, and Executive Council.
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In the majority of cases, the good-to-great companies were not the best in the world at anything and showed no prospects of becoming so. Infused with the Stockdale Paradox (“There must be something we can become the best at, and we will find it! We must also confront the brutal facts of what we cannot be the best at, and we will not delude ourselves!”), every good-to-great company, no matter how awful at the start of the process, prevailed in its search for a Hedgehog Concept.
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When Joanne set out to win the Ironman, she did not know if she would become the world’s best triathlete. But she understood that she could, that it was in the realm of possibility, that she was not living in a delusion. And that distinction makes all the difference. It is a distinction that those who want to go from good to great must grasp, and one that those who fail to become great so often never do.
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To go from good to great requires a deep understanding of three intersecting circles translated into a simple, crystalline concept (the Hedgehog Concept):
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The key is to understand what your organization can be the best in the world at, and equally important what it cannot be the best at— not what it “wants” to be the best at. The Hedgehog Concept is not a goal, strategy, or intention; it is an understanding.
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If you cannot be the best in the world at your core business, then your core business cannot form the basis of your Hedgehog Concept.
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The “best in the world” understanding is a much more severe standard than a core competence. You might have a competence but not necessarily have the capacity to be truly the best in the world at that competence. Conversely, there may be activities at which you could become the best in the world, but at which you have no current competence.
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To get insight into the drivers of your economic engine, search for the one denominator (profit per x or, in the social sector, cash flow per x) that has the single greatest impact.
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The good-to-great companies are more like hedgehogs—simple, dowdy creatures that know “one big thing” and stick to it. The comparison companies are more like foxes—crafty, cunning creatures that know many things yet lack consistency.
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It took four years on average for the good-to-great companies to get a Hedgehog Concept.
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You absolutely do not need to be in a great industry to produce sustained great results. No matter how bad the industry, every good-to-great company figured out how to produce truly superior economic returns.
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the purpose of bureaucracy is to compensate for incompetence and lack of discipline—a problem that largely goes away if you have the right people in the first place.
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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,
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You can change your plans through the year, but you never change what you measure yourself against.
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You never just focus on what you’ve accomplished for the year; you focus on what you’ve accomplished relative to exactly what you said you were going to accomplish—no
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They had freedom, but freedom within a framework.
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Build a culture full of people who take disciplined action within the three circles, fanatically consistent with the Hedgehog Concept.
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freedom and responsibility within the framework of a highly developed system.
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The good-to-great 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.
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at any given moment, everyone operated within the framework of the system.
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It all starts with disciplined people. The transition begins not by trying to discipline the wrong people into the right behaviors, but by getting self-disciplined people on the bus in the first place. Next we have disciplined thought. You need the discipline to confront the brutal facts of reality, while retaining resolute faith that you can and will create a path to greatness. Most importantly, you need the discipline to persist in the search for understanding until you get your Hedgehog Concept. Finally, we have disciplined action,
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the point is to first get self-disciplined people who engage in very rigorous thinking, who then take disciplined action within the framework of a consistent system designed around the Hedgehog Concept.
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Much of the answer to the question of “good to great” lies in the discipline to do whatever it takes to become the best within carefully selected arenas and then to seek continual improvement from there.
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most organizations lack the discipline to figure out with egoless clarity what they can be the best at and the will to do whatever it takes to turn that potential into reality. They lack the discipline to rinse their cottage cheese.
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Whereas the good-to-great companies had Level 5 leaders who built an enduring culture of discipline, the unsustained comparisons had Level 4 leaders who personally disciplined the organization through sheer force.
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a pattern we found in every unsustained comparison: a spectacular rise under a tyrannical disciplinarian, followed by an equally spectacular decline when the disciplinarian stepped away, leaving behind no enduring culture of discipline, or when the disciplinarian himself became undisciplined and strayed wantonly outside the three circles.
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Yes, discipline is essential for great results, but disciplined action without disciplined understanding of the three circles cannot produce sustained great results.
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The key point is that every step of diversification and innovation stayed within the three circles.
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The good-to-great companies at their best followed a simple mantra: “Anything that does not fit with our Hedgehog Concept, we will not do. We will not launch unrelated businesses. We will not make unrelated acquisitions. We will not do unrelated joint ventures. If it doesn’t fit, we don’t do it. Period.”
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Every comparison either (1) lacked the discipline to understand its three circles or (2) lacked the discipline to stay within the three circles.
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Few companies have the discipline to discover their Hedgehog Concept, much less the discipline to build consistently within it. They fail to grasp a simple paradox: The more an organization has the discipline to stay within its three circles, the more it will have attractive opportunities for growth.
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a great company is much more likely to die of indigestion from too much opportunity than starvation from too little. The challenge becomes not opportunity creation, but opportunity selection.
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It takes discipline to say “No, thank you” to big opportunities. The fact that something is a “once-in-a-lifetime opportunity” is irrelevant if it doesn’t fit within the three circles.
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to create great results requires a nearly fanatical dedication to the idea of consistency within the Hedgehog Concept.
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They displayed a remarkable discipline to unplug all sorts of extraneous junk.
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In a good-to-great transformation, budgeting is a discipline to decide which arenas should be fully funded and which should not be funded at all. In other words, the budget process is not about figuring out how much each activity gets, but about determining which activities best support the Hedgehog Concept and should be fully strengthened and which should be eliminated entirely.
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If you look back on the good-to-great companies, they displayed remarkable courage to channel their resources into only one or a few arenas. Once they understood their three circles, they rarely hedged their bets.
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The most effective investment strategy is a highly undiversified portfolio when you are right.
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“Being right” means getting the Hedgehog Concept; “highly undiversified” means investing fully in those things that fit squarely within the three circles and getting rid of everything else.
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“being right” just isn’t that hard if you have all the pieces in place. If you have Level 5 leaders who get the right people on the bus, if you confront the brutal facts of reality, if you create a climate where the truth is heard, if you have a Council and work within the three circles, if you frame all decisions in the context of a crystalline Hedgehog Concept, if you act from understanding, not bravado—if you do all these things, then you are likely to be right on the big decisions.
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The real question is, once you know the right thing, do you have the discipline to do the right thing and, equally important, to stop doing the wrong things?
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Sustained great results depend upon building a culture full of self-disciplined people who take disciplined action, fanatically consistent with the three circles.
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Bureaucratic cultures arise to compensate for incompetence and lack of discipline, which arise from having the wrong people on the bus in the first place. If you get the right people on the bus, and the wrong people off, you don’t need stultifying bureaucracy.
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A culture of discipline involves a duality. On the one hand, it requires people who adhere to a consistent system; yet, on the other hand, it gives people freedom and responsibility within the framework of that system.
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A culture of discipline is not just about action. It is about getting disciplined people who engage in disciplined thought and who then take disciplined action.
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The good-to-great companies appear boring and pedestrian looking in from the outside, but upon closer inspection, they’re full of people who display extreme diligence and a stunning intensity (they “rinse their cottage cheese”).
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Do not confuse a culture of discipline with a tyrant who disciplines—they are very different concepts, one highly functional, the other highly dysfunctional. Savior CEOs who personally discipline through sheer force of personality usually fail to produce sustained results.
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The single most important form of discipline for sustained results is fanatical adherence to the Hedgehog Concept and the willingness to shun opportunities that fall outside the three circles.
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The more an organization has the discipline to stay within its three circles, with almost religious consistency, the more it will have opportunities for growth.
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The fact that something is a “once-in-a-lifetime opportunity” is irrelevant, unless it fits within the three circles. A great company will have many once-in-a-lifetime opportunities.
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The purpose of budgeting in a good-to-great company is not to decide how much each activity gets, but to decide which arenas best fit with the Hedgehog Concept and should be fully funded and which should not be funded at all.
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“Stop doing” lists are more important than “to do” lists.
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“We’re a crawl, walk, run company,”
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How do good-to-great organizations think differently about technology?
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Its Hedgehog Concept would drive its use of technology, not the other way around.
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Technology as an Accelerator, Not a Creator, of Momentum
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The good-to-great companies never began their transitions with pioneering technology, for the simple reason that you cannot make good use of technology until you know which technologies are relevant.
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Does the technology fit directly with your Hedgehog Concept? If yes, then you need to become a pioneer in the application of that technology. If no, then ask, do you need this technology at all?
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If a technology doesn’t fit squarely within their three circles, they ignore all the hype and fear and just go about their business with a remarkable degree of equanimity.
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once they understand which technologies are relevant, they become fanatical and creative in the application of those technologies.
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Technology without a clear Hedgehog Concept, and without the discipline to stay within the three circles, cannot make a company great.
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80 percent of the good-to-great executives we interviewed didn’t even mention technology as one of the top five factors in the transition.
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“Twenty percent of our success is the new technology that we embrace ... [but] eighty percent of our success is in the culture of our company.”
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The evidence from our study does not support the idea that technological change plays the principal role in the decline of once-great companies (or the perpetual mediocrity of others). Certainly, technology is important—you can’t remain a laggard and hope to be great. But technology by itself is never a primary cause of either greatness or decline.
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Technology cannot turn a good enterprise into a great one, nor by itself prevent disaster.
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thoughtless reliance on technology is a liability, not an asset. Yes, when used right—when linked to a simple, clear, and coherent concept rooted in deep understanding—technology is an essential driver in accelerating forward momentum. But when used wrong—when grasped as an easy solution, without deep understanding of how it links to a clear and coherent concept—technology simply accelerates your own self-created demise.
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If you had the opportunity to sit down and read all 2,000+ pages of transcripts from the good-to-great interviews, you’d be struck by the utter absence of talk about “competitive strategy.”
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Those that stay true to these fundamentals and maintain their balance, even in times of great change and disruption, will accumulate the momentum that creates breakthrough momentum. Those that do not, those that fall into reactionary lurching about, will spiral downward or remain mediocre.
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Good-to-great organizations avoid technology fads and bandwagons, yet they become pioneers in the application of carefully selected technologies.
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The key question about any technology is, Does the technology fit directly with your Hedgehog Concept? If yes, then you need to become a pioneer in the application of that technology. If no, then you can settle for parity or ignore it entirely.
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The good-to-great companies used technology as an accelerator of momentum, not a creator of it. None of the good-to-great companies began their transformations with pioneering technology, yet they all became pioneers in the application of technology once they grasped how it fit with their three circles and after they hit breakthrough.
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How a company reacts to technological change is a good indicator of its inner drive for greatness versus mediocrity. Great companies respond with thoughtfulness and creativity, driven by a compulsion to turn unrealized potential into results; mediocre companies react and lurch about, motivated by fear of being left behind.
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“Crawl, walk, run” can be a very effective approach, even during times of rapid and radical technological change.
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It was all of them added together in an overall accumulation of effort applied in a consistent direction.
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No matter how dramatic the end result, the good-to-great transformations never happened in one fell swoop. There was no single defining action, no grand program, no one killer innovation, no solitary lucky break, no wrenching revolution. Good to great comes about by a cumulative process—step by step, action by action, decision by decision, turn by turn of the flywheel—that adds up to sustained and spectacular results.
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Often, the media does not cover a company until the flywheel is already turning at a thousand rotations per minute.
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We’ve allowed the way transitions look from the outside to drive our perception of what they must feel like to those going through them on the inside. From the outside, they look like dramatic, almost revolutionary breakthroughs. But from the inside, they feel completely different, more like an organic development process.
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the good-to-great executives simply could not pinpoint a single key event or moment in time that exemplified the transition.
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The good-to-great companies had no name for their transformations. There was no launch event, no tag line, no programmatic feel whatsoever.
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There was no miracle moment.
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it was a quiet, deliberate process of figuring out what needed to be done to create the best future results and then simply taking those steps, one after the other, turn by turn of the flywheel. After pushing on that flywheel in a consistent direction over an extended period of time, they’d inevitably hit a point of breakthrough.
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But do you know how many years Wooden coached the Bruins before his first NCAA Championship? Fifteen. From 1948 to 1963, Wooden worked in relative obscurity before winning his first championship in 1964.
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The good-to-great companies were subject to the same short-term pressures from Wall Street as the comparison companies. Yet, unlike the comparison companies, they had the patience and discipline to follow the buildup-breakthrough flywheel model despite these pressures.
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Tremendous power exists in the fact of continued improvement and the delivery of results.
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Point to tangible accomplishments—however incremental at first— and show how these steps fit into the context of an overall concept that will work. When you do this in such a way that people see and feel the buildup of momentum, they will line up with enthusiasm.
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We learned that under the right conditions, the problems of commitment, alignment, motivation, and change just melt away. They largely take care of themselves.
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avoided any attempts at hoopla and motivation. Instead, he and his team began turning the flywheel, creating tangible evidence that their plans made sense.
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the way to get people lined up behind a bold new vision is to turn the flywheel consistent with that vision—from
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The good-to-great companies tended not to publicly proclaim big goals at the outset. Rather, they began to spin the flywheel—understanding to action, step after step, turn after turn.
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When you let the flywheel do the talking, you don’t need to fervently communicate your goals. People can just extrapolate from the momentum of the flywheel for themselves:
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What do the right people want more than almost anything else? They want to be part of a winning team. They want to contribute to producing visible, tangible results. They want to feel the excitement of being involved in something that just flat-out works. When the right people see a simple plan born of confronting the brutal facts—a plan developed from understanding, not bravado—they are likely to say, “That’ll work. Count me in.” When they see the monolithic unity of the executive team behind the simple plan and the selfless, dedicated qualities of Level 5 leadership, they’ll drop their cynicism. When people begin to feel the magic of momentum—when they begin to see tangible results, when they can feel the flywheel beginning to build speed—that’s when the bulk of people line up to throw their shoulders against the wheel and push.
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Peter Drucker once observed that the drive for mergers and acquisitions comes less from sound reasoning and more from the fact that doing deals is a much more exciting way to spend your day than doing actual work.
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Why did the good-to-great companies have a substantially higher success rate with acquisitions, especially major acquisitions? The key to their success was that their big acquisitions generally 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.
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“What can we do better than any other company in the world, that fits our economic denominator and that we have passion for?”
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Each piece of the system reinforces the other parts of the system to form an integrated whole that is much more powerful than the sum of the parts.
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Equally important is to remember the Stockdale Paradox: “We’re not going to hit breakthrough by Christmas, but if we keep pushing in the right direction, we will eventually hit breakthrough.”
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Ultimately, to reach breakthrough means having the discipline to make a series of good decisions consistent with your Hedgehog Concept—disciplined action, following from disciplined people who exercise disciplined thought.
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if you diligently and successfully apply each concept in the framework, and you continue to push in a consistent direction on the fly-wheel, accumulating momentum step by step and turn by turn, you will eventually reach breakthrough. It might not happen today, or tomorrow, or next week. It might not even happen next year. But it will happen.
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Good-to-great transformations often look like dramatic, revolutionary events to those observing from the outside, but they feel like organic, cumulative processes to people on the inside. The
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No matter how dramatic the end result, the good-to-great transformations never happened in one fell swoop. There was no single defining action,
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Sustainable transformations follow a predictable pattern of buildup and breakthrough. Like pushing on a giant, heavy flywheel, it takes a lot of effort to get the thing moving at all, but with persistent pushing in a consistent direction over a long period of time, the flywheel builds momentum, eventually hitting a point of breakthrough.
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comparison companies frequently tried to create a breakthrough with large, misguided acquisitions. The good-to-great companies, in contrast, principally used large acquisitions after breakthrough, to accelerate momentum in an already fast-spinning flywheel.
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Those inside the good-to-great companies were often unaware of the magnitude of their transformation at the time; only later, in retrospect, did it become clear. They had no name, tag line, launch event, or program to signify what they were doing at the time.
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The good-to-great leaders spent essentially no energy trying to “create alignment,” “motivate the troops,” or “manage change.” Under the right conditions, the problems of commitment, alignment, motivation, and change largely take care of themselves. Alignment principally follows from results and momentum, not the other way around.
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see Good to Great not as a sequel to Built to Last, but as a prequel. Apply the findings in this book to create sustained great results, as a start-up or an established organization, and then apply the findings in Built to Last to go from great results to an enduring great company.
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Sam Walton began in 1945 with a single dime store. He didn’t open his second store until seven years later.
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Somehow over the years people have gotten the impression that Wal-Mart was... just this great idea that turned into an overnight success. But...it was an outgrowth of everything we’d been doing since [1945].... And like most overnight successes, it was about twenty years in the making.
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An important caveat to the concept of core values is that there are no specific “right” core values for becoming an enduring great company.
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Built to Last—core values are essential for enduring greatness, but it doesn’t seem to matter what those core values are.
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Enduring great companies preserve their core values and purpose while their business strategies and operating practices endlessly adapt to a changing world. This is the magical combination of “preserve the core and stimulate progress.”
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I like to think of Good to Great as providing the core ideas for getting a flywheel turning from buildup through breakthrough, while Built to Last outlines the core ideas for keeping a flywheel accelerating long into the future and elevating a company to iconic stature.
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A BHAG serves as a unifying focal point of effort, galvanizing people and creating team spirit as people strive toward a finish line.
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Bad BHAGs, it turns out, are set with bravado; good BHAGs are set with understanding.
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Boeing’s BHAG, while huge and daunting, was not any random goal. It was a goal that made sense within the context of the three circles.
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To remain great over time requires, on the one hand, staying squarely within the three circles while, on the other hand, being willing to change the specific manifestation of what’s inside the three circles at any given moment.
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it is much easier to become great than to remain great.
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I believe that it is no harder to build something great than to build something good. It might be statistically more rare to reach greatness, but it does not require more suffering than perpetuating mediocrity.
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We run best at the end.
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she found herself burdened with expectations to do “fun programs” and “rah-rah stuff” to motivate the kids and keep them interested—parties, and special trips, and shopping adventures to Nike outlets, and inspirational speeches. She quickly put an end to nearly all that distracting (and time-consuming) activity. “Look,” she said, “this program will be built on the idea that running is fun, racing is fun, improving is fun, and winning is fun. If you’re not passionate about what we do here, then go find something else to do.” The result: The number of kids in the program nearly tripled in five years, from thirty to eighty-two.
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commitment made not to the coaches, but to each other.
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But I am asserting that those who strive to turn good into great find the process no more painful or exhausting than those who settle for just letting things wallow along in mind-numbing mediocrity. Yes, turning good into great takes energy, but the building of momentum adds more energy back into the pool than it takes out. Conversely, perpetuating mediocrity is an inherently depressing process and drains much more energy out of the pool than it puts back in.
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If you’re doing something you care that much about, and you believe in its purpose deeply enough, then it is impossible to imagine not trying to make it great.
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Indeed, the real question is not, “Why greatness?” but “What work makes you feel compelled to try to create greatness?”
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it is impossible to have a great life unless it is a meaningful life. And it is very difficult to have a meaningful life without meaningful work.
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“The single biggest danger in business and life, other than outright failure, is to be successful without being resolutely clear about why you are successful in the first place.”
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it is not the content of a company’s values that correlates with performance, but the strength of conviction with which it holds those values, whatever they might be.
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Q: Can a company have a Hedgehog Concept and have a highly diverse business portfolio? Our study strongly suggests that highly diversified firms and conglomerates will rarely produce sustained great results.
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at the top levels of your organization, you absolutely must have the discipline not to hire until you find the right people. The single most harmful step you can take in a journey from good to great is to put the wrong people in key positions. Second, widen your definition of “right people” to focus more on the character attributes of the person and less on specialized knowledge. People can learn skills and acquire knowledge, but they cannot learn the essential character traits that make them right for your organization. Third— and this is key—take advantage of difficult economic times to hire great people, even if you don’t have a specific job in mind.
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