9 Mar, 2020

Book Summary: Good to Great by Jim Collins

With over four million copies sold to date, Good to Great by Jim C. Collins is one of the best-selling management books of all time. The follow-up to his international bestseller, Built to Last, Good to Great focuses on how both mediocre and good companies can go beyond their stagnant status-quo to become great organizations.

After studying for an MBA at Stanford, Collins saw first-hand how great companies are run by becoming a consultant at McKinsey & Company, and then a product manager at Hewlett-Packard. After returning to Stanford to teach and conduct research, Collins founded a management research center in Boulder, Colorado, to further his quest for understanding what makes some organizations successful–and others not.

Consequently, the key takeaways from Good to Great are illuminating. The breadth of Collins’ and his research team’s analysis of the good-to-great principles is breathtakingly thorough. This Good to Great review will follow the structure of the book, systematically summarizing the key points from each of the nine chapters, step-by-step. 

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The Key Takeaways from Good to Great – a Chapter-by-Chapter Summary

Good is the Enemy of Great

Few people manage to achieve greatness in their lives as they settle too quickly for a comfortable life. The same can be said of companies. Indeed, the vast majority of businesses attain a level of adequate functionality, but instead of progressing beyond this point, they simply stagnate there. With this in mind, Collins asked himself a simple question: Can good companies become great ones, and if yes, then how?

After five years of research, Collins not only certified that a good company can become great, but that any organization can do so – if they follow the framework he suggests. Here’s how both he and his research team began to unpack this question to create the good to great principles:

  1. The search – Collins assembled a group of researchers, and together, they identified a group of 11 companies out of a possible 1,435 that had spent 15 years at, or below, the general level of the stock market and which then proceeded to go through a transformation which saw them taking in returns of at least three times the stock market level over the next 15 years.
  2. Finding comparisons – Next, Collins and his team identified a group of “comparison companies.” These included companies that were in the same industries as the good-to-great companies, but that either didn’t leap from good to great or made a short-term shift to great but failed to maintain their success.
  3. Deep analysis mode – The team collected as much data as possible on each of their 11 companies. They conducted interviews with executives who held positions at the time of their company’s transition. Consequently, the team avoided starting out with any set hypothesis to test. Instead, they sought to build the good to great principles purely from the data, thus directly from the ground up.
  4. From chaos to concept – From their findings, the team was then able to create a cohesive framework of concepts that each of the good-to-great companies had utilized.

An Overview of The Good to Great Principles

The key factors that decide whether a company can transform from good to great are eight-fold. Each factor is given a chapter in the book, and thus, this Good to Great summary will cover the following points in detail:

  1. Level five leadership: Surprisingly, the leaders of good-to-great organizations tend to be introverted and reserved rather than big-personality entrepreneurial celebrities.
  2. First who…then what: Good-to-great companies first get the right people on board before working out the vision of their company.
  3. Confront the brutal facts but don’t lose faith: A good-to-great company must hold tight to the belief that it can and will prevail against all odds, while also accepting the (often brutal) facts about the company’s current reality.
  4. The Hedgehog Concept: To go from good to great means that the comfort of complacency must be overcome.  
  5. A culture of discipline: When the workforce is disciplined, hierarchy becomes irrelevant. When there is disciplined thought, bureaucracy is decreased. When there is disciplined control, there is no need for excessive controls. Therefore, when a culture of discipline combines with an entrepreneurial endeavor, great performance is achieved.
  6. Technology accelerators: Good-to-great companies never use technology as the primary means of integrating change into their processes. However, how they choose to use and select technology is what sets them apart from their comparison companies.
  7. The flywheel and the doom loop: The good to great process doesn’t happen overnight. Success comes after much-focused attention is applied to moving a company in a single direction over a long period until a point of breakthrough is breached.
  8. From good to great to built to last: To make sure good-to-great companies endure, core values and purpose must align with something more than just making money.

Level Five Leadership

One of the key takeaways from Good to Great is that at the helm of every good-to-great company, there is a “level five leader.” Collins defines a level five leader as an executive who creates an enduring legacy of greatness through a paradoxical blend of humility and professional determination. Such leaders do not let their ego dictate their decisions; their ambition is above all for the success of the company, not for themselves.

At first, Collins found this finding difficult to accept. It went against his belief that a company’s success doesn’t rely solely on its leader. However, the data consistently demonstrates that during the transition from good to great, each great company is led by a level five leader.

This discovery began to make more sense when looking at the sustained success of good-to-great companies. As all of these companies were being overseen by level five managers at the point of their transition, when it came time to hand over the leadership of the company to a new manager, thanks to their humility, and their will to see the company thrive, level five leaders would facilitate a smooth transition for their successors. 

What’s startling is that 75 percent of the comparison companies had executives who set up their successors for failure, or who chose weak successors. The egoless actions of the level five leaders, therefore, goes some way to explaining the enduring legacy of good-to-great companies. 

However, in addition to humility, level five leaders also have to be in possession of a stoic degree of determination to see the company succeed. An interesting caveat to this essential characteristic is that such loyalty is often cultivated through working for the company before becoming the CEO. Indeed, nearly all of the good-to-great CEOs came from inside the company, whereas the comparison companies were six times more likely to hire CEOs from outside the company.

Level five leaders were also much more likely than the leaders of the comparison companies to attribute any success to factors outside of themselves, and to attribute any shortcomings to themselves (when appropriate). The CEOs of the comparison companies, on the other hand, tend to blame any failings on ‘bad luck’ rather than to accept responsibility, preferring to blame anything beyond themselves.

It’s possible to become a level five leader. However, it comes more naturally to some than others. Self-reflection, personal mentors, teachers, coaches, and learnings from significant life experiences are all tools that can be used in this endeavor. While there is no step-by-step list for how to become a level five manager, practicing the findings from the rest of the book can help cultivate such level five traits, and thus, help us to move in the right direction.

First Who…Then What

When Collins and his team began their research, they started out thinking that the key to transforming a good company into a great one would be to implement a new vision and strategy. They were wrong. The first thing great companies did was to get the right people involved in the team (and to get rid of any underperforming employees). 

This coincides with the idea that if organizations begin with the “who” as opposed to the “what,”  they are much more likely to be able to adapt to the ever-shifting demands of the modern world. The right people don’t need to be micromanaged or encouraged to do a good job; it is ingrained within them. They will have faith in the company because they believe in the value of their teammates. Further, if a company comes across a great business idea, but has a poorly functioning team, it is almost certainly doomed to fail.

A particularly intriguing takeaway from Collins’ research is that they found no correlation between executive compensation and the shift from going from good to great. Indeed, the data showed that good-to-great executives made slightly less money, on average, ten years after their company’s transition than their mediocre company counterparts! 

It’s important to note that it’s not how much executives are being compensated by, but which executives are being compensated. If companies begin by choosing the “who” before the “what,” these executive members are far more likely to be motivated by the success of the company beyond mere financial compensation.

Still, what to do if once a business is established, some team members don’t seem to match the company standards? The trick is to be rigorous as opposed to ruthless. Collins’ research showed that layoffs occurred five times more frequently in the comparison companies, indicating that endlessly firing swathes of employees is not the best approach. Collins suggests a three-step system for improving a team, without resorting to mass firings:

  1. When in doubt, don’t hire, keep looking. It is much more costly for a company to hire the wrong person in the long run than to delay the process and find the right person eventually.
  2. When it does become evident that a group or an individual is a bad match for the company, act quickly, but not before assessing whether that group or individual would be better matched elsewhere within the team.
  3. Allocate the best team members to the company’s biggest opportunities – not its biggest problems, ensuring that you get the best out of your existing workforce.

Confront the Brutal Facts – but Never Lose Faith

Another key takeaway from Good to Great is that the good-to-great companies pivoted into greatness thanks to a series of excellent decisions which were expertly executed, and which accumulated one on top of the other. This was due, in large part, to how these companies faced the brutal facts about themselves, head-on. Instead of merely setting out for greatness, they continually informed the path to greatness with truths about how they were performing, even if it was hard to swallow.

However, how is it possible to keep a team motivated when faced with such painful truths about the company’s current performance? Collins suggests creating a culture of truth which adheres to the following four principles:

  1. Lead with questions, not answers. Asking questions is an excellent way of getting a better understanding of the truth. To ask questions also indicates that one is willing to be vulnerable enough to demonstrate that they do not have all of the answers. It’s in this safe environment where reality-based problem solving can occur.
  2. Engage in dialogue and debate, not correction. Instead of just creating sham debates to make employees feel like they’ve all had their say even if the CEOs have already chosen the course of action, genuinely let a team debate the issues to come up with some more informed solutions.
  3. Conduct autopsies without blame. In doing so, a culture in which the truth can be heard without fear of backlash can thrive.
  4. Build “red flag” mechanisms. This mechanism means entitling every member of a workforce to the right to be heard without judgment on any issue that may be concerning them, equipping them with a metaphorical “red flag” that they can raise at any time.

Once a company is prepared to face the truth at every step of their journey, they must somewhat paradoxically, combine this with an unwavering belief in the success of their business. This means that even when things seem desperate, and the reality seems bleak, the team can fall back on this culture of determination to see the company through such difficult phases and, thus, go from good to great.

The Hedgehog Concept

One of the key Good to Great principles is what Collins refers to as “The Hedgehog Concept.” This concept comes from Isaiah Berlin’s essay “The Hedgehog and the Fox,” which is based on an ancient Greek parable and in which he divides the world into two categories: Hedgehogs and foxes. The fox knows a vast variety of different things, but the hedgehog knows one thing, and knows it well. From this logic, many of humanity’s greatest thinkers have been hedgehogs as they have been able to simplify the complexity of the world into a singular unified vision. For example, consider Darwin and natural selection, Einstein and relativity, and Marx and the class struggle.

Collins, therefore, contests that all good-to-great companies were hedgehogs, and all the comparison companies tended to be foxes– scattered, diffused, and inconsistent. The good-to-great companies were all led by a simple, unifying concept that acted as a frame of reference for all of their decision-making. In turn, this led to breakthrough results. Collins breaks down “The Hedgehog Concept,” as being the accumulation of the following three good-to-great principles:

  1. What you can be the best in the world at. This principle means that even if a company’s core business has been driving relative success for many years, it doesn’t necessarily mean that the company is the best in the world at it. If they are not the best in the world at it, they will never be great. To be great means to transcend the curse of simply being competent. Only by working out what a company can do better than any other organization will lead a company to greatness.
  2. What drives your economic engine. A company can become great regardless of the industry in which they find themselves. The key is to build a formidable economic engine that is based on deep insights about their economic reality.
  3. What you are deeply passionate about. Good-to-great companies don’t decide upon an idea and then encourage their team to become excited about it. Instead, they start by only pursuing that which inspires their team members.

When a company can find a unifying concept which links all three of these factors, then that is it’s Hedgehog Concept. More often than not, good-to-great companies started out as not being the best in the world at anything. However, they all, in turn, began the search for their defining Hedgehog Concept, and even though on average it took them four years to find this defining concept, they never wavered from it once they discovered it.

A Culture of Discipline

Many successful startups end up failing because, as they become increasingly large and complex, managers begin to flail in the face of increasing demand. It’s at this point that the board may decide to bring in some external “professional” managers, usually experienced MBA executives from blue-chip companies. Hierarchies start to form, and order returns to chaos. However, in this process, entrepreneurial spirit is lost, and mediocrity takes hold, preventing the company from ever becoming great.

So, how does a company manage to maintain an entrepreneurial spirit while also not growing into something entirely unwieldy? By implementing a culture of discipline. Collins suggests a four-step process to encourage a culture of discipline in the workplace:

  1. Cultivate a culture around the principles of freedom and responsibility that operates within a specific framework.
  2. Make sure that all employees are self-disciplined individuals willing to go to great lengths to fulfill their responsibilities and obligations.
  3. Be sure to never conflate a culture of discipline with a culture of tyrannical discipline. Great companies are led by level five leaders who focus on encouraging a culture to form. In contrast, comparison companies are led by leaders who choose to discipline their team via sheer force. This tactic is counterintuitive.
  4. Religiously follow the Hedgehog Concept to ensure that the entire team remains unwaveringly focused. Indeed, the more that an organization can follow its Hedgehog Concept, the greater the opportunities it will have for growth.

Technology Accelerators

Great companies have lived through incredible technological revolutions such as the .com boom and the advent of the personal computer. But instead of being defeated by such radical advances, they have endured. How? Because rather than panicking and choosing to adapt for adaptation’s sake, they have chosen to think differently about technology. They took the time to consider how such technological advances could best serve their Hedgehog Concept.

Their Hedgehog Concept leads them to a complete change of perspective with regards to technological advancements. Rather than being the creator of momentum, for great companies, technology is an accelerator for momentum. The moment in which a good company pivots into being a great one is never accompanied by a focus on using the most up-to-date, pioneering technology. Technology is only adopted once a company can be sure it will support its aims. Consequently, Collins recommends asking the following questions before selecting  a new piece of technology for their organization:

  1. Does this piece of technology match the Hedgehog Concept?

– If yes, then the company needs to become a pioneer in the application of this technology.

  1. If no, then is it worthwhile using this technology at all?

– If yes, then the company need not become the world leader in this piece of technology, parity is what you should aim for.

– If no, then the technology is irrelevant.

What separates the great from the good companies is that the good companies become reactionary to new technological advancements. They become terrified of being “left behind” and, therefore, do everything they can to alter their business operations to incorporate the latest pieces of technology, often leading them away from what would otherwise constitute their Hedgehog Concept. 

A particularly resounding feature of Collins’ findings is that over the 2,000+ pages of interview transcripts with executives from their chosen great companies, the term “competitive strategy” is hardly mentioned at all. Instead, rather than worrying about what their competitors are doing and getting caught up in a redundant technological arms race, great companies compared themselves to an ideal of excellence. They are motivated by excellence for its own sake, not from a fear of being left behind.

The Flywheel and the Doom Loop

For this good to great principle, Collins conjures up the image of an individual trying to move a considerable, 5,000-pound metal disc (a flywheel), which is mounted horizontally on an axle. At first, it seems impossible to push.  After a bit of momentum is generated, it becomes easier to rotate, after many rotations, it flies forward with an almost unstoppable force. To ask which of the pushes the flywheel was given was the deciding push that gave it such speed is to miss the point; it was the accumulation of all of the efforts combined that got the wheel moving. This image is what a company looks like when it is making the transition from good to great.

From the outside, it often appeared as though these good-to-great companies miraculously made their ascent to greatness overnight, as if one deciding factor changed their fortunes forever. However, from the inside, the transformation was experienced as a much more organic, gradual, developmental process. Fascinatingly, many executives at these great companies stated that they were unaware that such a major transformation was afoot, even when their company was well on its way to greatness.

What separates the great companies from the good is, therefore, the understanding of a simple truth: Remarkable power is to be found in continual improvement and the delivery of results. Collins refers to this as the “flywheel effect,” which is defined by the following continually repeating processes:

  1. Make forward steps that are consistent with the Hedgehog Concept.
  2. Accumulate a set of visible results.
  3. See the workforce become energized and excited by these results.
  4. The flywheel builds momentum. Repeat from step one.

By continually feeding the flywheel through following the above steps, goals almost seem to set themselves. The comparison companies, on the other hand, often engaged in what Collins refers to as “the doom loop.” Rather than focusing on gradual, sustained results, the comparison companies would frequently search for a “miracle moment,” which would be the singular deciding factor in transforming the company from good to great. 

By bypassing the incremental development phase, they would start pushing the flywheel in one direction only to stop and change course, throwing it into another direction as they looked for another “miracle moment,” therefore, failing to build any momentum at all. Collins describes the steps of the doom loop as follows:

  1. Set out in a new direction, looking for a “miracle moment” by way of a new program, leader, event, fad, or acquisition.
  2. Fail to achieve any buildup and accrue no accumulated momentum.
  3. Achieve some disheartening results.
  4. React without actually understanding the reasons behind the results. Repeat from step one.

The biggest takeaway from the flywheel effect and the doom loop is that sustainable transformations follow a prolonged period of buildup before a lasting breakthrough can take place. There are no quick fixes, and just like the adage goes, good things come to those who wait (and who vigorously pursue their Hedgehog Concept!).

From Good to Great to Built to Last

Before he wrote Good to Great, Collins spent six years researching and compiling his other bestselling book, Built to Last. This book dealt with the central question: What does it take to build an enduring company from the ground up? While it was universally acclaimed, Collins acknowledges that it failed to answer how to transform an already good company into a great one – this is why he decided to write Good to Great.

Consequently, Collins views Good to Great as a prequel to Built to Last; applying the findings from Good to Great can help to create a great startup or an established organization, and then the findings from Built to Last can make sure the company’s legacy endures. Where Good to Great lays the groundwork for getting the flywheel turning, Built to Last focuses on how to keep the wheel turning for many years to come.

Collins briefly summarizes the key takeaways from Built to Last as follows:

  1. Clock building, not time telling – Build a company that can endure through multiple product life cycles and leaders. By doing this, you ensure that a company is not built around a single charismatic individual or a static, singular product idea.
  2. The genius of AND – When deciding between two extremes, see if you can incorporate both into your working processes. I.e., Instead of choosing between A or B, find a way to have both A AND B, thus, purpose AND profit, freedom AND responsibility, etc.
  3. Core ideology – A great, lasting organization will have core values and a core purpose that goes beyond just making money as its means for informing decision making.
  4. Preserve the core/stimulate progress – While making sure to persevere with the core values, also make room for change and innovation.

Ultimately, Collins believes that by following the findings of these two books, that building a great company is no more difficult than building a good one. That is because a lot of the work that goes into creating a good company is wasted effort, an effort that could otherwise be better spent getting closer to aligning all organizational processes to adhere to a singular Hedgehog Concept. 

From here, Collins extrapolates that when all the pieces begin to come together, and a company goes from good to great, this has a ripple-out effect in the lives of all those involved. It imbues their lives with a deep sense of meaning because they are engaged in a meaningful project aimed at an ideal of excellence in and of itself.

You can buy Good to Great by Jim C. Collins on Amazon.

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Elle McFarlane: Elle McFarlane is a freelance writer with 4+ years of experience in copywriting, editorial, and journalism, and 6+ years of experience as a film editor. As she’s based in Berlin, she was once also a DJ, but had to retire after (against her will!) becoming a morning person.