Good to Great by Jim Collin - Literature review Example

Good to Great Jim Collins’ book Good to Great offers an answer as to how companies, or anyone, can make the transition from merely being good to being great. While it seems to be an ever-evasive answer in the greater world, Collins and his team set out to discover those elements of great corporations that distinguish them from similar corporations that have not achieved spectacular results. In undertaking this task, several key elements were discovered that, when undertaken in a systematic naturally-evolving process, have proven, time and again, to bring about fantastic results. Beginning with a general description of how his research began and the process by which it was undertaken, Collins proceeds to identify these elements and the reasons why this particular approach seems to work. Each element builds on the one before to eventually become a rotating wheel of progress or a spinning circle of doom that encompasses each and every member of an organization and depends entirely upon the identification of a single idea. Collins starts his book with an entertaining story regarding where the idea for this book came from. According to Collins, it was the result of a comment made by Bill Meehan during a dinner party. Although Collins’ last book was noted to have been helpful, Meehan pointed out how it focused on great companies that were already great from their original inception, but what was needed was a book that taught companies how to make the transition from good to great. Thus, the name of the book and its subject was planted in Collins’ mind ready for an answer. From this introduction, Collins explains the five year process he and his team went through in determining how to find and provide the answer to how good companies might change their direction and become great. To bring the conversation into better definition, Collins explains that great companies are those that have averaged “cumulative stock returns 6.9 times the general market in the fifteen years following their transition points” (3). Essentially, then, Collins’ research began with a question and no preconceived answers as he and his team of approximately 21 people went searching for those similar characteristics each of the ‘good to great’ companies they identified, also as part of their research, shared. Much of the first chapter is dedicated to explaining not only what is meant by the term ‘good to great’ but also outlining the research process. After identifying the ‘good to great’ pattern they were seeking, the team, as mentioned, undertook a search to find those companies that matched the pattern. An important element of this pattern was that it was long-lasting rather than a lucky streak or the cause of having an exceptional leader for a span of years. After having identified 11 companies, many of which the author admits were surprising to him, the team then moved on to identify a comparison group of companies that would highlight those differences that made the great companies great. The team put together two comparison groups, the first was a direct comparison group featuring companies in the same industries with the same opportunities and similar resources while the second was a group of six companies that made the transition for a short span of time but were unable to sustain it. The companies included in the study are: Good to Great Companies Abbott Circuit City Fannie Mae Gillette Kimberly-Clark Kroger Nucor Philip Morris Pitney Bowes Walgreens Wells Fargo Direct Comparison Companies Upjohn Silo Great Western Warner-Lambert Scott Paper A&P Bethlehem Steel R.J. Reynolds Addressograph Eckerd Bank of America Unsustained Comparisons Burroughs Chrysler Harris Hasbro Rubbermaid Teledyne 1 After having identified these companies, Collins and his team went into lengthy analysis on each company, attempting to discover the company’s transition point and just what worked to take the company into ‘great’ status. Some surprising findings included2: Celebrity leaders were negatively correlated with greatness with 10 of the 11 great companies promoting CEOs from within There was no link between executive compensation packages and greatness Strategy as such did not make a tremendous difference in achieving greatness Great companies focused on what to do as well as what not to do in approximately equal measures Technology had little to do with transformations Mergers and acquisitions had little to do with transformations Great companies paid little attention to managing change, motivating people or creating alignment Great companies did not make a big fuss about their transformation and, in some cases, were not even sure when the transformation occurred Greatness was not determined by industry Based upon the data gathered, the team came up with several concepts that they feel were common characteristics among companies that successfully made the jump from good to great and sustained it. These concepts then become the major topics for each of the subsequent chapters. They are: Level 5 leadership First who … then what Confront the brutal facts (yet never lose faith) The Hedgehog Concept (simplicity within the three circles) A culture of discipline Technology accelerators The flywheel and the doom loop From good to great to build to last Level 5 Leadership There are four widely recognized and discussed individual managerial attributes that contribute to the making of a good company. Collins refers to them as levels. These are: Level 1: Highly Capable Individual Level 2: Contributing Team Member Level 3: Competent Manager Level 4: Effective Leader The highly capable individual brings their personal talents, knowledge, skills and work habits to every job with a high degree of productive contributions. The contributing team member throws these talents, knowledge, skills and work habits into play while working closely with others to bring about group objectives. The competent manager is the individual who organizes the teams and ensures that they are working efficiently and effectively toward an objective and the effective leader “catalyzes commitment to and vigorous pursuit of a clear and compelling vision, stimulating higher performance standards” (20). However, Collins and his team, despite attempting to keep individual leaders out of the equation at all, were forced to recognize a fifth level of management that is essential in making a good company great. This level is highly personal as the manager must contain a “paradoxical blend of personal humility and professional will” (20). The primary objective of this level 5 executive is his (or her) dedication to the good of the company rather than the good of the individual. Collins cites several examples of CEOs who have placed the good of the company first and fostered the transition from good to great with a sustainable future as well as examples of CEOs who have focused more upon their own celebrity status within the history of the company and either achieved little growth or short-term greatness. The good to great CEOs were humble, quiet men in themselves, but who had good vision and direction for the company and a will strong enough to move it in that direction. Because they generally came from within the company, they typically had an intrinsic understanding of the company’s culture and inner workings and were more able to determine what was working and what was not. More of this is discussed in the subsequent chapters that cover what a Level 5 Executive does. Frequently attributing success to outside factors and blame to themselves, these leaders were focused on doggedly pursuing whatever tack necessary to make the company great and worried about their own welfare or personal stake later. A good summary of Level 5 Leadership qualities is provided on page 36 while a good image is presented in the idea of the window and mirror, discussed on page 35. Perhaps a natural instinct of the Level 5 Executive is the knowledge that they are not all-knowledgeable. According to Collins, one of the first things the good to great leaders did upon taking over the company was to assure themselves that they were backed by competent people, hence the catch-phrase for this concept, ‘first who … then what’. Collins identifies three basic truths behind this approach: 1. If you being with ‘who’ rather than ‘what’, you can more easily adapt to a changing world. 2. If you have the right people on the bus, the problem of how to motivate and manage people largely goes away. 3. If you have the wrong people, it doesn’t matter whether you discover the right direction; you still won’t have a great company (42) The right people are those who consider themselves equal in the decision-making process, encouraged to debate and argue their various viewpoints so as to discover together the most advantageous direction for the company to follow. Individuals in place who are already in place who are incapable of making decisions, taking initiative and participating in the process are removed from their positions in order to make way for those who are ready to take on the challenges of change. Another key component of this concept is that the people are selected before the change in direction is set or other changes begun. Compensation packages were found to have very little bearing in identifying the right people for the job as “the right people will do the right things and deliver the best results they’re capable of, regardless of the incentive system” (50) while the wrong people will weed themselves out if necessary. Rather than being characterized by large numbers of lay-offs, the great companies are characterized by their adherence to three basic disciplines designed to reduce turn-over. 1. When in doubt, don’t hire – keep looking 2. When you know you need to make a people change, act. 3. Put your best people on your biggest opportunities, not your biggest problems. In keeping with these ideas, Collins finishes out his chapter with emphasis on the idea that the right people are not necessarily the ones with the right experience or the right degrees. According to Collins, character traits should factor in much stronger when selecting people for management positions, realizing that they need to be strong self-starters with the ability to argue their points, but also with the ability to join the team and push toward a common goal once it’s been determined. The third concept involved with making good companies great is the concept of facing the brutal facts yet retaining the faith. Collins begins this chapter illustrating his point with a comparison between grocery store chains – Kroger and A&P. Both companies had similar backgrounds, opportunities and bases, yet only one was capable of facing the brutal facts that the world was changing and consumers were beginning to demand new things while the other refused to acknowledge these changes and insisted on following its same old business model. Rather than remaining stuck on a way of conducting business that had worked for 100 years previous, the dynamic team of executives at Kroger made changes at various test stores to determine what the market was responding to and relatively quickly realized that the superstores were the preferred market. Although this meant completely rebuilding their chain store by store, this change resulted in the chain achieving top status during the next 25 years while their competitors, A&P slowly deteriorated into the past. This problem is partially solved by the relative meek nature of the level 5 executive in that he is well aware that his position may prevent him from hearing dissenting opinions or conflicting views. An effective strategy has been to put in place departments or forums that enable organizational members at every level to share their understanding of company direction, even if this view is against the majority opinion. Collins offers four practices that encourage a climate of truth. 1. Lead with questions, not answers 2. Engage in dialogues and debate, not coercion 3. Conduct autopsies without blame (admit openly and analyze directions that didn’t work) 4. Build ‘red flag’ mechanisms (so good information cannot be ignored) At the same time, however, it is important to never lose faith in the end-game, that the company will prevail somehow, something Collins and his team dub the ‘Stockdale Paradox’ (83-86). Essentially, the Stockdale Paradox is that one must “Retain faith that you will prevail in the end, regardless of the difficulties” while also confronting “the most brutal facts of your current reality, whatever they might be” (86). The hedgehog concept is the idea of sticking to a single big yet basic idea, simplifying the world into a basic concept and factoring out all that is not relevant to it. As Collins puts it, “a hedgehog concept is a simple, crystalline concept that flows from deep understanding about the intersection of the following three circles: What you can be the best in the world at … what drives your economic engine … [and] what you are deeply passionate about” (95-96). An important distinction here is not in trying to be the best at something, but in identifying what you can be the best at. In doing this, Collins developed a core question that helped to identify the basic economics of the companies under study: “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?” (104). By identifying the answer to this question and then continue to apply the fundamental principles that make the company great, greatness is sustained well into the future. Being passionate about the company in some way and making decisions based upon understanding of that passion are other key elements of the hedgehog concept. Collins identifies this particular concept as the turning point in the company going from good to great. The earlier stages are required for building the right environment to begin discussing the hedgehog concept while the hedgehog concept helps to drive future concepts. Creating a culture of discipline follows the development of the hedgehog concept as organizations begin to commit to the fundamental principles thus identified. This does not mean instituting a Nazi camp dedicated to a single idea, but instead fostering a culture within the organization that remains committed to the three circles of the hedgehog concept. Collins puts it this way: 1. Build a culture around the idea of freedom and responsibility, within a framework 2. Fill that culture with self-disciplined people who are willing to go to extreme lengths to fulfill their responsibilities 3. Don’t confuse a culture of discipline with a tyrannical disciplinarian 4. Adhere with great consistency to the hedgehog concept, exercising an almost religious focus on the intersection of the three circles The framework provides the direction, but remains loose enough to allow individual people within the organization to retain real responsibility and the power to make changes where and when necessary to keep the company moving in keeping with its hedgehog concept. Disciplined people within the organization lead to the development of disciplined thought within the organization which finally produces disciplined action that is much more likely to deliver the hoped for results. By retaining this discipline, future growth in the company can be built upon the underlying hedgehog concept to make the company stronger, but tangents will not be pursued that will make it weaker. At the same time that organizations need to have the courage to do the right thing, as it has been identified by the previous steps, they need to stop doing the wrong thing, roughly anything that does not fit or prevents focus on the three circles. Technology does not define good to great companies, but it has been utilized as greatness accelerators by companies ready to take advantage of changes in the marketplace with a firm foundation as described above. The key element in this concept is the idea that the hedgehog concept drives the use of any new technology rather than adopting the use of any new technology simply as a means of keeping up with technology. Technologies used to help accelerate greatness were generally used in a pioneering way, such as linking all Walgreens data nationwide so that every branch of the store was the local pharmacy, but always to further the core hedgehog idea, individual customer sales in Walgreen’s case. In the end, Collins’ team determined that the key idea behind technology and its real lack of contributory forces in making a company great was the fact that these companies did not react to changes in the availability of technology but instead adapted what was available to help them achieve their end goals. In the chapter “The Flywheel and the Doom Loop”, Collins explains why good to great companies rarely have a single defining moment in which they make a transition from one way of conducting business to another. Instead, he compares the process to a flywheel, in which successive pushes cause the wheel to turn in ever-increasing rotations without additional effort. “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” (165). While the media has built up an image of sudden transformative change as being the norm, the feeling from the inside of this process, when traced through the course of its development, is revealed to have been small steps, slowly building to the momentum at which it begins to gain public attention. This is compared to the doom loop, in which comparison companies are said to push against the flywheel one way, then stop, change their minds and begin pushing it a different way, each time changing direction with a great deal of noise and celebration. The overall effect was to ‘rally the troops’ and bolster support in the short-term, but because of the lack of planning or dedication to a single hedgehog concept with realistic understanding, always failed to produce long-term greatness. These changes in direction were often the result of newly made acquisitions or of changes in CEOs when a developed hedgehog concept had not been in place. The necessary coherence and consistency required to keep the flywheel moving in the same direction is through the first steps of the good to great process that have been identified so far. Collins concludes his book with a link to his previous work, in which he explored the various ways the great companies have continued to remain great despite changing markets and technologies. The findings of this study are seen to mesh well with the ideas he had previously discovered in his earlier book, making it a strange prequel to the older study. The companies in Built to Last were seen to have followed the same basic good to great process as is outlined in this study with the added bonus of having remained dedicated to the hedgehog concept and refining as necessary for changing times, etc. “Enduring companies don’t exist merely to deliver returns to shareholders. Indeed, in a truly great company, profits and cash flow become like blood and water to a healthy body: They are absolutely essential for life, but they are not the very point of life” (194). While business strategies or practices may change over time, the key element is that these companies held fast to a core value, a central idea, and allowed everything else to adapt as needed. A helpful table of conceptual links between the earlier and later works is provided on pages 198-200. In the end, Collins suggests that working toward greatness by following these steps is no more difficult than allowing oneself to simply be good and, in the long run, may require a great deal less effort and struggle to attain. References Collins, Jim. Good to Great: Why Some Companies Make the Leap and Others Don’t. New York: Harper Collins, 2001. Read More