Good to Great
What you need in a quick read…
Preface
I was blessed to have an extraordinary group of people dedicated to this project.
Getting the right team members was the single most important step in making this project successful.
I once thought to myself, “How much would someone have to pay me to not publish Good to Great?”
As a teacher at heart, it is impossible to imagine not sharing my learnings with students around the world. In the spirit of learning and teaching is why I did this work.
Good is the Enemy of Great
It is easy to settle for a good life.
Can a good company become a great company? How?
Good to great does happen. We’ve learned the underlying variables that make it happen.
We yielded many insights, many surprising and contrary to conventional wisdom. One main conclusion was that we believed that almost any organization could improve itself, even become great, if it conscientiously applies the ideas we’ve uncovered.
This book is dedicated to teaching what we’ve learned.
Curiosity motivates me to undertake these huge research projects.
For our selection process, a company had to demonstrate a good to great pattern independent of its industry. Our selection was purely based on results and therefore impact on society and employee welfare could not be considered, otherwise we would introduce biases.
Eleven good to great companies were identified from the entire study set with strict criteria, eleven direct comparison companies were chosen, and 6 unsustained comparisons were included for a total of 28 companies.
Comparison companies were crucial to finding what distinguished the good to great companies instead of showing what the good to great companies had in common.
A wide range of qualitative and quantitative analyses were implemented across the 28 companies.
All of the concepts in this book were made with empirical deductions from data. This was not a project with a theory to test or prove. This was a project to build a theory from the ground up from evidence.
A few things from this study astonished us:
- Outside celebrity leaders new to companies are negatively correlated with taking a company from good to great. 10 of 11 good to great CEOs were from inside the company. Comparison companies tried outside CEOs 6 times more often.
- We found no link between executive compensation and going from good to great.
- Strategy didn’t separate the good to great companies. There was no evidence good to great companies spent more time on long term strategic planning either.
- Good to great companies focused on what not to do and what to stop doing just as much.
- Technology as well as M&As had virtually nothing to do with igniting a transformation from good to great. They could accelerate a transformation, but not cause one.
- Good to great companies barely paid attention to managing change, motivating people, or creating alignment. Under the right conditions, those problems went away.
- Good to great companies had no name, tag line, launch event, or program to signify their transformations.
- Good to great companies didn’t have to be in great industries. Greatness is not a function of circumstance, but is a function of conscious choice.
This study was an iteration of developing ideas, testing against data, revising, building frameworks, seeing them break under evidence, and rebuilding.
The resulting framework of this study came to be known as the flywheel.
The flywheel involves
- Level 5 leadership
- First who…then what
- Confronting brutal facts but never losing faith
- The hedgehog concept or simplicity within the three circles
- A culture of discipline
- Technology accelerators
This book speaks about the flywheel, doom loop, good to great companies, and companies that are built to last.
The world is changing and will continue to change, but that does not mean we shouldn’t search for timeless principles.
In each rendition of the new economy, the best leaders have adhered to certain basic principles, with rigor and discipline.
Good being the enemy of great is not just a business problem, but a human problem.
Question and challenge what you learn. The best students are those who never quite believe their professors and those who don’t reject data because they don’t like what it implies.
Level 5 Leadership
A level 5 leader builds enduring greatness through a paradoxical blend of personal humility and professional will.
An effective leader (level 4) catalyzes commitment to and vigorous pursuit of a clear and compelling vision, stimulating higher performance standards.
A competent manager (level 3) organizes people and resources toward the effective and efficient pursuit of predetermined objectives.
A contributing team member (level 2) offers individual capabilities to the achievement of group objectives and works effectively with others in a group setting.
A highly capable individual (level 1) makes productive contributions through talent, knowledge, skills, and good work habits.
Level 5 leaders channel their ego needs away from themselves and into the larger goal of building a great company. Their ambition is for the institution, not themselves. They also embody all 5 levels mentioned above.
Every time we attribute everything to leadership we are admitting our ignorance. Leadership does matter, but every time we attribute to leadership we prevent ourselves from gaining deeper, more scientific understanding about what makes great companies tick.
Level 5 leaders are a study in duality: modest and willful, humble and fearless.
Do not mistaken their reserved nature for weakness.
Level 5 leaders want to see the company even more successful in the next generation, comfortable with the idea that most people might not even know that the roots of that success trace back to their efforts.
Good to great leaders don’t talk about themselves.
The good to great leaders never wanted to become larger than life heroes seen as unreachable icons on pedestals. They were ordinary people quietly producing extraordinary results.
In over ⅔ of the comparison companies, a gargantuan personal ego contributed to the demise or continued mediocrity of the company.
Level 5 leadership is not just about humility and modesty. It is about ferocious resolve, and stoic determination to do whatever needs to be done to make the company great.
Level 5 leaders are fanatically driven with a need to produce results.
George Cain of Abbott Laboratories didn’t have an inspiring personality, but had inspiring standards. He set out to destroy nepotism. He made it clear that neither family ties nor length of tenure would have anything to do with holding a key position. Key seats were filled with the best people.
Level 5 leaders seem to apportion credit to factors outside themselves when things go well. If they cannot find a specific creditor, they credit good luck. They never blame bad luck when things go poorly.
Some people have the seeds of potential to evolve into level 5 leaders and some do not.
Under the right circumstances a level 5 leader will develop.
Every good to great company had level 5 leadership during pivotal transition years.
Level 5 leaders display a workmanlike diligence, more plow horse than show horse.
First Who…Then What
Executives who ignited transformations first got the right people on the bus and the wrong people off the bus, then they figured out where to drive it
If you begin with who rather than what, you can more easily adapt to a changing world.
If people join because of where the bus is going, what happens when you need to change direction?
If you have the right people on the bus, motivation and management problems largely go away.
The right people will be self-motivated.
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.
A strong team is one made of equal partners ferociously debating in search of the best answers.
David Cooley and David Maxwell said, “I don’t know where we should take this company, but if we start with the right people, ask them the right questions, and engage them in vigorous debate, we will find a way to make this company great.”
It’s not how you compensate your executives, it’s which executives you compensate.
The right people will do the right things and deliver the best results they’re capable of, regardless of the incentive system.
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.
The Nucor system didn’t aim to turn lazy people into hard workers, but to create an environment where hard-working people would thrive and lazy workers would either jump or get thrown right off the bus.
The right people are your most important asset.
Good to great companies place greater weight on character attributes than on specific educational background, practical skills, specialized knowledge, or work experience. Not that specific knowledge or skills are unimportant, but they viewed these traits as more teachable or learnable, whereas character, work ethic, basic intelligence, dedication to fulfilling commitments, and values are more ingrained.
The Marine Corps recruit people who share their values and provide them with the training to accomplish the organization’s mission.
Get insight to the core values of people by asking them why they made decisions in their life.
A good to great company culture is rigorous, not ruthless.
They consistently apply standards throughout the whole company.
Being rigorous, not ruthless means the best people don’t need to worry about their positions and can concentrate fully on their work.
As a Well Fargo executive put it, “The only way to deliver to people who are achieving is to not burden them with people who are not achieving.”
There’s no sense in beating around the bush and not being straightforward with people.
Dealing with things up front and letting people go on with their lives is rigorous. Leaving people uncertain takes time out of their lives that they could use to move on to something else, when in the end they weren’t going to make it anyways is ruthless.
Being rigorous in people decisions needs to start with upper management.
Layoffs and restructuring were used 5x more frequently in the comparison companies than good to great companies.
When in doubt, don’t hire — keep looking.
Those who build great companies know that the ultimate throttle on growth for a company is getting and keeping enough of the right people.
When you know you need to make a people change, act.
The best people don’t need to be managed…guided, taught, and led, but not managed.
Letting the wrong people hang around is unfair to all the right people, since they find themselves compensating for the inadequacies of the wrong people.
The good to great companies did not churn more, they churned better. People should either stay on the bus for a long time or get off the bus in a hurry.
According to Colman Mockler, “Every minute devoted to putting the proper person in the proper slot is worth weeks of time later.”
How do you know when it’s time to make a people change? Would you hire the person again? If the person told you that s/he is leaving for another opportunity, will you feel terribly disappointed or secretly relieved?
Put your best people on your biggest opportunities, not your biggest problems.
The right people want to be a part of building something great.
A good to great company paradoxically needs executives who will argue and debate in pursuit of the best answers, but will unify behind a decision regardless of parochial interests.
All debates are for the good of the company.
Members of good to great teams often become friends for life.
No matter how dark the days or how big the tasks, people in good to great companies have fun. They enjoy each other’s company and look forward to meetings.
Confront the Brutal Facts
Most companies have knowledge of how the world is changing, but few confront the brutal facts of reality head-on to adapt their system.
Good to great companies infused their entire process with the brutal facts of reality and developed simple, yet deeply insightful frames of reference for all decisions.
There is nothing wrong with pursuing a vision for greatness, but good to great companies continually refined their path to greatness with the brutal facts of reality.
Pitney Bowes had a culture hostile to complacency. People could tell senior executives what they thought the company was doing wrong.
Strong, charismatic leaders can become the de facto reality driving a company.
Comparison companies where employees worried what the leader would say, think, do should have been worried about external reality and what it could do to the company.
You don’t need to spend time and energy motivating people. If you have the right people on the bus, they will be self-motivated. The real question is: How do you manage in a way that does not de-motivate people?
Leadership is about a vision, but it is also about creating an environment where the truth is heard and the brutal facts confronted. There’s a huge difference between the opportunity to have your say and the opportunity to be heard.
To create a climate for the truth to be heard:
- Lead with questions, not answers. Why? Why? Why? Leading from good to great does not mean coming up with the answers and motivating everyone to follow you vision. It means having the humility to grasp the fact that you do not yet understand enough to have the answers and to ask the questions that will lead to the best possible insights.
- Engage in dialogue and debate, not coercion. Play the role of Socratic moderator. All good to great companies had a penchant for intense dialogue.
- Conduct autopsies, without blame. You should almost never need to assign blame, but should search for understanding and learning.
- Build “red flag” mechanisms. Good to great companies and their comparison companies all had access to good information, but the key was in turning information into information that cannot be ignored.
Good to great companies left themselves stronger and more resilient, not weaker and more dispirited. There is a sense of exhilaration from facing the hard truths saying, “We will never give up. We will never capitulate. It might take a long time, but we will find a way to prevail.”
Good to great companies never had the goal to survive, but to prevail in the end. They maintained an unwavering faith in the endgame and a commitment to prevail as a great company despite confronting the brutal facts. (The Stockdale Paradox)
Good to great leaders stripped away noise and clutter to focus on the few things with the greatest impact. Implementing the Stockdale Paradox will increase odds of making good decisions and discovering a simple, yet deeply insightful, unifying concept.
The Hedgehog Concept
In his famous essay, Isaiah Berlin splits the world into hedgehogs and foxes. The fox knows many things, but the hedgehog knows one big thing. Foxes pursue many ends at the same time and see the world in all its complexity. They are scattered or diffused and moving on many levels, never integrating their thinking into one overall concept or unifying vision. Hedgehogs simplify a complex world into a single organizing idea, basic principle, or concept that unifies and guides everything.
Those who make the biggest impact are the hedgehogs. The are not stupid and the essence of their profound insight is in the simplicity.
Hedgehogs see what is essential and ignore the rest.
Linking a company’s hedgehog concept to a simple economic idea, often profit per _____ can be powerful.
There needs to be a unifying theme.
Good to great companies attained a simple concept that they used as a frame of reference for all decisions. This coincided with breakthrough results.
Just because it’s simple doesn’t means it’s right though.
Good to great companies founded their strategies on deep understanding along three key dimensions (the three circles) and they translated that understanding into a simple, crystalline concept to guide all their efforts (the hedgehog concept).
The three circles are:
- What can you be the best in the world at and what can you not be the best in the world at?
- What drives your economic engine? (profit per _____)
- What are you deeply passionate about?
A fully developed hedgehog concept has all three circles incorporated.
The hedgehog concept is an understanding of what you can be the best at.
Just because something is your core business does not mean that you can be the best in the world at it. If you cannot be the best in the world at your core business, then your core business cannot form your hedgehog concept.
Doing what you are good at will only make you good. Focusing on what you can potentially do better than any other organization is the only path to greatness.
A single question that can lead to profound insights into the inner workings of an organization is, “If you could pick one ratio (for example: profit per ____) to systematically increase over time, what would it be to have the greatest and most sustainable impact on your economic engine?”
Having this denominator leads to insights for more robust and sustainable economics.
Only do things that you can get passionate about.
Over ⅔ of the comparison companies displayed an obsession with growth without a hedgehog concept. Not one of the good to great companies focused obsessively on growth.
Growth is not a hedgehog concept. The right hedgehog concept will create momentum and growth.
Getting a hedgehog concept is an inherently iterative process, not an event.
One useful mechanism is having a council consisting of right people who participate in dialogue and debate guided by the three circles, iteratively over time, about vital issues and decisions facing the organization.
By asking the right questions, engaging in vigorous debate, making decisions, running an autopsy on the results, and learning, all within the three circles, a hedgehog concept will form.
Characteristics of the council:
- Exists to gain understanding about important issues facing the organization
- Usually consists of 5–12 people and is used by the leading executive
- Each member has the ability to argue and debate in search of understanding
- Each member retains the respect of every other member
- Members come from a range of perspectives, but each with a deep knowledge about some aspect of the organization and/or its environment
- Includes key MGMT members, but is not limited to MGMT members
- Is a standing body, not an ad hoc committee for a specific project
- Meets periodically (once per week to once per quarter)
- Does not seek consensus decisions. Final decision is responsibility of leading executive
- An informal body not on a formal organization chart or in any formal documents
- Can have a range of names
The average good to great company got their hedgehog concept over four years.
Strategy did not separate the good to great companies from the comparison companies.
A Culture of Discipline
Entrepreneurial success is fueled by creativity, imagination, bold moves into uncharted waters, and visionary zeal. As a company grows and becomes more complex, it begins to trip over its own success. What was once great fun becomes an unwieldy ball of disorganized stuff. Lack of planning, accounting, systems, and hiring constraints create friction.
Professional managers will reign in the mess, creating order out of chaos, but killing the entrepreneurial spirit.
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. An alternative exists: Avoid bureaucracy and hierarchy and instead create a culture of discipline. When combining a culture of discipline with an ethic of entrepreneurship you get superior performance and sustained results.
Set your objectives for the year and record them in concrete. You can always change your plans throughout the year, but you can not change what you measure yourself against.
You never just focus on what you’ve accomplished for the year; you focus on what you’ve accomplished relative to what you said you were going to accomplish.
Use rigor and discipline to enable creativity and entrepreneurship. Freedom within a framework.
A good to great company will manage the system and not the people.
The transition starts by getting self-disciplined people, having disciplined thought, and executing disciplined action in that order.
Like David Scott, one simple small step that is believed to make things better adds with all the other small steps to create a consistent program of super-discipline.
Discipline is doing whatever it takes to become the best within carefully selected arenas and then seeking continual improvement from there. It’s simple and difficult at the same time.
It often takes tenacity and not brilliance.
To “rinse one’s cottage cheese” it helps to ask, “Would you spend your own money this way?”
Good to great companies follow the idea that anything that does not fit with their hedgehog concept will not be done.
The more a company has the discipline to stay within its three circles, the more it will paradoxically have attractive opportunities for growth. The challenge is not opportunity creation, but opportunity selection.
The fact that something is a “once-in-a-lifetime opportunity” is irrelevant if it doesn’t fit within the three circles.
A to do list is important, but so is a stop doing list.
Those who built good to great companies made as much use of stop doing lists as to do lists.
If you cannot justify the need for people reporting to you to fulfill your responsibilities, then you won’t have people reporting to you.
In a good to great company, budgeting is a discipline to decide which arenas should be funded or not. It’s not about how much each activity gets, but which activities best support the hedgehog concept.
If you have level 5 leaders who get the right people on the bus, confront the brutal facts, create a climate where the truth is heard, have a council, work within the three circles, frame all decisions in the context of the hedgehog concept, and act from understanding, you will likely be right on big decisions.
Once you know the right thing, do you have the discipline to do the right thing and stop doing the wrong things?
Technology Accelerators
Bubbles come and go. Great companies pause, reflect, and think of how to adapt and endure.
Technology-induced change is nothing new. Good to great companies think differently about technology though.
In all good to great companies, we found technological sophistication. It was never the technology, but the pioneering application of carefully selected technologies.
For all good to great companies, the pioneering application of technology usually came late in the transition, not at the start.
Technology becomes an accelerator of momentum, not a creator of it.
If the technology fits directly with the hedgehog concept, you need to become a pioneer in the application of that technology.
A key item in our collective minds is technology and its implications.
80% of good to great executives didn’t mention technology as one of the top five factors in the transition. Only two executives of 84 interviewed ranked technology as #1.
Ken Iverson said, “The primary factors were the consistency of the company, and our ability to project its philosophies throughout the whole organization, enabled by our lack of layers and bureaucracy.
Like the Daytona 500, the primary variable in winning is not the car, but the driver and his team. Not that the car is unimportant, but it is secondary.
Thoughtless reliance on technology is a liability, not an asset.
Those who turn good into great are motivated by a deep creative urge and an inner compulsion for sheer unadulterated excellence for its own sake.
Crawl, walk, run can be an effective approach in the midst of rapid technological change.
The Flywheel and the Doom Loop
Pushing with great effort, you get the flywheel to turn. You’re pushing no harder than during the first rotation, but eventually the flywheel goes faster and faster. Each turn builds upon work done earlier, compounding your investment of effort and building momentum. Now suppose someone asks, “What was the one big push that caused this thing to go fast?” It was all of them added together in an overall accumulation of effort applied in a consistent direction.
No matter what the end result, no good to great transformations happened in one fell swoop. It’s a cumulative process.
From the outside, good to great transitions look like dramatic breakthroughs, but from the inside, they feel like an organic development process.
Good to great companies had no miracle moment. It was a quiet, deliberate process of figuring out what needed to be done to create the best future results and simply taking those steps to turn the flywheel.
Good to great companies focused on accumulating results and were disciplined in under promising and over delivering.
Tremendous power exists in the fact of continued improvement and the delivery of results. Good to great companies can point to tangible accomplishments and show how these steps fit into the context of an overall concept that will work.
When people can see and feel the buildup of momentum, they will line up with enthusiasm.
Good to great companies never really spent much time thinking about commitment and alignment, it was transparent to them. Under the right conditions, the problems of commitment, alignment, and motivation melt away.
When you let the flywheel do the talking, you don’t need to fervently communicate your goals. People can extrapolate from the momentum.
The right people want to be part of a winning team and want to contribute to producing visible, tangible results. They want to feel the excitement of being involved in something that works. When the right people see a simple plan born of confronting the brutal facts, they’ll likely want to sign up.
Good to great companies used M&As as an accelerator of flywheel momentum, not a creator of it.
Good to great is about consistency and coherence.
Each piece of the system reinforces the other parts to form an integrated whole that is much more powerful than the sum of the parts.
Comparison companies, rather than accumulating momentum turn by turn of the flywheel, try to skip buildup and jump to breakthrough. When disappointing results follow, they lurch back and forth, failing to maintain a consistent direction.
From Good to Great to Built to Last
Packard’s Law: 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.
Bill Hewlett said, “I’m probably most proud of having helped create a company that by virtue of its values, practices, and success has had a tremendous impact on the way companies are managed around the world. The “HP Way” reflected a deeply held set of core values that distinguished the company more than any of its products.
The extra dimension is a guiding philosophy or a “core ideology,” which consists of core values and a core purpose (reason for being beyond just making money). They are never perfectly followed, but they always present an inspiring standard to answer the question of why it is important that we exist.
There are no specific right core values for becoming an enduring great company. Core values are essential for enduring greatness, but it doesn’t seem to matter what those core values are.
Enduring great companies preserve their core values and purpose while their business strategies and operating practices endlessly adapt.
Good to Great findings enable all four of the key ideas from Built to Last.
- Clock building, not time telling. Build an organization that can endure and adapt through multiple generations of leaders and product life cycles.
- Genius of AND. Figure out how to have A AND B.
- Core ideology.
- Preserve the core and stimulate change.
To remain great over time requires staying within the three circles while being willing to change the manifestation of what’s inside the three circles at any given moment.
The idea of this book is not to add these findings to what we do and overworking ourselves. The point is to realize that much of what we do is a waste of energy. If we organized our work around applying these principles, and ignored most everything else, our lives would be simpler and our results would improve.
These ideas work in any situation.
If you’re doing something you care about and you believe in its purpose deeply enough, then it is impossible to imagine not trying to make it great.
If you’re engaged in work that you love and care about, then the question is not why, but how.
Get involved in something that you care so much about that you want to make it the greatest it can possibly be, not because of what you will get, but just because it can be done.
It is impossible to have a great life if it is not meaningful. It is difficult to have a meaningful life without meaningful work.
