Good to GreatGood to Great

Book by Jim CollinsBook by Jim Collins

Good to GreatGood to Great

Good is the enemy of great.Good is the enemy of great.

Why is that true?Why is that true?

Companies StudiedCompanies Studied (15-year return compared to general stock market)(15-year return compared to general stock market)

Abbott (3.98)Abbott (3.98) Circuit City (18.5)Circuit City (18.5) Fannie Mae (7.56)Fannie Mae (7.56) Gillette (7.39)Gillette (7.39) Kimberly-Clark (3.42)Kimberly-Clark (3.42) Kroger (4.17)Kroger (4.17) Nucor (5.16)Nucor (5.16) Philip Morris (7.06)Philip Morris (7.06) Pitney Bowes (7.16)Pitney Bowes (7.16) Walgreens (7.34)Walgreens (7.34) Wells Fargo (3.99)Wells Fargo (3.99)

UpjohnUpjohn SiloSilo Great WesternGreat Western Warner-LambertWarner-Lambert Scott PaperScott Paper A&PA&P Bethlehem SteelBethlehem Steel R.J. ReynoldsR.J. Reynolds AddressographAddressograph EckerdEckerd Bank of AmericaBank of America

Unsustained: Burroughs, Chrysler, Harris, Hasbro, Rubbermaid, Teledyne

Lesson #1: LeadershipLesson #1: Leadership

Humility + Will = Level 5 leadershipHumility + Will = Level 5 leadership Modest, willful, humble, fearlessModest, willful, humble, fearless Ego-driven, genius-types, may produce short-Ego-driven, genius-types, may produce short-

term positive results, but cannot sustain resultsterm positive results, but cannot sustain results 1=highly capable; 2= contributing team 1=highly capable; 2= contributing team

member, 3= competent manager, 4= effective member, 3= competent manager, 4= effective leader, 5=executive that builds enduring leader, 5=executive that builds enduring greatness thru personal humility & professional greatness thru personal humility & professional

#1

LeadershipLeadership

Professional WillProfessional Will Creates superb results, a clear Creates superb results, a clear

catalyst in the transition from catalyst in the transition from good to greatgood to great

Demonstrates an unwavering Demonstrates an unwavering resolve to do whatever must resolve to do whatever must be done to produce the best be done to produce the best long-term results, no matter long-term results, no matter how difficulthow difficult

Sets the standard of building Sets the standard of building an enduring great company; an enduring great company; will settle for nothing lesswill settle for nothing less

Looks in the mirror, not out the Looks in the mirror, not out the window, to apportion window, to apportion responsibility for poor results, responsibility for poor results, never blaming other people, never blaming other people, external factors, or bad luckexternal factors, or bad luck

Personal HumilityPersonal Humility Demonstrates a compelling Demonstrates a compelling

modesty, shunning public modesty, shunning public adulation; never boastfuladulation; never boastful

Acts with quiet, calm Acts with quiet, calm determination; relies principally determination; relies principally on inspired standards, not on inspired standards, not inspiring charisma to motivateinspiring charisma to motivate

Channels ambition into the Channels ambition into the company, not the self; sets up company, not the self; sets up successors for even greater successors for even greater success in the next generationsuccess in the next generation

Looks out the window, not in Looks out the window, not in the mirror, to apportion credit the mirror, to apportion credit for the success of the for the success of the company—to other people, company—to other people, external factors, and good luckexternal factors, and good luck

#1

Lesson 2: First who…then Lesson 2: First who…then what.what.

There are going to be times when we can’t wait There are going to be times when we can’t wait for somebody. Now, you’re either on the bus or for somebody. Now, you’re either on the bus or off the bus. off the bus. (Ken Kesey, (Ken Kesey, The Electric Kool-Aid Acid Test)The Electric Kool-Aid Acid Test)

What did the 11 successful companies find What did the 11 successful companies find out?out?

You don’t first figure out where to drive the bus You don’t first figure out where to drive the bus and then get people to take it there. and then get people to take it there.

No, first get the right people on the bus (and No, first get the right people on the bus (and the wrong people off) and the wrong people off) and thenthen figure out figure out where to take the bus.where to take the bus.

#2

Why you get the right people on the Why you get the right people on the bus first…bus first…

1.1. If you begin with “who” rather than “what” you If you begin with “who” rather than “what” you can more easily adapt to a changing world.can more easily adapt to a changing world.

2.2. If you have the right folks on the bus, the If you have the right folks on the bus, the problem on how to motivate & manage people problem on how to motivate & manage people largely goes away.largely goes away.

3.3. If you have the wrong people, it doesn’t If you have the wrong people, it doesn’t matter whether you discover the right matter whether you discover the right direction, you still won’t have a great direction, you still won’t have a great organization. Great vision without great organization. Great vision without great people is irrelevant.people is irrelevant.

#2

Level 5 thinking…on getting Level 5 thinking…on getting folks on/off the bus…folks on/off the bus…

““I don’t know where we should take this I don’t know where we should take this commission, but I do now that if I start with the commission, but I do now that if I start with the right people, ask them the right questions, and right people, ask them the right questions, and engage them in vigorous debate, we’ll find a engage them in vigorous debate, we’ll find a way to make this organization great.”way to make this organization great.”

David Maxwell (CEO, Fannie Mae) made it David Maxwell (CEO, Fannie Mae) made it absolutely clear that there would only be seats absolutely clear that there would only be seats for A players who were willing to put forth an for A players who were willing to put forth an A+ effort, and if you weren’t up for it, you had A+ effort, and if you weren’t up for it, you had better get off the bus, and better get off the bus, and get off nowget off now..

#2

Rigorous, not ruthlessRigorous, not ruthless

To be rigorous means consistently applying To be rigorous means consistently applying exacting standards at all times and at all levels, exacting standards at all times and at all levels, especially in especially in upper management.upper management. To be To be rigorous, not ruthless, means that the best rigorous, not ruthless, means that the best people need not worry about their positions people need not worry about their positions and can concentrate fully on their work.and can concentrate fully on their work.

To let people languish in uncertainty for To let people languish in uncertainty for months or years when in the end they aren’t months or years when in the end they aren’t going to make it anyway—that is ruthless. To going to make it anyway—that is ruthless. To deal with it right up front and let people get on deal with it right up front and let people get on with their lives—that is rigorous.with their lives—that is rigorous.

#2

How to be rigorousHow to be rigorous

1.1. When in doubt, don’t hire—keep looking.When in doubt, don’t hire—keep looking.2.2. When you know you need to make a people When you know you need to make a people

change—act.change—act. The moment you feel the need to tightly manage someone, you’ve made a hiring The moment you feel the need to tightly manage someone, you’ve made a hiring

mistake. The best people don’t need to be managed. Guided, taught, led—yes. But mistake. The best people don’t need to be managed. Guided, taught, led—yes. But not tightly managed.not tightly managed.

Waiting too long before acting is equally unfair to the people who need to get off the Waiting too long before acting is equally unfair to the people who need to get off the bus.bus.

How to know: Would you hire the person again? Would you be relieved if they left the How to know: Would you hire the person again? Would you be relieved if they left the organization?organization?

3.3. Put your best people on your biggest Put your best people on your biggest opportunities not your biggest problems.opportunities not your biggest problems.

Corollary: When you decide to sell off your problems, don’t sell of Corollary: When you decide to sell off your problems, don’t sell of your best people. Make a place on the bus for the best people, and your best people. Make a place on the bus for the best people, and they’ll be more likely to support changes in direction.they’ll be more likely to support changes in direction.

#2

Discuss: How do you Discuss: How do you need to be rigorous?need to be rigorous?

1.1. When in doubt, don’t hire—keep looking.When in doubt, don’t hire—keep looking.2.2. When you know you need to make a people When you know you need to make a people

change—act.change—act. The moment you feel the need to tightly manage someone, you’ve made a hiring The moment you feel the need to tightly manage someone, you’ve made a hiring

mistake. The best people don’t need to be managed. Guided, taught, led—yes. But mistake. The best people don’t need to be managed. Guided, taught, led—yes. But not tightly managed.not tightly managed.

Waiting too long before acting is equally unfair to the people who need to get off the Waiting too long before acting is equally unfair to the people who need to get off the bus.bus.

How to know: Would you hire the person again? Would you be relieved if they left the How to know: Would you hire the person again? Would you be relieved if they left the organization?organization?

3.3. Put your best people on your biggest Put your best people on your biggest opportunities not your biggest problems.opportunities not your biggest problems.

Corollary: When you decide to sell off your problems, don’t sell of Corollary: When you decide to sell off your problems, don’t sell of your best people. Make a place on the bus for the best people, and your best people. Make a place on the bus for the best people, and they’ll be more likely to support changes in direction.they’ll be more likely to support changes in direction.

#2

Lesson 3: Confront the Brutal Lesson 3: Confront the Brutal FactsFacts

Yet never lose faithYet never lose faith

Two choices: confront brutal facts and change Two choices: confront brutal facts and change or stick head in sand or stick head in sand

Kroger and A&P…superstores vs. low pricesKroger and A&P…superstores vs. low prices You have to be number one or two in each You have to be number one or two in each

market or you have to exit.market or you have to exit. You absolutely cannot make a series of good You absolutely cannot make a series of good

decisions without first confronting the brutal decisions without first confronting the brutal facts.facts.

#3

Confront the Brutal FactsConfront the Brutal FactsYet never lose faithYet never lose faith

Your job is to turn over rocks and look at the Your job is to turn over rocks and look at the squiggly things, even if what you see can scare squiggly things, even if what you see can scare you!you!

Some organizations (Bank of America) have Some organizations (Bank of America) have climates where managers will not even make a climates where managers will not even make a comment until they know how the boss felt.comment until they know how the boss felt.

The moment a leader allows himself to become The moment a leader allows himself to become the primary reality people worry about, rather the primary reality people worry about, rather than reality being the primary reality, you have than reality being the primary reality, you have a recipe for mediocrity, or worse.a recipe for mediocrity, or worse.

#3

How to confront the Brutal FactsHow to confront the Brutal FactsYet never lose faithYet never lose faith

1.1. Lead with questions, not answersLead with questions, not answers Put more questions to board members than they put to youPut more questions to board members than they put to you Raise questions for one reason only: to gain understanding (not Raise questions for one reason only: to gain understanding (not

manipulation)manipulation)2.2. Engage in dialogue and debate, not coercion.Engage in dialogue and debate, not coercion.

Good-to-great companies have a penchant for intense dialogueGood-to-great companies have a penchant for intense dialogue3.3. Conduct autopsies, without blame.Conduct autopsies, without blame.

No finger-pointing.No finger-pointing.4.4. Build red-flag mechanisms.Build red-flag mechanisms.

Good-to-great companies don’t have better information, necessarily. Good-to-great companies don’t have better information, necessarily. The key is turning information into info that can’t be ignored.The key is turning information into info that can’t be ignored.

Red cards in meetings: folks hold it up to deal with real issuesRed cards in meetings: folks hold it up to deal with real issues Short-pay: allow customers to circle items on invoice they don’t want to Short-pay: allow customers to circle items on invoice they don’t want to

pay due to bad servicepay due to bad serviceAttitude: We will never give up. We will never capitulate. It might take a Attitude: We will never give up. We will never capitulate. It might take a

long time, but we long time, but we willwill find a way to prevail. find a way to prevail.

#3

How do you need to confront the Brutal Facts?How do you need to confront the Brutal Facts?Yet never lose faithYet never lose faith

1.1. Lead with questions, not answersLead with questions, not answers Put more questions to board members than they put to youPut more questions to board members than they put to you Raise questions for one reason only: to gain understanding (not Raise questions for one reason only: to gain understanding (not

manipulation)manipulation)2.2. Engage in dialogue and debate, not coercion.Engage in dialogue and debate, not coercion.

Good-to-great companies have a penchant for intense dialogueGood-to-great companies have a penchant for intense dialogue3.3. Conduct autopsies, without blame.Conduct autopsies, without blame.

No finger-pointing.No finger-pointing.4.4. Build red-flag mechanisms.Build red-flag mechanisms.

Good-to-great companies don’t have better information, necessarily. Good-to-great companies don’t have better information, necessarily. The key is turning information into info that can’t be ignored.The key is turning information into info that can’t be ignored.

Red cards in meetings: folks hold it up to deal with real issuesRed cards in meetings: folks hold it up to deal with real issues Short-pay: allow customers to circle items on invoice they don’t want to Short-pay: allow customers to circle items on invoice they don’t want to

pay due to bad servicepay due to bad serviceAttitude: We will never give up. We will never capitulate. It might take a Attitude: We will never give up. We will never capitulate. It might take a

long time, but we long time, but we willwill find a way to prevail. find a way to prevail.

#3

The Stockdale ParadoxThe Stockdale Paradox

Research by the Int’l Committee for the Study of Research by the Int’l Committee for the Study of Victimization found that those facing serious Victimization found that those facing serious adversity generally fall into one of three adversity generally fall into one of three categories:categories:

1.1. Those who were permanently dispirited by Those who were permanently dispirited by the eventthe event

2.2. Those who got their life back to normalThose who got their life back to normal3.3. Those who used the experience as a defining Those who used the experience as a defining

event that made them stronger.event that made them stronger.

#3

The Stockdale ParadoxThe Stockdale Paradox

Jim StockdaleJim Stockdale stoically stoically accepted the brutal facts of accepted the brutal facts of reality while maintaining an reality while maintaining an unwavering faith in the unwavering faith in the endgame—that he would endgame—that he would prevail despite the brutal prevail despite the brutal facts.facts.

Who didn’t make it out? Who didn’t make it out? The optimists. The optimists.

Those who think it will all Those who think it will all be a quick fix and everyone be a quick fix and everyone will be out by Christmas are will be out by Christmas are the ones that lose heart the ones that lose heart and fail.and fail.

#3

Lesson 4: The Hedgehog Lesson 4: The Hedgehog ConceptConcept

““The fox knows many things, but The fox knows many things, but the hedgehog knows one big the hedgehog knows one big thing.”thing.”

Foxes pursue many ends at the Foxes pursue many ends at the same time and see the world in all same time and see the world in all its complexity. They are scattered its complexity. They are scattered or diffused, moving on many or diffused, moving on many levels.levels.

Hedgehogs simplify a complex Hedgehogs simplify a complex world into a single organizing idea, world into a single organizing idea, a basic principle or concept that a basic principle or concept that unifies and guides everything.unifies and guides everything.

For a hedgehog, anything that For a hedgehog, anything that does not somehow relate to the does not somehow relate to the hedgehog idea holds no hedgehog idea holds no relevance.relevance.

#4

The Hedgehog ConceptThe Hedgehog Concept

ExamplesExamples Walgreens: the best, most convenient drugstores, with high Walgreens: the best, most convenient drugstores, with high

profit per customer visit (viz., also Starbucks)profit per customer visit (viz., also Starbucks) Wells Fargo: running a bank like a business, with a focus on Wells Fargo: running a bank like a business, with a focus on

the Western U.S.the Western U.S.

Strategy, per se did not distinguish the good-to-great companies Strategy, per se did not distinguish the good-to-great companies from the comparison companies. from the comparison companies. BothBoth sets had strategic sets had strategic plans, and there is no evidence that the good-to-great plans, and there is no evidence that the good-to-great companies invested more time/energy in strategy companies invested more time/energy in strategy development & long-range planning.development & long-range planning.

All the G2G companies attained a very simple concept that All the G2G companies attained a very simple concept that they used as a frame of reference for all their decisions. they used as a frame of reference for all their decisions.

A Hedgehog Concept is a simple, crystalline concept that flows A Hedgehog Concept is a simple, crystalline concept that flows from deep understanding about the intersection of the from deep understanding about the intersection of the following three circles…following three circles…

#4

Developing The Hedgehog Developing The Hedgehog ConceptConcept

1.1. What can you be the best in the world at (and, equally What can you be the best in the world at (and, equally important, what you cannot be the best in the world at)important, what you cannot be the best in the world at) What you can be the best at might not even be something in What you can be the best at might not even be something in

which you are currently engaged.which you are currently engaged.2.2. What drives your economic engine?What drives your economic engine?

Must discover the single denominator (profit per Must discover the single denominator (profit per XX ) that has the ) that has the greatest impact on your economics/budgeting.greatest impact on your economics/budgeting.

3.3. What are you deeply passionate about?What are you deeply passionate about? What do you have a genetic or God-given talent to do?What do you have a genetic or God-given talent to do? What are you well-paid to do?What are you well-paid to do? What do you enjoy doing that you absolutely love to do, What do you enjoy doing that you absolutely love to do,

enjoying the actual process for its own sake?enjoying the actual process for its own sake?

#4

The Hedgehog ConceptThe Hedgehog Concept

You can be passionate about all you want, but if You can be passionate about all you want, but if you can’t be the best at it or if it doesn’t make you can’t be the best at it or if it doesn’t make economic sense, then you might have a lot of economic sense, then you might have a lot of fun, but you won’t get great results.fun, but you won’t get great results.

If we can’t be the best at it, then why are we If we can’t be the best at it, then why are we doing it at all?doing it at all?

A Hedgehog Concept is not a goal to be the best, A Hedgehog Concept is not a goal to be the best, a strategy to be the best, an intention to be the a strategy to be the best, an intention to be the best, a plan to be the best. It is an best, a plan to be the best. It is an understanding of understanding of what you can be the best at.what you can be the best at.

#4

Develop your Hedgehog Concept!Develop your Hedgehog Concept!

What can you be the best in the world atWhat can you be the best in the world at (and, equally important, (and, equally important, what you cannot be the best in the world at)what you cannot be the best in the world at) What you can be the best at might not even be something in What you can be the best at might not even be something in

which you are currently engaged.which you are currently engaged. What drives your economic engine?What drives your economic engine?

Must discover the single denominator (profit per Must discover the single denominator (profit per XX ) that has ) that has the greatest impact on your economics/budgeting.the greatest impact on your economics/budgeting.

What are you deeply passionate about?What are you deeply passionate about? What do you have a genetic or God-given talent to do?What do you have a genetic or God-given talent to do? What are you well-paid to do?What are you well-paid to do? What do you enjoy doing that you absolutely love to do, What do you enjoy doing that you absolutely love to do,

enjoying the actual process for its own sake?enjoying the actual process for its own sake?

A Hedgehog Concept is not a goal to be the best, a strategy to be 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 the best, an intention to be the best, a plan to be the best. It is an understanding of understanding of what you can be the best at.what you can be the best at.

#4

A few hedgehog facts…A few hedgehog facts…

Growth is not a Hedgehog ConceptGrowth is not a Hedgehog Concept You can’t just go off-site for 2 days and come You can’t just go off-site for 2 days and come

back with itback with it On average, it took 4 years for G2G companies On average, it took 4 years for G2G companies

to clarify theirsto clarify theirs It is an inherently iterative processIt is an inherently iterative process Useful mechanism is a Council that Useful mechanism is a Council that

consistently meets to review the 3 aspects of consistently meets to review the 3 aspects of the Hedgehog Concept (and they should the Hedgehog Concept (and they should get/read the book!)get/read the book!)

#4

An interesting note on An interesting note on bureaucracy…bureaucracy…

Most companies build their bureaucratic Most companies build their bureaucratic rules to manage the small percentage of rules to manage the small percentage of wrong people on the bus, which in turn wrong people on the bus, which in turn drives away the right people on the bus, drives away the right people on the bus, which increases the need for more which increases the need for more bureaucracy to compensate for bureaucracy to compensate for incompetence and lack of discipline, incompetence and lack of discipline, which then further drives the right people which then further drives the right people away and…away and…

Lesson 5: The Flywheel and the Lesson 5: The Flywheel and the Doom LoopDoom Loop

G2G comes about by a G2G comes about by a

cumulative process—step by cumulative process—step by step, action by action, step, action by action, decision by decision, turn by decision by decision, turn by turn of the flywheel—that turn of the flywheel—that adds up to sustained and adds up to sustained and spectacular results.spectacular results.

Media attention often comes Media attention often comes to G2G organizations after to G2G organizations after years of slow build-up and years of slow build-up and then break-through.then break-through.

#5

Flywheel & DoomloopFlywheel & Doomloop

Flywheel transitions look like dramaticm Flywheel transitions look like dramaticm revolutionary breakthroughs from the revolutionary breakthroughs from the outside (when the wheel is fully turning).outside (when the wheel is fully turning).

From the inside they feel completely From the inside they feel completely different, more like an organic different, more like an organic development process.development process.

#5

Flywheel & DoomloopFlywheel & Doomloop

Egg sitting there.Egg sitting there. No one pays attention.No one pays attention. Egg cracks open.Egg cracks open. Out jumps chick.Out jumps chick. Media: Media:

““The transformation of The transformation of Egg to Chicken!” Egg to Chicken!”

““The remarkable The remarkable revolution of the Egg!” revolution of the Egg!”

““Stunning turnaround at Stunning turnaround at Egg!”Egg!”

#5

Flywheel & DoomloopFlywheel & Doomloop

The point?The point? G2G companies had no name for their G2G companies had no name for their

transformations. There was no launch event, transformations. There was no launch event, no tag line, no programmatic feel whatsoever. no tag line, no programmatic feel whatsoever.

There was no miracle moment.There was no miracle moment.

#5

Flywheel…Flywheel…

UCLA won 10 NCAA UCLA won 10 NCAA championships and championships and 61 games in a row.61 games in a row.

How many years did How many years did Wooden coach UCLA Wooden coach UCLA before the 1before the 1stst championship?championship?

1515

#5

Flywheel…Flywheel…

Point to tangible Point to tangible accomplishments—however accomplishments—however incremental at first—and incremental at first—and show how these steps fit into show how these steps fit into the context of an overall the context of an overall working concept.working concept. Step forward, consistent with Step forward, consistent with

hedgehog concepthedgehog concept Accumulate visible resultsAccumulate visible results People line up, energized by People line up, energized by

resultsresults Flywheel momentum buildsFlywheel momentum builds

#5

DoomloopDoomloop Instead of a quiet, deliberate process of Instead of a quiet, deliberate process of

figuring out what needed to be done and figuring out what needed to be done and then simply doing it, the comparison then simply doing it, the comparison companies frequently launched new companies frequently launched new programs—often with great fanfare and programs—often with great fanfare and hoopla aimed at “motivating the hoopla aimed at “motivating the troops”—only to see the programs fail to troops”—only to see the programs fail to produce sustained results.produce sustained results.

They sought the single defining action, They sought the single defining action, the grand program, the one killer the grand program, the one killer innovation, the miracle moment that innovation, the miracle moment that would allow them to skip the arduous would allow them to skip the arduous buildup stage and jump right to buildup stage and jump right to breakthrough.breakthrough.

Guess what happened…Guess what happened…

#5

Two popular doomloops to avoid…Two popular doomloops to avoid…

Misguided use of acquisitions—making deals for the Misguided use of acquisitions—making deals for the sake of making deals.sake of making deals. ““When the going gets tough, we go shopping!”When the going gets tough, we go shopping!” G2G companies did acquisitions G2G companies did acquisitions afterafter the Hedgehog Concept the Hedgehog Concept

and and afterafter the flywheel had significant momentum. the flywheel had significant momentum. Acquisitions are accelerators not creators of flywheel Acquisitions are accelerators not creators of flywheel

momentum.momentum. Leaders who stop the flywheel—leaders who step in, Leaders who stop the flywheel—leaders who step in,

stop an already spinning flywheel, and throw the stop an already spinning flywheel, and throw the organization in entirely different direction.organization in entirely different direction.

#5

What’s the diff between What’s the diff between flywheel & doom loop flywheel & doom loop organizations?organizations?

(in)consistency(in)consistency (non)confrontal(non)confrontal (un)disciplined(un)disciplined (un)motivated (self)(un)motivated (self) (talk)results(talk)results