Key Points

• “Level 5 Leaders” - leaders who have both “personal humility” and “professional will”. These are not rock-star leaders whose companies go into decline when they move on. They are diligent and hard working - more bite than bark. Celebrity leaders often work for a time, but appear to be damaging in the long run, because they don’t create sustained results.

• Get the right people on the bus - that has to happen before the “what” decisions are taken. That can change if you have the right people, but the wrong people will certainly make the enterprise fail.

• You must always be willing to “confront the brutal facts”. Don’t ignore reality in favor of what your hopes reflect it to become. Only by having accurate information can you achieve success.

• The “Hedgehog concept” means having a simple, extremely clear concept of what their business is. That business is something they can

  1. Make money at
  2. Be passionate about, and
  3. Be the best in the world at These are also known as “The Three Circles”

• A culture of self-discipline is critical, because it creates an environment where people work within a defined system, and yet, because the confines of the system are known, gives them more freedom to act within that system.

• Technology is an accelerator, not an agent of change. Good companies use it to execute better, but it won’t save a mediocre company.

• “The Flywheel” refers to the idea of momentum - keep pushing in one direction and you’ll build up a lot of it that will help you to overcome obstacles. Momentum is built a little bit at a time - it’s not a dramatic, revolutionary change, but constant, diligent work.

Summary

The idea that sparked this book was to answer questions about how good companies might become great companies, and how they went about doing so.

Methodology

The study looks at companies from 1965 to 1995, looking for those that, for 15 years, either tracked or underperformed the stock market, followed by a transition, and subsequently returning at least 3 times the stock market for at least 15 years. The goal was to eliminate “flash in the pan” success from the results. Further filtering was performed in order to ensure that companies also outperformed their industries, so as not to include spurious results showing entire industries that grew by leaps and bounds in a given period. Eleven companies were located that matched these criteria, and were studied in depth, and compared to competitors in their fields

The companies studied were:

• Abbot Laboratories
• Circuit City
• Fannie Mae
• Gillette
• Kimberly-Clark
• Kroger
• Nucor
• Philip Morris
• Pitney Bowes
• Walgreens
• Wells Fargo

Level 5 Leaders

All the companies studied had what Collins describes as “Level 5 Leaders”. Despite sounding like something from a space-alien worshiping cult, what the term refers to is an individual who is very humble on a personal level, but who possesses a great deal of drive and desire to succeed, where “success” is not personal, but defined by creating something great that will outlast their time at the helm. These are people with an unwavering will and commitment to do what is necessary to drive their organization to the top. Most of the good to great executives discussed luck as an important factor in their success [and perhaps cynical readers of The Black Swan will agree with that assessment more than the factors Collins cites - davidw]. Level 5 leaders, are, in any case, the kind of people who do not point to themselves as the cause for an organization’s success. The chapter closes with a discussion of whether Level 5 Leaders are born, or made, with the conclusion that many people probably have the kernel of abilities and attitude necessary to attain that status.

First Who … Then What

During the transformation from good to great, rather than concern themselves first with the “what” - products, direction, strategy - the companies studied ensured they had the right people “on the bus” before anything else. By having a strong team, these companies avoided the pitfall of the “lone genius” CEO. For example, think what would happen to Apple’s share price were something to happen to Steve Jobs. “Great” companies are those that have a very solid foundation, and don’t depend on the brilliance of any one person.

The research indicated that compensation did not correlate at all with the “good to great” process. No particular compensation scheme appeared to be advantageous.

Also important was that, while the companies were “tough” places to work, they were because of the general high quality and hard-working mindset, not because of ruthless management. Some practical tips for how to be rigorous:

• Don’t hire someone unless you’re %100 sure that they’re the right person. It’s better to wait and get someone that you know is a good fit.

• Once you realize you need to fire someone, don’t put it off. Do it quickly and fairly, but do it and be done with it, rather than put it off.

• Give good people good opportunities, rather than the biggest problems. Fixing problems makes you good, but taking advantage of the right opportunities can make you great.

Good to great teams were mostly composed of people who had a good sense of balance with the rest of their lives - family, church, and so on. Of course, they had a deep commitment to their companies, but not one that blinded them to the other important things in their lives.

Confront the Brutal Facts

One of the key factors in the success of the great companies was a series of good decisions. The good decisions flowed from the fact that they all made a consistent and thorough effort to confront reality, internalizing the facts relevant to their market. Having lofty goals can be good, but you can never lose sight of what the reality is on the ground, no matter how much you will it to be different.

In a large organization, where it’s impossible to personally poke your nose in all corners of the company every day, it is crucial to create a climate where honesty is valued and honored. If people aren’t telling it like it is, those at the top may not realize the truth until too late. Some tips to create this kind of climate:

• It’s often better to ask questions rather than dispense “answers”.

• Encourage healthy debate. It has to be real debate, not a show put on to make people feel included. It should also not just be argument for the sake of argument - reach a conclusion and move on.

• When things go wrong, investigate to avoid repeating the mistake, instead of assigning blame. If people are too worried about protecting themselves, it becomes difficult to honestly analyze and learn from failures.

• Create mechanisms, “red flags” that allow people to communicate problems instantly and without repercussions, and in a way that cannot be ignored.

Amidst these “brutal facts” that must be faced, you must also have faith in your final goal. By maintaining this vision, and keeping your ear to the ground, it won’t be necessary to motivate people - if you’ve got the right people, they’ll be motivated of their own accord.

Notes

Interestingly, CEO salaries don’t seem to be a major factor in terms of their correlation with “good to great” companies.

Links

http://www.jimcollins.com/

Detailed criticism of the book: Why “Good to Great” Isn’t Very Good