Can a company make the transition from good to great? If so, how? Through extensive research and analysis, Jim Collins identified a number of timeless principles that helped a small group of companies to break away from the rest and consistently outperform the market. In this free Good to Great summary, we’ll give a synopsis the 6 ingredients to transit from good to great, and how they come together with the Flywheel/ Doom Loop to generate massive momentum over time.
To identify “great” companies, Collin and his research team started with 1,435 good companies, examined their performance over 40 years, and identified 11 companies that became great, namely Abbott, Circuit City, Fannie Mae, Gillette, Kimberly-Clark, Kroger, Nucor, Philip Morris, Pitney Bowes, Walgreens, Wells Fargo.
Defining Good vs Great
These good-to-great companies had:
• 15 years of cumulative stock returns at/ below the general stock market
• A distinct transition point
• Followed by cumulative stock returns of at least 3 times that of the general market over the next 15 years
This group of 11 companies were compared against 2 groups of comparison companies, the first group from same industry (with similar circumstances but didn’t make the leap), and the second group of “unsustained companies” that made the leap but didn’t sustain the performance.
Transiting from Good to Great
Here’s a brief overview of the 6 critical ingredients used by companies who successfully transit from “good” to “great”. For more details, do check out our full 12-page Good to Great summary bundle.
1. Level 5 Leadership
At the time of their big transition, all the good-to-great companies had Level 5 leadership. “Level 5 leaders” are at the top of a 5-level hierarchy, and exhibit the duality of personal humility and professional will. Some examples of level 5 leaders include Colman Mockler, David Maxwell, Darwin Smith, Joe Cullman, and Fred Allen.
Professional Will
Level 5 leaders have huge ambitions for their institutions (not themselves). They are fanatically-driven to deliver results, set exacting standards, demonstrate an unwavering resolve and a quiet doggedness to do whatever it takes to bring the company to greatness.
Personal Humility
Level 5 leaders put their egos aside, and focus on the companies’ long term interests. They demonstrate a “compelling modesty”, talk about the company (not themselves), shun public praise, and are not boastful. They rely on inspired standards, not charisma, to motivate. They set up successors so that the company could be great without them.
2. First Who, Then What
Instead of setting a grand vision and strategy, then rallying people behind them, good-to-great companies got the right people onboard, then figured out which direction to take.
Right people, then direction/strategy
The Level 5 leaders first focus on finding the right people (A-team players who make a conscious decision to take on the challenges), then developed the strategy. By contrast, the comparison companies focus first on setting the vision, then putting people on the roadmap. Their leaders may be individually talented, but tend to enlist helpers rather than develop strong executives – the model falls apart when the leader leaves.
Be rigorous (but not ruthless) about people
Good-to-great companies exercise rigorousness in people-related decisions and in building a superior executive team. However, they do not carry out endless restructuring nor ruthlessly swing the axe. Layoffs were used 5x more frequently in comparison companies than good-to-great companies. Get our complete summary for the 3 principles to inject rigorousness into your company.
3. Confront the Brutal Facts
(Yet Never Lose Faith)
Good-to-great companies don’t just pursue a vision – they constantly refine their paths with brutal facts, with 2 types of disciplined thought:
• They face the brutal facts in all their decisions; and
• They apply a simple but insightful frame of reference (the Hedgehog Concept) for all their decisions.
This is called the “Stockdale Paradox” – and it involve 2 elements:
Confronting Brutal Facts…
• Confronting Brutal Facts. Good-to-great leaders create an environment where the truth can be heard. By contrast, larger-
than-life/ charismatic leaders can become a liability if the focus is on them rather than the true realities. In our full summary, we explain the 4 basic practices recommended by Collins to achieve a climate of truth.
…With Unwavering Faith
There is a sense of euphoria in good-to-great companies as they demonstrate a commitment to prevail, face the truths head on, and emerge stronger and more resilient. They all demonstrate the “Stockdale Paradox” – they retain the faith that they will prevail in the end, and at the same time exhibit discipline to confront the most brutal facts of their current realities. They are not simply optimists who believe that things will work out on their own.
4. The Hedgehog Concept
This idea is built on the concept of the Greek Parable, The Hedgehog and the Fox. The fox pursues many ends, sees the world as complex, and is scattered/ diffused. The hedgehog, conversely, simplifies the world into a single idea or principle that guides everything it does. Good-to-great companies demonstrate a strategic difference in 2 areas:
• They build their strategies on a deep understanding of the “three circles”;
• They identify a simple, crystalline concept that guide all their efforts
The Hedgehog Concept lies at the intersection of the 3 circles:
• What you can be the best in the world at;
• What drives your economic engine; and
• What are you deeply passionate about.
Do get more details about this powerful concept from our full Good to Great summary: you can use it to find your niche both in business and in life.
5. A Culture of Discipline
Most successful start-ups don’t grow into great companies. As they grow, they start to introduce bureaucracy and rules to make up for incompetence and lack of discipline. To avoid bureaucracy, hierarchy, and excessive controls, instill a culture of discipline (through disciplined people, thought and action). Combine the culture of discipline with an ethic of entrepreneurship to get superior performance.
In the book, Collins outlines several tips or components that you can use to build a great organization that has both a culture of discipline and an ethic of entrepreneurship. Do check out the details in our complete book summary.
6. Technology Accelerators
Good-to-great companies think differently about technology. Specifically, good-to-great companies:
• Think of technology as accelerators, not creators, of momentum;
• Avoid the Technology Trap; and
• Adopt new technology due to their desire for excellence & creation, not fear.
So here you are once again, the 6 powerful ingredients for moving from good to great:
Read more about each of these points above in our full summary bundle, to understand how Good-to-Great companies apply technology .
The Fly Wheel & The Doom Loop
The good to great transition is not a process of overnight metamorphosis, nor is there a single big success factor. It is an accumulation of many interlocking steps and factors that build on one another until a point of breakthrough is reached, much like how a flywheel picks up momentum turn by turn. The companies usually did not realize their own transformation until after the fact.
Essentially, the flywheel is a wraparound idea: every component in the book provides a push on the flywheel, and all the pieces work consistently and coherently together to create momentum and an eventual breakthrough.
The reverse holds through for comparison companies, who suffer the “Doom Loop” – A new direction/ program/ leader/ event kicks in, there is no build-up of momentum, creating disappointing results, and people react without understanding.
Other Details in Good to Great
Ready to dive into each of the 6 good-to-great ingredients and learn how to create them in your company? Do check out the details in our complete summary bundle including a one-page infographic summary in pdf, a 12-page text summary in pdf, and a 21-min audio summary in mp3
For those who are into research methodology and details, Collins provides an outline of the research journey, with research appendixes detailing the companies selection process, and breakdown of several analysis of CEOs, industries, acquisition strategies etc. He also lists down the best practices for the 11 good-to-great companies including their “Best-in-the-world” list, their economic denominators, and their list of technology accelerators. He ends off the book with a detailed list of conceptual links between Good to Great and Built to Last, and some Q&As on common questions and clarifications asked about the Good to Great ideas. You can purchase the book here or get an overview of all 4 of Jim Collins’ books here.
About the Author of Good to Great
Good to Great: Why Some Companies Make the Leap…and Others Don’t was written by Jim Collins (born 1958)–an American author, lecturer and business consultant on leadership and what makes great companies tick. He holds a bachelor’s degree in Mathematical Sciences and an MBA from Stanford University, and honorary doctoral degrees from the University of Colorado and the Peter F . Drucker Graduate School of Management at Claremont Graduate University.
Collins began his research and teaching career at the Stanford Graduate School of Business, where he received the Distinguished Teaching Award in 1992. In 1995, he founded a management laboratory in Boulder, Colorado, where he conducts research and engages executives from the corporate and social sectors. Besides his work in the business sector, Collins also has a passion for the social sectors, such as education, healthcare, government, and cause-driven non-profits. He has authored/ co-authored 6 books, including Good to Great, Built to Last, How the Mighty Fall, and Great by Choice. For more details, visit jimcollins.com
Good to Great Quotes
“Greatness is not a function of circumstance. Greatness, it turns out, is largely a matter of conscious choice.”
“Great vision without great people is irrelevant.”
“It’s not how you compensate your executives, it’s which executives you have to compensate in the first place.”
“You can’t manufacture passion or ‘motivate’ people to feel passionate. You can only discover what ignites your passion and the passions of those around you.”
“When you combine a culture of discipline with an ethic of entrepreneurship, you get the magic alchemy of great performance.”
“A great company is more likely to die of indigestion from too much opportunity than starvation from too little. The challenge becomes not opportunity creation, but opportunity selection.”
“Technology is by itself never a primary, root cause of either greatness or decline.”
“’Crawl, walk, run’ can be a very effective approach, even during times of rapid and radical technological change.”
Click here to download Good to Great book summary and infographic
Thanks for this insight. At this point in the midst of current global economic challenges, we really need the right people with the right mindset to lead, inspire and influence the direction where everyone can embrace greatness.
Regards
Patrick Ntsime