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Why Some Companies Make de Leap and Others Don`t
“From Good to Great” is Jim Collins’ iconic business book, which has been at the pinnacle of popularity with business leaders and managers for many years. The success of this book is a credit to its author. Jim Collins wrote his book as a significant and thorough scientific study, which he and his team spent years on.
The author investigated dozens of successful companies, hundreds of managers, and thousands of scientific articles, painstakingly looking for clues on creating a great business and becoming an extraordinarily successful manager. The principles Collins discovered from the examples of great companies have helped many other companies to become just as great.
We don’t have outstanding schools mostly because we have good schools. We don’t have a great government, mainly because we have a good government. Few people live extraordinary lives because it’s easy to live just fine. Most companies never become great precisely because they become pretty good, and that’s their main problem.
Great companies that have stood the test of time do not exist to make profits for shareholders. For a great company, profits and cash flow become like blood and water for a healthy body: they are essential to life but not the essence of life. Outstanding accomplishments result from a series of good and consistently executed right decisions, each stemming from the previous one.
Fifth Level Executives
Collins considers one of the most important reasons for the success of companies to be the talent of its leader. The book “From Good to Great” identifies five basic types of executives, divided by level.
Level 1 – a highly professional employee, actively using his abilities, knowledge, experience, and skills.
Level 2 – a valuable team member contributes to achieving goals and interacts effectively with others.
Level 3 – a competent manager who organizes people and rationally allocates resources.
Level 4: An effective manager who creates a vision for the future and ensures that the company moves forward on its intended path.
Level 5 – allows to achieve exceptional results and has outstanding personal qualities.
Each subsequent level of executive incorporates the qualities of all previous tiers.
The characteristic of Level 5 executives is that the most important thing in their lives is the success of their companies, and only after that is the pursuit of their own well-being and fame. They want to see the company become even more successful in the future without paying attention to the fact that maybe not everyone will recognize whose efforts were the basis of success.
As one Level 5 executive said, “I’d like to sit on my porch one day and see one of the greatest companies in the world and say, ‘I worked there.
Executives of companies that have achieved outstanding results amaze me by not talking about themselves. And this is not false modesty.
Those who have worked or written about executives who have taken their companies from good results to outstanding have consistently used epithets such as “calm,” “simple,” “humble,” “reserved,” “shy,” “pleasant,” “discreet,” “balanced,” “not believing in their own importance,” etc. It is very important to understand that a Level 5 leader is not just a consequence of modesty.
It is equally an unwavering determination, an almost stoic need to do what needs to be done to make the company great.
There is the famous paradox of the window and the mirror. Level 5 executives look out the window to attribute success to factors that have nothing to do with them when things are going great. However, they write it off as luck when they can’t identify a specific person or event.
At the same time, they look in the mirror when they talk about responsibility, never blaming their problems on bad luck. Regular company leaders do just the opposite. They look out the window looking for someone to blame for poor results but start fancying themselves in front of the mirror when they can attribute all of the company’s accomplishments to themselves.
Remember how often you attribute your own mistakes to unfavorable external factors?
People are the main thing.
The leaders of great companies did not ask themselves where to go and then pick people to fit the chosen direction. No, they first ensured that all the necessary people were on board (and all the unnecessary ones were off) and only then decided where to go.
Essentially, they said, “Listen, I don’t really know where we need to go. And all I know is that if we have the right people on the ship and they are in the right places, and the unnecessary people stay ashore, then we will figure out how to get to where we will be happy.”
Those who created great companies understand that the main accelerator of growth is not the market, technology, competition, or products. Finding and retaining the right people for the company is more important than all others.
Allowing people whose abilities do not meet the requirements to stay in the company is unfair to talented employees because they will inevitably feel that they are paying for the inadequate work of their colleagues. Worse yet, the best employees will start to leave. Good employees are motivated by success, but when they have to work for others, which undermines their efforts, they quickly become disillusioned.
The most important task of a company that strives for outstanding results is to create an atmosphere where employees can express their opinions openly. Ultimately, this means that the company is not heard and does not hide the truth.
The process of creating such an atmosphere is based on four important principles:
- Lead with questions, not answers.
- Engage in dialogue and debate, not conflict.
- Discuss mistakes, but do not blame.
- Turn simple information into information that is hard to ignore.
Trying to incentivize people to work better is a waste of time. The question is not how to motivate people. If people are selected correctly, they do not need motivation. All that is required is to ensure the absence of demotivating factors. The surest way to demotivate staff is to neglect facts.
Admiral James Stockdale was the highest-ranking American prisoner of war in the “Hanoi Hilton” – a prisoner of war camp during the Vietnam War. He was interrogated more than twenty times during his eight years in the camp (from 1965 to 1973); he had no rights as a prisoner of war, did not know his release date, and did not know if he would ever see his family again. But he remained a commander, doing everything possible to help other prisoners of war emerge from their trials unbroken and able to withstand attempts to use them for propaganda purposes.
Once, he hit himself with a stool and cut himself with a razor, deliberately disfiguring himself so that he could not be filmed as an example of a prisoner treated well. In letters to his wife, he revealed secret intelligence information, knowing he would be interrogated again and possibly killed if it were discovered.
He came up with techniques to help people withstand torture (no one can resist it indefinitely), so he developed a step-by-step system – after X minutes, you tell a little bit, then a little bit more; soldiers had landmarks to hold onto, which helped them endure the pain).
He devised a system of transmitting information to reduce the feeling of isolation that prison guards tried to establish; it was a real Morse code: combinations of five taps encoded letters of the alphabet (tap-tap – “a,” tap-pause-tap-tap – “b,” tap-tap-pause-tap – “f” and so on for 25 letters, double “c” meant “k”). Once, when silence was supposed to reign, the prisoners filled the central barrack with taps, beating out “We love you” to Stockdale and marking the third anniversary of the day he was shot down.
The Stockdale Paradox: “You must never confuse faith that you will prevail in the end—which you can never afford to lose—with the discipline to confront the most brutal facts of your current reality, whatever they might be.”
Foxes and Hedgehogs
In his famous essay “The Hedgehog and the Fox,” Isaiah Berlin divided the world into “hedgehogs” and “foxes,” based on an ancient Greek fable: the fox knows many things, and the hedgehog knows one big thing.
The fox is a cunning creature capable of inventing a million complex strategies to sneak up on the hedgehog. Day after day, the fox circles around its den, waiting for the moment to pounce. Fast, nimble, beautiful, and resourceful, the fox should be the winner.
Conversely, the hedgehog is clumsy and resembles a cross between a porcupine and an armadillo. All day, he runs back and forth through the forest, looking for something to eat.
The fox waits silently, crouched at the intersection of paths. The hedgehog walks unsuspectingly right into the fox’s paws. The fox thinks she’s caught her prey and jumps out of hiding, swiftly chasing after the hedgehog. The small hedgehog, sensing danger, looks up and thinks, “Here we go again, will she ever learn?” and curls up into a tight ball. The hedgehog becomes a sphere of sharp quills protruding in all directions. The fox, leaning in towards her victim, sees the defense the hedgehog has put up and backs off from the attack. Returning to the woods, the fox begins to devise a new way to strike.
Every day, the battle between the fox and the hedgehog repeats itself, and despite the fox’s superior cunning, the hedgehog always emerges victorious.
Think about it: are you the hedgehog or the fox?
The creators of great companies were, to some degree, hedgehogs. “The Hedgehog Concept” is a simple, crystal-clear concept presented in three intersecting circles that answer three questions.
- What can you be the best in the world at?
- What drives your economic engine?
- What are you deeply passionate about?
To develop a “Hedgehog Concept,” there must be alignment in the answers to all three questions.
If you’re making a ton of money in something in which you’ll never be the best in the world, you’ll create a successful company, but not a great one. You’ll never stay on top if you’re the best at something but don’t have a deep passion for it. And finally, you can be obsessed with what you do, but if you’re not the best in the world at it or there’s no economic sense in it, you might get a lot of pleasure from your work, but you won’t achieve exceptional results.
“The Hedgehog Concept” is not about aiming to become the best, strategizing to become the best, intending to become the best, or planning how to become the best. It’s about understanding what you can be the best at. And that distinction is critically important.
To go from good to great requires the courage to say, “What we’re good at and what makes us money and grows our business does not necessarily make us the best at it.” Companies with exceptional results understand that if they continue doing what they’re good at, they’ll only achieve good results. Focusing on what you can be the best at, better than any other organization, is the only way to achieve great results.
The creators and leaders of great companies didn’t say, “Okay guys, let’s all get really passionate about what we do.” They took the opposite approach, focusing only on what truly excited them.
The leaders of Kimberly Clark, a paper products manufacturer, largely shifted to creating consumer products because it excited them. As one of the leaders said, “Traditional paper products are fine, but they lack the charm of a diaper.”
The key is understanding where your organization can be the best in the world and, equally important, where it cannot be the best but would like to be.
Anti-bureaucracy and Self-discipline
The purpose of bureaucracy is to compensate for a lack of competence and discipline, a problem that wouldn’t exist if the right people were hired from the start. Most companies create bureaucratic procedures to manage the small percentage of “wrong” people on the ship. This, in turn, drives away the best specialists. The percentage of mediocre specialists increases, leading to the need for an even more rigid bureaucracy to compensate for incompetence and lack of discipline, which further repels the best and so on.
Companies that have achieved outstanding results have created sequential systems with clear limitations and provided people with freedom and responsibility within these systems. They hired disciplined individuals who did not need direct supervision and focused all their attention on managing the system rather than the people.
Transformations do not start with instilling discipline in undisciplined people but with hiring self-disciplined individuals.
Outstanding companies would rather die from excess opportunities than exhaustion due to their absence.
Nucor’s 100% success is attributed to its ability to turn a simple concept into disciplined actions that align with it. Nucor became a $3.5 billion company and made it to the Fortune 500 list with only four levels of management and just 25 people in the headquarters, including top management, finance department, secretaries, etc.; the entire company fit into a rented office the size of a dental office. There was cheap plywood furniture in the lobby, which was no bigger than a closet. The leadership entertained expensive guests not in a corporate dining room but at Phil’s Diner, a small cafe across the street.
Additional benefits and perks to the leadership were not higher than those of ordinary workers. In fact, the leadership had fewer benefits. For example, each worker (but not the manager) could receive $2,000 per year for four years to pay for higher education for each child. Once a worker came to Marvin Polman and said, “I have nine kids. Are you willing to pay for college or somewhere else for each of my kids?” Polman confirmed that, yes, that’s exactly it. “The worker just sat in the office and cried,” Polman recalled. “I will never forget it. This one moment perfectly describes much of what we were trying to achieve.”
When Nucor had a profitable year, everyone in the company had a profitable year. Nucor workers’ salaries were so high that one woman even told her husband, “If you get fired from Nucor, I will divorce you.” When Nucor faced difficult times, everyone suffered from top to bottom. But people at the top suffered more. During the economic downturn of 1982, workers’ salaries were cut by 25%, directors’ by 60%, and the head of the company’s by 75%.
Nucor took extraordinary steps to eliminate class differences in the company, usually present in most organizations. The names of all 7,000 employees were mentioned in the annual report, not just managers and directors. Everyone, except those responsible for safety and guests, wore helmets of the same color.
The color of the helmet is a small detail, but it caused dissatisfaction. Some bosses wanted another color of helmets to show that they were higher in rank and an important symbol they could display behind the glass of a car or truck. Nucor’s response was a series of worker meetings that brought to everyone’s attention that at Nucor, status and authority are determined by a person’s leadership qualities, not their position. If you don’t like it or need signs of class differences, then Nucor is not for you.
In contrast to Nucor, with its headquarters the size of a dentist’s office, Bethlehem Steel built a 21-story office complex for its leadership. They spent extra funds to make the building cross-shaped rather than rectangular: this architecture allowed more vice presidents to have corner offices. “Vice Presidents were supposed to have windows in two directions, that’s why we went with this design,” explained one of Bethlehem’s leaders.
In the book “The Bethlehem Crisis,” John Stromeyer details the corporate culture that is the exact opposite of what was in Nucor. He describes a whole fleet of corporate jets that were used even to take the children of top leadership to college or fly to secluded places for the weekends. He describes a world-class golf course with eighteen holes, a country club for leadership built by the corporation, and even how each leader’s position determined their place in the shower queue.
The Bethlehem leadership saw the goal of their activity as developing a class system and becoming elite. The difficulties that Bethlehem experienced in the 1970s and 1980s were not due to imports or technologies. Bethlehem began to experience difficulties primarily because it was a culture where people spent most of their time discussing the nuances of a complex social hierarchy, not on consumers or analyzing competitors’ activities or changes in the external world.
From 1966 (at the beginning of its rise) to 1999, Nucor ended each of these 34 years with a profit, while Bethlehem had 12 losses for the year over the same 34 years, and its overall income over the entire period did not exceed zero. Before the 1990s, Nucor’s profitability exceeded Bethlehem’s every year. By the end of the century, Nucor, less than one-third of Bethlehem’s size just ten years ago, surpassed Bethlehem in sales volume. But even more remarkably, Nucor’s average five-year profit per employee was nearly ten times that of Bethlehem. For an investor, $1 invested in Nucor, $1 invested in Bethlehem Steel was more than 200 times.
Companies that achieve outstanding results seem ordinary and boring when viewed from the outside. Still, on closer acquaintance, it turns out that energetic and dedicated people work in them.
Every company that has achieved outstanding results has actively used complex technologies. However, these were not technologies but a pioneering applications of carefully selected technologies.
When technology is used correctly, it becomes an accelerator of a company’s growth, but not its creator. Great companies never start transformations by implementing new technologies – for the simple reason that you can’t truly use technologies until you understand what technologies you need.
During the Vietnam War, the United States had the most modern army in the world. State-of-the-art fighters. Military helicopters. Modern weapons. Computers. Complex communication systems. Thousands of high-tech sensors along the entire border. The emphasis on technology created an illusion of invincibility. Americans needed not technology but a simple and consistent concept of conducting the war, which these technologies supported. They bounced from one ineffective strategy to another, never achieving victory.
At the same time, the technologically weak North Vietnamese army followed its simple and consistent concept: guerrilla warfare designed to wear out the enemy and wait for American public opinion to rise against the war. And the simple technology used by the Vietnamese, such as the AK-47 (which is much more reliable and easier to maintain in field conditions than the complex M-16), perfectly matched their simple concept. And in the end, the United States failed in Vietnam despite all its technological superiority. If you ever think technology can be the key to success, remember the war in Vietnam.
Great companies use technology as an accelerator of growth, not its cause. None of these companies started the transformation by implementing new technology, although they all became pioneers in implementing some technology if it aligned with their business management concept.
A company’s reaction to technological changes indicates its secret aspiration for greatness, not mediocrity. Great companies have a thoughtful and innovative approach based on wanting to turn existing potential into concrete results; mediocre companies grab quick solutions for fear of falling behind others.
Who do you think was the “fox,” and who was the “hedgehog” in the American-Vietnamese war?
Those who have achieved truly outstanding results were guided by their own desire to create and achieve excellence for the sake of excellence. On the other hand, those who have achieved and settled for mediocre results were guided by the fear of falling behind and staying behind everyone else.
The transition from good to great results often looks like unexpected, revolutionary transformations, but only for those outside the companies. It looks like a natural, gradual process for those who work in companies. The inability to distinguish final results (outstanding results) from the process (natural and gradual) hinders the development of a correct understanding of what works in the long term.
Imagine an egg. No one pays attention to it until one day, the shell cracks, and a chick emerges. All newspapers and magazines grab this event and are filled with headlines like “The transformation of the egg into a chicken!”, “The revolutionary transformation of the egg!”, “The stunning development of the egg!” As if the egg has made some amazing metamorphosis overnight, completely transforming itself into a chicken.
But how does this look from the chicken’s perspective? Completely differently. While the world ignores the egg, the chick forms grows and develops. From the chick’s point of view, cracking the shell is just another step in a long chain of steps. A step that is significant, but not some radical step. The only step responsible for the entire transformation process, as it may seem to those outside.
Companies that have achieved outstanding results have understood a simple truth – enormous power is hidden in the process of consecutive improvements.
Focus your employees’ attention on real results, which may initially be insignificant, and show how the achievement fits into the overall business development concept. If you do this in a way that people see and feel that potential is growing, they will meet your efforts with enthusiasm. This is called the “flywheel effect,” and it applies to investors and the company’s internal structure.
After careful examination, “Good to Great” by Jim Collins is a must-read for leaders and organizations trying to improve. This book extensively researches and analyzes successful organizations, revealing the keys to corporate success.
Collins emphasizes leadership, strategy, and disciplined execution to help leaders build effective long-lasting organizations. This book is crucial for business executives, entrepreneurs, and everyone interested in successful companies due to its practical advice and concrete strategies.
“Good to Great” is a classic that inspires and educates readers even after more than two decades. If you want to succeed in business, you must read it. So, “Good to Great” by Jim Collins is essential reading for CEOs who want to build a great company.
10 Best Thoughts:
1. For great companies, money is not the goal but the means.
2. Great companies always have talented leaders.
3. Level 5 leaders take responsibility for mistakes and do not boast about successes. The well-being of the company is more important to them than their own.
4. Leaders of great companies do not try to make employees disciplined and motivated. They only hire disciplined and motivated people.
5. A company can become great when three factors align:
• Employees do what they love.
• Employees do what they do better than others.
• Management uses the right economic model (that brings in money).
6. Technologies stimulate the company’s growth but do not make it great.
7. Great companies seem ordinary on the surface, but energetic people who are willing to work themselves to exhaustion for the common good work in them.
8. Outstanding results can only be achieved immediately through successive improvements.
9. In great companies, leaders lead with questions, not answers, engage in dialogue and debate but not conflict, and discuss errors but do not accuse.
10. The main capital of great companies is people.
F.A.Q. about “Good to Great” by Jim Collins
What is “Good to Great” by Jim Collins?
“Good to Great” is a book by Jim Collins that examines how some companies transformed themselves from good to great ones. It is based on extensive research and interviews with CEOs and top executives of companies that made this transition. It provides insight into the factors that separate good companies from great ones.
What are the key concepts in “Good to Great”?
“Good to Great” emphasizes the Hedgehog Concept, Flywheel Effect, and Level 5 Leadership. The Hedgehog Concept involves finding the intersection of three circles: what a company is passionate about, what it can be the best at, and what drives its economic engine. The Flywheel Effect states that great companies gradually gain momentum and become self-sustaining. Leaders with Level 5 humility and professionalism can take their company from good to great.
What examples of companies went from good to great?
Some examples of companies that went from good to great include Abbott Laboratories, Fannie Mae, and Kimberly-Clark. Abbott Laboratories went from being a good pharmaceutical company to a great diversified healthcare company. Fannie Mae went from being a good mortgage company to a great financial services company. Kimberly-Clark went from being a good paper company to a great consumer products company.
What are the characteristics of a Level 5 Leader?
The characteristics of a Level 5 Leader include personal humility, which involves being modest and unassuming, and professional will, which involves being determined and ambitious. Level 5 Leaders can set aside their egos and focus on the company’s success, and they can inspire and motivate their employees to achieve great things. They can also make tough decisions and take responsibility for their mistakes.
Quotes from “Good to Great”
“Good is the enemy of great.”
“It is not the technology that determines what a company can do. Rather, it is the way in which the company uses the technology that determines what it can do.”
“The purpose of bureaucracy is to compensate for incompetence and lack of discipline.”
“When you combine a culture of discipline with an ethic of entrepreneurship, you get the magical alchemy of great performance.”
“The good-to-great companies never began their transitions with pioneering technology, for the simple reason that you cannot make good use of technology until you know which technologies are relevant.”
“Great vision without great people is irrelevant.”
Disclaimer: This blog post is a summary or resume of the book and is not intended to dispense the reading of the original book. This post aims to provide a general overview of the book’s main ideas and themes and encourage readers to read the complete book to gain a deeper understanding of the material. The information presented in this post is intended to be something other than a substitute for the original book and should be used as a supplement to, not a replacement for, the entire book. We strongly encourage readers to read the complete book to benefit from its ideas and teachings fully.