What separates good companies from great ones?

Good_to_Great

“Good is the enemy of great.” – Jim Collins

The question of how to achieve greatness is something that has existed since humans have been able to think. The applications of greatness will differ in relation to the values of those who posit that question.

The Stanford professor Jim Collins examined the question of why some companies make the leap and others don’t in his book ‘Good to Great’ published in 2001. This was certainly one of the most insightful books on the topic for the last 50 years and along with his previous work ‘Built to Last’ established Collins as one of the leading business thinkers of this century so far.

Collins was influenced by many of the great business thinkers of the last century who included: Peter F. Drucker, Michael Porter, W. Edwards Deming, Bob Waterman, Tom Peters, Robert Cialdini, and Theodore Levitt to name a few.

A number of those authors feature on the Anisometric list of ’20 books that every entrepreneur should read’ click this link to see more. The top 20 books that every entrepreneur should read

When Collins and his team examined the question of how to distinguish good companies from great ones the team settled on strict criteria. They used stock market listed companies, largely because the information for their accounts would be available. Collins also mentioned that the research findings would work for non-profit as well as publically listed companies, so what were the findings from Collins and his team?

“The good-to-great companies did not focus principally on what to do to become great; they focused equally on what not to do and what to stop doing.”
― James C. Collins

 

LEVEL 5 LEADERSHIP

“Level 5 leaders are a study in duality: modest and wilful, humble and fearless.” – Jim Collins

Leadership is certainly one of the pillars of any great organisation so Collins and his team examined how much of an impact the leader has on the results of an organisations rise from a good company to a great company.

The team found that there was a special type of leadership that was ever-present in the companies that made the successful leap and they coined it Level 5 Leadership.

According to the team the levels of leadership are:

Level 1: A highly capable individual who makes productive contributions through talent, knowledge, skills, and good work habits.

Level 2: A contributing Team Member who contributes individual capabilities to the achievement of group objectives and works effectively with others

Level 3: A competent Manager that organizes people and resources toward the effective and efficient pursuit of pre-determined objectives.

Level 4: A highly effective Leader who commits to and vigorous pursuit of a clear and compelling vision.

Level 5: A leader who builds enduring greatness through a paradoxical blend of personal humility and professional will.

Collins and his team also examine the idea of the ‘great leader’ who is bold, extraverted, domineering, courageous, and majestic who leads the organisation to success. The research led to the conclusion that the Level 5 leaders were often shy, introverted, and often did not take credit for the good that they did, and instead would take responsibility for the mistakes that others on their team made. Often great individual leaders (level 4) made no plans for governance and succession, which meant that the company would decline dramatically as soon as they were no longer around. Level 5 leaders put plans in place to make sure that the company would endure after they left.
“The good-to-great leaders never wanted to become larger-than-life heroes. They never aspired to be put on a pedestal or become unreachable icons. They were seemingly ordinary people quietly producing extraordinary results.”
― Jim Collins

FIRST WHO… THEN WHAT

One of the interesting things about the Good to Great research is that a number of the companies had no specific direction that they were moving in to achieve greatness. First of all they made drastic changes with their existing company structure.

The Good to Great companies first got the wrong people off the bus, the right people on the bus and the right people in the right seats before they decided where they were going to go.

It is also necessary to emphasize that the Good to Great companies were already established and had much of the infrastructure in place of a company that was good enough to be listed on a national exchange.

The process of launching a company from scratch is covering in two of Collins’ other works, ‘Beyond Entrepreneurship: Turning Your Business into an Enduring Great Company’ (which is one of the founders of Netflix Reed Hastings’ most highly recommended business books) a copy of Beyond Entrepreneurship can be purchased here – Beyond Entrepreneurship

Jim Collins’ other book for building a company interestingly enough was written before Good to Great and is meant to read afterwards, the book is called ‘Built to Last: Successful Habits of Visionary Companies. This book is also one of the most successful books from Collins’ series of books and was co-authored by Jerry Porras in 2005. You can pick up a copy from here – Built to Last

Collins also points out that not just people in general are a company’s most important asset, but the right people in the right positions.

CONFRONT THE BRUTAL FACTS OF YOUR SITUATION, AND KEEP HOPE ALIVE

Collins spoke to vice admiral James Stockdale who was captured as a prisoner of war in North Vietnam, he was shot down in 1965 and released in 1973. Collins found other examples of how successful and unsuccessful companies dealt with uncomfortable situations, which he would call The Stockdale Paradox.

The Stockdale Paradox

When Collins spoke to Stockdale, his findings were not as he would have initially thought. Stockdale mentioned that the optimists were the people who died first in the prisoner of war camp. They died because they believed that they would be rescued quickly, and as hope for their release lessened, so too did their desire to live on in those circumstances.

A key part of the conversion with Stockdale revealed this statement. ‘This is a very important lesson. 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.

“What separates people, Stockdale taught me, is not the presence or absence of difficulty, but how they deal with the inevitable difficulties of life.”
― James C. Collins

Level 5 Leadership also plays an important part of being able to keep things together when others are losing their composure.

The situations for the leader to consider in difficult situations are to:

- Lead with questions and not answers
- Engage in dialogue and debate, not coercion
- Conduct autopsies without blame
- Build red flag mechanisms

 

THE HEDGEHOG CONCEPT AND THE 3 CIRCLES

The Hedgehog Concept and three circles are two of the most powerful concepts in the book and if implemented correctly will augment the chances of success a considerable amount.

The idea of the Hedgehog Concept derives from the fable of the ancient Greek poet Archilochus, and the crux of the poem finishes with the line, ‘A fox knows many things, but a hedgehog one important thing.’

Collins and his team discovered that the Good to Great companies had the answers to three key questions in order to develop their own Hedgehog Concept.

1. What are you deeply passionate about?
2. What can you be the best in the world at?
3. What drives your economic engine?

Great companies have the answers to those three questions and they stick to those areas even though they it may take a while to do so. The average Good to Great companies took a number of years to get their 3 circles in place.

 

A CULTURE OF DISCIPLINE

“The purpose of bureaucracy is to compensate for incompetence and lack of discipline.”
― Jim Collins

Any culture that produces greatness must have a high degree of disciplined action. A disciplined culture should not be mistaken for an oppressive or tyrannical culture.

This is a very difficult thing to measure as the age-old question of work-life balance emerges. CEOs like Jack Welch would say.

“There’s no such thing as work-life balance. There are work-life choices, and you make them, and they have consequences.”
― Jack Welch

Another aspect of the culture of discipline was for the Good to Great companies to focus on areas that integrated with their Hedgehog Concept and not to try to do too many things at once without being able to manage them.

“Greatness is not a function of circumstance. Greatness, it turns out, is largely a matter of conscious choice, and discipline.”
― Jim Collins

 

THE POWER OF TECHNOLOGY

“Thoughtless reliance on technology is a liability,”
― James C. Collins

The Good to Great book was published in October 2001 and during the previous year or so was the dot-com crash in the market of highly overvalued tech stocks such as pets.com, kozmo.com and many others.

Collins saw the valuation of many of the companies decline to rock bottom after the first stages of the crash and this would have a knock-on effect on other industries around the world.

Also technology means far more than just computers or digital software. Technology is simply a more efficient way to achieve a specific task.

The great companies from the research and those going forward will be those who understand how to maximise the application of technology that aligns with their Hedgehog Concept.

“Mediocrity results first and foremost from management failure, not technological failure.”
- Jim Collins

 

THE FLYWHEEL AND THE DOOM LOOP

Collins points out the distinction between the Flywheel and Doom Loop and shows how the accumulation of small events can lead to success or failure.

“Yes, the world is changing, and will continue to do so. But that does not mean we should stop the search for timeless principles. Think of it this way: While the practices of engineering continually evolve and change, the laws of physics remain relatively fixed. I like to think of our work as a search for timeless principles—”
― James C. Collins

Good to Great by Jim Collins

Good to Great is one of the most insightful business books that will provide thoughtful insights if a person is looking for entertainment or points to consider for implementation into one’s own organisation.

To pick up a copy you can get one from here – Good to Great

Author: Jim Collins

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