BOOK REVIEW & SUMMARY
This book, best used as an executive’s guide to transforming his/her business from just okay to exceptional, was first published in 2001. Authored by Jim Collins, a longtime business strategy writer, Good to Great is the product of 5 years of intense, extensive research. The variables that have been identified as common to all good to great companies were identified after an aggregation of about 50 years of data on each and every one of these companies. A pattern begins to emerge amidst the ambiguity of numbers and returns to the actions and decisions that propelled companies into the pantheon of great companies and even competing with established market powers.
The few companies that have made the rare jump from good to great are the focus of the book. Right before making this transformation there were a number of corporate acts that seem to be a recurring theme among all of these unique companies. In 9 chapters, the different factors and elements that go into building a great company are examined and thoroughly dissected. A culture change is usually required in the company, as the entire organization has to be challenged not to settle for break-even returns but to commit to achieving abnormal yet sustainable returns.
Through the course of reading the book you realize that the transformation can be boiled down to 3 major keys
- Disciplined People
- Disciplined Thought
- Disciplined Actions
These 3 keys form the bedrock of all of the companies who have made this transformation. The first six chapters of the book focus squarely on concepts that are directly derived from these broad factors. The final two chapters focus on sustainability. There are challenges on the paths of a lot of companies looking to become superpowers, with 15 years being the cutoff for sustainability. Any company that is able to weather storms and consistently out-perform market expectations is truly exceptional. However, many a company has fallen into the trap of achieving greatness and then resting on their oars. This phenomenon is not uncommon and a whole chapter is dedicated to ensuring your company’s success is Built to Last.
The path to a good to great transformation starts right from the higher echelons of the company and then filters down the chain of command. This is the focus of chapters 2 and 3 - placing the right people in the right positions will lead to a remarkable change in company culture.
There are two aspects to the question of picking disciplined people and they are as follows:
#1. Level 5 Leadership
Here the focus is on the type of leadership great companies have at the helm of affairs. The leaders of these exceptional companies exhibit the rare quality of being fierce and humble at the same time. Unassuming at first glance, they are fully dedicated to the organization and place a premium on long-term success rather than instantaneous gratification. These brands of CEOs are classified as Level 5 leaders, the highest tier on the management scale. They usually exude an eccentric feel and are not hesitant to dismiss moves that align with conventional wisdom or commonsense moves; this refusal to conform is usually key to the transformation of the companies they run.
Leaders with a focus on building legacies rather than stoking their own egos in the business are the perfect choice to lead a surge into greatness. They do not aim to ensure that their administration encounters the peak performance in the company’s history. Rather, they seek to build a lasting foundation for successors. Great leaders have a thirst for collective success and brainstorming, preferring to focus on an enduring drive for success, instead of an egocentric outlook of present success.
A common theme across good to great companies is the fact that their CEOs were sourced from within the organization. A prior understanding of the existing culture and policy of such a company is usually needed to kickstart a turnaround in fortunes. This introspective look at the running of the company also extends to the mindset adopted towards the performance of the companies. Rather than lay blame on the table of subordinates, a great leader takes it upon himself and rather than hog the limelight alone, commendations for success are distributed across the team.
#2. First Who… Then What
The importance of the right personnel cannot be overemphasized. Jim Collins writes – The good-to-great leaders, however, would not rush to judgment. Often, they invested substantial effort in determining whether they had someone in the wrong seat before concluding that they had the wrong person on the bus entirely. You need the right people for the culture and mindset to take hold. Do not, in a manner of speaking, put the cart before the horse by trying to enforce new policies without first ensuring individuals who can see it through are already within the organization. Only employees who are unafraid to go against he grain and stand their ground should be hired and retained. The right policy and direction are of course essential to the transformation from good to great, but ensuring you have the right people in the driver’s seat is arguably more important in the grand scheme of things.
Teamwork should be a motto of all organizations.
The concept of collective brainstorming should be embraced as this is the best way to get innovative and creative ideas out in the open.
The trend in a majority of good companies is to have a towering, larger than life CEO with a number of assistants in tow, which leaves no room for any dissenting opinions. An atmosphere of openness where divergent ideas are not only welcome but encouraged is the ideal environment for transformation into greatness.
Contrary to general belief that the executives usually work to the level of their compensation, it has been discovered that compensation has no direct correlation with a good to great transformation. As a matter of fact, executives in great companies earn, over the course of a decade, slightly less than their counterparts in mediocre to okay companies. Great companies have incentive-based compensation schemes, directly linked to the productivity and performance of each executive’s team. Erring or lazy team members are then challenged to either keep up or are cast out of the organization. There is a widespread sense of responsibility and eventually, this accumulates and leads to a transformation of epic proportions.
Before a company can make the leap from good to great there must be a change in mindset from the top down. A conscious effort must be made to pull away from the pack of mediocre companies and make the move into the pantheon of great ones.
There are two aspects to embracing a disciplined outlook and these are discussed in chapters four and five of the book....
#1. Confront The Brutal Facts (Yet Never Lose Faith)
Facts should always supersede sentiments at the workplace. There is no place for dreams not backed by the numbers. Realize that you should only embark on projects that are feasible and sustainable. Great companies had the foresight of recognizing current market trends and adapting to them. A refusal to keep up with changing times will leave your company stuck on past glories and eventually devolving into mediocrity.
There must be a willingness to cut losses, regardless of sentiments. Any nonperforming or underperforming arm of the company should be disbanded. There must be courage to abandon old ways, even if they were once fundamental to the company. Only companies with the foresight to adapt to a changing world are able to make the leap from good to great.
#2. The Hedgehog Concept (Simplicity Within The Three Circles)
This concept takes its main theme from the classic tale of the hedgehog and the fox in an eternal duel to vanquish the other. The fox is wiry, cunning and versatile, always coming up with new ways to attack the hedgehog. The hedgehog, however, knows the basic fact, and no matter how many means the fox comes up with, he can never prevail. The truth of the matter is that simplicity always beats overcomplicated scheming. Simple ideas bear huge profits in all good to great companies. Pick your strengths and focus on that. Have a clarity of purpose - it pays to be exceptional at one thing than being mediocre or just okay at a diverse number of things.
To adopt the Hedgehog Concept, you must identify three key factors, styled as the Three Circles
1. Identify What you can be the best in the world at
2. Find out What drives your economic engine
3. Identify What you are deeply passionate about
After identifying these three factors, you will realize that the core of your business is the intersection of the three circles. Your focus must be on what you are capable of being the world leader at, then you pour all of your resources into the same. There must be passion across the organization for such an enterprise to succeed otherwise you lose the drive to be a world leader after a few years.
After acquiring the right set of people and adopting the right mindset and culture, you need to apply this discipline to the day to day running of the organization.
Every action must embody the disciplined culture you want to flow through the company.
#1. Building a disciplined culture
Transforming from good to great is highly predicated on the culture a company adopts. The companies who have made this spectacular leap have a culture of discipline so deeply ingrained in the workforce that it is hard to catch an employee lacking in effort. Building a disciplined workplace negates the need for a highly structured and bureaucratic workplace, further boosting employee creativity and innovation.
The culture of discipline begins from the top down and eventually trickles down, even to non-essential staff. A disciplined leader is found even in good companies, but a disciplined leader who enforces discipline that outlasts his administration is the hallmark of a great company. Great companies seek to blur the lines of class distinction or employee segregation, leading to a highly familial organization. A culture of discipline means taking the time to decide what deals to make; indiscriminate acquisition of assets becomes a liability in the long run.
#2. Technology Accelerators
Great companies have the vision to adapt their companies to the parameters of new technological advancements. However, there is no haste to adopt the new, shiny trends in this internet age. There is deliberation and then implementation of strategies to ease the company into the new era. Many companies made the error of jumping blindly into the dotcom bubble and went down when it inevitably burst. But the truly great companies took their time in ensuring the internet worked to their advantage.
However, It is foolhardy not to adapt to the times. All great companies employ the latest developments in technology for the advancement of the company’s profile; the only distinction between great and mediocre companies is the manner of execution.
The chapter: The Flywheel and The Doom Loop deals with the consistency good companies have to maintain to ensure a breakthrough and leap into greatness.
The greatest business minds recognize that the leap from good to great doesn’t happen instantaneously. You have to constantly do the right things and make a conscious effort to improve every year, slow and steady, as a matter of fact, does win the race. The flywheel has to be constantly spun before it finally takes off. Continuous and consistent efforts pay off in the long run. Companies that are stuck in mediocrity do not value consistency, rather they try to pull new tricks at every juncture, eventually resulting in inevitable failure.
The book serves as a sort of sequel to the author’s previous book, Built To Last and the last chapter makes the connection between both books. Many companies that temporarily make the leap into the tier of greatness, regress after a while, due to bad habits that accumulate over the years. Parallels are drawn between the concepts established in this book and the steps taken by companies that are built to last. Every company that takes the leap from good to great must then strive to ensure that the disciplined culture of greatness endures for a long time.
The book deals with the process of transforming a mediocre or merely good company into a world leader in its industry. The buildup process that leads to the eventual breakthrough in profile and company status are painstakingly examined and discussed. The book is written, primarily, for executives and businesses that are not satisfied with merely breaking even with market profits. Rather, they recognize that –
Good is the Enemy of Great.