[Book 49] Good to Great by Jim Collins

Good to Great explores the leadership and management qualities that transform good companies into exceptional ones. Jim begins by explaining that great companies are led by humble “Level 5” leaders, who credit others (or luck) for their success, yet shoulder responsibility when things go poorly. These leaders also have a relentless resolve to do great work, which they accomplish by welcoming and confronting the brutal facts that challenge the success of the business.

Great senior managers focus more on the selecting the right people than on figuring out the path forward. Here, they prioritize the fit of an individual’s character skills over relevant work experience. They have the humility to realize that the underlying team has better visibility to select and execute initiatives, so they prioritize constructing and nurturing a trusting team that can be empowered to do so. It’s equally important to them to move on from those who aren’t a good fit on the team.

Great leaders enable strategic focus by identifying their Hedgehog Concept, which is a simple and clear understanding of the intersection between a) what the company can be the best in the world at, b) what drives the company’s economics, and c) what they’re deeply passionate about. This concept is used as a North Star to facilitate strategy and decision making.

This book is an interesting study. Many of its insight are well researched, yet some companies studied hailed as great only 25 years ago are now nonexistent (Circuit City) or have gone through scandals (Fanny Mae and Wells Fargo). To me, this is a reminder that what elevates a good company to great is different than the fundamentals needed to make a company good in the first place. Furthermore, once a company becomes great, similar success isn’t assured in perpetuity and the pressure to remain so can lead to dishonest business practices.

You should read this book if you…

• want to become a more effective leader
• seek to help your company stand out
• want ideas on how to tie effective management and leadership practices together

Additional Information

Year Published: 2001
Book Ranking (from 1-10): 8 – Very Good – In depth insights on a specific topic
Ease of Read (from 1-5): 3 – Average

Key Highlights

1. Level 5 leaders channel their ego needs away from themselves and into the larger goal of building a great company. It’s not that Level 5 leaders have no ego or self-interest. Indeed, they are incredibly ambitious—but their ambition is first and foremost for the institution, not themselves
2. Level 5 leaders look out the window to apportion credit to factors outside themselves when things go well (and if they cannot find a specific person or event to give credit to, they credit good luck). At the same time, they look in the mirror to apportion responsibility, never blaming bad luck when things go poorly
3. The executives who ignited the transformations from good to great did not first figure out where to drive the bus and then get people to take it there. No, they first got the right people on the bus (and the wrong people off the bus) and then figured out where to drive it. They said, in essence, “Look, I don’t really know where we should take this bus. But I know this much: If we get the right people on the bus, the right people in the right seats, and the wrong people off the bus, then we’ll figure out how to take it someplace great.”
4. Letting the wrong people hang around is unfair to all the right people, as they inevitably find themselves compensating for the inadequacies of the wrong people. Worse, it can drive away the best people. Strong performers are intrinsically motivated by performance, and when they see their efforts impeded by carrying extra weight, they eventually become frustrated
5. “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.”
6. Creating a climate where the truth is heard involves four basic practices: 1. Lead with questions, not answers. 2. Engage in dialogue and debate, not coercion. 3. Conduct autopsies, without blame. 4. Build red flag mechanisms that turn information into information that cannot be ignored
7. More precisely, a Hedgehog Concept is a simple, crystalline concept that flows from deep understanding about the intersection of the following three circles: 1. What you can be the best in the world at (and, equally important, what you cannot be the best in the world at). This discerning standard goes far beyond core competence. Just because you possess a core competence doesn’t necessarily mean you can be the best in the world at it. Conversely, what you can be the best at might not even be something in which you are currently engaged. 2. What drives your economic engine. All the good-to-great companies attained piercing insight into how to most effectively generate sustained and robust cash flow and profitability. In particular, they discovered the single denominator—profit per x—that had the greatest impact on their economics. (It would be cash flow per x in the social sector.) 3. What you are deeply passionate about. The good-to-great companies focused on those activities that ignited their passion. The idea here is not to stimulate passion but to discover what makes you passionate
8. Hedgehog Concept is not a goal to be the best, a strategy to be the best, an intention to be the best, a plan to be the best. It is an understanding of what you can be the best at. The distinction is absolutely crucial
9. The good-to-great companies built a consistent system with clear constraints, but they also gave people freedom and responsibility within the framework of that system. They hired self-disciplined people who didn’t need to be managed, and then managed the system, not the people
10. A great company is much more likely to die of indigestion from too much opportunity than starvation from too little. The challenge becomes not opportunity creation, but opportunity selection
11. When used right, technology becomes an accelerator of momentum, not a creator of it. 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. And which are those? Those—and only those—that link directly to the three intersecting circles of the Hedgehog Concept
12. The good-to-great companies had no name for their transformations. There was no launch event, no tag line, no programmatic feel whatsoever. Some executives said that they weren’t even aware that a major transformation was under way until they were well into it. It was often more obvious to them after the fact than at the time
13. The good-to-great companies understood a simple truth: Tremendous power exists in the fact of continued improvement and the delivery of results. Point to tangible accomplishments—however incremental at first— and show how these steps fit into the context of an overall concept that will work. When you do this in such a way that people see and feel the buildup of momentum, they will line up with enthusiasm. We came to call this the flywheel effect, and it applies not only to outside investors but also to internal constituent groups
14. Enduring great companies don’t exist merely to deliver returns to shareholders. Indeed, in a truly great company, profits and cash flow become like blood and water to a healthy body: They are absolutely essential for life, but they are not the very point of life