12 Sep 2016
Good to Great by Jim Collins
If you go to any personal or business development seminars, this book is almost always quoted. Have you heard of the BHAG (Big Hairy Audacious Goal)? This is where the phrase was termed.
There are also some insightful and thought provoking research results discussed about the importance of people, culture and leadership in building a business that goes beyond its comfort zone to become something great AND sustainable over the long term.
Let's take a look at some of the key insights Jim Collins provides, as well as some notes.
"Good is the Enemy of Great"
Achieving mediocrity and being content with "good enough" stifles the challenge of reaching greatness.
Jim took 5 years and a team of dedicated 21 researchers to find out what makes companies step out of mediocrity to reach greatness. The criteria for greatness was "15 year cumulative stock returns at or below the general stock market, punctuated by a transition point, then cumulative returns at least three times the market over the next 15 years...what distinguished the good to great companies from the comparison companies?"
This book is about discovering the timeless principles that have been proven to work in a sustainable and enduring business.
"The dogs that did not bark"
- Larger than life, celebrity leaders taken from outside the business correlated negatively with taking a company from good to great. Of the great companies, 10 out of 11 CEO's came from within the company.
- No systematic link between CEO performance and remuneration packages.
- Strategy alone made no difference.
- As well as looking at what TO do, they also focussed equally on what NOT to do, and what to STOP doing.
- Greatness is not driven by technology.
- Mergers and acquisitions play virtually no role in greatness.
- Under the right conditions motivation, alignment and managing change are no challenge.
- No tag line, launch event or program signified the transformation to greatness - the change itself at the time goes almost unnoticed.
- Greatness is not affected by industry or circumstance - it is a matter of conscious choice.
Good to Great leaders are not celebrities. They are often reserved, quiet, self-effacing.
Level 5 leadership:
First who, then what - the right people
Confront the brutal facts (but never lose faith)
The hedgehog concept (simplicity within the three circles) - transcend the curse of competence. Even if you have been doing something for years, it does not mean you are the best at it. And then it should not be your core business.
A culture of discipline - "When you have disciplined people, you don't need hierarchy. When you have disciplined thought, you don't need bureaucracy. When you have disciplined action, you don't need excessive controls. When you combine a culture of discipline with an ethic of entrepreneurship, you get the magical alchemy of great performance."
Technology accelerators - technology is the means, not the aim and selected carefully.
The flywheel and the doom loop - no overnight success, steady and consistent turning of the wheel
From Good to Great to Built to Last
You can create anything in life, provided that you don't mind who gets the credit."
Harry S Truman
The 5 levels of leadership page 20:
Level 5 Executive - builds enduring greatness through a paradoxical blend of personal humility and professional will.
Level 4 Leader - catalyses commitment to and vigorous pursuit of a clear and compelling vision, stimulating higher performance standards.
Level 3 Competent Manager - organises people and resources towards effective and efficient pursuit of pre-determined objectives.
Level 2 Contributing Team Member - Contributes individual capabilities to the achievement of group objectives and works effectively with others in a group setting.
Level 1 Highly Capable Individual - Makes productive contributions through talent, knowledge, skills, and good work habits.
Page 22 Humility Will = Level 5 leader. Less ego, but primary ambition for the larger cause.
Page 25 Ambition for the company: setting up successors for success.
Page 30 Unwavering resolve to do what must be done. Ferocious resolve.
Page 34 Level 5 leaders tend to credit good luck for their success, but will take responsibility for things that didn't work, not blame bad luck.
Page 36 the two sides of Level 5 Leadership: professional will versus personal humility is in contrast to the larger than life CEO's that most organisations hire to get themselves out of trouble.
First Who...then What
Get the right people on the bus (and the wrong people off), then decide where the bus is going.
The right people need less external motivation.
"Great vision without great people is irrelevant"
Page 47 diagram. Level 5 management team versus Level 4 in comparison companies. Level 4 do not succession plan as the people on the team and the business' long term success are not his priority. Level 4 - The genius with a thousand helpers.
Page 49 - It's who you pay, not how you pay them. There is no correlation between executive compensation plans and great businesses, whether through stocks, bonus incentives, high salaries or long term compensation. Of course compensation is important but is not a distinguishing variable in moving from good to great.
Level 5 managers and the teams that they assemble have a moral code that requires excellence for its own sake, not for what they will "get".
Page 50 "Yes, compensation plans and incentives are important but for very different reasons in good-to-great companies. The purpose of a compensation system should not be to get the right behaviours from the wrong people, but to get the right people on the bus in the first place, and to keep them there."
Page 51 the right people may not necessarily have the optimum training. They need character, work ethic, basic intelligence, dedication to fulfilling commitments and ingrained complimentary values.
Page 52 Rigorous not ruthless.
Page 54 How to be rigorous:
- When in doubt, don't hire. Keep looking. "Those who build great companies understand that the ultimate throttle on growth...is not markets, or technology, or competition, or products. It is one thing above all others: the ability to get and keep enough of the right people."
- When you know you need to make a people change, act. The best people don't need to be managed. Letting the wrong people hang around is unfair to all the right people. In a good-to-great company people either stay for a long time or they get off the bus in a hurry. But first check if they are just in the wrong seat on the bus.
- Put your best people on your biggest opportunities, not your biggest problems.
Confront the Brutal Facts (Yet never lose faith)
Good-to-great companies do the market research and adjust their strategies without attachment if the facts stack up.
Good-to-great companies have something distinctive about their decision making process. Make decisions based on the data right in front of it, not trends or fads set by others. And develop a simple yet insightful frame of reference for all decisions (see Chapter 5).
Facts are better than dreams (Winston Churchill). Keep refining the path to greatness.
Staff are free to explore the "scary squiggly things under rocks" and know that they can bring them up with management to be addressed, rather than worrying about the reaction that they will get from management for doing the uncovering. Staff do not feel the need to filter the problems.
A climate where the truth is heard and brutal facts are consulted. The vision must be grounded in facts.
The right people are self-motivated.
How to make sure the truth is heard:
- Lead with questions, not answers. To gain understanding, not for manipulation.
- Engage in dialogue and debate, not coercion.
- Conduct autopsies, without blame.
- Build "red flag" mechanisms. Not just collecting information, but acting on it.
Unwavering faith amid the brutal facts. View competition as a positive.
Hardiness research conducted by the International Committee for the Study of Victimization in people who studied people who had suffered serious adversity and whether they became permanently dispirited, got their life back to normal, or used the experience to grow. Level 5 leaders tend to be of the last category.
The Stockdale Paradox. Admiral Jim Stockdale "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 may be."
The Hedgehog Concept
Foxes v hedgehogs. Foxes pursue many ends at the same time and see the world in all its complexity. Hedgehogs simplify the world into a single organising idea.
Stick to one concept when considering all decisions. Walgreen example: the best and most convenient drugstores with high profit per customer visit.
This simple strategy is based on three key dimensions - the three circles:
Source: www.slideshare.net
- What you can be the best in the world at. Beyond core competence. It may not be what you have been doing all along.
- What drives your economic engine - regardless of general economic conditions or the industry that you are in? What ratio measured over time consistent increase would demonstrate the most economic impact on the business.
- What are you deeply passionate about - produce that.
The meeting of these three points produces your (business's) Big Hairy Audacious Goal.
The Triumph of Understanding over Bravado
The comparison companies often had a philosophy of growth at all costs. Page 112 "Growth is not a hedgehog concept". On average it took the good-to-great companies 4 years to clarify their hedgehog concepts.
Page 114 "Getting a hedgehog concept is an inherently iterative process, not an event."
Chapter 6 A Culture of Discipline
Page 120 "Few successful start-ups become great companies". In a nut shell because of the cultural change from innovation to bureaucracy and the "right people" leave the bus.
Page 121 "the purpose of bureaucracy is to compensate for incompetence and lack of discipline - a problem that largely goes away if you have the right people in the first place".
A culture of discipline plus an ethic of entrepreneurship = magical alchemy of superior performance and sustained results.
Page 123 "Responsibility Accounting" Bernard H Semler at Abbott - not a traditional financial controller or accountant. Every cost, income and investment would be clearly identified with a single individual responsible for that item. Using rigor and discipline to enable creativity and entrepreneurship. Abbott reduced its administration costs as a percentage of sales to the lowest in the industry. Freedom within a framework for the right people. Abbotts also said no to any opportunities that fell outside the hedgehog concept three circles test.
Page 123 Concept of culture within the framework of this book "build a culture of people who take disciplined action within the three circles, fanatically consistent with the hedgehog concept".
Page 124 Freedom (and responsibility) within a framework. Manage the system, not the people, because the right people are disciplined.
Disciplined thought to confront the brutal facts of reality.
Discipline in the search for understanding until you get your Hedgehog Concept.
Then finally disciplined action.
Page 127 Rinsing your cottage cheese - the use of language such as disciplined, rigorous, dogged, determined, diligent, precise, demanding, precise, fastidious, systematic, methodical, consistent, accountable, responsible.
Page 129 A Culture, not a tyrant. Discipline as a distinguishing variable between the good-to-great companies (built and enduring culture of discipline with a Level 5 leader) and the comparison companies (Level 4 leaders that personally disciplined the organisation through sheer force).
Page 133 Fanatical adherence to the Hedgehog Concept creates opportunities and assists in how to select the best fit.
Page 139 Start a "stop doing" list. "In a good-to-great transformation, budgeting is a discipline to decide which arenas should be fully funded and which should not be funded at all".
Chapter 7 Technology Accelerators
How do good-to-great companies think differently about technology? By tying it directly to its Hedgehog Concept. Apply technology carefully, not just for the sake of it.
Page 152 Technology as an accelerator, not a creator, of momentum. Need to ask: Does the technology fit directly with your Hedgehog Concept? If so, apply and become a pioneer. If not, is the technology needed at all?
Page 154 The Technology trap. "The primary factors (of Nucor's success) were the consistency of the company, and our ability to project its philosophies throughout the whole organisation, enabled by our lack of layers and bureaucracy" Ken Iverson CEO
Page 158 "technology cannot turn a good enterprise into a great one, nor by itself prevent disaster".
Page 159 "indeed thoughtless reliance on technology is a liability, not an asset".-to-Technology and the fear of being left behind. The good-to-great companies did not react to competition or compare. They had their own standards of excellence to meet.
The Flywheel and the Doomloop
Page 165 "You are pushing no harder than during the first rotation, but the flywheel goes faster and faster. Each turn of the flywheel builds upon work done earlier, compounding your investment of effort".
Buildup and Breakthrough "good-to-great comes about by a cumulative process". Companies not noticed until the breakthrough so they look like overnight successes. But the evolution and transition may have taken years, even decades.
Page 172 Not just a luxury of circumstance.
Page 173 Managing Wall Street/Investor analysis. Under promise over deliver consistently on projections and estimates
The flywheel effect:
- Steps forward, consistent with Hedgehog Concept
- Accumulation of visible results
- People line up, energised by results
- Flywheel build momentum
- Motivation of the team not required. Start implementing and the results will speak for themselves, get people enrolled and momentum gathers.
Page 178 The Doom Loop
Never sticking long enough with one idea to build momentum. Focussing on fanfare and publicity rather than R & D.
Page 180 The misguided use of acquisitions.
"Good-to-great companies only acquire AFTER the development of the Hedgehog Concept and AFTER the flywheel had produced significant momentum. They used acquisitions as an accelerator of flywheel momentum, not a creator of it."
Page 181 Leaders who stop the flywheel may create a doom loop instead.
Good to great leader look for results rather than trying to look like the leader.
Chapter 9 From Good to Great to Built to Last: comparisons between the books.
- Same principles but built to last companies started from the ground up as early stage enterprises.
- Established company or start up - good to great concepts - sustained great results - built to last concepts - enduring great company
- To go from great results to an enduring great company discover your core values and purpose beyond just making money.
- Built to last did not answer the question of what is the differene between a good BHAG and a bad BHAG (Big Hairy Audacious Goal).
Page 190 Good to great in the early stages of Built to last.
The B2L companies went through a buildup to breakthrough as well.
Page 193 Core Idealogy: The extra dimension of enduring greatness.
Page 194 "Enduring great companies don't exist merely to deliver returns to shareholders. Indeed , in a truly great company, profits and cashflow become like blood and water to a healthy body: They are absolutely essential for life, but they are not the very point of life."
There are no right core values for becoming an enduring great company.
Page 197 Good BHAGs, Bad BHAGs, and other conceptual links.
The four key areas from built to last:
- Click building, not time telling. Build an organisation that is multi generational, not ego centric
- Genius of AND. Embrace two extremes
- Core idealogy. Core values and purpose to guide decisions and inspire people.
- Preserve the core while stimulating progress.
Link between BHAG and Hedgehog concept.
Page 202 Bad BHAG are set with bravado. Good BHAG are set with understanding..
Page 204 Sticking to the hedgehog concept and core ideaology does not mean that the method of manifestation cannot change.
Greatness is not defined by size.
Page 206 it takes no more work to aim for greatness as for just being good. It is as much about what you focus on and what you STOP doing, to stay in alignment with your desired outcome. And the RIGHT people aiming for the same outcome.
Page 209 Greatness is inevitable if you are engaged with work that you love and care about. The question is not WHY greatness, but what work makes you feel compelled to try to create greatness?