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Others may say I am obsessive-compulsive if they learn that I have this urge to summarize books that I have read, especially the ones I really like. †Maybe I am obsessive-compulsive.
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I donít always get to actually completing my book summaries though.† Most of the time I set out to start the job but more often than not I lose steam before I even get to 50% of the task.
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Thatís why I love books that have chapter summaries. †At least the author is kind enough to already have done the summarizing for me.
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One such book is Good to Great by Jim Collins, which I finished reading quite recently (was it just last January?). †I really loved the book, btw, that is why it is a real bonus that it has chapter summaries.††So all I did was copy the chapter summaries verbatim.† Here it is for easy reference, for myself, my friends, and anybody who may be interested in the book.† Btw, I have also posted this book summary on the e-zine, ForAdultsAlso.com (http://www.foradultsalso.com/wc.php?id=75).
The Challenge
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Built to Last, the defining management study of the nineties (and the title of the book about said study; Built To Last was coauthored by Jim Collins), showed how great companies triumph over time and how long-term sustained performance can be engineered into the DNA of an enterprise from the very beginning.
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But what about the company that is not born with great DNA? How can good companies, mediocre companies, even bad companies achieve enduring greatness?
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The Study
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Are there companies that defy gravity and convert long-term mediocrity or worse into long-term superiority? And if so, what are the universal distinguishing characteristics that cause a company to go from good to great?
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The Standards
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Using tough benchmarks, Collins and his research team identified a set of elite companies that made the leap to great results and sustained those results for at least fifteen years. How great? After the leap, the good-to-great companies generated cumulative stock returns that beat the general stock market by an average of seven times in fifteen years, better than twice the results delivered by a composite index of the worldís greatest companies, including Coca-Cola, Intel, General Electric, and Merck.
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The Comparisons
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The research team contrasted the good-to-great companies with a carefully selected set of comparison companies that failed to make the leap from good to great. What was different? Why did one set of companies became truly great performers while the other set remained only good?
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Over five years, the team analyzed the histories of all twenty-eight companies in the study. After sifting through mountains of data and thousands of pages of interviews, Collins and his crew discovered the key determinants of greatness ñ why some companies make the leap and others donít.
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The Key Points
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1.†††† Good is the Enemy of Great
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2.†††† Level 5 Leadership
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1.†††† Every good-to-great company had Level 5 leadership during the pivotal transition years.
2.†††† “Level 5″ refers to a five-level hierarchy of executive capabilities, with Level 5 at the top. Level 5 leaders embody a paradoxical mix of personal humility and professional will. They are ambitious, to be sure, but ambitious first and foremost for the company, not themselves.
3.†††† Level 5 leaders set up their successors for even greater success in the next generation, whereas egocentric Level 4 leaders often set up their successors for failure.
4.†††† Level 5 leaders display a compelling modesty, are self-effacing, and understated. In contrast, two-thirds of the comparison companies had leaders with gargantuan personal egos that contributed to the demise or continued mediocrity of the company.
5.†††† Level 5 leaders are fanatically driven, infected with an incurable need to produce sustained results. They are resolved to do whatever it takes to make the company great, no matter how big or hard the decisions.
6.†††† Level 5 leaders display a workmanlike diligence ñ more plow horse than show horse.
7.†††† Level 5 leaders look out the window to attribute success to factors other than themselves. When things go poorly, however, they look in the mirror and blame themselves, taking all responsibility. The comparison CEOs often did just the opposite ñ they looked in the mirror to take credit for success, but out the window to assign blame for disappointing results.
8.†††† One of the most damaging trends in recent history is the tendency (especially by boards of directors) to select dazzling, celebrity leaders and to de-select potential Level 5 leaders.
9.†††† Potential Level 5 leaders exist all around us, if we just know what to look for, and that many people have the potential to evolve into Level 5.
10. Larger-than-life, celebrity leaders who ride in from the outside are negatively correlated with going from good to great. Ten of eleven good-to-great CEOís came from inside the company, whereas the comparison companies tried outside CEOs six times more often.
11. We were not looking for Level 5 leadership in our research, or anything like it, but the data was overwhelming and convincing. It is an empirical, not an ideological, finding.
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3.†††† First WhoÖ Then What
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1.†††† The good-to-great leaders began the transformation by first getting the right people on the bus (and the wrong people off the bus) and then figured out where to drive it.
2.†††† The key point is not just the idea of getting the right people on the team. The key point is that “who” questions come before the “what” decisions ñ before vision, before strategy, before organization structure, before tactics. First who, then what ñ as a rigorous discipline, consistently applied.
3.†††† The comparison companies frequently followed the “genius with a thousand helpers” model ñ a genius leader who sets a vision and then enlists a crew of highly capable “helpers” to make the vision happen. This model fails when the genius departs.
4.†††† The good-to-great leaders were rigorous, not ruthless, in people decisions. They did not rely on layoffs and restructuring as a primary strategy for improving performance. The comparison companies used layoffs to a much greater extent.
5.†††† Three practical disciplines for being rigorous in people decisions were uncovered:
††††††††††††††††††††††††††††††††††††††††††††††††††††††††† i.†††††††††† When in doubt, donít hire ñ keep looking. (Corollary: A company should limit its growth based on its ability to attract enough of the right people.)
†††††††††††††††††††††††††††††††††††††††††††††††††††††††† ii.†††††††††† When you know you need to make a people change, act. (Corollary: First be sure you donít simply have someone in the wrong seat.)
†††††††††††††††††††††††††††††††††††††††††††††††††††††† iii.†††††††††† Put your best people on your biggest opportunities, not your biggest problems. (Corollary: If you sell of your problems, donít sell off your best people.)
6.†††† Good-to-great management teams consist of people who debate vigorously in search of the best answers, yet who unify behind decisions, regardless of parochial interests.
7.†††† No systematic pattern found lining executive compensation to the shift from good to great. The purpose of compensation is not to “motivate” the right behaviors from the wrong people, but to get and keep the right people in the first place.
8.†††† The old adage, “People are your most important asset” is wrong. People are not your most important asset. The right people are.
9.†††† Whether someone is the “right person” has more to do with the character traits and innate capabilities than with specific knowledge, background, or skills.
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4.†††† Confront the Brutal Facts (Yet Never Lose Faith)
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1.†††† All good-to-great companies began the process of finding a path to greatness by confronting the brutal facts of their current reality.
2.†††† When you start with an honest and diligent effort to determine the truth of your situation, the right decisions often become self-evident. It is impossible to make good decisions without infusing the entire process with an honest confrontation of the brutal facts.
3.†††† A primary task in taking a company from good to great is to create a culture wherein people have a tremendous opportunity to be heard and, ultimately, for the truth to be heard.
4.†††† Creating a climate where the truth is heard involves four basic practices:
††††††††††††††††††††††††††††††††††††††††††††††††††††††††† i.†††††††††† Lead with questions, not answers.
†††††††††††††††††††††††††††††††††††††††††††††††††††††††† ii.†††††††††† Engage in dialogue and debate, not coercion.
†††††††††††††††††††††††††††††††††††††††††††††††††††††† iii.†††††††††† Conduct autopsies, without blame.
†††††††††††††††††††††††††††††††††††††††††††††††††††††† iv.†††††††††† Build red flag mechanisms that turn information into information that cannot be ignored.
5.†††† The good-to-great companies faced just as much adversity as the comparison companies, but responded to that adversity differently. They hit the realities of their situation head-on. As a result, they emerged from adversity even stronger.
6.†††† A key psychology for leading from good to great is the Stockdale Paradox: Retain absolute faith that you can and will prevail in the end, regardless of the difficulties, AND at the same time confront the most brutal facts of your current reality, whatever they might be.
7.†††† Charisma can be as much a liability as an asset, as the strength of your leadership personality can deter people from bringing you the brutal facts.
8.†††† Leadership does not begin just with vision. It begins with getting people to confront the brutal facts and to act on the implications.
9.†††† Spending time and energy trying to “motivate” people is a waste of effort. The real question is not, “How do we motivate our people?” If you have the right people they will be self-motivated. The key is to not de-motivate them. One of the primary ways to de-motivate people is to ignore the brutal facts of reality.
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5.†††† The Hedgehog Concept (Simplicity Within the Three Circles)
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1.†††† To go from good to great requires a deep understanding of three intersecting circles translated into a simple, crystalline concept (the Hedgehog Concept).
2.†††† The key is to understand what your organization can be the best in the world at, and equally important what it cannot be the best at ñ not what it “wants” to be the best at. The Hedgehog Concept is not a goal, strategy, or intention; itís an understanding.
3.†††† If you cannot be the best in the world at your core business, then your core business cannot form the basis of your Hedgehog Concept.
4.†††† The “best in the world” understanding is a much more severe standard than a core competence. You might have a competence but not necessarily have the capacity to be truly the best in the world at that competence. Conversely, there may be activities at which you could become the best in the world, but at which you have no current competence.
5.†††† To get insight into the drivers of your economic engine, search for the one denominator (profit per x or, in the social sector, cash flow per x) that has the single greatest impact.
6.†††† Good-to-great companies set their goals and strategies based on understanding; comparison companies set their goals and strategies based on bravado.
7.†††† Getting the Hedgehog Concept is an iterative process. The Council can be a useful device.
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Some Unexpected Findings
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8.†††† The good-to-great companies are more like hedgehogs ñ simple, dowdy creatures that know “one big thing” and stick to it. The comparison companies are more like foxes ñ crafty, cunning creatures that know many things yet lack consistency.
9.†††† It took four years on average for the good-to-great companies to get a Hedgehog Concept.
10. Strategy per se did not separate the good-to-great companies from the comparison companies. Both sets had strategies, and there is no evidence that the good-to-great companies spent more time on strategic planning than the comparison companies.
11. You absolutely do not need to be in a great industry to produce sustained great results. No matter how bad the industry, every good-to-great company figured out how to produce truly superior economic returns.
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6.†††† A Culture of Discipline
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1.†††† Sustained great results depend upon building a culture full of self-disciplined people who take disciplined action, fanatically consistent with the three circles.
2.†††† Bureaucratic cultures arise to compensate for incompetence and lack of discipline, which arise from having the wrong people on the bus in the first place. If you get the right people on the bus, and the wrong people off, you donít need stultifying bureaucracy.
3.†††† A culture of discipline involves a duality. On the one hand, it requires people who adhere to a consistent system; yet, on the other hand, it gives people freedom and responsibility within the framework of that system.
4.†††† A culture of discipline is not just about action. It is about getting disciplined people who engage in disciplined thought and who then take disciplined action.
5.†††† The good-to-great companies appear boring and pedestrian looking in from the outside, but upon close inspection, theyíre full of people who display extreme diligence and a stunning intensity (they “rinse their cottage cheese”).
6.†††† Do not confuse a culture of discipline with a tyrant who disciplines ñ they are very different concepts, one highly functional, the other highly dysfunctional. Savior CEOs who personally discipline through sheer force of personality usually fail to produce sustained results.
7.†††† The single most important form of discipline for sustained results is fanatical adherence to the Hedgehog Concept and the willingness to shun opportunities that fall outside the three circles.
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Unexpected Findings
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8.†††† The more an organization has the discipline to stay within its three circles, with almost religious consistency, the more it will have opportunities for growth.
9.†††† The fact that something is a “once-in-a-lifetime opportunity” is irrelevant, unless it fits within the three circles. A great company will have many once-in-a-lifetime opportunities.
10. The purpose of budgeting in a good-to-great company is not to decide how much each activity gets, but to decide which arenas best fit with the Hedgehog Concept and should be fully funded and which should not be funded at all.
11. “Stop doing” lists are more important than “to do” lists.
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7.†††† Technology Accelerators
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1.†††† Good-to-great organizations think differently about technology and technological change than mediocre ones.
2.†††† Good-to-great organizations avoid technology fads and bandwagons, yet they become pioneers in the application of carefully selected technologies.
3.†††† The key question about any technology is, “Does the technology fit directly with your Hedgehog Concept?” If yes, then you need to become a pioneer in the application of technology. If no, then you can settle for parity or ignore it entirely.
4.†††† The good-to-great companies used technology as an accelerator of momentum, not a creator of it. None of the good-to-great companies began their transformations with pioneering technology, yet they all became pioneers in the application of technology once they grasped how it fit with their three circles and after they hit breakthrough.
5.†††† You could have taken the exact same leading-edge technologies pioneered at the good-to-great companies and handed them to their direct comparisons for free, and the comparisons still would have failed to produce anywhere near the same results.
6.†††† How a company reacts to technological change is a good indicator of its inner drive for greatness versus mediocrity. Great companies respond with thoughtfulness and creativity, driven by a compulsion to turn unrealized potential into results; mediocre companies react and lurch about, motivated by fear of being left behind.
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Unexpected Findings
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7.†††† The idea that technological change is the principal cause in the decline of once-great companies (or the perpetual mediocrity of others) is not supported by the evidence. Certainly, a company canít remain laggard and hope to be great, but technology by itself is never a primary root cause of either greatness or decline.
8.†††† Across eighty-four interviews with good-to-great executives, fully 80 percent didnít even mention technology as one of the top five factors in the transformation. This is true even in companies famous for their pioneering application of technology, such as Nucor.
9.†††† “Crawl, walk, run” can be a very effective approach, even during times of rapid and radical technological change.
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8.†††† The Flywheel and the Doom Loop
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1.†††† Good-to-great transformations often look like dramatic, revolutionary events to those observing from the outside. But they feel like organic, cumulative processes to people on the inside. The confusion of end outcomes (dramatic results) with process (organic and cumulative) skews our perception of what really works over the long haul.
2.†††† No matter how dramatic the end result, the good-to-great transformations never happened in one fell swoop. There was no single defining action, no grand program, no one killer innovation, no solitary lucky break, no miracle moment.
3.†††† Sustainable transformations follow a predictable pattern of buildup and breakthrough. Like pushing on a heavy, giant flywheel, it takes a lot of effort to get the thing moving at all, but with persistent pushing in a consistent direction over a long period of time, the flywheel builds momentum, eventually hitting a point of breakthrough.
4.†††† The comparison companies followed a different pattern, the doom loop. Rather than accumulating momentum ñ turn by turn of the flywheel ñ they tried to skip buildup and jump immediately to breakthrough. Then with disappointing results, theyíd lurch back and forth, failing to maintain a consistent direction.
5.†††† The comparison companies frequently tried to create a breakthrough with large, misguided acquisitions. The good-to-great companies, in contrast, principally used large acquisitions after breakthrough, to accelerate momentum in an already fast-spinning flywheel.
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Unexpected Findings
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6.†††† Those inside the good-to-great companies were unaware of the magnitude of their transformation at the time; only later, in retrospect, did it become clear. They had no name, tag line, launch event, or program to signify what they were doing at the time.
7.†††† The good-to-great leaders spent essentially no energy trying to “create alignment,” “motivate the troops,” or “manage change.” Under the right conditions, the problems of commitment, alignment, motivation, and change largely take care of themselves. Alignment principally follows from results and momentum, not the other way around.
8.†††† The short-term pressures of Wall Street were not inconsistent with following this model. The flywheel effect is not in conflict with these pressures. Indeed, it is the key to managing them.
