PDF Summary:Good to Great, by Jim Collins
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1-Page PDF Summary of Good to Great
In Good to Great, former Stanford business professor Jim Collins offers a primer on turning the average into the exceptional. Through detailed case studies of 11 companies that went from tracking the market to exceeding it by at least 3x, Collins presents the key factors that separate merely good organizations from great ones—from rare leadership to disciplined thinking to the dogged pursuit of a core mission.
Whether you’re an entrepreneur, a manager, or just an individual looking to improve, the concepts in Good to Great provide food for thought—and spurs to action. You’ll learn what it takes to be a “Level 5” leader, why assembling the right team first is more important than having the right idea, why you should be more like a hedgehog than a fox, and why “stop doing” lists are as important as “to do” lists.
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2. Assembling the Right Team
Good-to-great companies retain the right people before embarking on any specific program.
A good-to-great team is composed of people who care deeply about the company and will argue passionately for the decisions they believe are right (but will come together to support whatever decision is eventually reached).
Avoid at all costs the “genius with a thousand helpers” model; management teams should be composed of independent and critical thinkers, not “yes people.”
How to achieve it: (1) Don’t hire until you’re sure you have the right person; (2) recognize when you need to make a change (whether by shifting a role or letting someone go) and act swiftly; and (3) assign your best people to your biggest opportunities rather than your biggest problems.
3. Unearthing and Facing Facts
Good-to-great companies are evangelical about recognizing market realities and reacting in kind.
That said, no matter how dire the facts, they never lose faith that, eventually, they’ll prevail.
The key is to be stoic yet hopeful, realistic without turning cynical.
How to achieve it: With the right management team—one comprising sharp, critical thinkers—the facts should never be in short supply. Leaders can encourage truth-telling by: (1) Beginning meetings with questions, not answers; (2) cultivating, rather than stifling, debate among the team; and (3) conducting clear-eyed analyses of mistakes without assignation of blame.
4. Thinking Like a Hedgehog
“Foxes” know many things and see the world in all its complexity, whereas “Hedgehogs” know one big thing and order the world according to that thing.
A good-to-great company thinks like a hedgehog by developing a “Hedgehog Concept”—an elegant, easy-to-understand guiding philosophy based on facts—that it adheres to fanatically.
How to achieve it: A company’s “Hedgehog Concept” is derived from the answer(s) to three questions: (1) At what can I be the best in the world? (2) What is my financial engine? And (3) What am I profoundly passionate about?
5. Maintaining Discipline
Good-to-great companies make the jump because they constantly refer to and consistently realize their Hedgehog Concepts. Rigorous adherence to a Hedgehog Concept saves companies from panic acquisitions or misguided projects.
Good-to-great companies also lack the administrative and managerial burdens of other companies—with the right people in place and an easy-to-understand Hedgehog Concept, the need for tight management or layers of bureaucracy withers away. Discipline does not mean a tyranny presided over by the executive.
How to achieve it: (1) Allow individuals freedom within a clear framework of responsibility; (2) retain self-disciplined people who are driven to produce results; (3) recognize that a disciplined culture is different from a culture led by a tyrant or disciplinarian; and (4) adhere fanatically to hedgehog thinking. A key technique for staying true to your Hedgehog Concept? Create a “stop doing” list.
6. Using Technology Tactically
For good-to-great companies, technology isn’t the creator of great results but their accelerant.
Rather than follow technological fads and adopt new technology for its own sake, good-to-great companies pioneer particular uses of new technology.
How to achieve it: When evaluating a new technology, the key question to ask is: How does this technology impact my Hedgehog Concept? If it doesn’t, you can safely ignore it and/or accept parity in its use; if it does, you must figure out how you can lead in the application of that technology.
Flywheels vs. Doom Loops
Each step on the road to great takes time—there is no bolt from the blue or miracle moment.
Collins likens the process of going from good to great to the turning of a heavy flywheel. To get the flywheel moving takes continuous effort and dedication, but once it’s spinning, its momentum keeps it going. Greatness is the result of the steady, disciplined adherence to the six steps described above.
Unfortunately, many leaders are under the impression that massive success can happen overnight—by dint of a splashy initiative, big-ticket acquisition, or cutting-edge technology. These moves all too often fail and lead to further drastic measures—restructurings, layoffs—which lead to further declines and on and on. This painful cycle is the “doom loop,” and it can be avoided by the diligent observance of Collins’s six steps.
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PDF Summary Shortform Introduction
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It’s also possible that a follow-up study to Good to Great would find that Circuit City and the other troubled good-to-greats abandoned the principles that made them great in the first place. For example, as it lost ground to Best Buy in 2007–2008, Circuit City laid off its most talented (and well-paid) workers for a quick cash boost. A move like this contradicts Step #2 of Collins’s program, which emphasizes the hiring and retention of good people.
We also believe Collins’s ideas are useful outside of the business realm, and the fate of a Circuit City or Fannie Mae doesn’t disqualify people from using Collins’s precepts in their daily lives.
PDF Summary Chapter 1: Separating the Great from the Good
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Possessed similar resources and opportunities as its good-to-great company; and
Featured a fifteen-year stock return at or below the general market return that remained at that level after the good-to-great company’s transition point.
The Companies
The 11 companies are listed below. Comparison companies are in parentheses, followed by the companies’ industries.
- Abbott (Upjohn) – Health Care
- Circuit City (Silo) – Retail
- Fannie Mae (Great Western) – Financial Services
- Gillette (Warner-Lambert) – Consumer Goods
- Kroger (A&P) – Retail
- Nucor (Bethlehem Steel) – Steel
- Philip Morris (R. J. Reynolds) – Tobacco
- Pitney Bowes (Addressograph) – Business Services
- Walgreens (Eckerd) – Pharmacy
- Wells Fargo (Bank of America) – Banking/Financial Services
In addition to direct comparisons with statically good companies, Collins and his team compared the good-to-great companies with companies that showed great results but couldn’t sustain them over the fifteen-year window (“Unsustained Comparisons”). Those companies are:
- Burroughs – Business Services
- Chrysler – Automotive
- Harris – Aerospace and Defense (previously...
PDF Summary Chapter 2: Level 5 Leadership
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Collins and his team dubbed these unique executives “Level 5 Leaders.” Level 5 leaders check their egos at the door and sacrifice personal glory for the institutional good. A Level 5 leader’s primary concern is company success, not his or her own.
To distinguish Level 5 leaders from more ordinary managers, here are all 5 levels of contributors:
- Level 1: A capable individual contributor. A talented and productive individual with good work habits.
- Level 2: A productive team member. A talented and productive contributor who also makes those around him or her better.
- Level 3: An effective manager: A person who can marshall people and resources to achieve a decided-upon objective
- Level 4: A leader. One who can inspire subordinates and achieve higher performance
- Level 5: A Level 5 Leader. Exceeds expectations through a unique combination of humility and drive; funnels personal ambition into company success.
The Qualities of Level 5 Leaders
Self-Effacing, but Resolute
Level 5 Leaders tend to avoid the public eye, have a reserve demeanor, and even tend to shyness. But while not ambitious for themselves, they are ambitious for the...
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Learn more about our summaries →PDF Summary Chapter 3: The Right Team
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The Right Team: Wells Fargo
Wells Fargo’s rapid rise began in 1983, but the groundwork for its triumph was laid a decade earlier, when then-CEO Dick Cooley put together one of the most talented management teams in banking (the most talented, according to Warren Buffett).
Cooley predicted that banking would undergo massive changes in the coming decades, but he was also humble enough to know he couldn’t predict what those changes would be. So he instead decided to attract and retain as much talent as he could, even if positions had to be created for the new hires.
The strategy paid off when the major change—banking deregulation—came. While Wells Fargo’s sector as a whole trailed the general stock market by 59%, Wells Fargo boasted returns 3x the market.
Wells’s eye for talent was confirmed in the years after its triumph. Many of the executives that oversaw the bank’s navigation of banking deregulation went on to become CEOs of other major companies, including U.S. Bancorp, Household Finance, and Bank of America.
The Right Team: Pitney Bowes
Dave Nassef, an executive at Pitney Bowes, spent time in the Marine Corps, and he and his managers...
PDF Summary Chapter 4: Facts Over Fantasy
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Each good-to-great company faced adversity on its path to great, whether in the form of crushing debt (in the case of Fannie Mae) or a massive product recall (in the case of Abbott Laboratories).
Good-to-great leaders approach these challenges in the same way Stockdale did his imprisonment: They accept and address the brute facts of reality while never losing faith that the company will emerge victorious.
Facts Over Fantasy: A&P and Kroger
At the beginning of the 1970s, two well-established grocery companies—A&P and Kroger—were similarly positioned to take advantage of new consumer demand for a one-stop shopping experience: Both companies had almost all their assets invested in grocery stores, and both were strongest in slower-growth areas of the U.S.
But whereas Kroger saw the demand for “superstores”—establishments that sold everything from conventional groceries to prepared foods to nutritional supplements and medicines—and met it by overhauling 100% of their stores, A&P stayed the course—and got buried. From 1973 to 1998, Kroger generated returns 10x the general market and 80x that of A&P.
A&P’s failure wasn’t due to lack of information. In fact, A&P...
PDF Summary Chapter 5: Hedgehog Thinking
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Hedgehog Thinking: Walgreens
From 1975 to 2000, Walgreens delivered stock returns 15x the general market return, dwarfing the performance of Eckerd, its comparison company.
Walgreens’s resurgence was fueled by an utterly simple concept: to build the most convenient drugstores with the highest profit per customer visit in the industry.
Once the concept had been determined, it was just a matter of doing whatever it took to serve the concept: building stores on corners rather than midblock, clustering stores in high-traffic areas, providing drive-through pharmacy services, and adding highly profitable services like one-hour photo development.
Eckerd, meanwhile, had no unifying concept for growth. It made sporadic deals to acquire stores in discrete areas, and even tried getting into the home-video industry by purchasing American Home Video Corporation (a move that resulted in a $31 million loss). Twenty years after that ill-starred purchase, Walgreens was sustaining its stellar performance—and Eckerd no longer existed as an independent company.
Developing Your Hedgehog Concept
At a glance, a Hedgehog Concept might just seem like sound strategy or sharp...
PDF Summary Chapter 6: Disciplined Culture
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The system worked: Abbott simultaneously reduced administrative costs (to the lowest number in the industry as a percentage of sales) and drove innovation (earning a majority of its revenue from new products).
Intense Self-Discipline
In a good-to-great company, managers at every level employ the three circles and refer repeatedly to the Hedgehog Concept.
Their understanding of and devotion to the company mission means they’ll police themselves, cutting waste and making sound decisions.
Wells Fargo’s utilitarian ethos, for example, was present from the executive suite on down. Its CEO, Carl Reichardt, knew that banking deregulation would necessitate the elimination of waste. So he got rid of the corporate jets and the executives-only elevator; and he even scolded people for using fancy binders for reports.
Bank of America’s executives, on the other hand, preserved the perks—corner offices, oriental rugs, dedicated elevators, a corporate jet—despite the exigencies of banking deregulation. Even as the company lost over $1.5 billion over three years, executives refused to sell the corporate jet.
Culture, not Tyranny
Good-to-great leaders like Wells...
PDF Summary Chapter 7: Tech Done Right
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- Kroger pioneered computers to modernize its stores and was the first to experiment with scanners.
Tech Done Right: Walgreens
When drugstore.com had its IPO in July of 1999, its stock price quickly rose threefold to $69 a share, resulting in a $3.5 billion valuation.
Walgreens, meanwhile, seen as a stodgy brick-and-mortar pharmacy company destined for the dustbin of history, lost nearly $15 billion in market value as investors raced to capitalize on the ease and quickness of online shopping.
Rather than panic, Walgreens took stock. They analyzed how the Internet could support their Hedgehog Concept of providing the most convenient shopping experience and maximizing profit per customer visit. They hit upon the idea of enabling customers to order medicines online and then pick them up at any Walgreens they chose, whether in-store or via Walgreens’s drive-through windows.
Once Walgreens’s plan was in place, they went big, rolling out a sophisticated website with impressive functionality and reliability.
Within a year, Walgreens’s stock price had doubled—and drugstore.com had foundered, needing to lay off 10% of its workforce to conserve cash and shedding...
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PDF Summary Chapter 8: Flywheels vs. Doom Loops
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Alan Wurtzel, Circuit City’s Level 5 leader, inherited the CEO position from his father in 1973, but the company didn’t receive national recognition until 1984, when Forbes published a feature on its swift rise, portraying it like an overnight success story.
In fact, Wurtzel had inherited a nearly bankrupt company in 1973, and it took every bit of those eleven years for Circuit City to work its way to breakthrough. From rebuilding the executive team to exploring a warehouse-showroom model of retail to favoring consumer electronics over appliances, Wurtzel pursued a fact-driven and carefully paced transition.
Nucor’s buildup, too, was largely ignored by the media. Ken Iverson and his team started revamping Nucor in 1965, and by 1975, the company had built three mini-mills and reimagined its culture. But it wasn’t until 1978 that Business Week published the first major article on the company.
The transformations that turn good companies into great companies don’t have a name or a brand or a tagline—in fact, they’re barely discernible as discrete processes at all. **There is no miracle moment. There is, rather, the culmination of the dogged, disciplined pursuit of...
PDF Summary Chapter 9: Great to Lastingly Great
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Even after HP had become one of the most successful and admired companies in business history, Hewlett and Packard retained their (Level 5) humility. Packard, in fact, though a billionaire, lived in the small house he and his wife built in 1957 until he died. A eulogy pamphlet created by his family featured a picture of him on a tractor and the caption “David Packard, 1912–1996, Rancher, etc.”—no mention of his massive success as an industrial engineer and entrepreneur.
Taking Good to Great to Lastingly Great
The four key ideas of Built to Last are as follows:
- Design Your Own Timeline
- Rather than look to the outside to see where you stand on your trajectory, set your own agenda and time benchmarks.
- The idea is to build a company that can endure beyond individual product cycles or leaders.
- Embrace the “And”
- When faced with an “either/or” choice, devise a solution that lets you have “both/and.”
- You want your company to be able to pursue both terms in a dichotomy: freedom and responsibility, consistency and change, etc.
- Develop a Core Ideology
- A “core ideology” is a combination of a core purpose...