The follow-up to Built to Last, Jim Collins’s influential study of 18 of America’s enduringly great companies, Good to Great leverages a 20-person research team, dozens of interviews, and thousands of pages of documents to answer two questions: Can a good company become a great one? And, if it can, how?
To identify clear examples of good-to-great transitions, Collins and his team searched for companies with 15-year returns equal to or below the general market that, after a distinct transition point, recorded 15-year returns at least three times the general market. They found 11 companies that met this criteria.
Collins and his team then identified a “comparison company” for each good-to-great company. The criteria for comparison companies was that (1) they were similarly resourced and situated as their relative good-to-great companies and (2) their returns remained at or below the general market return after the transition point.
The researchers also examined six “unsustained comparisons”—companies that beat the market after the transition point but failed to sustain those results across the full 15-year threshold.
The 11 companies are listed below. Comparison companies are in parentheses, followed by the companies’ industries.
The great companies followed six essential steps:
Good-to-great companies have what Collins et al. call “Level 5” leaders. Level 5 leaders are personally humble, almost shy, but highly driven professionally—more like Lincoln than Patton.
They avoid the limelight and tend to credit exterior forces or colleagues for their companies’ successes. Although they’re often personally likable and inspiring, they’re not usually “charismatic.”
Their lack of ego enables them to concentrate on one thing and one thing only: the company’s success.
How to achieve it: Collins admits that Level 5 characteristics are likely a product of both nature and nurture and so are difficult to create out of whole cloth; he also doesn’t have hard data to back up any suggestions he might make. His best advice for aspiring Level 5 leaders is to follow the other precepts he outlines. That way, even if you aren’t a Level 5 leader, you’ll at...
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In Good to Great, renowned consultant and business-school professor Jim Collins and a team of research assistants set out to learn (1) whether good companies can become great companies and (2) if they can, how.
Collins’s answers to those questions, which are detailed in the following chapters, have made Good to Great a touchstone text for managers and consultants alike. (It helps, too, that the book’s findings are empirically based and its concepts straightforward.)
It’s important to note, however, that the book was published nearly 20 years ago, and Collins and his team performed their research in the five years before that.
What this means for a contemporary, moderately informed reader is that some of Collins’s case studies may seem odd, given that they failed to sustain greatness.
For example, among...
At a dinner Collins was attending in 1996, a McKinsey managing director pointed out a flaw in Built to Last, Collins’s 1994 bestseller that explained how long-lasting companies achieved their success. The flaw was that the companies Collins studied were, for the most part, always unique—they never had to make the leap from just good to great.
Thus the idea for Good to Great was born: to study whether good companies can indeed become great companies and, if so, how they can.
Over five years, Collins’s team of 21 researchers reviewed close to 6,000 articles and generated over 2,000 pages of interview transcripts to determine whether and how companies can go from good to great.
Collins’s criteria for a good-to-great company was as follows:
A fifteen-year stock return at or below the general market return; followed by
A transition point; resulting in
Fifteen-year cumulative returns at least 3x the general market return.
The team chose fifteen years as the default scale for two reasons:
1. It’s long enough to rule out lucky breaks or one-offs; and
2. It exceeds the average CEO’s tenure, thereby mitigating the singular effects of a...
Good-to-great leaders exhibit “Level 5 Leadership”: Personal humility coupled with professional drive. Comparison company leaders, by contrast, were often egotistical, charismatic, and eager to credit themselves and blame others.
Despite Level 5 leaders’ personal modesty, they do whatever it takes to get results.
Level 5 leaders groom successors so that their companies stay successful after they depart. The leaders of the comparison companies, however, because they believed themselves to be geniuses or felt threatened by other managers’ rise, devoted no time to educating successors or preparing the company for their inevitable departure.
Level 5 leaders tend to emerge from within the company, rather than get brought in from the outside.
Instead of “looking in the mirror” to give credit for their company’s success, good-to-great leaders will “look out the window,” apportioning credit to external factors (e.g., luck) or their colleagues.
If we’re asked to name a successful CEO, we’re liable to think of celebrity executives like Tim Cook and Elon Musk, figures who have a larger-than-life...
Answer the following questions to learn what kind of leader you are.
Think of a recent success, whether at your job or in your personal life. Describe the success below.
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Good-to-great companies recruit and secure top talent before embarking on any transformative changes.
In the good-to-great companies, the management team was cast as a group of equals pushing toward a common goal. Comparison companies, meanwhile, typically followed the “genius with a thousand helpers” model—when a visionary leader surrounds him- or herself with people who can help realize that specific vision.
Good-to-great executives will perform regardless of the specifics of the compensation system, as long as compensation is reasonable.
Leaders of the good-to-great companies were disciplined in hiring and firing decisions, but they weren’t ruthless—they made people changes according to a rigorous standard and relied far less than their comparison-company peers on layoffs and restructurings.
Good-to-great teams boast a comradeship that lasts well beyond their tenure with the company.
Contrary to their expectations, Collins et al. discovered that good-to-great leaders assembled talented management teams before implementing any revolutionary reforms or setting off in a new...
Good-to-great leaders exhibit a psychological duality that Collins dubs the “Stockdale Paradox”—a stoic acceptance of business realities coupled with an unwavering faith in eventual triumph.
In the same way that good-to-great leaders maintain discipline in their hiring and firing decisions, they stay disciplined in terms of market realities. If the facts are clear, good-to-great leaders will respond to those facts without hesitation.
Of course, in order to respond to facts, leaders must cultivate a culture in which facts can be discovered and expressed—without fear of reprisal or blame.
Although good-to-great leaders are always checking themselves against reality, they don’t respond to every change in the economic weather: Once the facts have dictated a course of action, good-to-great leaders will pursue that course doggedly and diligently.
Admiral Jim Stockdale was the highest-ranking U.S. prisoner at the infamous North Vietnamese POW camp dubbed the “Hanoi Hilton.” Over the course of his eight-year imprisonment, he was tortured more than 20 times and suffered unimaginable physical and psychic...
(Shortform note: The following chapter inaugurates the “Breakthrough” phase of a good-to-great company’s timeline, when a good company takes its first definitive step toward becoming great. But it’s important to note that this step won’t pay off unless the proper leadership, people, and climate—the subjects of the first three chapters—are in place.)
People can be divided into foxes and hedgehogs: Foxes know many things and engage with a complex world on its own terms; hedgehogs know one big thing and subsume the world’s complexity to a single, simple, unifying idea.
Good-to-great leaders are hedgehogs—they develop a simple concept in response to the facts of reality and pursue that concept vigorously and with singular focus.
Collins et al. determined that “hedgehog concepts” emerge from a Venn diagram consisting of three key questions: What can I do better than...
Use this exercise to home in on your own Hedgehog Concept, whether in work or life.
Answer the question, “What can I do better than anyone else in the world?” Brainstorm some answers and write them below.
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Good-to-great companies foster cultures of discipline—in which every person gauges his or her actions according to the three circles and the company’s Hedgehog Concept.
Good-to-great companies get the right people—i.e., disciplined people—on the bus first, and so there’s little need for tight management. Good-to-great companies don’t need to retain micromanaging, disciplinarian executives for the same reason.
A counter-intuitive technique for maintaining an organization’s discipline is to create a “stop doing” list (rather than a “to do” list).
Discipline from Top to Bottom
With a Level 5 leader, the right people, and a Hedgehog Concept in place, creating a culture of discipline becomes a matter of nudges rather than shoves.
As a general definition, discipline in an organization means a fanatical devotion to hedgehog thinking—the use of the three circles for any action and constant referral to the Hedgehog Concept.
In practice, a disciplined culture features four attributes:
A balance of freedom and responsibility for individual managers
Self-disciplined people intensely focused on achieving the...
It's important to focus. Use the prompts below to draft your own “stop doing” list.
Revisit the previous exercise, where you explored your own Hedgehog Concept (or, simply, a concept that intrigued you). Now, in the space below, list what you need to stop doing in order to realize that concept. Feel free to list several items, and for each item, describe how your stopping it fits with your Hedgehog Concept.
Good-to-great companies engage with groundbreaking technologies in a very specific way: Rather than bet the house on the technology itself, they think deeply about how the technology can serve the company’s Hedgehog Concept.
In other words, good-to-great companies don’t use technology to create growth but to accelerate it. Their breakthroughs are born of the yeoman’s work of developing a Hedgehog Concept, not diving headlong into the latest fad technology.
Mediocre companies fear being left behind, driving them to adopt new technology as a reflex without methodical thought. But research suggests technology is usually not the root cause of rise or decline - it’s merely an accelerant on what the company is already doing.
A good rule of thumb is “crawl, walk, run”—slow down and think about how a technology can help you realize your Hedgehog Concept, then move carefully toward a strategy. Once the strategy is in place and chugging along, however, don’t be afraid to step on the gas.
Collins and his team found, to their surprise, that 80% of the good-to-great leaders they...
The “Flywheel Effect” captures the overall feeling of being inside a good-to-great company. To start a heavy flywheel spinning takes an immense amount of hard effort, but once momentum kicks in, it looks unstoppable.
Even though the results are dramatic, flywheels do not result overnight from one concerted action or one flashy launch or one lucky break. They are the result of a long period of discipline and dedication to a Hedgehog Concept.
A common excuse of mediocre companies is that Wall Street stifles long-term strategy through its insistence on short-term results. Great companies face the same pressures, but they persist with building their flywheel. The results speak for themselves, earning the grace of Wall Street investors.
Whereas the good-to-great companies employed a “buildup phase” that eventually yielded a “breakthrough phase,” the comparison companies attempted to skip the slow work of the buildup with ill-advised acquisitions or other risky moves. With each misguided decision came disappointing results, which further increased the pressure to make bold moves, which resulted in further disappointment—the “doom...
Contrary to Collins’s expectations, Good to Great isn’t a sequel to his bestseller Built to Last—it’s a prequel.
Enduringly great companies adhere to good-to-great concepts in their infancy. It’s only when they’ve achieved greatness that they begin to adopt the qualities Collins outlined in Built to Last.
Why the fixation on greatness? Collins believes that a desire to be great—rather than simply good or successful—is a natural byproduct of doing something we love. If we’re content with being just decent or average at what we do, then we’re probably in the wrong line of work.
In his previous bestseller Built to Last, Collins and his coauthor identified 18 lastingly great companies and studied how they constructed a durably great company from scratch. Using a similar methodology to Good to Great, the authors compared the lastingly great companies with competitor companies.
The enduringly great companies from Built to Last, it turns out, adhered to many of the principles Collins discovered in Good to Great.
Great to Lastingly Great: Hewlett-Packard
Use these exercises to explore your core ideology and Big Hairy Audacious Idea.
In the space below, write down your core purpose and three core values. (These can be the core purpose/values of your business, your position at your job, or yourself a person.)
Use this exercise to reflect on Good to Great as a whole.
Which of Collins’s steps did you find most useful and why?