Reflections from Good to Great: Why Some Companies make the Leap….and Others Don’t!

I read Good to Great last year and with the current lockdown got some time to pen down a summary and my learnings from it. The book is written by Jim Collins, an American researcher, author, speaker who has also written other best-sellers which include Built to Last, Great by Choice and How the Mighty Fall

This book was born out of a five-year research project which analyzed companies to demystify why some make the leap while others don’t. The key takeaway is that greatness is not built on circumstances but determined through conscious choice and discipline. It also discusses various concepts such as Level 5 Leadership and the now-iconic Flywheel effect

I share some of the key insights throughout the chapters and chip in with my reflections (in italics) at times!

• People are not your most important assets, the ‘right people’ are
• Good to great leaders are self-effacing, quiet, reserved, and even shy. They have an unwavering faith that you can and will prevail in the end regardless of the difficulties
• Discipline + Entrepreneurship = Great Performance
• The best students are those who never quite believe their professors

Chapter 1: Good is the enemy of great

The ultimate pivot. In the current time especially as various business models get disrupted with the pandemic, executing a bold pivot might give the best chance for a few companies to stay afloat and grab back market share when the time is right!

When Darwin Smith became the CEO of Kimberly Clark its stock had fallen 36% over the last two decades. Darwin sold mills which were traditional core business as he felt it was doomed to mediocrity. He threw all the proceeds into consumer business investing in brands like Huggies and Kleenex. Five years later KC was beating P&G (the then market leader) in 6 out of 8 product categories. He turned it into a leading paper-based consumer products company

When asked at his retirement on the secret behind his success he told ‘I never stopped trying to become qualified for the job’

In another instance, the CEO of Gillette Colman Mockler prevented a hostile takeover from Revlon. To do so he reached out to thousands of individual investors person by person call by call. To reject a 44% premium offer in a takeover bid required guts. Mockler fought for the future greatness of Gillette even while he could have pocketed millions from the sale.

These leaders dubbed as ‘Level 5’ leader blend extreme personal humility with an intense professional will. They are quiet, humble, modest, reserved, shy, gracious and mild-mannered

The 11 good to great CEO’s are some of the most remarkable CEO’s of the century from Abbott, Circuit City, Fannie Mae, Gillette, Kimberly-Clark, Kroger, Nucor, Philip Morris, Pitney Bowes, Walgreens, Wells Fargo

Chapter 3: First Who…..Then What

While firing will be the last thing a CEO will like to do, it is a necessary evil as part of a job. A person hired might not always be the best for a job and you might realize it only after a while. It is still imperative to do course correction at the stage else the inefficiency could demoralize the entire team

In terms of hiring first get the right people on the bus the wrong ones off it and then figure out where to drive it

Illustrated through an example Wells Fargo CEO Dick Cooley built one of the most talented management teams in the industry. He used to hire outstanding people whenever and wherever he found them without any specific job in mind. Wells Fargo outperformed the market by 3x

When Wells Fargo acquired Crocker it let go of 1600 managers since they were not the right fit into the culture at Wells. 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

When Maxwell became CEO of Fannie Mae the board wanted to know his rescue plans. Instead, he focused on getting the right people on the management team

Joe at Philip Morris put his №1 exec Weissman in charge of new business and went from managing 99% of the company to 1% and less. The result was that Marlboro became the best-selling cigarette brand in the world 3yrs before it became №1 in the US

Put your best people on your biggest opportunities and not your biggest problems. For no matter what we achieve if we don’t spend most of our time with people we love and respect we possibly can not have a great life

Chapter 4: Confront the Brutal Facts

Breakthrough results come about by a series of good decisions, diligently executed and accumulated one on top of another

The moment a leader allows himself to become the primary reality people worry about rather than reality being the primary reality, you have a recipe for mediocrity or worse

You must never confuse faith that you will prevail at the end which you can never afford to lose with the discipline to confront the most brutal facts of your current reality — the Stockdale paradox

Chapter 5: The Hedgehog Concept

The difference between hedgehog and foxes struck me in this chapter. Clarity and consistency in vision which is demonstrated in organization actions are what separate a hedgehog leader from a fox leader. So even as a company scales up and diversifies, retaining its core purpose and why it was born in the first place is crucial

The hedgehog concept states that great companies have a deep understanding on the intersection of the three circles- what you can be best in the world at, what drives your economic engine, what you are deeply passionate about

While the fox knows many things, the hedgehog knows one big thing.

Just like hedgehogs who simplify Walgreen identified and embraced this. It knew what it was best at (most convenient & consistent drug store experience), what drove its economic engine (high profit per customer visit) and what it was deeply passionate about (pharmacies)

The company does not need to be in a great industry to become a great company.

The people felt passionate about what they were doing, and their passion was deep and genuine. It took about 4 years on an average for good to great companies to clarify their hedgehog concepts

Chapter 6: A Culture of Discipline

Setting up and institutionalizing the system and processes while retaining the ‘innovative risky’ spirit is a tough but necessary balance to manage as a company scales up

As a company grows and becomes more complex it begins to trip over its own success- too many new people, new customers, new orders, new products. It quickly disorients to become an unwieldy ball of disorganized stuff

The creative magic begins to wane as some of the most innovative people leave, disgruntled by the burgeoning bureaucracy and hierarchy. An exciting startup transforms into just another company with nothing special to recommend it. A cancer of mediocrity begins to grow in earnest

When you put two complementary forces together — a culture of discipline with an ethic of entrepreneurship you get a magical alchemy of superior performance and sustained results

Abott reduced admin cost as a percent of sales to the lowest in the industry by creating a whole new framework of responsibility accounting. It also became a new product innovation machine deriving 65 percent of revenues from new products introduced in the last 4 years

Everyone would like to be the best, but most organizations lack the discipline to figure out with egoless clarity what they can be the best at and the will to do whatever it takes to turn that potential into reality

Those who built good to great companies however made as much use of stop doing lists as to-do lists. They displayed a remarkable discipline to unplug all sorts of extraneous junk

Chapter 7: Technology Accelerators

Technology induced change is nothing new. The real question is not, what is the role of technology rather the real question is how do good to great org think differently about tech

When used right tech becomes an accelerator of momentum not a creator of it. Good to great companies never began their transitions with pioneering tech for the simple reason that you cannot make good use of tech until you know which technologies are relevant.

Those who turn good into great are motivated by a deep creative urge and an inner compulsion for sheer unadulterated excellence for its own sake. Those who build and perpetuate mediocrity, in contrast, are motivated more by the fear of being left behind

Chapter 8: The Flywheel and the Doom Loop

The biggest lesson is that when a company achieves its ‘moment in the sun’, almost always that is preceded by years of toil, hard work, frustration, determination and resilience to bring it to where it stands today

The flywheel concept (my favorite one!) from the book states that good to great transformations never happens in one swoop. There is no single defining action, grand program, killer innovation, solitary luck, lucky break, or miracle moment which leads it to where it is. Rather it is pushing a giant, heavy flywheel, turn upon turn, building momentum until a point of breakthrough and beyond

Flywheel image captures the overall feel of what it was like inside the companies as they went from good to great. Yet to read media account of the companies you might draw an entirely different conclusion. Often the media does not cover a company until the flywheel is already turning a 1000 rotations per minute

Good to great companies were subject to the same short-term pressures from Wall Street as the comparison companies. Yet unlike these companies, they had the patience and discipline to follow the buildup breakthrough flywheel model despite these pressures. And in the end, they attained extraordinary results by wall street’s own measure of success

Such companies practiced the time-honored discipline of under-promising and over-delivering

On the contrary, a doom loop was when a company is confused and inconsistent. It focuses on posturing and looking good in the short run than doing the groundwork which is needed for long term success

Taking an example Warner-Lambert in 1979 it wanted to become a consumer products company, in 1980 a healthcare one, in 1981 again a consumer goods company again, and in 87 to be like Merck. Each new CEO brought his own program and halted the momentum of his predecessor. As a result, it went through three major restructurings from 79 to 98

Good to great companies used acquisitions as an accelerator of flywheel momentum not a creator of it. Faith in the end game helps you live through months or years of buildup

Sam Walton began in 1945 with a single dime store. He did not open the second store until 7yrs later (yes read that again!). He built it incrementally step by step until the hedgehog concept of large discount marts popped out as a natural evolutionary step in the mid-1960s. It took a quarter of a century to grow from that single dime store to a chain of 38 Walmarts

Chapter 9: From Good to Great to Built to Last

Enduring 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 essential for life but not the very point of life

Preserving your core ideology is a central feature of ensuring great companies

Becoming a level 5 leader when you care deeply enough about the work in which you are engaged and when your responsibilities line up with your own personal three circles.

Story of head coach of cross-country program who was an MBA from an elite B school, phi beta kappa graduate in economics, won the prize for best undergrad honors thesis at one of the most selective universities in the world. She found that what most of her classmates did- I-Banking on Wall Street, starting Internet companies, consulting held no meaning for her. She did not just care enough about those endeavors to make them great. She made the decision to search for meaningful work about which she would have such passion that the questions on why try for greatness would almost seem tautological.

If you are doing something you care that much about and believe in its purpose deeply enough then it is impossible to imagine not trying to make it great. It is just a given.

When all these pieces come together not only does your work move towards greatness but so does your life. For, in the end, it is impossible to have a great life unless it is a meaningful life

Indeed, you might gain even that deepest of satisfaction knowing that your short time here on this earth has been well spent and that it mattered!

P.S. I hope everyone is staying safe and well in the current times. Indulge in your hobbies and remember this too shall pass! If you liked the piece don’t forget to press the clap button!

The views and opinions expressed in this article are those of the author and do not necessarily reflect those of any institute or organization he is associated with.