When 21 persons team up to do research on 1435 companies (including almost all the Fortune 500 companies), examine 6000 articles and 2000 pages of interview transcripts to generate 384 Megabytes of data over a time frame of five years in order to decide what leads companies from goodness to greatness, select 11 great companies (according to definite criteria) on the basis of their research, and make conclusions on the very nature that made these companies truly great, the result is Jim Collin’s Good to Great: Why some companies make the leap-and others don’t.
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Jim Collins, a management research veteran, who set up a management laboratory in Colorado, was doing research for the book “Built to Last” which he co-authored with Jerry Porras, when he was interviewing the CEO of Mckinsey who asked him, “Most companies are not great-they are just good. How do companies go from being just good to great?” This question inspired Collins to undertake this study. The study included interviews with leaders and people at different levels in various organizations, people who were devoted to organizational excellence. The book covers possibly every area of management; the database includes “published information, SEC reports and interviews”, and though some of the findings are commonsense, the others might prove to be surprising to most of the readers.
The most surprising aspect of the study is the eleven companies that satisfied the criteria set by Collins and his team. Abbott, Circuit City, Fannie Mae, Gillette, Kimberly Clark, Kroger, Nucor, Phillip Morris, Pitney Bowes, Wells Fargo, and Walgreens made the list while the much more famous companies like GE, Coca-Cola, Wal Mart, Intel, IBM etc. did not make the list. The fact that these companies had to maintain their greatness over a period of time is not only unique but also explains what is needed to fight arrogance due to past success. Many companies traversed the distance from good to great in a very short period of time, but could not maintain the greatness. Companies having the same resources and opportunities in the same industry were also compared. The transition points of these companies were examined, and after that, their performance over the next 15 years was studied to come to the conclusions. The companies increased profits drastically during these periods and added a lot value to their stock prices, a proof of their efforts on improving themselves constantly over a period of time.
A conclusive point was on the leadership: Collins distributed the type of leaders into 5 levels-a highly capable individual, a contributing team member, a competent manager, an effective leader and the level-5 executive. However, as generally perceived, our level-5 executive is not ruthless and without the tendency to compromise. Rather he is an executive “who builds enduring greatness through a paradoxical blend of personal humility and professional will.” A strong will, to do whatever is needed to produce the best possible results, simple values, taking responsibility for the results, modesty, no tolerance for mediocrity-all these might seem simple commonsense values but are not generally followed. History has shown that many “good” companies did not turn into great because of ego problems of the leaders. The simple way in which Collins portrays a leader is a positive aspect of the book. Strategies like “When in doubt, don’t hire-keep looking”, “When you know you need to make a people change, act” and “Put your best people on your biggest opportunities, not your biggest problems” reveal the attitudes of these managers. Also the fact that 10 out of the 11 leaders came from within the company speaks something on the issue of responsibility of outside people who are hired to run a company.
Confronting the brutal facts head on also played an important role in the way these organizations were structured. When the companies honestly decided to determine the truth of the situation they were in, the path to progress became evident to them. Accordingly they created an environment wherein people of the organization were heard and their ideas were given due consideration. Four strategies were followed for this:
“Lead with questions, not answers”: Having the humbleness to ask the questions and not force answers on the organization.
“Engage in dialogue and debate, not coercion”: Constructive debate to encourage people to come out with the right answers.
“Conduct autopsies, without blame”: Leaders honestly considered the situation, instead of simply blaming others for adverse outcomes.
“Build red flag mechanisms that turn information into information that can not be ignored”: Opportunities were given to employees and customers to speak up to prevent potentially dangerous problems.
Another aspect that the book lays stress on is to get the right people in the organization. “People are not the most important asset. Right people are.” “Great companies are build up of great people.” In all the great companies, very little attention was given to motivating people; rather the focus was on improving the conditions, since under the right conditions, such problems as motivating people are automatically solved. “Character and innate capabilities are more important than specific knowledge, skills or experience.” The idea of paying employees big bucks was not accepted by these companies. According to them, “the compensation should be enough to get and keep the right people in the right places, instead of getting the right behavior out of the wrong people”. Probably this was the sort of thinking that prevented these companies from paying unnecessarily to their top-level executives, who command a lot of money these days.
Some simple thinking rather than complex solutions to complex problems also helped these companies a lot. For e.g.
Strategy did not play much role in making these companies great. Rather the more important thing was focus on what not to do.
Technology was not the sole cause of the success for these companies. Yes, technology is extremely important, but at most, it can accelerate the company’s progress. These companies determined what sort of technology will be beneficial for them and if they find it suitable, they start applying it.
Mergers and acquisitions, new taglines or launch programs do not cause transformations in the company. Rather it is the company culture and discipline that plays a more important role. The point on the “Flywheel and the Doom Loop” also drove home the point that radical change programs and wrenching restructuring generally failed, and only a process of constant improvement over a period of time made the companies good in the first place.
An important concept used by these companies, named by the author as ‘The Hedgehog Concept’, required the understanding of three things:
“What you can be the best in the world at”: An understanding of what you can be the best at, even if it is not what you currently do.
“What drives your economic engine”: To know the economic model, to get an insight on what makes the largest impact on your economic model
“What you are passionate about”: Companies became passionate about things the employees were bound to get passionate about instead of companies selecting the direction and then the employees becoming passionate about that direction.
In simple words, it makes you have an understanding of what value you can add to the organization in the best possible manner. This will automatically allocate the best people to the fields they are suited the most, and make the organization more efficient. The Hedgehog concept is not only innovative, but it also gives a clear view of how a person and an organization can help each other in the best possible manner. Possibly the use of this concept was the reason why the employees were not needed to be motivated. If they are already doing what they can do the best, they will automatically be motivated.
Collins also describes in great detail the culture of discipline these organizations imbibed. If people are motivated, and they are given both freedom to do the work the way they want, and the responsibility to see that the work is done, then the system will manage itself automatically. Also, a focus on what not to do is a very important point. The organizations simply shunned the things they didn’t think they could do the best. Such a discipline was seen throughout the people in these organizations. This single-minded focus, along with the Hedgehog concept, produced a culture that produced the best out of people, which in turn reflected on the organization.
The most important point that Collins raises though, in this era of corporate fraud, is the fact that these companies strictly adhered to ethics in the most difficult of times. Despite most people think of compromising ethics for business gains, these companies did not compromise. For e.g. these companies rarely used lay-offs as much as the other companies that were examined, even in difficult times. Though great, these companies never used ruthlessness to achieve greatness. Instead, they took care about taking people in the first place, and once they felt that people were required at the particular place, they were appointed for the particular job that was desired of them, which they would do the best.
The book is easy to read, elucidated by good anecdotes of the companies that were researched and which even the common man will find interesting. The author provides clear examples and evidence to derive any conclusion. Though faced with an enormous amount of data collected over 5 years, Collins manages to keep it simple and straightforward, and the concepts and trends that he mentions are sometimes extremely obvious but neglected by most. If we compare this book with Tom Peters’ and Robert Waterman’s “In Search of Excellence-Lessons from America’s best run companies” or say Howard Rothman’s “50 companies that changed the world”, the book is much more thoroughly researched, and probably contains much more insight into the culture of a company as to what makes a company truly progressive. Also the fact that 21 researchers worked on this book and constructively must have debated the actual workings of the companies makes it a little difficult to make the author’s bias shape the book. Even looking at the list of companies will make you feel that.
However, the reader might feel some inherent problems, possibly because of the same large data used to make this book. The fact that stock market prices are taken as a measure of greatness of the company may not go down well with quite a few people. Further, the book mentions that the companies hired the right people at the right time for the right job. But how this was done is not mentioned. Probably that has more to do with instinct and luck than any technique. Also one of the criteria is that the company should have performed under par (lower than general market trends-stock prices) initially. What about a company that has never shown such trends? Or maybe, are there other companies that have used these concepts, but have still not achieved greatness? Can there be some other trends that were impossible to be noticed despite the tremendous efforts of the researchers?
In spite of such questions, the book is good read not only for leaders of any organization, but also people working in organizations, who probably need to have some insight on how great organizations work. The book works in a scientific manner-the researchers had an aim, and they did thorough research to come out with the right answers, and logically came to each of the conclusions. Therefore, the book will prove a good read to people who really want to know how these companies became self-competent
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