Good to Great
1. Good Is the Enemy of Great
2. Level 5 Leadership
3. First Who… Then What
4. Confront the Brutal Facts (Yet Never Lose Faith)
5. The Hedgehog Concept (Simplicity within the Three Circles)
6. A Culture of Discipline
7. Technology Accelerators
8. The Flywheel and the Doom Loop
9. From Good to Great to Built to Last
Good Is the Enemy of Great
“You know, Jim, we love Built to Last around here. You and your coauthor did a fine job on the research and writing. Unfortunately, it’s useless.”
– Mckinsey partner
Key point here: Consulting partners are douchebags.
The Good to Great Companies
Level 5 Leadership
“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.
Level 5 leaders display 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.
Level 5 leaders display a workmanlike diligence – more plow horse than show horse.
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 full responsibility. The comparison CEOs often did just the opposite – they looked in the mirror to take credit for success, but out the window to assign blame for disappointing results.
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.
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 CEOs came from inside the company, whereas the comparison companies tried outside CEOs six times more often.
“There are going to be times when we can’t wait for somebody. Now, you’re either on the bus or off the bus.”
First Who… Then What
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.
The key point of this chapter is not just the idea of getting the right people on the team. The key point is that “who” questions come before “what” decisions – before vision, before strategy, before organization structure, before tactics. First who, then what – as a rigorous discipline, consistently applied.
The comparison companies frequently followed the “genius with a thousand helpers” model – 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.
We uncovered three practical disciplines for being rigorous in people decisions:
1. When in doubt, don’t hire – keep looking. (Corollary: A company should limit its growth based on its ability to attract enough of the right people.)
2. When you know you need to make a people change, act. (Corollary: First be sure you don’t simply have someone in the wrong seat.)
3. Put your best people on your biggest opportunities, not your biggest problems. (Corollary: If you sell off your problems, don’t sell off your best people.)
We found no systematic pattern linking 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.
The old adage “People are your most important asset” is wrong. People are not your most important asset. The right people are.
Confront the Brutal Facts (Yet Never Lose Faith)
All good-to-great companies began the process of finding a path to greatness by confronting the brutal facts of their current reality.
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 o the brutal facts.
The good-to-great companies faced just as much adversity as the comparison companies, but responded to the adversity differently. They hit the realities of their situation head-on. As a result, they emerged from adversity even stronger.
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.
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.
The Hedgehog Concept (Simplicity within the Three Circles)
To go from good to great requires a deep understanding of three intersecting circles translated into a simple, crystalline concept (the Hedgehog Concept):
What you are deeply Passionate About
What you can be the Best in the World At
What drives your Economic Engine
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 – not what it “wants” to be the best at. The Hedgehog Concept is not a goal, strategy, or intention; it is an understanding.
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.
The good -to-great companies are more like hedgehogs – simple, dowdy creatures that know “one big thing” and stick to it. The comparison companies are more like foxes – crafty, cunning creatures that know many things yet lack consistency.
It took four years on average for the good-to-great companies to get a Hedgehog Concept.
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.
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.
A Culture of Discipline
Sustained great results depend upon building a culture full of self-disciplined people who take disciplined action, fanatically consistent with the three circles.
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 don’t need stultifying bureaucracy.
Do not confuse a culture of discipline with a tyrant who disciplines – 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.
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.
Good-to-great organizations think differently about technology and technological change than mediocre ones.
Good-to-great organizations avoid technology fads and bandwagons, yet they become pioneers in the application of carefully selected technologies.
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 become pioneers in the application of technology once they grasped how it fit with their three circles after they hit breakthrough.
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.
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 cant remain a laggard and hope to be great, but technology by itself is never a primary root cause of either greatness or decline.
Across eighty-four interviews with good-to-great executives, fully 80 percent didn’t 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.
The Flywheel and the Doom Loop
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.
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, on solitary lucky break, no miracle movement.
Sustainable transformations follow a predictable pattern of buildup and breakthrough. Like pushing on a giant, heavy 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.
The good-to-great leaders spent essentially no energy trying to “crate 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.
“It is your Work in life that is the ultimate seduction.”
From Good to Great to Built to Last
BHAG – Big Hairy Ambitious Goal
Built to Last Concepts:
Clock Building, Not Time Telling
Genius of AND
Preserve the Core / Stimulate Progress