Ever wondered what differentiates a 'good' entity from a 'great' one? Can a good school, government, or company transform into a great one? Dive into an insightful exploration of the journey from 'good to great', centered around the principles of disciplined people, thought, action, and the breakthrough role of Level 5 Leadership. Discover how esteemed organizations like Wells Fargo and Philip Morris navigated this transformation and the critical importance of having the 'right people on the bus'. Let's demystify the Hedgehog Concept and its power in simplifying a complex world into a unifying idea. 

Good To Great: Why Some Companies Make the Leap and Others Don't

Good is the enemy of greatness. This is the key reason why we seldom see anything becoming great. We see good schools, good governments, good companies, but not great ones. This is largely because it's so easy to settle for a good life. The majority of companies never become great because they settle for being good, and that becomes their main problem.

This idea came to the author, Jim, during a dinner in 1996. The managing director of the San Francisco office of a company, Bill Meehan, said that Jim’s book “Built to Last” was useless. According to Meehan, the book talked about companies that were always great and didn’t have to transform from good to great. Meehan's comment sparked a question that became the basis of this book: Can a good company become a great company and, if so, how?

After five years of research, the author and his team discovered that indeed, good to great does happen, and they learned much about the underlying variables that make it happen. They identified companies that made the leap from good results to great results and sustained those results for at least fifteen years. They compared these companies to a carefully selected control group of comparison companies that failed to make the leap, or if they did, failed to sustain it.

The good-to-great companies that made the final cut into the study attained extraordinary results, averaging cumulative stock returns 6.9 times the general market in the fifteen years following their transition. For instance, Walgreens, a very average company for over forty years, began to climb in 1975. From December 1, 1975, to January 1, 2000, $1 invested in Walgreens beat $1 invested in technology superstar Intel by nearly two times, General Electric by nearly five times, Coca-Cola by nearly eight times, and the general stock market over fifteen times.

This book is about the question- Can a good company become a great company and, if so, how? It’s about the search for timeless, universal answers that can be applied by any organization. Jim and his team went through rigorous research and debates to arrive at the final framework of concepts, which are the key findings of this book. These concepts revolve around people, disciplined thought, and disciplined action, and are wrapped around by the concept of the flywheel, which captures the gestalt of the entire process of going from good to great. 

The concepts include Level 5 Leadership, First Who… Then What, Confront the Brutal Facts, The Hedgehog Concept, A Culture of Discipline, and Technology Accelerators. The key insight is that the transformation from good to great does not happen in one fell swoop but is a process of relentlessly pushing a giant heavy flywheel in one direction, building momentum until a point of breakthrough, and beyond.

Can a good company become a great company?

In 1971, Darwin E. Smith became the CEO of Kimberly-Clark, a struggling paper company. Despite his personal doubts about his suitability for the role and a cancer diagnosis shortly after his appointment, Smith transformed Kimberly-Clark into a world leader in the paper-based consumer products industry. A humble and unassuming man, Smith was more interested in achieving results than in personal recognition.

Smith's quiet determination and commitment to excellence are characteristic of what author Jim Collins calls "Level 5 Leadership." These leaders are a blend of personal humility and professional will. They are self-effacing, preferring to credit their team and good fortune for their company's success. Yet they also display unwavering resolve to do whatever it takes to make their company great.

These leaders are not interested in personal gain or public adulation. They channel their ambition into their company and set up their successors for even greater success. They have high standards and a workmanlike diligence. They are modest and willful, humble and fearless. 

Jim also highlights the importance of "the window and the mirror" concept for leaders. Great leaders look out the window to credit success to others and look in the mirror to take responsibility for failures. This contrasts with less effective leaders who do the opposite.

However, becoming a Level 5 leader is not a straightforward process. It requires personal development, self-reflection, and often a significant life experience or mentor. Although Jim believes many potential Level 5 leaders exist in society, they often remain unnoticed due to their humility and preference for attributing success to others.

Practicing the principles of Level 5 Leadership can help individuals move towards this leadership style. While there is no guarantee of completely achieving Level 5, striving towards it is a worthy endeavor. 

Level 5 Leadership: Darwin E. Smith's Transformative Journey at Kimberly-Clark

The concept of "getting the right people on the bus" is critical to transforming a company from good to great. This principle emphasizes the importance of a company's team before its vision, strategy, or direction. If the right people are on the bus, they can adapt to a changing world and stay motivated to produce the best results. 

The case of Wells Fargo's successful transformation, led by CEO Dick Cooley, provides a perfect example. Cooley focused on hiring outstanding people, and as a result, Wells Fargo outperformed its sector despite industry-wide changes.

However, getting the right people on the bus is not an easy task. It's a rigorous process that requires patience, careful selection, and sometimes tough decisions. For example, when Wells Fargo acquired Crocker Bank, it made the tough decision to let go of most of the Crocker management team as they did not align with Wells Fargo’s culture. This action might seem ruthless, but it was necessary for the company's success.

Moreover, it's crucial to assign the best people to the biggest opportunities, not the biggest problems. The transformation of Philip Morris, led by CEO George Weissman, is a testament to this strategy. Weissman, despite being assigned to a smaller sector of the company, managed to make Marlboro the best-selling cigarette in the world.

Lastly, creating a great company goes hand in hand with creating a great life. The executives from the good-to-great companies not only loved what they did but also loved who they did it with. This principle highlights the importance of surrounding ourselves with people we love and respect. After all, no matter what we achieve, if we're not spending most of our time with people we love and respect, we can't possibly have a great life.

Can the Right Team Transform a Good Company Into a Great One?

In the 1950s, the Great Atlantic and Pacific Tea Company (A&P) was a globally recognized retailing organization, second only to General Motors. However, by the 1960s, it began to falter, while its less glamorous competitor, Kroger, began laying the foundations for a transition into a great company. In the next 25 years, Kroger generated cumulative returns 80 times better than A&P. How did this happen?

A&P had a successful business model for the first half of the 20th century, offering cheap, plentiful groceries in utilitarian stores. However, as consumer demands changed, they desired more than just grocery stores. They wanted superstores with a vast offering. A&P failed to adapt to these changes, while Kroger confronted this brutal reality and acted on it, thus turning its entire system around.

A&P's decline was not due to a lack of information. It was the company's inability to confront and act on the facts that led to its undoing. On the other hand, Kroger thrived by facing the facts and making decisive changes. The company's leaders held "agonizing arguments" before making strategic decisions, and once they'd determined the best course of action, they acted decisively.

The contrast between A&P and Kroger brings to light a key principle: good decisions often become self-evident when you start with an honest and diligent effort to determine the truth of a situation. In other words, you must confront the brutal facts of your current reality while maintaining unwavering faith that you will prevail in the end. This is known as the Stockdale Paradox, named after Admiral Jim Stockdale, a U.S. military officer who survived eight years of torture in a prisoner-of-war camp by adhering to this principle.

From Survival to Thrival: The Stockdale Paradox in A&P and Kroger's Retail Rivalry

In the famous essay “The Hedgehog and the Fox,” Isaiah Berlin divided the world into hedgehogs and foxes, based on an ancient Greek parable. The fox knows many things and has complex strategies, while the hedgehog knows one big thing and simplifies a complex world into a single organizing idea. This concept can be applied to people and companies as well. 

Princeton professor Marvin Bressler once said, "You want to know what separates those who make the biggest impact from all the others who are just as smart? They're hedgehogs." They take a complex world and simplify it. Freud and the unconscious, Darwin and natural selection, Marx and class struggle, Einstein and relativity, Adam Smith and division of labor—they were all hedgehogs.

Consider the case of Walgreens, a company that generated cumulative stock returns that exceeded the market by over fifteen times from the end of 1975 to 2000. When asked about the secret to their success, Cork Walgreen said, "Look, it just wasn't that complicated! Once we understood the concept, we just moved straight ahead." The concept was simple: the best, most convenient drugstores, with high profit per customer visit. 

The point here is that companies can become great by focusing on a single, simple concept that they can excel at - their Hedgehog Concept. This concept lies at the intersection of three circles: 
• what you can be the best in the world at, 
• what drives your economic engine, and 
• what you are deeply passionate about. 

Achieving a Hedgehog Concept is not an event but an iterative process that involves asking the right questions, engaging in vigorous debate, making decisions, autopsying the results, and learning, all guided within the context of the three circles. 

Understanding your Hedgehog Concept can give you the ability to make decisions with clarity and confidence, and ultimately, achieve greatness.

Are You a Hedgehog or a Fox? How Understanding This Concept Could Drive Your Success?

In the world of startups, growth is often equated with success. However, unchecked growth can lead to chaos and disorganization. This is where the story of George Rathmann, the co-founder of biotechnology company Amgen, comes into play. 

Under Rathmann's leadership, Amgen grew into a $3.2 billion company, delivering consistent growth and profitability. Rathmann was able to achieve this by avoiding the typical bureaucracies of large corporations and fostering a culture of discipline within the company. The rise of Amgen serves as a reminder that entrepreneurial success is not just about creativity and innovation. It's also about discipline and structure. 

As companies grow, they often face the challenge of managing a burgeoning number of people, customers, orders, and products. This can lead to friction and inefficiencies. The key to avoiding this is to establish a culture of discipline early on. This involves setting clear objectives, being rigorous in their implementation, and holding everyone accountable.

Another key takeaway from this story is the importance of staying in your lane. Companies often make the mistake of diversifying too much or drifting away from their core competencies. This can lead to a loss of focus and ultimately, a decline in performance. A case in point is R.J. Reynolds, a tobacco company that made ill-advised ventures into shipping and oil, leading to significant losses.

On the other hand, companies that stay true to their core competencies and continue to innovate within their domain often see sustained success. An example of this is Nucor, a steel production company that focused on aligning worker interests with management and shareholder interests. This approach led to a remarkable level of profitability and success.

Mastering Growth: Lessons from Amgen's George Rathmann and the Importance of Discipline in Startups

On July 28, 1999, one of the first internet pharmacies, drugstore.com, went public. Its shares skyrocketed from the opening bell, reaching a market valuation of over $3.5 billion within four weeks. 

Yet this was a business that had been selling products for less than nine months, had fewer than 500 employees, and had no immediate plans to turn a profit. This phenomenon was fueled by the belief that new technology, specifically the internet, would revolutionize all businesses. 

In the midst of this frenzy, drugstore.com issued a challenge to Walgreens. Despite initially suffering a 40% drop in stock price, Walgreens remained calm. Instead of panicking, they took a deliberate and methodical approach to the internet. They took the time to consider how they could use the internet to enhance their business and ultimately emerged stronger than before.

When Walgreens decided to venture into the online market, they did not rush. They began by experimenting with a basic website while engaging in intense internal discussions about its implications. Eventually, they developed a sophisticated online platform that enabled customers to easily place orders and pick them up from any store location or have them shipped. This deliberate strategy paid off; within a year, Walgreens’ stock price had nearly doubled.

The story of Walgreens demonstrates that while technology can be a powerful tool, it is not a silver bullet for success. It is the disciplined application of technology, linked to a clear and coherent business concept, that drives sustained success. This is a lesson that is relevant to any business, regardless of industry or size.

Can Traditional Companies like Walgreens Triumph in the Internet Revolution?

Imagine trying to move a massive, 5000-pound flywheel. It starts off sluggish and heavy, but with consistent pushing in one direction, it eventually completes a full turn. You persist, and it begins to move a bit faster and then faster still. Over time, momentum builds, and suddenly, a breakthrough! The flywheel spins with an unstoppable, almost self-propelling force. 

This analogy encapsulates the essence of transitioning from good to great in business. It's not about one big push or a miracle moment. Rather, it's the result of persistent, sustained effort in a consistent direction. 

Think about companies like Circuit City. Its breakthrough didn't happen overnight; it was a decade-long process. The company's transformation from a struggling firm to a leading electronics retailer involved consistent effort, continuous experimentation, and gradual implementation of successful strategies. 

Contrarily, companies often fall into the trap of seeking quick fixes or dramatic changes. They aim to jump directly to breakthroughs by radical changes or acquisitions, ignoring the need for a gradual buildup. This erratic approach, known as the 'doom loop', fails to yield sustained results. 

Leaders of good-to-great companies understand the power of the flywheel effect. They focus on building momentum through a series of incremental changes, leading to a cumulative process that generates spectacular results. 

To successfully transition from good to great, businesses must follow a consistent direction, confront brutal facts, understand their unique strengths, and apply disciplined thought, action, and people. This approach, like pushing a flywheel, may not lead to immediate success, but with time and persistence, it inevitably leads to a breakthrough. Ultimately, the journey to greatness is more about relentless consistency than radical change. 

The Flywheel Effect: The Power of Consistency in Transitioning from Good to Great in Business

Great companies were not built on the charisma or vision of a single leader, but on a core ideology that guided decisions and inspired people.

For instance, Boeing, in the 1950s, decided to venture into the commercial aircraft market, leveraging their experience in making large military planes and understanding of jet engines. They made this bold move not out of bravado, but a calm understanding that they could become the best in this space. This decision was not only coherent with their core values but also significantly improved Boeing's economics, sparking a passion within the company.

Contrarily, companies that failed to become great often lacked a clear guiding philosophy or "core ideology." Great companies adhere to a set of core values and a core purpose beyond making money. They preserve these core values while stimulating change and innovation in all other aspects.

One striking example is Merck, the pharmaceutical giant, who developed and distributed a drug that cured a disease afflicting millions of people in remote areas, despite them having no means to pay for it. Profitability was secondary to their core values of social responsibility and medical contribution. 

Another key insight was the importance of setting "Big Hairy Audacious Goals" (BHAGs). Great companies set these daunting goals, which serve as a unifying focal point of effort, galvanizing people and creating team spirit. However, good BHAGs are not random; they are goals that make sense within the context of the company's core ideology.

So, why strive for greatness? It's not about size or profits; it's about finding meaningful work that you care deeply about. Whether it's running a small business, teaching a class, or leading a non-profit, when you care enough about your work to want to make it the best it can possibly be, not only does your work move toward greatness, but so does your life. In the end, it's the most satisfying feeling knowing that your time on this earth has been well spent and that it mattered.

What Sets Great Companies Like Procter & Gamble and Boeing Apart from the Rest?

The transformation from good to great in a business is not a sudden leap, but a relentless, persistent process marked by disciplined thought, disciplined people, and disciplined action. 

The quest for greatness begins with Level 5 Leadership, characterized by leaders with personal humility and professional will, who place their ambition for the company above their self-interest. They credit success to their team and take responsibility for failures, and strive to set successors for greater success. 

Also, achieving greatness requires having the right people in the team, who are adaptable and motivated to give their best, before defining the vision or strategy. This is the principle of 'First who...Then What'. 

Further, businesses have to confront the brutal facts of their reality while maintaining faith in their eventual success. This is known as the Stockdale Paradox. 

Subsequently, greatness is achieved by focusing on a single, simple concept known as the Hedgehog Concept which involves understanding what the company can excel at, what drives its economic engine, and what the team is deeply passionate about.

Technology serves as an accelerator in the journey, but it's the disciplined application of technology that drives sustained success. Lastly, the transformation is like pushing a giant heavy flywheel consistently in one direction, which gradually builds momentum leading to a breakthrough. 

The transformation process also involves the preservation of a core ideology that guides decisions and inspires people. This ideology consists of a set of core values and a purpose beyond profit-making, which great companies adhere to while stimulating change and innovation in all other areas. 

A clear guiding philosophy is thus essential for greatness. Alongside, companies need to set 'Big Hairy Audacious Goals' (BHAGs) which serve as a unifying point of effort and create a team spirit. These goals should align with the company's core ideology. 

Ultimately, the pursuit of greatness is about finding meaningful work that one deeply cares about. It's about striving for the best and knowing that the time and effort invested have been worthwhile. 

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