Good to Great: Why Some Companies Make the Leap and Others Don’t

“Good to Great” is Jim Collins’s bestseller, which builds on the results of a multi-company study and presents countless real-world examples of companies that went from mediocre or even bad to excellent.

The study aimed to answer the following question: Can companies challenge logic and remain excellent over a long period? If so, what are the common characteristics that drive these companies out of mediocrity to success? To do this, the author analyzed financial data, articles and an extensive corporate information database of large American companies. He also conducted hundreds of interviews with executives of these companies and the result, you find here, summarized in this microbook.

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In this book, Jim Collins shows us how companies can achieve lasting quality and remain at a level of excellence. Let’s find out the secrets of winning companies?

Confront The Truth About Your Company

Every successful company that has reached success got there by evaluating and accepting their current situation, even if it was a bad one. Collins found that these companies did not necessarily have very good or bad conditions. Some were worse, some better, but the successful ones were those who valued and accepted their circumstances.

A great example is a comparison between Kroger and A&P. These supermarket chains faced a change in the market, where consumers wanted bigger and larger stores with a wider variety of products. Both invested in smaller, more traditional stores that were not compatible with the cravings of new consumers. But while Kroger accepted this reality and worked to remedy the problem, A&P refused to admit the facts and react. Kroger changed and replaced each of its stores. The result was a success for Kroger. A&P was stubborn, kept the existing models and quickly stepped out of the top.

For the best strategy to be applied, it is very important to confront the truth. And confronting the truth means encouraging honest and open discussions.

Facing the facts can be a very difficult and disheartening process, but if your company creates the right environment to discuss problems and solutions, you can motivate employees to succeed. Leaders need to be willing to ask questions and promote conversations without monopolizing or refusing to accept contributions. Also, leaders can not point the finger and blame others for problems.

When a problem comes up, make it a priority. If someone has a good suggestion, use it and credit that person for the idea. Find out where the mistake lies, without blaming anyone for it. But, above all, hold onto the belief that no matter how bad things are, in the end, the company will come to success. But do not stop there, because optimism without the knowledge of truth only leads to failure.

Keep faith in success, but simultaneously confront the reality of your situation and act accordingly. This contradiction is called Stockdale’s Paradox and is the key to greatness. You need to have faith that you will achieve success, but also be honest with yourself about the current situation and be willing to take action.

Follow The Hedgehog Concept

The simplest solution to a problem is always the best output. So you need a clear plan to achieve your company goals, and that’s what Jim Collins calls the Hedgehog Concept.

But after all, what is the Hedgehog Concept? It is based on a story of a duel between a fox and a hedgehog. In this story, the Fox wants to catch the hedgehog. The fox is an intelligent, agile animal that is capable of attacking in several different ways. On the other hand, the Hedgehog is not recognized for its cleverness. It only knows how to do one thing, very well. Your only strategy is to become a ball of thorns and roll as fast as possible. Regardless of Fox’s attack, the hedgehog always wins and manages to escape.

More than a strategy, it is an understanding of the situation. The hedgehog companies know how to do something deeply and focus on it. Companies that are not made to win tend to act more like the fox. They do many things but lack consistency.

The Collins Hedgehog concept is based on three fundamental ideas that big companies combine to find their way to excellence. Jim and his researchers found that every company that achieved success followed that concept.

The theory is that any action taken by your company or employees needs to meet all three ideas at once or it will not be successful. The first idea is that you need to identify your passion. Companies that achieve excellence have a deep knowledge of their passions. Without passion, companies can not get very far.

The second idea is to identify what you can do better than anyone else in the world. Whatever it is, it needs to be the focus of your business. That is the only way to succeed.

Finally, companies must identify how they can profit in the most effective way possible and how to capture more value from their market. One of the key functions of a business is to generate revenue, and all companies that have achieved excellence were able to identify the best way to capture value in their market. These companies have discovered how to be economically successful through a superior business model.

To do this, changes need to happen. For example, the Walgreens drugstore chain also owned restaurants. Instead of continuing with both deals, the owners chose to focus on the best investment and left the food service. The drugstores were a smart economic choice, and CEO Charles R. Cork Walgreen III achieved success.

To work effectively within these three ideas, you must have disciplined employees, and the reward for that is to achieve excellence.

Keep Discipline In Your Organization

Having discipline and using it as a key concept in your company is another essential ingredient to a company’s success. Discipline does not mean that leaders will lead as dictators. It means that employees at all levels have self-discipline and know what needs to be done and how to do it. People with self-discipline are more competent and capable, as well as knowing how to keep things going.

A great company is full of people who know how to lead themselves. Each employee is responsible for themselves and their attitudes, and there are no incompetent people who need a nanny. Disciplined people operate without deviating from the plan and know that following a strategy is the key to success. Building a sketch based on the three basic principles of the hedgehog concept and giving your employees the freedom and responsibility to work within their boundaries is essential.

Disciplined people will follow the plan and fulfill all of their responsibilities, no matter the circumstances. Also, leaders will not need to boss their subordinates or discuss their failures. When that happens, you will have reached the disciplined culture in the company, just as all the companies in Collins’s study have achieved to become excellent. That is one of the common aspects that success stories have.

Disciplined professionals in a company that moves to excellence will be disciplined both about their thoughts and attitudes. Every thought they have and every decision they make for the company will be exclusive to fulfill the three principles, even if it means failing to seize great opportunities. Following the plan is the goal.

When leaders understand this, they can begin to study which behaviors are successful and which ones need to be eliminated immediately. If you find behavior that does not work, it needs to be stopped.

Hire The Right People And Fire The Inefficient Ones

For a company to change from good to excellent, it should not only hire the best and most disciplined but also dismiss those who do not agree with the new direction. Many companies that failed to achieve excellence had inefficient employees in key positions and did not bring the right people to work for their team.

If a company wants to achieve success, it should start by hiring the best and the brightest. Sometimes there may not be a clear position for them within the company, but it is important to keep them ready for when the goals are well defined.

An example was when Wells Fargo CEO Dick Cooley set up his team. He was worried about finding the best. He later found positions in the company for them. That is the priority: first to find the best people; What you do with them comes later.

The less successful companies often decide first what to do and then find people – but this fragile system will eventually collapse. These companies have a single quality leader leading a large number of subordinates who can only receive orders. If this person leaves the company for some reason, they leave a problem to be solved. That’s exactly what happened when executive Jack Eckerd left Eckerd Corporation.

You must remember that the company needs the right people before you start planning and that the wrong people need to be let go. Do not hire anyone who does not have a place in the company in the future. Make sure every employee is exactly where he should be and that you put the best where they should be. The right team will work together to find the best path and continue on it.

Use Technology In Your Favor

If your company is going to implement new technology, it must be carefully selected and have a well-defined purpose. New technologies without a purpose are a waste of time, effort, and money. As we will see below, Walgreens understood this when online pharmacies began to emerge. So instead of hurrying, they carefully considered a plan of action. Technology is a tool used by large companies to get organizations to achieve their goals.

If technology does not fit the three basic principles of the Hedgehog Concept, then it should not be used, no matter how popular it may be in the industry. New technologies do not create organizational movements or success, but rather help develop what already exists, and then have a clear role in the company’s action plan.

As mentioned before, Walgreens was not sure how the internet would fit into their business, so they did not rush to use it. Instead, they conducted experiments first to understand how it worked and only then began to use it, promoting convenience, as with filling in online revenue. Finally, after studying and having a clear idea of how a site would help in its goals, Walgreens became a 100% online pharmacy, achieving success. Meanwhile, other online pharmacies failed quickly and paved the way for Walgreens.

A company that achieves excellence will not be pressured into using any technology. Instead, carefully consider how it should be used and give your employees the chance to think of innovative strategies that will differentiate the company from their competitors and help the company achieve its goals. A mediocre company will immediately use new technologies for no purpose, afraid of becoming outdated.

Have Humble Hardworking Leaders

Collins and his team hoped to discover that the most charismatic and famous executives would be the ones who brought their companies to excellence, but in fact, the most effective leaders were modest and reserved. Through articles and personal interviews with those involved, they found that the best leaders were humble and worked hard.

His research team found that every great company possessed an exceptional leader during the periods of transition to excellence. Exceptional leaders are not egocentric as the leaders of mediocre businesses. An exceptional leader cares only about the company’s success, even if it does not receive credit for it. They do not want the company to fail when they leave, and they do worry about having excellent succession plans for when their exit happens.

They seem calm because of their more reserved nature, but they also have professional ambitions. But these ambitions are directed to the company and not to themselves. These leaders will do everything for the success of the company, no matter how difficult. For them, the goal is to train other leaders to achieve even greater success, even if it leaves them overshadowed by their successors.

Choosing a shallow leader for the company is a mistake many mediocre businesses make, as was Scott Paper with Al Dunlap. He shouted about his accomplishments, but his company was then bought by modest CEO Darwin Smith of Kimberly-Clark. A great leader should be a great collaborator and not an exhibitionist.

Exceptional leaders see potential everywhere. A median leader can become exceptional by learning to take responsibility for his mistakes and to credit the company and people with the right answers. Exceptional leaders look to others when things work out and give recognition to their teams. Mediocre leaders do the opposite and like to appear.

Always Follow The Principles of The Hedgehog Concept

Only a select number of companies achieve success, and an even smaller number remain in a state of excellence. The trick is to keep the formula for excellence as business conditions change over the years. Collins calls the methods he discovered in his research of “physics” that remains over the years to generate the shift from ‘good’ to ‘excellent’.

No matter how much the economy and the market change, these methods can be applied to achieve and maintain excellence. The process comes down to always having the best people possible in the right places and maintaining a constant conversation about the state of affairs, including areas that need improvement. By honestly admitting where the failures are, a company begins to improve and prevent disasters.

By maintaining discipline in following the principles of the Hedgehog Concept chosen for your company and achieving and redefining your goals over time, you can remain in the state of excellence.

Succeed in Your Company

Studying various data, Collins and his team found impressive results. But the fact is that the process by which these companies went on to achieve success took years of dedicated and disciplined work and each employee focused on the defined goals. The results can be fantastic, but the road to get there is long.

Companies go through a gradual development until they reach excellence and there is no way to define when this process is over. One day the company will realize that it has achieved its goals and that it has now shifted its focus. The fact is it does not happen quickly, and companies that never achieve excellence often try to accelerate the path to success with poor results.

Combining two mediocre businesses into one acquisition will not generate an excellent company. It will only create more of the same, and sometimes it can even make things worse. Usually, a successful company does not make big acquisitions until it has changed from ‘good’ to ‘excellent’.

Excellent companies follow a pattern, while good ones inevitably follow another pattern. Collins calls this the great pendulum pattern, which leads the organization to advance until it reaches the ideal point. The mediocre pattern is a cycle that does not care about the company’s necessary development and fails to reach the ideal point. You can not rush to perfection. Skipping important steps leads to failure. Only time and effort lead to excellence.

Final Notes:

You need great, humble, committed, and disciplined leaders in every position of your company to make your transition to excellence. These people, driven by the company’s goals, can work together on the three principles of the Hedgehog Concept.

A company that is honest about its current state and believes it will succeed will achieve success. Therefore, every employee, especially the company leader, must put the goals and interests of the company above their own.

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