Recipe for Sustainable Business Greatness

By Ernie A. Cevallos

Sample 1,435 good companies. Evaluate their performance over 40 years. Distill it to eleven great companies


THE GOOD TO GREAT COMPANIES:
Abbott, Circuit City, Fannie Mae, Gillette, Kimberly-Clark, Kroger, Nucor, Philip Morris, Pitney Bowes, Walgreens, and Wells Fargo

Whatever happened to would be good companies such as Burroughs, Enron, Businessland, MCI, Bethlehem Steel, Daewoo, Arthur Andersen, DeLorean Motor Co., Olympia and York, countless dotcoms, etc. Reading through the list gives you an appreciation for how once proud and good business can become obsolete and doomed to extinction if not led and managed properly. We should not despair, the good news is that although we lose companies with alarming frequency, there are new and old firms that adapt well, and find ways to invent competitive and sustainable positions in their markets. What do those companies do right?


With that background in mind, Jim Collins investigated what made great companies great and how they maintained greatness over time in his earlier best seller, Built to Last. However, there was one issue that bothered him—great companies had always been great, while the bulk of good companies remained just good. That set the stage for him to research what plain good companies could do to achieve greatness, and to turn long-term mediocrity into sustainable success by writing another best seller, Good to Great.

The research team formed by Collins established strict performance metrics, and identified a group of 11 elite companies that migrated from good to great and sustained that level of performance for at least 15 years. The research based work of Good to Great reveals what good companies do to drive themselves to greatness. Collins and his team of researchers created these good-to-great metrics:

1. Companies had to have experienced 15-year cumulative stock returns that were at or below the general stock market, punctuated by a transition point, then cumulative returns at least three times the market over the next fifteen years
2. Each company had to demonstrate the good-to-great pattern independent of its industry
3. Each company had to demonstrate a pattern of results.
4. Each company was compared to other similar companies that either never made the good-to-great leap (or made it but did not sustain it), in order to determine what distinguished the good-to-great company from all others

When the dust cleared and the good-to-great companies were identified, the author and his researchers found distinct patterns of behavior in those who led each company and the people who followed them—patterns that concerned disciplined people, thought and action.

Level 5 Leadership

One of the most surprising results of the research was in the discovery of the type of leadership required to turn a good company into a great one. One might think that high-profile leaders with big personalities and celebrity status lead such companies. Yet, Collins found that those leaders who seek and thrive in the spotlight do not exude what can be termed "Level 5 Leadership" behaviors (The term Level 5 refers to the highest level in a hierarchy of executive capabilities). Leaders of this type—those who combine extreme personal humility with intense professional willpower—shun the attention of celebrity, channeling their ambition toward the goal of building a great company. He also found that good-to-great leaders understand three simple truths:

1. If you begin with the "who," rather than the "what," you can more easily adapt to a changing world
2. If you have the right people on the bus, the problem of how to motivate and manage people largely goes away
3. If you have the wrong people, it doesn't matter whether you discover the right direction - you still won't have a great company

Confront the Brutal Facts
All good-to-great companies began the process of finding a path to greatness by confronting the brutal facts of their current reality. Every good-to-great company confronted difficult times along the way to greatness, of one sort of another—Gillette and the takeover battles, Nucor and imports, Wells Fargo and deregulation. Collins found that when a company starts with an honest and diligent effort to determine the truth of its situation, the right decisions often become self-evident. One of the primary tasks in taking a company from good to great is to create a culture wherein people have a tremendous opportunity to be heard and, ultimately, for the truth to be likewise heard. Collins writes that, to create a culture of discipline, successful leaders:

1. Build a culture around the idea of freedom and responsibility, within a framework
2. Fill the company's culture with self-disciplined people who are willing to go to extreme lengths to fulfill their responsibilities
3. Do not confuse a culture of discipline with a tyrannical discipline

Technology Accelerators
Collins also found that good-to-great organizations think differently than mediocre organizations about technology and technological change. They avoid the fads and bandwagons that typically arise from new technology, instead becoming pioneers in the application of carefully selected technologies. Leaders of good-to-great companies respond with thoughtfulness and creativity, driven by a compulsion to turn unrealized potential into results. They act in terms of what they want to create, and how to improve their companies, relative to an absolute standard of excellence.

The Hedgehog Concept” (Simplicity Within the Three Circles)

Focus on one simple, unifying concept, everything else is irrelevant. Isaiah Berlin divided people into two groups, foxes and hedgehogs. Everyday the fox, despite his cunning, fails to make prey out of the hedgehog. The hedgehog goes about his daily business, and when the fox comes along, he simply rolls up into a spiked ball. Foxes pursue many ends at the same time, and see the world in all its complexity, so they are scattered rather than focused on one simple organizing idea or principle.

Hedgehogs simplify a complex world into a single basic organizing principle that unifies or guides its daily life. Everything else outside this basic concept is irrelevant and not worth wasting energy on. The essence of profound insight is simplicity. Hedgehogs see what is essential, and ignore the rest. Those who built good-to-great companies were in varying degrees, hedgehogs. Comparison companies behaved like foxes, never clarifying a single concept, tending to be scattered, diffused, and inconsistent.

The Walgreens breakthrough strategy could be stated in one line: “The best, most convenient drugstores, with high profit per customer visit.” This hedgehog concept guided their decisions to gradually move all stores to corner lots for multiple exits and entries for customers, thereby increasing their convenience. Drive-through pharmacies were created along with one-hour photo developing services and tight clustering of up to nine stores within a one-mile radius(Something like Starbucks Coffee, a shop on almost every corner).

Kroger built its Hedgehog concept around the superstore idea. Kimberly-Clark focused on paper-based consumer products, selling off its paper mills. Good-to-great companies founded strategies on a deep understanding of 3 key circles. Good-to-great companies translated understanding into a simple crystal clear concept that guided all efforts and decision-making.

THE HEDGEHOG CONCEPT IS A SIMPLE, CRYSTALLINE CONCEPT THAT FLOWS FROM THE DEEP UNDERSTANDING ABOUT THE INTERSECTION OF THE FOLLOWING THREE CIRCLES:

1. What you can be the best in the world, realistically, and you cannot be the best in the world
   
2. What drives your economic engine
   
3. What you are deeply passionate about
   
4. To achieve greatness, the three circles need to intersect.
   

The Flywheel and the Doom Loop
Similar to pushing a massive flywheel laid horizontally on its axle, with every push the wheel turns one rotation. It goes faster and faster, gaining momentum until the accumulated overall effort over time, pushing consistently in one direction, carries the speed into a breakthrough momentum, moving by itself. This is how the good-to-great companies process of transformation is best described. There was no defining action, innovation, launch event, clever tagline or miracle moment. The breakthrough came from an overall accumulation of consistent effort over time. Under the right conditions, problems of motivation and alignment simply melt away.

Collins writes that good-to-great companies had no name for their transformations; there was no launch event, no tag line, no programmatic feel whatsoever. Collins explains that each company went through a quiet, deliberate process of figuring out what needed to be done to create the best future results, then simply took those steps, one by one over time, until it hit breakthrough moments.

WHY ACHIEVE GREATNESS?
If you’re doing something you care deeply about and if you believe in it, it’s impossible to imagine not trying to make it great. If you have to ask ‘why should we try to make it great?’ Then you’re probably in the wrong line of work. Being on a team committed to greatness will give you the ultimate satisfaction of knowing that your short time here on earth was well spent, and that it mattered.
The laboratory link below is a resource for exploring key ideas found in the writings of Jim Collins. and putting the ideas to work.
http://www.jimcollins.com/lab/index.html