WHY BUSINESS THINKING 1S NOT THE ANSWER GOOD TO GREAT AND THE ‘A Monograph to Accompany Good to Great JIM COLLINS ©)During my fist year on the Stanford fealty in 1988, Isom Profesor John Gardner for guidance on bow I might become a beter teacher. Gardner, former Secretary of Heth, Education and Welfre, under of Common Cause, and author othe eas text Self Renewal, stung me with a comment that changed my life “I occurs to me, lim, that you spend too much time trying to be interesting” he sal “Why don't you invest moe ime beng interested” T don't know if this monograph will prove interesting to everyone vw eeads it but Ido know that it results from my growing interest in the socal sectors. My interest began for wo reasons. First isthe sur rising reach of our work nt the social scons. generally categorie 64 business author, ya tied or more omy readers come from non busines. Second isthe sheer joy oflaering something new—in this case, about the challenges focing socal sector leaders—and puzzling, ‘over questions that aise fom applying ou work 1 cecumstances quite Aiferen from business. [originally intended this text to be & new chapter in fature editions of Good 10 Great. But upon reflection, I concluded h inappropriate to force my resders to buy asecond copy ofthe book just to get acces o this piece—and so we decide to create this independent would be ‘monograph. That sid, while this monograph can certainly be red asa stand-alone pec, I've written ito go and-in-hand with the book, and the greatest value wil acroe to those whoread the tw togethe 1 do not consider myself an expert on the socil sectors, but in the spirit of John Gardner, | am a student Yet I've become « passionate student 1¥e come tose that tis simply net good enough ofc solely ‘on having a great busines sector. If we ony ve great companies, we will merely have a prosperous society, not great on. Eonomie growth and power ar the means not the definition of great nation 205 Ce a ed a6000 TO GREAT AND THE SOCIAL SECTORS Wy Wusinese rhinking 1s No the Answer ‘We must reject the ides—velLintntoned, but dead wrong—that the primary path to greatness in the socal sectors isto become “more like « business” Most busineses—Hke most of anything ds in life— fall somewhere between mediocre and good. Few are great, When ‘sompaoies with good oncs, many widkly practiced business norms tuen out to correlate with mediocrity, nt greatness. So, then, why would we want to import the practices of mediocrity imo the social sectors? T shared this perspective with a gathering of business CEOs, and offended nearly everyone in the oom. A hand shot up from David ‘Weekley, one of the more thoughtful CEOs—a man who built very successfl company and who now spends nearly hall his ime working With the social sectors. "Do you have evidence to support our point?” bhe demanded. “In my work with nonprofits, I find thet they'e in desperate need of greater disipline—dicplined planning, disciplined people dis “What males you think that’ a busines concept? I replied. "Most 1d governance, disciplined allocation of resources” Dbasnesses alo have a desperate need for greater discipline. Mediocre companies rately display the relentless cultore of discipline —disi- plined people who engage in disciplined thought and who take disciplined aetion—that we find in truly great companies.Acultre of| discipline s nota principle of busines: ici a principle of eats Later, at dinner, we continued our debate, and [asked Weekley: “If you had taken a diferent path in life and become, say, a church lade,«university president, 2 nonprofit leader, a hospital CEO, or a school superintendent, would you have been any less ditciplined in your spproach? Would you have been les likely to practice enlightened leadership or put ls energy into geting the right peopleon the bus, oF been less demanding of resus?" WeeKey considered the question fora Jong moment.°No, suspect not” That when It dawned on me: we ed new longuage The eis istinction is ot between busines ane sca, but between get nd goo. We ned to eect the nave impetion of te Iengvage of psiness” onthe language of greatness. 3 selors, and instaejoimly embrace 2 ‘That's what our work i about: building framework of greatness, ‘ticulatng timeless principles that explain why some become great and others do not. We derived these principles from a rigorous matched: pale research method, o paring companies that became great with ‘companies that didnot. Our work isnot fundamentally about business inisabout what separates great from good. Socal sector leaders have embraced this dstinctien—the principles ‘of greatness, as distinct from the practices of Business—with remark able eae. Ifa nonbusiness reader is just as likely co email me as 2 Dasines reader, then somewhere between 3056 and :0% of those who have read Good to Great come from nonbusines. We've received thousands of calls, letters, emails acd invitations from education, healthcare, churches, the ars, socal services, causedrven nonprofits police, government agencies, and even military units Tieo messages leap out Fie, the good-to-gret principles do indeed apply to the social sectors, perhaps even beter than we expected, Seconds particular questions crop up repeatedly fom social sector leaders facing realities they peresive tobe quite diferent fom the bosines sector. I've synthesized these questions into five ieues that form the framework of this piece: 1 - Defining “Great"—Calibrating Succes without Businss Metis 2 Level §Leadership-—Gettng Things Done within a Diffuse Power Structure 3 First Who—Getting the Right People on the Bus within Social Sector Constraints 4- The Hedgehog Concept—Rethinking the Economic Engine without a Profit Motive 5 Turning the lywheel—Building Momentumby Building the Brand ve based this piece on critical feedback, structured interviews, and laboratory work with more than 100 socal sector lesders. While I hope to eventually see the results of matched-pai research that uses non business entities as the dataset, such research studies—done right — require up toa decade to complete In the meant bility to respond tothe questions raised by those who serkto apply the feel a respons: s9od-to-grat principles today, and I ofer tis monograph asa smallISSUE ONE: DEFINING “oREAT"—cALiBRaTING success wiTHoUT ln 1995 offices a the New York City Police Department (NYPD) found an anonymous note posted on the bulletin board. "We're not report takers? the note proclaimed. "We're the police The not testified tothe psychological shift when then Police Commisioner William J Bratton inverted the focus from inputs o outputs. Prior ta Bratton, the NYPD :ssesed itself primarily on ipa variablee—euch as arrests mede, re Ports taken, cases closed, budgets met—rather than on the output variable of reducing crime. Bratton set audacious output gots, such a8 attaining double-digie annual declines in felony crime cates, Jemented a catalytic mechanism called Compstat (short for and computer comparison statistics") 141996 Time article describes a police eaptsn sweating st a podium in the command center He stands before an overhead mp with a bunch ‘of red dots, showing a sighfiant increas in robberies in his precinct, Ina Socratic grilling session reminiscent of Profesor Kingfield in The Paper Chas, the questions come relates. "What isthe pattern here?” "What are you going to do to take these guys out?" According to CIO Insight magazine, 75% of commanders found themselves ejected fom theie positions fr filling to reduce crime in their precincts, “If, week afer week atthe Compstat meetings, we found precinct commanders not performing to the standards,” explained Braton, "we had t find someone elie to do the job”? ‘This distinction between inputs and outputs is fundamental, yet frequently mised. I ecently opened the pages ofa business magazine that rated charities based in parton the percentage of budget spent on ‘management, overhead and fandrssing. I's a well-intentioned idea, but reflets profound confusion between inputs and outputs. Tink about it this way: Ifyou rank collegiate atleie departments based on coaching salaries, you'd find that Stanford University hae a higher coaching cost struetute a8 a percentage of total expenses than some other Division 1 schools. Should we therefore rank Stanford as "est great”? Following the conclusion woulé be absurd, Stanford won the National Axtocation of Collegiate Directors of Athletes Cup for best overall performance for 10 consecutive yeas, beating out all other major schools, while delivering. athlete graduation rates above 80%. To say, “Stanford isles great ‘progeam because it has a higher salary structure than some other schools” would niss the main point that Stanford Athletiss delivered exceptional performance, defined bythe bottom-line outpas of athletic and academic achievement. The confusion between inputs aed cults ses ron nto the primary ifereces between business ad the social sector. n and an otput measur of estes). Inthe soil sectors money S onlyan input and ota masse greatness {A great organization is one that delivers superior performance and rakes a distinctive impact over along period of time, Fora busines, Financial returns ae a perfectly legitimate measure of performance. For 4 social sector oxgaitation, however, performance must be assessed relative to mission, ot financial returns nthe socal sectors, the xt question is not “How mach money do we make per dollar of invested capita but How effectively do we deliver on our mission and make a distinctive impse, relative to our resources™ Now you might be thinking, “OK, but collegiate sports programs nd police departments have one giant advantage: you can measure win records and crime rates. What if your outputs are inerenty nor measurable?” The basi idea is stil the same: separate inputs from outputs, and hold yourself accountable for progress in ontputs, eer If howe outputs defy measurement. ‘When Tom Mortis became executive director of The Cleveland (Orchestra in 1987, the orchestra faced deficits exceeding 196, 2 small and stagnant endowment, nd a struggling local econony, Prior to jon, Morris asked two key board members, “What do «aking the pos‘GREATNESS AT THE CLEVELAND ORCHESTRA ‘Snag Festi ot tne 38 2 ae frie coment re ge veh he ene eco ssn soup ie ‘drut et hy ear alc sin! mes pnts anos om roy al tug Pere len, hae ‘Tom Morris could not precisely measure atstc excellence, but thet oes nat change the fac that artistic exllenceis the primary definition of performance for The Cleveland Orchestra, Nor does change the extreme discipline with which The Cleveland Orchestra held itself accountable for playing the most ch lenging clasical music with supreme attic excellence, and doing so even better with each pasting yea guided by the BHAG (Big Hairy Audacious Goal) of becoming, recognized as one ofthe thre geatex orchestras in the world “We asked simple question," explined Morris. "What do we mean boy grea resuls?” Morris and histeam tracked a variety ofindicators Are ‘we geting more standing ovations Are we expanding the ange of what we can play with perection—from clean casial pieces to complex modern pisses? Are we invited to the most prestigious festivals in Europe Are tickets in greater dematd not just in Cleveland, but when wwe play in New York? Do people increasingly mimic the Cleveland styl of programming? Do composers increasingly seck to have thie work debuted at Cleveland? Under Tom Moris, the orchestra tripled fs endowment to $120 million (even accountng for the postdotcom bubble decline in assets) and funded a remodel of Severance Hall into fone of the best misc halls anywhere. He accomplished this because he ‘understood that endowment, evenses and cou sructure were input sariablesnot the output variables of greatness? ‘Gear, rigorous thinking is precisely what Cleveland's Tom Mores and New York’s Commissioner Braton brought to their work. They separated inputs ftom outputs, and had the discipline to hold thie ‘onganitations acountable for achievement inthe outputs. That Bratton had the advantage of quantitative metrics, and Mortis didnot, is argely| beside the poi. fe dese’ roly matter whsther you can qui our ral, What iatrs that you rgbouslyasembe evidence—quataive or ‘ualtatve—to wack your progress I the enaence kay ulti, think he etal leper assembling the conbined body cf exces. I he evidence sore quonative benabink of ‘youpel 8 laboratr scientist assembling and aseting the dts ‘Te throw our hands up and say, “But we cannot measure perfor: mance in the socal sectors the way you can in a business” is simply lack of discipline. All indicators are awed, whether qualitative or‘quantitative, Tet scores are flawed, mammograms ae flawed, crime data are awed, customer service data are flawed, patient-outcome ata are flawed. What matters isnot finding the perfect indicator, but settling upon a consistent and intelligent method of assessing yout ‘output results, and then tracking your trajectory with rigor. What do you mean by great performance? Have you established a baslin? Are you improving? If not, why not? How can you improve even faster toward your audacious goat You can think ofthe entire good-to-grest framework as 2 generic set of input variables that correlate strongly with creaing the outpute and Outputs of Greatnes” on page 8 I've summarized the ides, showing how disciplined application ofthe good-o-great principles leads to creating the outputs that define a grat organization) Any Jjouriey from good to gret requires relentlessly adhering to these Jnpat variables, rigorously tacking your trajectory on the output var- ales, and then driving youself ro even higher levels of performance and impact. No matter how much you have achieve, you will alvays be merely good relative to what you can Boome, Greatness isan inher tly ymamie process not an and point. The moment yo think of yourself as great, your slide roward mediocrity will have already begun. When Frances Hesselbeinbacame CEO of the Giel Scouts of the USA, 1 Now York Times columns asked what it lt ke tobe on top of sch 1 large organization. With patience, ike a teacher pausing to impart an {important lesson, Heselbein proceeded to rearrange the lunch table, creating 2 set of concentr:cices radiating outward—plates, cups saucers—connected by knives, forks and spoons. Heselbein pointed 08 glass inthe middle ofthe table. “'m here” she said* Hesslbein ‘may have had the tite of Chief Executive Office, but her mesiage was clean not on tp of engin, Facing a complex governance structure composed of hundreds of local Girl Scout council (cach with its own governing board) and 2 volunteer force of 650,000, Hesselbein simply did not have the full power of decison. Even 50, she moved people to confront brutal facts facing girs in modern Ameria, sch as teen pregnancy an aleobol use by creating materials on sensitive iss, Proficiency badges sprouted up in topics like math, tecnology and computer scence, to reinforce the idea that girls are—and should thnk of themselves s—eapable individuals who can take contol of thei own lives, Heselbein did not force this change down people's throats, but simply gave the intr- dependent councils the opportunity to make changes at their ownWhen aed how she got al this dane without concentrated exeative power, she said, “Oh, you ays have power, ifyou jst know where to find i. There sth power of inclusion and the power of language, and the power of shared interests, and the power of coalition, Power is all around you to draw upon, but i is are rw cael visible” Whether they answer toa nonprofit board composed of prominent citizens, an ected school board, a governmensal oversight mechanism, a st of trustees, a democratic religious congregation, an elected membership association ot any numberof other species of governance, social sector leaders face a complex an difoe power map. When you ain tenured faculty, cv service, volunters, police unions, or any numberof other inteanal factors, most nonbusines leaders simply do not have she concentrated decison power of business CEO. Social sete Ider af nt lass dave han busines ede 25 genera rl; they only appear th! way to those wh fal to asp ‘he complex poremsnce and fe power structures common to cil sectors. Frances Hezzloeln was usta Give 8 eat ay ‘corte CEO, but sh faced » governance and power structure that ‘andere execctv-tyle leadership imractica “This is why some business executives fall wher they move into the soial sectors. One corporate CEO turned academic dean tried ‘to lead faculty toward his Vsion. The more he brought to bear his ‘executive sil the more the faculty decided they ha better things 9 “do than to attend the dea's faculty meetings. After all what wat he fg0ing to do? Fice them? They all had tenure, After “one of the most draining experiences in my life? this CEO retwoned tothe busines world, He did not understand—unti it was too late—what one _univesity president called the reality of tenured faity: A thousand pointsof no” “The compler governance and diffuse power structures common in nosbusiness lead me to hypothesize that there are two types of seo ro ana nome soou e088 enlobip sil exetve and legit, tn ecutive leaders, the tepid ener has enough concentrated power spi ke the gh deo neti dei on the the hand indivi erat een the nominal cit excetve—has enough rac qo make the most important decision by himself or heel. “fegatinetadehip rele ote upo persuasion, polit ara, Hasbro ene the conto forthe ight dciion o apres And ti pect thi lepiatve ami thal ake Level 8 lederhp parila important othe soil tor ‘ur good to get research uncovered that leadership cpsbiies fal» rev Racy with Level 5 tthe top, Lev kde ir flo ee eae in tha hey at bios it and foremoet or pees he movement, he min dhe work! hemiher—aed “thy ave he wl to do whatever aes (hater ites) o make pod on that ambition. (Se dingra: "Lvl 5 Lender” on page 12) The scl es, the Love! Ss compeingcombiration of pal ley tndprfesinal wil i ay fico in crexting legacy ‘and inunce After al why should thse over whom you have no tier power give temsches oer oa deion ta primary aout you? AS one scl Sector lender confided, “Pve learned that Lvl 5 Ienenip requires being clever forthe greater god. In heen, Fy eps oe tha the ight decison bappen—evenif ave the oe power to make those decison, and even if the dons could not win a popular vote The only way Ica achive tit people know that I'm motivated fist and aay forthe ot four work, ot ysl 3 rg tem greatness ofthe institution ad the achievement of mission, ncepencent t consensus or ppl.LEVEL 5 LEADERSHIP / LEVEL 5 HIERAREMY wns Sie ea eee on Fees eeraarrascy The executive vers ida disinctin emai a working hypoth esis, waiting rigorous esearch. I empirical evidence validates the distinction ts unlikely te as smple a “basnes sector and “social sectors = lepilatve” More likely, there wll ea spectrum, and the most fftvekaders wll show lend of both exective and legislative skills, The best leaders ofthe fature—in the social sectors «and business—will not be purely executive or legisative; hey will have «knack for knowing when to play their executive chips and when not ‘There isan irony in ll hi. Soil sector organizations increasingly look to busines for leadership models and talent, yet I suspect we will find more tru leadership in the social sectors than the busines sector. How can Teay that Bact, a James MacGregor Burne taught in his classic 1978 text, Leadership, the practice of leadership is not the same as the exercise of power" If | put a loaded gun to your head cn get you to do things you might not otherwise do, but I've nt practiced leadership: Ie exercised power. True adsrship only exits f people {follow when they have the freedom not tI people follow you because they have so choice, then you ate not lading, Todays business leaders face highly mobile knovsledge workers. They fae Satbanes-Ouley, ‘envizonmental and consumer groups,and shareholder activists. In short, business executives don’t have the same concentration of pure executive power they once enjoyed. Level 5 leadership combined with legislative sil wll become even more inportant othe next generation ‘of busines executives, and they would do well to learn from the social sectors Indeed, perhaps tomorrow's great busines leaders wil come from the social sectors not the other way around, 11976, 25-year-old Roger Briggs began teaching physis a a suburban public high school in Boulder, Colorado. At he settle into daily eee ‘ng, persistent thought pushed tothe font of his consciousness, lke pebble inside a shoe: Ou schools could beso much bert. ‘But what could he do? He wast prindpal He wast superintendent. He wasnt governor. Roger Briggs wanted to remain onthe frontline of | ‘education, shoulder fo shoulder with flow teachers. Aer becoming department chat, Briggs decided to tam his ite arena into & pocket of greatness. “I ajected the ides of being just a member ofthe worker class accepting good as good enough. | couldn't change the whole system, but I could change our 14-persn science department He began the same way all the good-o-great leaders began: Fist get the tight people on the bus. Given the ow compensation for teachers. and the pac of incentives, Briggs had t il fy Sats with people ‘compulsively driven to make whatever they touch the best it can be—not because of what they would "get fort but because they simply could not stop themselves fom the almost nesrote need to improve. With & teachers’ union that protected the mediocre and exellent alike, Briggs‘new it would be more dificult to get the weong people off the bus, so he focused instead on getting the rght people on the bus. He began to view the frst three years ofa teacher's carer as an extended interview, He inverted the three-year tenure recommendation from a default of "Yes, youl likly get tenure, unless you've done something erepious to-a default of "No, you will most likely not ge tenure ales you have proven youre t be an exceptional teacher ‘turing point came when an adequate teacher came up for tenure. He was good teacher but not a great one" explained Briggs. “And I just, ‘et we could accept merely good for out department” rigs argued ganst granting tenure, and held firm to his countrculural postion. Soon thereafter, 2 specacular young teacher became available, and the science department hired he. “Had we tenured the other teacher, wed havea good person in tht seat, whereas now we have «great teches! ‘explained Briggs. As the culture of discipline tightened, the wrong each found themselves e be viruses surrounded by antibodies, nd some self-cjected. The science department minibus changed —b by hire and tenure decision by tenure desision—until a critical mass coalesced into culeare of discipline? The Roger Briggs story highlights three main poins Fist and most important, you can buil a pocket of gress without executive power, in the middle ofan organization. f Roger Briggs can lad his minibus from good to great witnn the constraint of the public school syste, you can do it nearly anywhere, Second, you start by focusing on the Fist ‘Who principle—do whatever you can to get the tight people on the bus, the wiong people off he bus, andthe right people into the right sats. ‘Tenure poses one set cf challenges, volunteers and lack of resources another, bu the fact remains greatness flows fist and foremost from having the eight people in the key sets, not the other way around. ‘Third, Briggs accomplished allthis with the use of etly-astesement mechanisms rigorously employed. Inthe sca sectors, where gating he wrong pole he bus ean te me citclt thon na business, eary assessment mochanss tem out tobe mor important man hicing mechanisms. There ro atest nterawing ecnnigue, no del Ning meth; even te best ecutive make ttng mistake, You ca ely know fr certain aout pean by working with that person. Business executives can more easly ire people and—equally impor tant—they ean use money to buy talent. Most social sector Headers, on the other hand, must rey on people underpaid relative t the private sector of inthe ease of volunteers, paid not tal. Yet a finding from ‘our research instructive the ey variable isnot how (or how much) ot pay but who you have on the Bus. The comparison companies in our research—those that filed to become great—placed greater emphasis ‘on using incentives to “motivate” otherwise unmotivated or undic- plined people, The gret companies, in contrat, focused on getting and banging onto the sight people inthe first place—those who are productively neurotic, those who are selfmotivated and ef disiplined, those who wake up evry day, compulsively driven to do the best they can because itis simply pat oftheir DNA, In the social sectors when big incentives (or compensation at al, in the case of volunteers) ate simply not posible, the First Who principle becomes even more impor tant, Lack of resources fe no excase for lack of vigor it makes see tivity all he move vital In the spring of 1988, Wendy Kopp graduated fiom Princeton with an elegant ide: why not canvine graduates from lading universities to spend the first (wo years uf tc carets teaching lowzineome kids in the public education sytem? She had no money, no office, no infrastructure, ao name, no credibility, no furniture, not even a bed co dreser in which to store her clothes. In her book, One Day ll Children... Kopp tells of moving into a small room in Nev York Cty alter graduation, plopping her sleeping bag on the Noor and pulling16 monume jeans and shirts out of three garbage bags and piling them into neat stacs onthe flor. fer convincing Mati Corporation to grant $2600 ‘of sed capital to found Teach for Ameria, Kopp spen themnext 35 days in a juggling act—convincing top fght people to join her bus wth the promise that she would convince donors to fund the bus, while athe same time convireing donors that she would convince top-ightseople to join ec bus One year ‘Kopp stood in feont of $00 recent-gradustes from colleges like Yale, Harvard and Michigan, ascembled for training and ‘deployment into Americ’ underserved clascooms, And hove di she ‘convince these graduates to work for low pay in tough classeoms? First, by tapping their idealistic passions and second, by miking the Process selective. “She basicaly suid to all these overschievng college students: ‘If youte really good, you might be able to join our cus" explained Michae! Brown of City Year, who watched with admition, "Bot ist, you have to submit to « rigorous screning and evaluation process. You should prepare yourself for rejection, because it takes a special epability succeed in these classrooms!" Secivity led to credibility with donors, which increased fusding, ‘which made it possible to attract and select even more young people into the program. As of 2008, more than $7,000 individuals applied to be par of Teach for America (yes, ninety-seven thous, and only 100 made the cut, while revenues grew to nearly $40 milli in annual support." ‘Wendy Kopp understood three fundamental points Fis, the more selective the procs, the more attractive a position becomes—eien if volunteer or low pay. Second, the sail sectors have one compelling ‘advantage: desperate craving for meaning in our lives, Putty of mis- sion-—be it about educating young people, connecting people to God, ‘making ou cites af, touching the soul with ret art, eeding the hun _aty.seving the poor. oF protecting our fesdom—hasthe power to igite sion end commitment. Thnk, the number-one resource for a great social sector rgaiztin is having enough ofthe right people willing to commit themselves to mission. The right people can ofen attract he people. Money money, bat money by ef can never attract the is-a commodity talent isnot. Time and tent can often compensate for lack of money, but money cannot ever compensate for lack of the right people “The pivot point in Good to Grea is the Hedgehog Concept, The essence ofa Hedgehog Concept isto attain piercing clarity about how to produce the best long-term results, and then exercising the relentless discipline to .say"No thank you" to opportunites that fil the hedgehog test. When ‘we examined the Hedgehog Concepts of the good-to-ereatcompanits, we found they reflected deep understanding of thie intersecting ctl 1) what you are deeply passionate about, 2) what you canbe the best in the worlds, ana 3) what best drives your economic engine. Social sector leaders found the Hedgehog Concept helpful but many rebelled against the third circ, the economic engine. 1 found this pee ating Sure making money isnot the point, but you sil need to ave an ‘economic engin o Fulfil your mission. “Then I had « conversation with John Morgan, a pastor with more an 30 years of experience in congregational work then serving a @ minister ofa church in Reading, Pennsylvania. "We're a congregation of mists said Morgan, “and [found the idea ofa unifying Hedgehog Concept to be very help. We'e passionate about trying to rebuild this community, and we can be the best in our region at creating & generation of transformational leaders that refects the ft diversity of the community: That sour Hedgehog Concept [And what about the economic engine? “Oh, we had eo change that cic" he sab “I just doesn't make sense fin church? “How can it not make sense? I pressed. “Don't you need to fund your work"Well there are two problems. Fist, we fae a cultura problem of ‘aking abou: money ina religious ctting, coming from tradition that sayslove af money ithe root ofall evil” “Bat money ial the root of paying the light and phore bills" sid “Thue said Morgan, "but you've got to keepin mind the deep dis comfort of talking explicitly bout money in some cherch settings. ‘And second, we rly upon much more than money to Seep this place going, How do we get enough resources ofall types—not just money 1 pay the bill but also timo, emotional commitment, hands ett and mings" Morgan gut hs igor on a undamentl ference btwaen the busines an social sectors. The third clea the Hedge Concent shits fom beng an econamic engine tea resource err. The ential question sna “Hom mh raney do we ke?” tt “How ‘ean we develop a euetainable resource engine to dele stperor In looking across a range of social zctororgoniatinns 1 cubonit that the resoures engine has thee basic components time, money an brand. *Time"—the subject ofthe previous section—efers to how well you attract people willing to contribute their efforts fr free, of at rates below whet their talents would yield in business (Fist Who). "Money’—the subject ofthis sction—refere to sustained cish flo. Brand"—the subject of the next section—refers to how well your ‘organization car caltvate a deep well of emotional goodwill and mind- share of potenti supporters. (See diagram: "The Hedgehog Concept in the Social Sect” on page 19.) mn Goad to Gear, we uncovered the idea ofthe “economic denom- inatoe” Ifyou cauld pick only one atom profit per x—to systematically would have the mos significant impact on increase ove ime, what" your economic engine? This economic ratio ties perfectly tothe eco ‘nomic core inall businesses, namely the profit mechanism, cansated into return om invested cats nat ou ae oeny passionate manueer naan | tebest inne source me one A “The same idea doesnot translate to the socal sectors. For one thing. as Tom Tierney of The Brdgespan Group apy observed, the social sec tors do not have rational caital markets that channel resources to those who deliver the best esl. For anther, there is no one underying that applies across conomicdriver—the analogy to profit per"s" social sector onganiations. The whole purpose ofthe social sectors isto eet social objectives, human needs and national priorities that cannot bepriced ata profit. ‘We examined the economic components of #4 non-business organ faations arose a range of arenas. Using budget statements, anal reports, financial statements, and IRS Form 9905, Michael Lane on my research team collated the information into sources of funds,expense categories, restricted versus unrestricted assets, and executive compensation, Waile our analysis was limited in scape and modest in ‘ambition, we nonetheles found the data illuminating, 1 you place socal sector entities in a twosby-two matrix, wih ‘one axis represenling charitable donations and private grants and the ‘other axis representing business revenue (Fee for service, contracts products ete), we find socal sector organizations spread widely across all four quadrant (See “Economic Engine in the Socal Sectors: 4 Quadrants" on pige 21.) Even institutions in the same “industry” ‘an fall into diffrent economic quadrants, Gil Scouts council, for instance, deve substantial cash flow from selling Cookies, and almost none from government support; the Boys & Girls Clubs of America, in contrast, derives more than hal is ie Scout evenue from government support. Furthermore, each economic ‘quadrant demands its own unique skills. Those that rely on govern- ‘ment funding mt employ political kill and cultivate public suppor: [NASA, for instance, must convince Congress that it merits a budget ‘tha would place thigh onthe list of Fortune 500 comporations. Those that rly on charible donations, on the other hand, must develop fundraising mechanisms and builé emotional connestion—"helping to cure cancer will make you feel good"—whereas those that rely ‘heavily on business revenues, such as hospital, more closely resemble {he economic dynamics of business corporation. Yt the wide variation in economic structures in the socal sectors increases the importance ofthe huaehog prncple—the inherent com. pleityrequites desper; more peneteting insight and rigorous clvity ‘than in your average business entity You begin with pasion, then you refine passion with rigorous asestment of what you can Best conti lute fo the communities you touch, Then you crete a way to te your resource engine dietly to the other two crs, QUADRANTS, ‘asan-Ti e eny gr fed cnn Onion eh HAS, ‘Siena net ors per saat enue ‘ic sete be coon. nara genni att ne ‘Secaropwoxs anda Homans amy egos atin cmt ar gas ty nh psi sn ah ‘sp, shh ed Git i 2 lon Ure rns re cy‘Tecra step inthe Hadgoog Concept ist determine few best to connec al hee cls, tat teyreinfrce each othe. You rust be abl to answer the question “How das focusing on what We condo beste direct to or resource enn, must be i. When Drew Buscareno became executive director of the Canter for the Homeless in South Bend, Indian, he and his eam developed 2 distinct Hedgehog Concept. They believed the Center could become the best in she world at breaking the cycle of homelessness in Bible tovens ofthe Midwest by challenging homeless people to take responsi bility for their own lives. They soon realized that building a resource engine primarily around government funding would ran counter tthe Center's Hedgehog Concept. “Homelessness isa profound diseonnectedness fron self family and community” explained Buscareno, “Ths insight fueled everything we did, We orgiized our whole organization around comecting people— homeless prople, benefactors, volunteers, and staf self family and commit, Aggressively pursing government money does not ‘make any sense with this typeof thinking, but aggresvly connecting volunters and local donors on 2 personal level with homeless people makes absolute sense” ‘The Center b its economic engine around individuals who give five or en thousand dollars yea consistent, and wha personally con rect to the Center's mission, As of 2004 less than 10% of the Center's resource engine came from government-—not because government funding was unavailable, but because such funding lrgely did not ft withthe otber two circles ofthe Center's Hedgehog Concept * [As Peter Drucker admonished, the foundation fer doing good is doing well To which 1 would add that the foundation for doing well 000706 aN THE SOCAL SECTORS 23 lies in a relentless focus on your Hedgehog Concept. The old adage “no cath flow, ne mision” is tue, but only as part of a brger truth ‘A great social seor organization mast have the discipline o say, “No thank you" to resrees that rive it away fom the middle ofits three circles Those who have the dicipline to attract and channel resources directed solely at their Hedgehog Co’cept, and to ret resources that rive them essay from the contr oftheir thre circles will be ofereater service tothe wor In building «great institution, there is no single defining action, ttand program, 90 one killer innovation, na solitary hacky break, no miracle moment. Rather, our research showed that it fs ike turing, 4 glant, heavy frwheel, Pushing with gresteflort—days, weeks and ‘noaths of work, with almost imperceptible progress—yos finally get the fywheel to inch forward. But you dont stop. You keep pushing. ‘nd with persistent effort, you eventually get the flywheel ro complete ‘one entire turn, You don't stop. You Keep pushing in ax intelligent and consistent direction, and the Aywheel moves a bit faster. You ‘eep pushing, and you get two turns. then four . then eight. the Aythec builds momentum sixteen . you keep pushing ~ thtty two. it builds more momentum .. 8 hundred .. moving faster with each ton .. 4 thowsend .. ten thousand ... « hundred thowiand. Then, at some point—breakthrough! Each turn builds upon previous work, ‘compounding your investment of effort. The flywheel fs forward ‘with almost unstoppable momentum. Tiss how you bul greatoes. By focusing on your Hedgehog Concept, yo build rests. Those results, in tuen, ateact resources and commitment, which you use to ‘build strong organization. Tat strong organization then delivers even ent, whic beter resus, which atracts greater resources and combulls stronger organization, which enables even better results Seople ‘vant to fel the excitement of being involved in something tat jst at ‘ot works When they begin to see tangible results—ivhen they ein ft the fywhel beginning to build speed—that’s when most peop line "up to throw thet shoulders agains the whee nd push “This the power ofthe fal. Success esd supsort and commitment, wich reds even geste succes, which breeds mare ‘support and eammitment—round and rod he Symes ges, People ke to supper winners! nthe busines sector, the Mywheel work exceptionally wel, Deliver superior financal results, and the world will line up, eager to give vou capital. Inthe socal sectors. by contrat there it no guaranteed relationship between exceptional results and sustained access tore sources. Infact the exact opposite can happen. As Clara Miler shows {in her superb atile, “Hidden in Plain Sight” (Nonprofit Quarterly, Spring 2002), nenproft funding tends to favor programmatic Funding ‘not building great organizations: “If you have 3 surplus, why should I sve you a grant” Small nonprofits ice valley ofthe shadow of death in making the shift from programmatic funding to sustained, unre- stricted funding and many fl along the way. | ind it puzdling how people who clearly understand the idea of investing in grea: companies run bythe right people often fl to cary the same logic over tothe social sectors, In place of the “air price xchange” of the free-market modal those who Fund the scilsetons «an bring an assumption of “fr exchange” that is highly dysfunction i we give you money, we are ented to tll you how to wse that money, since it was git (or public Funding), note fairprice exchange. Put another way, social sector funding often favors “time telling’ — focusing on a specific program or resected gif often the brainchild of a charismatic visionary leader. But building 2 grest organization quires shift “clock building’—shaping s strong, self-sustaining onganization that can prosper beyond any single programmatic idee or visionary leader. Restricted giving. misses 2 fundamental point: to make the greatest impact on society requires frst and foremost ¢ _great organization, nota single great program. If an institution has facused Hedgehog Concept and a disipined organization that delivers cceptional results, the best thing supporters can do isto give resources that enable the instiution’s leaders todo their work the Best way they now how. Gt out oftheir way. and let them build a clock! ‘Yet despite the difevences between busines and soil sector eco nomics, thse who Ia institutions fom good to great must harness the flywheel eect. Whereas in busines, the ley driver in the fwhec fs the Fink between Snancial success and capital resources, like co suggest that a Key ik in the socal sectors i brand reputation bul: upon tangible results and emotional share of heart—so that potenti supporters believe not only in your mission, but in your capacity to autor nervew wth rece Helen conducted when composing the foremdto Heston Lenders San France: ese Bass Pblibes) a2. + James MaGregr Buns ees, (Ne ok: Harper Row 1978), p98 * pator interview with Roper Baas ° Author corespondence wity Michael Brown " author ntespondence wih Wend Kopp © patho evi wit Joba Morgan The Gi cout Cookie busines opraeat the rel of Loa Git cous ouneiband nt acounted er inthe ational rniztion form 90, ‘+ author orrespondence with Drew Basaeno, » corto the Hard University Gaze Septeber 15,2004"Harvd Univers endowment aed 2.18 return dig the yar ending pe 30,204 bringing the endowment eel valet 22.6 bilion” ° author ctepondence with Tm Moet » ingen, °30er Sep Soc” Maney Magazine, October 9,292, Vim Clin ht authored o co-authored four booking Bal as sd God Great Driven by lentes caro in beg his research an teaching carer on he fuk of Stns Gradate cholo ase whee he terived the Distinguished Teching Avan 1986 he reue his ‘metwn of Baldr, Calero, fn his manegeren bear, where he ‘onde esearch nd works with arin the coporte and cl ects, More sbout im nd his woes canbe founda his eteaching te where as "ssebled articles, uo clips recommended reading i, dics ule, tool and oter information The seis designed tbe plc fr ston sud and an. wesimcline com