About The Author

Jim Collins is an alumnus of Stanford University. After he graduated from college, he worked

for Mckinsey for a few years. However, he later realized that his passion was in teaching and

training, so he returned to Stanford to pursue his Ph.D. and went on to become a professor in

the same college. He received a distinguished teaching award. Apart from ‘ Good to Great,’

Jim has written six different books, the most notable one being ‘Built to Last,’ a book that lists

the successful habits of visionary companies. He is currently working from his management

research library in Boulder,Colorado.

Good is the enemy of great

The author was always curious to know why only a few companies reach the top and why is

that very few companies do not fare so well in the long run. One of his colleagues mentioned

to him that in his previous book ‘Built to last,’ he only talked about companies that had a

persistent performance. He did not mention the other companies which transitioned from local

brands to ending up in the fortune 500 lists. Hence, he decided to research 11 companies that

we're able to transform from good to great. During his research, he observed that when most

companies achieved certain short term goals they became complacent and decided to remain

in the same position. However there were also certain companies which strived to be better.

These were termed ‘great companies.’

To conduct his research Collins and a team of researchers had a few criteria in shortlisting the

companies. The most important one being that the fifteen-year cumulative stock returns had to

be at the same level or below the general stock market. The team did not choose big names like

Coca-Cola and GE as they were already established brands, and their stock returns were

performing better than the average stock market. The next phase involved setting a benchmark

by comparing these companies with similar ones, which started at the same time with similar
resources. After choosing and comparing the companies, the researches made some

observations of the 11 shortlisted companies. They found out some inner workings of ‘good to

great’ companies. These included the following:-

 Most of the CEO’s worked with the same company from the beginning

 Strategies were not a key differentiator.

 Good to great companies focussed on ‘what not to do’ to get ahead.

 Technology-driven changes have nothing to do with transforming a company from

good to great.

 Good to great companies were by large from not so great industries.

Level 5 Leadership

While conducting the research, Collins was quite surprised by the type of leaders that that have

converted the organizations from good to great. He found out that such leaders are a blend of

humility and professionalism. He found out that there was a build-up in creating a good

organization.

 First and foremost, it was important to find the right people first and then find out the

process.

 Every company must maintain unwavering faith even in the most difficult times. Also,

they must confront the harshest facts in the current reality.

 Each company cannot rely on its core competency too much. The author believes that

if a company cannot be the best in the world at its core business, then such a core cannot

form the basis of a great company.

 Good to great companies have something called a ‘culture of discipline.’ Although they

may have a hierarchy, most of the employees would do anything to get the job done
 regardless of their position in the company. If the employees are self-motivated, then

there is no need for any control measures.

 Good to great companies do not use technology as a primary source of bringing in

change. However, they use technology in an efficient and effective manner.

Also, Jim Collins believes that all transformations do not happen overnight. Instead, all of the

above processes must be implemented step by step. According to him the process of

transformation resembled a flywheel which was being pushed in one direction, building

momentum continuously until it reaches a point of breakthrough.

5 Hierarchy

There is a myth in the corporate world that a good leader is the one that does has no emotions

at all. He/She will get the work done from the employees regardless of the employee's current

circumstances. In other words, someone who rules with an iron fist. However according to the

research conducted by Collins has found out that great leaders have both the qualities of

humility and will. They put their professional needs first and then work on their personal needs.

He gives the example of Abraham Lincoln, a former president of the United States. While most

politicians had a capitalist mindset, he believed in social welfare and as we know the country

did prosper in the future. As mentioned earlier the 11 companies chosen were compared to

other companies in the same industry. It has been found out that the CEO’s of the companies

that did not last had huge egos and would constantly take credit for the success of the company

and blame external circumstances if the company had failed. However Level 5 leaders did the

exact opposite and would give most of the credit to the team for the companies success.

It is empirical to note here that Level five leadership is not just about modesty, but it is also

about a strong resolve and determination to pursue whatever needs to be done. George Cain,

who was the CEO of Abbot Laboratories, had a very shy and reserved personality. However,
he had the determination to set inspired standards for the company. He realized the key cause

for Abbot's mediocre performance in the industry was the nepotism taking place in the

hierarchical structure. He systematically rebuilt both the board and the executive team. He

understood that family ties nor length of tenure in the company would translate to being an

effective leader. Although many companies have want strong leaders who may use disciplinary

measures to get the job done, it is important to note that most of the leaders can be trained to

be Level 5 leaders under the right circumstances. i.e… self-reflection, personal development,

a mentor, significant life experiences, a level 5 boss, etc.

 First Who Then What

Building the right team is essential for anyone to achieve success, but what matters more is

building the right team before you know what happens and which path to take towards success,

and hence, it is important to implement the concept of ‘first who..then what.’ It is important to

gather a team of right people before making any changes to the organization and then decide

on what to do, where to go, and how they are going to reach there. It involves a lot of strategies,

vision, and decision making behind it to make the company great. The reason behind following

this approach is that when people join you for making strategies decision making of the

company, then there is no guarantee that they will stick with us or be equally motivated till the

company changes its path. Whereas those who are on the team because of the motivation of

someone else will be there trying to make the company great regardless of its direction. This

approach gives an easier way for the company to change its direction. It also helps the load of

saving lots of time and energy spent by the company on motivating its employees. To

implement this process, the Author gives us three practical ways:

When in doubt, do not hire

When you know that you need to make people change, act!

Put your best people on the biggest opportunities, not on the biggest problems.

Confront the brutal facts

One of the important things that are required to become a great company is to make a series of

good decisions, and they cannot be just made unless you confront the brutal facts first. If you

have the level 5 leadership and right people, then everyone can put company performance

ahead of their ego, and that enables you to confront the brutal facts without losing phase, and

ultimately, the company will become successful. There is always a thin line between ‘having

your say’ and ‘being heard of.’ It is later that enables companies to confront the brutal facts
from their people and then make the right decisions. To avoid distorting facts, companies

always need to create an atmosphere where the truth is welcomed. The author explains four

practices to help you create this type of atmosphere.

1. Lead with questions, not answers

Leaders of great companies always ask questions based on reality and its implications. They

constantly probe until they have a clear picture of the answer they get.

2. Engage in dialog and debate, not coercion

Leaders of great companies have a heated debate even if they agree or disagree, but they never

coerce.

3. Conduct autopsies without blame, use them to learn

Consider these obstacles as learnings and move on to build a mechanism to avoid these

obstacles in the future.

4. Build a red flag mechanism

Whenever you see wrong happening in your company, always raise a red flag to counter it.
 Hedgehog concept

The author explains the hedgehog concept to help good companies strategize to become great

companies. The key dimensions that help the companies to realize about themselves are

1. What can you be the best in the world?

The author strongly emphasizes that you need to be the best in your core business. Hence only

the things in which you can truly be best make it into the hedgehog concept.

2. What drives your economic engine?

This is one of the important factors that determines the potential of the company. It helps the

organization to make great decisions.

3. What are you deeply passionate about?

When the organization does the things in which they are deeply passionate about, then they

can produce better results.

From the above figure, according to the author, the application of the hedgehog concept

becomes successful when all the above questions are better implemented.
 Culture of Discipline

The author introduces the sixth concept, which is the culture of discipline. There is a great

emphasis on the discipline of the organization as a whole and the related employees. This

concept tells that if there is discipline, on the whole, there would be no need for hierarchy or

bureaucracy in the organization, which is the main reason for many inefficiencies that any

organization faces. The author says that for any organization to mature and to have good cash

flows over a long period, discipline is the key factor in it. Sustained good results depend on

building a culture full of self-disciplined people. Culture is a way of planting the values and

work culture in an employee’s mind by which the respective individual will automatically

inherit the passion and values of the organization. This leads to the right action, focused

approach in alignment with the Hedgehog concept. The author also says to inculcate a culture

for entrepreneurship in an organization. Great companies have a combination of the culture of

discipline and entrepreneurship. A low ethic of entrepreneurship and low culture of discipline

is a bureaucratic organization, and a high ethic of entrepreneurship and low culture of discipline

leads to a start-up organization. A low ethic of entrepreneurship and high culture of discipline

leads to a hierarchical organization which is usually low on innovation and can be considered

as a good company. A high ethic of entrepreneurship and high culture of discipline leads to a

great company where employee has total accountability to their work assigned and is

responsible for innovative thinking. This leads to greater efficiency in the organization. Abbott

displayed high levels of entrepreneurship and culture of discipline. It has financial discipline

as well a culture of innovative thinking. This led them to reduce their administrative costs to

the lowest in the industry and at the same time innovate machines like 3M which helped to

achieve 65 percent of revenues from new products.

For a great company, there shouldn’t be too many opportunities as it diversifies the focus of

the employees. There should be fewer opportunities, and one should excel at the same.
Any great company should start to create ‘Stop doing’ lists. The author encourages

organizations to retrospect their experiences and not to repeat any of those mistakes in the

future. The author also encourages the organization to give freedom to innovate and inculcate

a culture where no one is afraid of failure. But freedom should come with a definite boundary.

This is illustrated by an example of a pilot who is guided by Air Traffic Control in a definite

direction, but internally the pilot is given complete freedom to maneuver the flight and has the

responsibility of the passengers.

Technology as an Accelerator

The final concept explained by the author is ‘Technology as an accelerator.’ It says that a

company should not invest in technologies just because the industry competitors are doing it.

They should only invest if it gets them a good return on investment and aligns well with their

hedgehog concept. Companies are bound to fail if they invest in technology, which does not

align with their hedgehog concept. Great companies are always calm and calculated and only

use technology as an accelerator of momentum but not as a creator of it. A company should

first identify their hedgehog concept and then use technology concerning it. This is illustrated

by an example where Walgreens, the second-largest pharmaceutical company in the United

States, had direct competition with drugstore.com during the internet revolution. As

drugstore.com put their products on the internet, Walgreens had a hit on their revenues. Instead

of launching their website and putting on impulse, they identified their Hedgehog concept and

launched their internet services a year later. This resulted in their stock prices doubling within

a year. Great companies also tend to become pioneers in the use of technology as illustrated by

the Gillette example. Their Hedgehog concept is in producing low-cost, reliable razors, and

hence they invested in manufacturing machines, which could automate their processes, helping

them to reduce costs.

Flywheel

The author also tells about the Flywheel concept, which every organization must go through to

become a great company. Firstly, for any company, it may seem to be intimidating, but as they

start building momentum, it gets easier with time helping the company achieve Breakthrough

to become a great company. But the media doesn’t cover any company until the flywheel is

already turning. Ex. Circuit city, overnight success story where the company sold consumer

electronics in a warehouse format.

It was in the media after its success. It skews the public perception of the reality that Rome

wasn’t built in a day. Instead, it took perseverance over many years.

Conclusion

Finally, any great company should hire the right people, take the right actions aligning with

their Hedgehog concept, and should inculcate a culture of discipline.