GOOD IS THE ENEMY OF GREAT
Can a good company become great? Or is “just being good” incurable?
Phase 1: The Search
- Find companies that have good to great patterns
- Analyzing stock returns of companies in the Fortune 500 list that met the criteria of three times the market over a 15 year period
- Another criteria is that the company had to stick outside of their industry, meaning that the growth could not be an overall industry trend
Phase 2: Compared to What?
Phase 3: Inside the Black Box
Deeply analyze what the companies did to get them where they are now
Phase 4: Chaos to Concept
Setting patterns to an unorganized lump of information
- Level 5 Leadership
- First Who… Then What
- Confront the Brutal facts
- The Hedgehog Concept
- A Culture of Discipline
- Technology Accelerators
- The flywheel and the Doom Loop
- From Good to Great to Built to Last
Timelessness of Physics in good to great
- The laws of physics remain relatively fixed over time
- This book is not about the old economy or the new economy, but about timeless principles of good to great
LEVEL 5 LEADERSHIP
Humility + Will = Level 5
Coleman Mockler of Gillette turned down Ronald Pearlman of Revlon and Coniston Partners to buy the company.
Ambition for the company: Setting up successors for success
A Compelling Modesty
Unwavering Resolve to do what must be done
The window and the mirror
Cultivating Level 5 Leadership
FIRST WHO... THEN WHAT
“There are going to be times when we can't wait for somebody. Now, you're either on the bus or off the bus.”
KEN KESEY, from The Electric Kool-Aid Acid Test by Tom Wolfe
Begin with "who," rather than "what"
- The first step in taking a company from good to great is to get the right people on the bus, the wrong people off, and then figure out where to drive the bus.
- People are not your most important asset. The right people are.
- The right people will be self-motivated by the inner drive to produce the best results and to be part of creating something great.
- The wrong people won't make the company great even if has the right direction.
Level 5 Management Team Vs. Genius with thousand helpers
- Wells Fargo focuses on "injecting an endless stream of talent" directly into the veins of the company
- Without Jack Eckerd's guiding genius, Ecerd's company begins a long decline.
Rigorous vs. Ruthless
- Ruthless: hacking and cutting, especially in difficult times, or wantonly firing people without any thoughtful consideration
- Rigorous: consistently applying exacting standards at all times and at all levels.
How to Be Rigorous?
- When in doubt, don't hire-keep looking.
- When you know you need to make a people change, act.
- Put your best people on your biggest opportunities, not your biggest problems.
CONFRONT THE BRUTAL FACTS
Kroger Vs. A&P
- Both invested in traditional grocery store
- Both were old companies (more than 80 years old) heading into the 1970s
- Both companies had strongholds outside the major growth areas of the United State
- Both companies had knowledge of how the world around them was changing
A&P rejected changing its business model
- The Golden Key was an innovative move and brought positive feedback from customer
- A&P did not like the fact that they needed to move forward to the modern superstore
Customer no longer wanted just low price grocery stores
- They wanted to be able to do their banking and get their annual flu shots while shopping
- Kroger decided to eliminate, change, or replace every single store and depart every region that did not fit the new realities
Facts Are Better Than Dreams
- Any leader will fail to make a series of good decisions without first confronting the brutal facts
Pitney Bowes Vs. Addressograph
- Until 1973, they had similar revenues, profits, numbers of employees, and stock charts
- By 2000, Pitney Bowes outperformed Addressograph 3,581 to 1
- Addressograph's bold plan was to dominate the likes of IBM, Xerox, and Kodak in the emerging field of office automation
Roy Ash: "We lost some battles, but we were winning the war"
The company created a long-standing tradition of forums where people could stand up and tell senior executives what they thought
- Fifteen minutes discussing the previous year
- Two hours talking about the "scary squiggly things"
A Climate Where the Truth is Heard
- Managing in a way as not to de-motivate people
- Leadership is just as much creating a culture where truth is heard and brutal facts confronted as it is about vision.
- Lead with questions, not answers
No use of questions as a form of manipulation
- Engage in dialogue and debate, not coercion
- Conduct autopsies, without blame
- Search for understanding and learning
- Build “red flag” mechanisms
- Turning information into formation that cannot be ignored
The Stock dale Paradox
"I never lost faith in the end of the story” - Admiral Jim Stockdale
- What separates people is not the presence or absence of difficulty, but how they deal with the inevitable difficulties of life
The Hedgehog Concept
The Three circles
1. What can you be the best in the world at?
- What can we not do better than any other company? And if we can’t be the best at it, why are we doing it at all?
- The first circle focuses on simplifying goals and focusing on making the achievable the best one can do.
- Fully understanding the true potential of one’s organization and building on their strengths and competence.
2. What drives your economic engine?
- Walgreen focused on the convenience concept not just having stores in the cheapest locations.
- Understanding the denominator to gain understanding and insight into your economic model. ( Ex. Per employee, per geographical region, per mortgage risk level, per customer, per consumer brand, per local population, etc.)
3. What are you deeply passionate about?
- Companies should that focus on the things they are passionate about and not try to get passionate on the things they do.
- The passion of the company reflects what the company stands for. Passion does not just stand for the money, but to preserve, protect and enhance the company and its product.
Some Characteristics of the council are:
- Exist as advice to gain understanding about important issues facing the organization
- Consist of 5-12 people lead by a leading executive and key members of management
- All have the ability to ask questions, debate and participate in dialogue
- Have different skill sets, qualifications and wide range of perspectives
A CULTURE OF DISCIPLINE
Discipline in an organizations can push companies from good to great. It is a mixture of properly maintain and executing discipline through culture and ethics.
The Good-to Great Matrix of Creative Discipline
- The culture of discipline is mixture of freedom and responsibility.
- One must follow all guidelines of an organization's culture to always stay within the system.
- However, you have the freedom to explore the frameworks of an organization to push creativity.
Discipline People. Discipline Thought. Discipline Action
- Successful CEOs and organizations follow the guidelines laid out by the Hedgehog concept.
- Making the framework of the company precise yet simplified to achieve the overall large concept.
- A large part of setting up the framework is by discovering what the organization is passionate about.
- The organization must develop a list of things that must be eliminated for the organization to improve overall productivity.
- The point of this chapter is to explain the risk to businesses of adopting new technology.
- Internet is a speculative bubble that burst. However, bubbles come and bubbles go.
- It happened with railroads, electricity, radio, personal computer, the internet, and likely will with new technologies.
Case Study Walgreen- INTERCOM 1980
- Walgreen did not adopt the technology just because they feared falling behind
- It uses technology as a tool to accelerate momentum after hitting a breakthrough
- They tied technology directly to its Hedgehog concept of convenient drugstores increasing profit per customer visit
Technology as an Accelerator, Not a Creator, of Momentum
- The good to great companies never began their transitions with pioneering technology.
- You cannot make good use of technology until you know which technologies are relevant and how they might be applied
- The Hedgehog question
The technology trap
- In these days there is a cultural obsession with technology
- The modern psyche clearly shows a key item on our collective mind is technology and its implications.
- Nucor example:
A Nucor executive has said:
“Twenty percent of our success is the new technology that we embrace, but eighty percent of our success is in the culture of our company”
- Mediocrity results first and foremost from management failure, not technological failure.
- Technology is a liability, not an asset.
Technology and the fear of being left behind
- He proposed the essential difference between great companies and good companies.
- Great companies never talk in reactionary terms
- They never define their strategies principally in response to what others are doing
- They talk in terms of what they were trying to create and how they are trying to improve.
“Then this Daniel became distinguished above all the other presidents and satraps, because an excellent spirit was in him. And the King planned to set him over the whole kingdom” (Daniel 6:3) ESV.
THE FLYWHEEL AND THE DOOM LOOP
“Revolution means turning the wheel.”
- Buildup and Breakthrough
- Circuit City
“No Miracle Moment”
- Examples - Kroger, Walgreens, Wells Fargo
- Not Just a Luxury of Circumstance
- The “Flywheel Effect”
- Flywheel Builds Momentum --> Steps Forward Consistent with Hedge Concept --> Accumulation of Visible Results --> People Line Up, Energized by Results --> Flywheel Builds Momentum
“The Doom Loop”
- Disappointing Results --> Reaction, Without Understanding --> New Direction, Program, Leader, Event, Fad or Acquisition --> No Buildup; No Accumulated Momentum
- The Misguided Use of Acquisitions
FREQUENTLY ASK QUESTIONS
- From Good to Great to Built to Last
- Sam Walton’s ideas for Walmart
- Hedgehog Concept
- Buildup…. Breakthrough!
- The Extra Dimension of Enduring Greatness
“Enduring great companies don’t exist merely to deliver returns to shareholders”
- Disney’s Preserve and Change
4 Key Ideas
- Clock Building, Not Time Telling.
- Genius of AND
- Core Ideology
- Preserve the Core/Stimulate Progress
- What are you deeply passionate about
- What you can be the best in the world at
- What drives your economic engine