Author: Jim Collins
Jim Collins
Reading time: 19 minutes
Synopsis
Good to Great comes from a five-year study. Jim Collins and his team studied companies that became top companies after many years of average results. They found out what made these companies different from others that did not succeed. They put these findings into key ideas about leadership, company culture, and business planning.
What’s in it for you: Learn from “take-off” companies how to reach the top.
Many business books explain how top companies stay at the top. But how does a good company become a great one? What makes a top company different from its competitors that don’t do so well?
To find answers, Jim Collins and his research team studied how different US companies grew over five years. These were companies whose shares were traded on the stock market. They focused on three groups of companies:
The “take-off” companies moved from “good” to “great” after 15 years of average or poor stock performance. In the next 15 years, their stock value grew at least three times more than the market average. The companies in the direct comparison group only had average or worse results during the same time. The short-lived success companies only reached the top for a short time. Their stock value quickly fell after their success.
During their study, Collins and his team looked at over 6,000 news articles and 2,000 pages of interviews with managers. Their goal was to find out what made the “take-off” companies different. They wanted to use this knowledge to help other companies become just as successful. These Blinks show the results of their research.
In the following, you will find out:
- what a “Hedgehog” strategy is,
- why top companies don’t need leaders with big egos, and
- what idea top companies got from a US officer in the Vietnam War.
Blink 1 – Find a simple “Hedgehog” strategy that gives you a clear path.
Imagine a clever fox hunting a hedgehog. The fox tries many surprising attacks and tricky plans to catch the spiky animal. But the hedgehog always does the same thing: it curls into an unbreakable ball of spikes. Because it sticks to this simple defense, the fox cannot hurt the hedgehog. The hedgehog can only do one thing, but it is unbeatable at that one thing.
The “take-off” companies in Collins’ study also found a simple Hedgehog strategy. This was their special area that showed them a clear path. They found this strategy by asking these three questions:
- In what area can we be the best in the world?
- What are we deeply passionate about?
- What is the main economic factor we should focus on?
The “take-off” companies found their personal Hedgehog strategy where the answers to these three questions met. This often took about four years of searching and many discussions. After that, they made every decision based on this strategy. Success quickly followed.
Let’s look at the American drugstore chain Walgreens, for example. The company decided to offer its customers the most pleasant and easy shopping experience. Walgreens followed this Hedgehog idea very strictly. In the end, its results were seven times better than the market average.
Its competitor, Eckerd Pharmacy, did not have such a Hedgehog strategy. It went in wrong directions without a clear plan. In 2004, another company bought Eckerd Pharmacy. By 2007, its name had completely disappeared from the business.
Blink 2 – Success comes from many small steps in the right direction.
Looking back, it might seem like “take-off” companies had a big and sudden change. But often, the companies themselves did not notice this huge change. Their transformation did not start with a special slogan, a big event, or a new program.
Their success was actually many small, step-by-step improvements. These followed a simple strategy: the Hedgehog concept. Small improvements made the results better. This pushed the “wheel of success” forward. It motivated staff to do more until there was enough momentum for a big breakthrough. Strong belief and sticking to the Hedgehog concept successfully started this wheel of motivation and progress.
Nucor, a steel company, is a good example. It performed five times better than the market average. In 1965, Nucor was close to bankruptcy. But then it found a way to make steel more cheaply and efficiently than its rivals. It used “mini-mills,” a cheaper and more flexible way to produce steel. So, the company built one mini-mill and got new customers. Then it built another and got even more customers. This became a great success story.
In 1975, CEO Ken Iverson realized his company could one day become the biggest steel company in the USA by sales. This would happen if they kept following their chosen path. It took two decades, but the company finally reached this goal.
The comparison group, however, did not follow its path with the same focus. Instead, they tried to get quick success with big changes and rushed steps. This approach did not bring fast results. So, these companies soon felt unmotivated. They changed their direction again. The “wheel of success” could not gain speed, and the companies went off the path to success.
Blink 3 – Technology can speed up success, but it cannot create it.
Jim Collins and his team learned something else from their data. Technology can help a company grow a lot, but it should never decide the company’s direction. The “take-off” companies they studied mainly used new technologies to move forward in their chosen path. They used technology only as a tool to reach their goals.
The less successful companies in the comparison group, however, worried about their progress if they did not have the latest technology. These companies always tried to use the newest technologies, but they did not have a clear plan for why.
The “take-off” companies, on the other hand, thought carefully about whether a certain technology would help them on their path. If it would, they quickly became pioneers in using it. If it would not help much, they still used the new technology, but they did not use it to its full potential.
Again, the drugstore chain Walgreens gives a great example of how to use new technologies well. When online shopping started, drugstore.com, an online pharmacy, was created. Walgreens was not the first drugstore online. This alone made its stock value drop by 40%. So, the pressure to use this new way of selling was very high.
But instead of getting demotivated by the losses, Walgreens saw how the internet could help its original strategy. It could make shopping online as convenient as possible for customers.
Within just one year, walgreens.com was created. It became a big success for the company’s strategy, for example, by offering online prescription refills. While drugstore.com became much weaker, Walgreens quickly doubled its stock price.
Blink 4 – Level 5 Leaders are the driving force behind success.
All “take-off” companies, during their change, were led by people who had reached the highest of five management levels. These are called Level 5 Managers.
What is special about these leaders?
Level 5 Managers are not just smart people, good team players, and managers. They are also very driven and ambitious for their company. They work very hard for long-term top results. They want these results to last even after they leave the company.
Also, their ego is not what drives them. Level 5 Managers are humble. They are not showy. They say that success belongs to the whole company and do not highlight their own part. But they quickly take responsibility for mistakes and admit their fault.
Darwin Smith is one such manager. He turned Kimberly-Clark into the top maker of hygiene products. But he did not want to be seen as a hero or a celebrity for this. He dressed like a farm boy, worked on his farm in Wisconsin during his holidays, and preferred to spend time with plumbers and electricians.
In contrast, two out of three CEOs in the comparison group had very big egos. This was bad for the company’s long-term success. The lack of sustainable planning made this very clear.
Stanley Gault was the CEO of Rubbermaid. He was famous for being a tyrant but also for his success. After he retired, he left behind a very weak management team. Because of this, the company, which was once highly praised, was bought by a competitor just five years later.
Blink 5 – The right people in the right place are the foundation of great companies.
When Dick Cooley became CEO of Wells Fargo, a US finance company, he knew that new rules for banks would bring big, hard-to-predict changes. But he believed Wells Fargo could survive if it had the best and smartest people working there. He was right. The company grew amazingly, and Warren Buffet called its leadership team “the best management team in the business.”
The “take-off” companies that Jim Collins and his team studied cared more about a person’s character than their skills. They knew that the right people could always be trained and taught new skills.
If you choose the right people to work with, you will always find the right path. The question “who” should be more important than “where to go.” Companies moved from “average” to “great” when the right people joined and the wrong people left. This happened even before the new business plan started.
“Take-off” companies did not have to worry about motivating these strong employees. They cared more about who they paid than how much they paid. This created a place that encouraged the right people to work hard and also paid them well for their efforts.
“Take-off” companies never hired the wrong people, even when they urgently needed staff. When a new person joined the company, they were not immediately given a specific job. And if an employee in a “take-off” company did not perform as expected, necessary steps were taken right away. They were either fired or moved to a more suitable role.
Any delay in dealing with the wrong employees only leads to frustration in the company.
Blink 6 – Face the facts, but never lose hope.
In 1973, high-ranking officer James Stockdale became a prisoner of war during the Vietnam War. He was held in the “Hanoi Hilton” prison camp. He did not know if he would ever see his family again. Despite the terrible situation, he never stopped believing he would return home one day. But he was not foolishly hopeful. This was different from other prisoners who believed they would be home by Christmas and were crushed when they were not. Stockdale later said he survived only because he could face the facts without losing hope.
In the same way, “take-off” companies faced hard facts. But at the same time, they kept believing they would succeed in the end. They acted according to the Stockdale Paradox, which is named after the famous officer.
Whether it was tough competition or big changes, “take-off” companies dealt with the facts. They did not ignore them. Because of their actions, they never lost hope.
When the large American company Procter & Gamble (P&G) invested in the paper-based consumer goods market, two main companies reacted very differently. Scott Paper, the market leader, believed it could never compete with a giant like P&G, so it gave up. Scott Paper also tried to grow in areas where it would not compete with P&G. Kimberly-Clark, however, happily accepted the high-level challenge. In a management meeting, they even held a “moment of silence” for P&G.
The result: Twenty years later, Kimberly-Clark bought Scott Paper and beat P&G in six out of eight product types.
Blink 7 – Managers must create a place where facts are discussed honestly.
A strong, charming manager can be more of a problem than a help. This happens if they scare people so much that they hide bad facts from them.
The “take-off” companies in Jim Collins’ study did not have more or better information than other groups. They just used the information differently: more honestly. And honesty works better in a place where mistakes and problems are allowed.
Following the example of the most successful companies, leaders should act like a Socratic facilitator. This means they should ask questions that bring out true opinions, not give ready answers. They need to start discussions where the best possible decisions can be found.
Pitney Bowes changed from a failing franking machine maker to a company that handles documents. It beat the general stock market by seven times. But instead of just celebrating successes, the managers paid most attention to small, possibly worrying facts.
Mistakes can always happen. To avoid them in the future, they must be studied carefully, but without blaming anyone. This stops other bad truths from being hidden. “Red-flag” systems look for early warning signs and raise an alarm for important business issues. These systems help managers focus on unpleasant facts.
Blink 8 – Following the Hedgehog concept needs a work culture of strict self-discipline.
Dave Scott was a triathlete. Every day he cycled many kilometers, ran 27 kilometers, and swam 19 kilometers. Even after this hard training, he still had the self-discipline to eat only very low-fat foods.
The “take-off” companies studied had many people like Dave Scott. These people followed their simple strategy, the company’s Hedgehog concept, with great effort and persistence.
Wells Fargo, a finance company, saw that being cost-effective would be important in the new banking world. So, it froze leaders’ salaries, sold company planes, and hired a cheap university caterer. The CEO even told off staff who handed in reports in fancy but expensive folders. Wells Fargo probably would have become a top company even without these actions. But this behavior showed the company’s strong will to do everything it could.
A disciplined work environment is not the same as having one disciplined tyrant. Tyrant CEOs can sometimes bring success to their companies. But as soon as they leave, the company often fails.
Stanley Gault, the CEO of Rubbermaid, is one such example. He admitted to being an “honest tyrant.” He expected his staff to work the same 80-hour week he did. After he left the company, Rubbermaid lost 59% of its value in just a few years. This happened because the disciplined environment disappeared when he left.
Summary
Companies can go from average to great. They need to follow a simple strategy, hire the right leaders and employees, and create a work culture of strong self-discipline.
Source: https://www.blinkist.com/https://www.blinkist.com/de/books/der-weg-zu-den-besten-de