In his last top book, James Collins elucidates how large companies maintain their top performance and remain as great. A great many companies are great, however. Here comes the critical inquiry: The way for companies to achieve greatness rather than remain good? What is it that renders them great compared to their rivals which cannot transcend mediocrity?
James Collins, with his research group, carried out research of 3 teams of American public corporations to find answers to these questions with a 5-year study.
One group is corporations that went from being good to being great. After having never been better than the mediocre stock market for fifteen years, these companies made a transition and managed to make a growing profit that is 3 multiples of the common stock market at a minimum over the following 15 years.
The second group is straight contrast corporations. They either stayed mediocre or shrank despite having the same opportunities before them just as the ones that became great had.
The last group is unsustained contrast corporations. These companies made a temporary change to be great, yet they went into operating at much lower a level than the average stock market.
As they were working on their study, Collins and the research group analyzed more than 6,000 articles on the media and two-thousand-page-long executive interviews. They wanted to uncover how the companies that became great succeeded so that their research can guide other companies to enter their “corporations that became great” club.
Chapter 1 – A similar Hedgehog concept shows a lucid understanding.
Now think that a sly fox wants to hunt down a hedgehog. The fox devises lots of surprise attack plans and canny ways of gobbling down the hedgehog. In each of his trials, the hedgehog forms a spiky impenetrable ball. This is how the hedgehog triumphs over the fox, by sticking to the same basic strategy every time.
Corporations that became great created a Hedgehog concept to themselves by asking three pivotal inquiries:
What to do to be the greatest in our environment?
What is the thing we love the most?
Which key financial indicator should we focus on?
After spending approximately 4 years repeating their process and discussion, corporations that became great finally invented a plain Hedgehog concept for themselves. Once the Hedgehog had been found, they made their decisions in accordance, and then success came along.
For example, the convenience stores of Walgreens aimed to become the best and most suitable drugstore while making a nice profit per consumer. By unwaveringly pushing towards this Hedgehog concept, they were able to perform 7 times better than the common stock market.
Their rival, Eckerd Pharmacy, was devoid of any Hedgehog concept. Growing intermittently in fallacious directions, the company no longer exists independently today.
Chapter 2 – Marginal additions on the right path bring success.
Looking back in time, corporations that became great appear to have undergone a sharp and substantial metamorphosis. They did not realize that they were in the middle of a transformation back then. Their metamorphosis involved no clear motto, releasing activity, or transformation schedule.
Their success, instead, lied in making small marginal additions to the path of their Hedgehog phenomenon. Similar to making a flywheel turn, the outcome of these betterments became a motive for individuals to push more and more until they got enough speed to make a quantum leap.
The steel producer Nucor, for example, performed 5 times better than the common stock market. After having faced the peril of collapse around 1965, the company realized there was a way of making steel greater and producing it for a reduced cost by utilizing mini-mills that render steel production less costly and more resilient. They built them one after another as their clients increased more and more.
In 1975, Nucor’s Ken Iverson understood that by continuously pushing toward the exact route, Nucor could become the most commercially successful steel manufacturer in America one day. They endured for more than 20 years, however, ultimately met their aims.
Comparison companies preferred turning the luck on their side by trying to transform with hurried acquisitions and substantial transformations to endeavoring to gain steady speed in one direction. When these attempts failed, they were disheartened and had to try one more time for a change, thus hindering the flywheel from gaining speed.
Chapter 3 – Thinking of new technology as a booster in the process of reaching our aims, rather than as an aim on its own
For the corporations that became great, new technology boosted the speed as they were continuing to go in the same direction. For them, technology was an instrument for reaching the end, not vice versa.
Comparison companies perceived new technologies as dangerous and fretted about missing the technology craze, struggling to embrace them with no comprehensive plan.
On the contrary, corporations that became great meticulously deliberated if that exact technology would boost them up in their direction or not. If it does so, then companies became the trailblazers of that technology; if not, they disregarded it or just equaled their industrial speed in adoption.
The major convenience store chain Walgreen makes a perfect instance of the way fresh technologies can be utilized in the best way.
At the dawn of the rise of e-commerce, the web convenience store corporation Drugstore.com website was founded in the middle of intensive market publicity. For Walgreens, there was huge pressure on their shoulders to venture into the new technology since Walgreen’s share value decreased by 40% simply because of the perception that they would not be as fast in embracing the online business.
Instead of giving up, they thought about the probable effect of a web existence in their true plan: rendering the convenience store experience more suitable and increasing financial gains per consumer even more.
After one year, they founded Walgreens.com. Through this website, they furthered their true plan by writing online prescriptions, for example. In a year, Drugstore.com failed to retain almost their entire original value, whereas Walgreens.com made a comeback and nearly made twice as much the stock market during the same duration.
Chapter 4 – Stage Five leadership is what led the changes in corporations that became great.
In the course of transformation, all of the corporations that became great had a level 5 leader leading them.
Apart from being great people, executives, bosses, and team players, they are resolutely determined to make their company better. They are also modest people. For them, results matter to an extreme degree and they aim their companies to operate well upon their leaving.
Not bearing any sign of egocentrism, they are humble and underemphasized. They also take the win for a company’s success but understate their roles; yet, in case of a failure, they act swiftly to bear the weight of responsibility for it.
Let’s consider Darwin Smith as an example. He carried Kimberly Klark to the level of being a major actor in paper consumer durables on Earth. He declined to be regarded as a victor or a famous personality. He would take a vacation to his farm in Wisconsin, put his farm clothes on, and work. He often loved the companionship of electricians and plumbers.
On the contrary, two of every 3 contrast corporation CEO were so much ego-driven that they did more harm than good for their companies’ long-term achievements. We see it most obviously after seeing that there is an absence of a replacement design.
An example of that would be Stanley Gault. This extremely autocratic and accomplished CEO ran Rubbermaid. The management team with whom he entrusted the company lacked exhibiting serious thinking, which resulted in Rubbermaid’s downfall from being Fortune’s most commended company to its acquisition by a rival firm.
Chapter 5 – The essence of greatness is the correct individuals in the correct location.
The priority must belong to the question ‘’who’’, rather than to ‘’what’’. Making the correct choices in employing new people and eliminating the wrong ones before deciding on the direction is a start for change from good to great.
The correct people will one way or another figure out a way towards success. After Dick Cooley became Wells Fargo’s CEO, he came to the conclusion that vital changes resulting from the impending deregulation in the finance market were impossible for him to comprehend.
However, he thought that by employing the most successful and smartest people, they could manage to carry the day. Indeed, he turned out to be right. Seeing the rapid flourishing of Wells Fargo, Warren Buffet addressed the managers of the company as ‘’the greatest administration group in the business.’’
“Corporations that became great”’s focus was more directed at employing people with decent characteristics than professional skills, the reason of which was that they could upskill and instruct the correct individuals they found.
Companies had no difficulty in encouraging the correct individuals they employed. By concentrating on the individuals they were giving money rather than the way they gave money, they managed to form a business environment in which diligent workers increased and the lazy ones disappeared. As for the executives, individuals had two choices: leave the company without delay or remain in the long run.
Chapter 6 – In the path towards success, you will face unpleasant facts but you should never lose your belief.
Corporations that became great continuously followed the Stockdale paradox which is called so when the Vietnamese caught an American admiral during the war in Vietnam.
Since he occupied an important position in the US Army, he was held at the notorious prison of Hanoi Hilton, where Stockdale was exposed to continuous torture and was not sure of whether he would rejoin his family ever again. Yet, he constantly believed that he would one or another come together with his family.
He did not vainly hope he would return to his house by Christmas as the other detainees nor he was shattered when their expectations did not come true. He attributed his living to how he did not lose his faith as he faced the realities of dire circumstances.
By the same token, corporations that became great faced the ruthless facts of reality; nevertheless, they did not lose faith that they would in some way succeed.
Be it fierce rivalry or fundamental regulatory transformations, corporations that became great solved tackled the problems before them right away rather than procrastinating and were still able to maintain high morale. For instance, after Procter & Gamble’s (P&G) invasion of the market for paper-based products, two big actors in the market responded to it quite differently.
The leading company in the paper-based products, Scott Paper, thought it was over for them as they believed they wouldn’t be able to match up to P&G. They sought to differentiate and work in categories in which P&G could not operate.
Simultaneously, Kimberly-Clark enjoyed the chance of rivaling the best. In an executive meeting of the company, an instance of silence was held for P&G.
Twenty years following that, Kimberly-Clark literally purchased Scott Paper; with that, outran P&G for the 6 categories from the 8 they operated.
Chapter 7 – The creation of an atmosphere where the harsh realities can be straightforwardly voiced is a must for leaders
A good and charismatic leader is nothing but a burden if his subordinates cannot dare to explain to him the nasty facts. Whenever a managerial meeting occurs, a leader must act as if a Socratic conciliator and ask questions to disclose the honest judgments of others without presenting immediate answers. In order to obtain the best results, leaders should prompt others to discuss fervently in the gatherings.
One example would be Pitney Bowes. They were a post-counter manufacturer close to losing their monopoly position. They turned themselves into a big document solutions producer and performed six times better than the common stock market. They managed to achieve it since the Pitney Bowes management used the majority of the time in debating about fretting issues instead of boasting about their achievements.
In the case of errors, what should be done is to inspect them attentively to realize what was the problem and no one should be blamed as it would dishearten employees from revealing what actually happened.
Red flag techniques to point out issues at crucial job waves may compel leaders to pay heed to the grim realities.
Corporations that became great did not differ from the contrast corporations with regard to the information they had but they only faced the harsh facts and handled them more frankly.
Chapter 8 – Clinging to the Hedgehog concept requires a tradition of spartan self-discipline
The former triathlete Dave Scott would bike seventy-five miles, swim twelve miles, and run seventeen miles each day. In spite of his exhausting routine, he never abandoned his self-discipline of washing his everyday cottage cheese meal before consuming it to keep his excess expenditure as low as possible.
Corporations that became great were full of people of the same degree of industriousness and robustness similar to Dave Scott, laboring for the plain plan, the Hedgehog phenomenon, that their corporation was pursuing.
Wells Fargo, for example, was a financial institution that saw operational efficiency would be a significant point in the decentralized finance environment. They suspended manager salaries, put corporate jets on sale, and changed the executive eating place with an inexpensive university cafeteria. The CEO rebuked his employees who delivered their reports in showy and extortionate binders. Perhaps, all these precautions were not needed yet it shows they were ready to make more efforts to join the club of great companies.
A tradition of regulation is different from the discipline of a single tyrant. Tyrannical executives were at times able to create a volatile air of greatness of the corporations, however, the companies fell apart shortly after the leave of the tyrant.
Consider Rubbermaid’s Stanley Gault, who did not conceal his being ‘’a sincere tyrant’’ and anticipated his directors to labor as many hours as he did, which is 80 hours per week. Upon his leaving, Rubbermaid’s value decreased by 59 percent in the span of some years because of the lack of a lasting tradition of discipline.
Good to Great: Why Some Companies Make the Leap… and Others Don’t by James C. Collins Book Review
Companies can jump from being ordinary to being great by following a straightforward tactical phenomenon with the correct heads and individuals who work collectively with a norm of strict self-discipline.
What were the reasons behind the identification and study of corporations that became great?
- Corporations that became great can demonstrate to us the way to make a similar jump.
In what way is strategic management different at corporations that became great in comparison with mediocre ones?
- Figuring out a Hedgehog concept shows a straight path to pursue.
- Many marginal additions in the correct route bring success.
- Fresh technology needs to be seen as a speeder for an aim rather than as an aim itself
What is the difference between corporations that became great and mediocre ones in terms of people and culture?
- Stage Five leaders lead successful changes to be great.
- Correct individuals in the correct places are the very essence of greatness.
- Facing the harsh realities while retaining your faith is a requirement for success.
- Leaders must allow for an atmosphere in which the harsh realities are voiced freely.
- A tradition of strict self-control has been required to stick to the Hedgehog concept.