Good to Great

There are a lot of business books that speak about leadership, teamwork, and producing exceptional results.  There is only one, however, that was produced from deep research into the financial results of Fortune 500 companies for a period between 1965 – 1995.   The criteria used to define “Great” from “Good” companies was a minimum of 15 years of cumulative stock returns that exceeded the market average by 3X earnings when compared to companies in the same industries in the same environment.  

When we look at meaningful metrics, earnings or earnings per share is an essential metric.  It is an even better metric when compared with competition within common market sectors.  Unfortunately, earnings and cash flow (both important measures) are “lagging indicators,” not leading indicators of financial outcomes.  Author Jim Collins and his team of University of Colorado Graduate School of Business researchers identified seven factors that lead to “great” companies’ sustained financial performance compared to their “good” competitors.  

1. Level 5 Leadership.  Simply defined as leaders who possess both personal humility with an intense professional will.   Level 5 leaders set up their successors for even greater success, attribute success to others, and take personal responsibility when things go wrong.

2. First, Who, then What.  This concept is all about getting the “right people” on the bus and the wrong people off the bus…before deciding on a strategic direction!  Collins researchers found that “great” companies focus on “who questions” before “what questions.”  Good to great management teams consist of people who debate vigorously in search of the best answers, then unify behind the decision.

3. Confront the Brutal Facts.  Creating a culture of transparency and trust where people have a tremendous opportunity to be heard and ultimately for the truth to be heard is an attribute of “great companies” compared to their “good competitors.”  Lead with questions, not answers.  Engage in dialogue and debate, not coercion.  Conduct autopsies without blame.  These are all ways companies became great.  According to Collins and his research, one of the primary ways to demotivate people is to ignore the brutal facts of reality.

4. The Hedgehog Concept.  Collins refers to the parable of the fox and the hedgehog when describing this critical attribute of “great companies.”  They know what they can be best at in their work and what they cannot be best at.  They know what they are deeply passionate about.  Finally, they know what drives their economic engine (the denominator in their economic equation).  The hedgehog concept is a simple awareness and understanding of what we do best and how to measure that with passion and purpose.

5. A Culture of Discipline.  A culture of discipline requires the “right people” who adhere to a consistent system yet allows people freedom and responsibility within a framework of clear expectations.  Disciplined people, engaged in disciplined thought and taking disciplined action, will produce sustainable results over the long term compared to their “peers.”

6. Technology Accelerators.   According to the research, technology is an accelerator of momentum, not a creator of it.  Great companies are thoughtful and creative when turning unrealized potential into results.  They ask whether the technology fits directly with our hedgehog concept.  They don’t chase fads; they use technology as a lever to improve efficiency and effectiveness.

7. The Flywheel.  Perhaps the most compelling of the attributes of companies who became “great” compared to their “good counterparts” is the notion that no single defining action, program, or event changed the results and improved their performance.  The flywheel concept of steady, persistent, consistent effort over time to do the “right things” with the “right people” will produce uncommon results.  “Alignment” follows results and momentum, and effort to create alignment is unnecessary and counterproductive, according to Collins and his research.

“Good is the enemy of Great,” according to Collins.  To be the best in something takes dedication and hard work.  To be the best at something for 15 years compared to other successful companies in the same industry is extraordinary.  Jim Collins and his team of researchers took companies that produced exceptional results over an extended period and defined the common attributes that set them apart.  Each of these elements contributes to strong results.  All of these elements combined together produce great results!