Good to Great: Why Some Companies Make the Leap...And Others Don't

by Jim Collins

The good-to-great companies did not focus principally on what to do to become great; they focused equally on what not to do and what to stop doing.

The good-to-great companies paid scant attention to managing change, motivating people, or creating alignment.

Greatness is not a function of circumstance. Greatness, it turns out, is largely a matter of conscious choice.

When you have disciplined people, you don’t need hierarchy. When you have disciplined thought, you don’t need bureaucracy. When you have disciplined action, you don’t need excessive controls. When you combine a culture of discipline with an ethic of entrepreneurship, you get the magical alchemy of great performance.

“I never stopped trying to become qualified for the job.”13

Level 5 leaders channel their ego needs away from themselves and into the larger goal of building a great company. It’s not that Level 5 leaders have no ego or self-interest. Indeed, they are incredibly ambitious—but their ambition is first and foremost for the institution, not themselves.

Level 5 leaders are a study in duality: modest and willful, humble and fearless.

could not stand mediocrity in any form and was utterly intolerant of anyone who would accept the idea that good is good enough.

“Level 5” refers to a five-level hierarchy of executive capabilities, with Level 5 at the top. Level 5 leaders embody a paradoxical mix of personal humility and professional will. They are ambitious, to be sure, but ambitious first and foremost for the company, not themselves.

Level 5 leaders set up their successors for even greater success in the next generation, whereas egocentric Level 4 leaders often set up their successors for failure.

First, if you begin with “who,” rather than “what,” you can more easily adapt to a changing world.

Second, if you have the right people on the bus, the problem of how to motivate and manage people largely goes away.

Third, if you have the wrong people, it doesn’t matter whether you discover the right direction; you still won’t have a great company. Great vision without great people is irrelevant.

You get the best people, you build them into the best managers in the industry, and you accept the fact that some of them will be recruited to become CEOs of other companies.

The moment you feel the need to tightly manage someone, you’ve made a hiring mistake.

The best people don’t need to be managed.

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

Level 5 executive team member does not blindly acquiesce to authority and is a strong leader in her own right, so driven and talented that she builds her arena into one of the very best in the world. Yet each team member must also have the ability to meld that strength into doing whatever it takes to make the company great.

Indeed, one of the crucial elements in taking a company from good to great is somewhat paradoxical. You need executives, on the one hand, who argue and debate—sometimes violently—in

pursuit of the best answers, yet, on the other hand, who unify fully behind a decision, regardless of parochial interests.

No matter how much they argued, said a Philip Morris executive, “they were always in search of the best answer.

we don’t spend the vast majority of our time with people we love and respect, we cannot possibly have a great life.

The good-to-great leaders began the transformation by first getting the right people on the bus (and the wrong people off the bus) and then figured out where to drive it. The key point of this chapter is not just the idea of getting the right people on the team. The key point is that “who” questions come before “what” decisions—before vision, before strategy, before organization structure, before tactics. First who, then what—as a rigorous discipline, consistently applied. The comparison companies frequently followed the “genius with a thousand helpers” model—a genius leader who sets a vision and then enlists a crew of highly capable “helpers” to make the vision happen. This model fails when the genius departs. The good-to-great leaders were rigorous, not ruthless, in people decisions. They did not rely on layoffs and restructuring as a primary strategy for improving performance. The comparison companies used layoffs to a much greater extent.

Good-to-great management teams consist of people who debate vigorously in search of the best answers, yet who unify behind decisions, regardless of parochial interests.

The purpose of compensation is not to “motivate” the right behaviors from the wrong people, but to get and keep the right people in the first place.

The old adage “People are your most important asset” is wrong. People are not your most important asset. The right people are.

Whether someone is the “right person” has more to do with character traits and innate capabilities than with specific...

You absolutely cannot make a series of good decisions without first confronting the brutal facts.

There is nothing wrong with pursuing a vision for greatness. After all, the good-to-great companies also set out to create greatness. But, unlike the comparison companies, the good-to-great companies continually refined the path to greatness with the brutal facts of reality.

The moment a leader allows himself to become the primary reality people worry about, rather than reality being the primary reality, you have a recipe for mediocrity, or worse. This is one of the key reasons why less charismatic leaders often produce better long-term results than their more charismatic counterparts.

If you have the right people on the bus, they will be self-motivated. The real question then becomes: How do you manage in such a way as not to de-motivate people? And one of the single most de-motivating actions you can take is to hold out false hopes, soon to be swept away by events.

leadership is about vision. But leadership is equally about creating a climate where the truth is heard and the brutal facts confronted.

Lead with questions, not answers.

they used questions for one and only one reason: to gain understanding.

Leading from good to great does not mean coming up with the answers and then motivating everyone to follow your messianic vision. It means having the humility to grasp the fact that you do not yet understand enough to have the answers and then to ask the questions that will lead to the best possible insights.

Engage in dialogue and debate, not coercion.

“evolved through many agonizing arguments and fights.”

The process was more like a heated scientific debate, with people engaged in a search for the best answers.

A primary task in taking a company from good to great is to create a culture wherein people have a tremendous opportunity to be heard and, ultimately, for the truth to be heard.

Creating a climate where the truth is heard involves four basic practices: Lead with questions, not answers. Engage in dialogue and debate, not coercion. Conduct autopsies, without blame. Build red flag mechanisms that turn information into information that cannot be ignored.

The essential strategic difference between the good-to-great and comparison companies lay in two fundamental distinctions. First, the good-to-great companies founded their strategies on deep understanding along three key dimensions—what we came to call the three circles. Second, the good-to-great companies translated that understanding into a simple, crystalline concept that guided all their efforts—hence the term Hedgehog Concept.

More precisely, a Hedgehog Concept is a simple, crystalline concept that flows from deep understanding about the intersection of the following three circles: What you can be the best in the world at (and, equally important, what you cannot be the best in the world at). This discerning standard goes far beyond core competence. Just because you possess a core competence doesn’t necessarily mean you can be the best in the world at it. Conversely, what you can be the best at might not even be something in which you are currently engaged. What drives your economic engine. All the good-to-great companies attained piercing insight into how to most effectively generate sustained and robust cash flow and profitability. In particular, they discovered the single denominator—profit per x—that had the greatest impact on their economics. (It would be cash flow per x in the social sector.) What you are deeply passionate about. The good-to-great companies focused on those activities that ignited their passion. The idea here is not to stimulate passion but to discover what makes you passionate.

This brings me to one of the most crucial points of this chapter: A Hedgehog Concept is not a goal to be the best, a strategy to be the best, an intention to be the best, a plan to be the best. It is an understanding of what you can be the best at. The distinction is absolutely crucial.

The good-to-great companies understood that doing what you are good at will only make you good; focusing solely on what you can potentially do better than any other organization is the only path to greatness.