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

by Jim Collins

Rathmann also understood an alternative exists: Avoid bureaucracy and hierarchy and instead create a culture of discipline. When you put these two complementary forces together—a culture of discipline with an ethic of entrepreneurship—you get a magical alchemy of superior performance and sustained results.

The good-to-great companies built a consistent system with clear constraints, but they also gave people freedom and responsibility within the framework of that system. They hired self-disciplined people who didn’t need to be managed, and then managed the system, not the people.

Whereas the good-to-great companies had Level 5 leaders who built an enduring culture of discipline, the unsustained comparisons had Level 4 leaders who personally disciplined the organization through sheer force.

The good-to-great companies at their best followed a simple mantra: “Anything that does not fit with our Hedgehog Concept, we will not do. We will not launch unrelated businesses. We will not make unrelated acquisitions. We will not do unrelated joint ventures. If it doesn’t fit, we don’t do it. Period.”

It takes discipline to say “No, thank you” to big opportunities. The fact that something is a “once-in-a-lifetime opportunity” is irrelevant if it doesn’t fit within the three circles.

In a good-to-great transformation, budgeting is a discipline to decide which arenas should be fully funded and which should not be funded at all. In other words, the budget process is not about figuring out how much each activity gets, but about determining which activities best support the Hedgehog Concept and should be fully strengthened and which should be eliminated entirely.

Technology-induced change is nothing new. The real question is not, What is the role of technology? Rather, the real question is, How do good-to-great organizations think differently about technology?

This brings us to the central point of the chapter. When used right, technology becomes an accelerator of momentum, not a creator of it. The good-to-great companies never began their transitions with pioneering technology, for the simple reason that you cannot make good use of technology until you know which technologies are relevant. And which are those? Those—and only those—that link directly to the three intersecting circles of the Hedgehog Concept.

“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.”

Technology cannot turn a good enterprise into a great one, nor by itself prevent disaster.

Those who built the good-to-great companies weren’t motivated by fear.

No technology, no matter how amazing—not computers, not telecommunications, not robotics, not the Internet—can by itself ignite a shift from good to great.

The key, we learned, is to harness the flywheel to manage these short-term pressures. One particularly elegant method for doing so came from Abbott Laboratories, using a mechanism it called the Blue Plans.

What do the right people want more than almost anything else? They want to be part of a winning team. They want to contribute to producing visible, tangible results. They want to feel the excitement of being involved in something that just flat-out works.

After years of lurching back and forth, the comparison companies failed to build sustained momentum and fell instead into what we came to call the doom loop.

While the specific permutations of the doom loop varied from company to company, there were some highly prevalent patterns, two of which deserve particular note: the misguided use of acquisitions and the selection of leaders who undid the work of previous generations.