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by
Jim Collins
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April 12 - June 1, 2020
but to create great results requires a nearly fanatical dedication to the idea of consistency within the Hedgehog Concept.
Most of us lead busy but undisciplined lives. We have ever-expanding “to do” lists, trying to build momentum by doing, doing, doing—and doing more. And it rarely works. Those who built the good-to-great companies, however, made as much use of “stop doing” lists as “to do” lists. They displayed a remarkable discipline to unplug all sorts of extraneous junk.
The good-to-great companies institutionalized the discipline of “stop doing” through the use of a unique budget mechanism.
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.
If you look back on the good-to-great companies, they displayed remarkable courage to channel their resources into only one or a few arenas. Once they understood their three circles, they rarely hedged their bets.
They all had the guts to make huge investments, once they understood their Hedgehog Concept.
The most effective investment strategy is a highly undiversified portfolio when you are right. As facetious as that sounds, that’s essentially the approach the good-to-great companies took. “Being right” means getting the Hedgehog Concept; “highly undiversified” means investing fully in those things that fit squarely within the three circles and getting rid of everything else.
But how do you know when you’re right? In studying the companies, we learned that “being right” just isn’t that hard if you have all the pieces in place. If you have Level 5 leaders who get the right people on the bus, if you confront the brutal facts of reality, if you create a climate where the truth is heard, if you have a Council and work within the three circles, if you frame all decisions in the context of a crystalline Hedgehog Concept, if you act from understanding, not bravado—if you do all these things, then you are likely to be right on the big decisions. The real question is, once
If you have Level 5 leaders who get the right people on the bus, if you confront the brutal facts of reality, if you create a climate where the truth is heard, if you have a Council and work within the three circles, if you frame all decisions in the context of a crystalline Hedgehog Concept, if you act from understanding, not bravado—if you do all these things, then you are likely to be right on the big decisions.
The real question...
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you know the right thing, do you have the discipline to do the right thing and, equally important, to...
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Sustained great results depend upon building a culture full of self-disciplined people who take disciplined action, fanatically consistent with the three circles.
depend upon building a culture full of self-disciplined people who take disciplined action, fanatically consistent with the three circles.
Bureaucratic cultures arise to compensate for incompetence and lack of discipline, which arise from having the wrong people on the bus in...
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people on the bus, and the wrong people off, you don’t need stul...
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A culture of discipline involves a duality. On the one hand, it requires people who adhere to a consistent system; yet, on the other hand, it gives people freedom and responsibility within the framework of that system. A culture of discipline is not just about action. It is about getting disciplined...
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It is about getting disciplined people who engage in disciplined thought and who then...
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The single most important form of discipline for sustained results is fanatical adherence to the Hedgehog Concept and the willingness to shun opportunities that fall outside the three circles.
The more an organization has the discipline to stay within its three circles, with almost religious consistency, the more it will have opportunities for growth. The fact that something is a “once-in-a-lifetime opportunity” is irrelevant, unless it fits within the three circles.
The purpose of budgeting in a good-to-great company is not to decide how much each activity gets, but to decide which arenas best
fit with the Hedgehog Concept and should be fully funded and which should not be funded at all. “Stop doing” lists are more important than “to do” lists.
“Stop doing” lists are more important than...
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Most men would rather die, than think. Many do.
“We’re a crawl, walk, run company,” Dan Jorndt told Forbes in describing his deliberate, methodical approach to the Internet.
“How will the Internet connect to our convenience concept? How can we tie it to our economic denominator of cash flow per customer visit? How can we use the Web to enhance what we do better than any other company in the world and in a way that we’re passionate about?”
Throughout, Walgreens executives embraced the Stockdale Paradox: “We have complete faith that we can prevail in an Internet world as a great company; yet, we must also confront the brutal facts of reality about the Internet.”
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?
Walgreens didn’t adopt all of this advanced technology just for the sake of advanced technology or in fearful reaction to falling behind. No, it used technology as a tool to accelerate momentum after hitting breakthrough, and tied technology directly to its Hedgehog Concept of convenient drugstores increasing profit per customer visit.
Its Hedgehog Concept would drive its use of technology, not the other way around.
In every good-to-great case, we found technological sophistication. However, it was never technology per se, but the pioneering application of carefully selected technologies. Every good-to-great company became a pioneer in the application of technology, but the technologies themselves varied greatly.
Pioneered application of sophisticated algorithms and computer analysis to more accurately assess mortgage risk, thereby increasing economic denominator of profit per risk level. “Smarter” system of risk analysis increases access to home mortgages for lower-income groups, linking to passion for democratizing home ownership.
The table outlines the technology accelerator linked to Hedgehog Concept during the transition period.
Technology as an Accelerator, Not a Creator, of Momentum
Notice that the Fannie Mae transition began in 1981, with the arrival of David Maxwell, yet the company lagged behind in the application of technology until the early 1990s. Yes, technology became of prime importance to Fannie Mae, but after it discovered its
Hedgehog Concept and after it reached breakthrough. Technology was a key part of what Fannie Mae leaders called “the second wind” of the transformation and acted as an accelerating factor.
The same pattern holds for Kroger, Gillette, Walgreens, and all the good-to-great companies—the pioneering application of technology usually came late in the transition and never at the start.
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.
Does the technology fit directly with your Hedgehog Concept? If yes, then you need to become a pioneer in the application of that technology. If no, then ask, do you need this technology at all? If yes, then all you need is parity.
no, then the technology is irrelevant, and you can ignore it.
We came to see the pioneering application of technology as just one more way in which the good-to-great companies remained disciplined within the frame of their Hedgehog Concept. Conceptually, their relationship to technology is no different from their relationship to any other category of decisions: disciplined people, who engage in disciplined thought, and who then take disciplined action. If a technology doesn’t fit squarely within their three circles, they ignore all the hype and fear and just go about their business with a remarkable degree of equanimity. However, once they understand
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technology alone cannot create sustained great results. Chrysler, for instance, made superb use of advanced computer-aided and other design technologies but failed to link those technologies to a consistent Hedgehog Concept.
Technology without a clear Hedgehog Concept, and without the discipline to stay within the three circles, cannot make a company great.
But the 20th century will be most remembered for its earthshaking advances in science and technology … [which] … advanced the cause of freedom, in some ways more than any statesman did.
“People don’t know what they don’t know,” they said. “And they’re always afraid that some new technology is going to sneak up on them from behind and knock them on the head. They don’t understand technology, and many fear it. All they know for sure is that technology is an important force of change, and that they’d better pay attention to it.”
“The primary factors,” said Ken Iverson, “were the consistency of the company, and our ability to project its philosophies throughout the whole organization, enabled by our lack of layers and bureaucracy.”23
Here we have a consummate case study of upending the old order with new technology, and the CEO who made it happen doesn’t even list technology in the top five factors in the shift from good to great.
A few executives did talk about Nucor’s big bets on technology somewhere in the interview, but they emphasized other factors even more—getting people with a farmer work ethic on the bus, getting the right people in key management positions, the simple structure and lack of bureaucracy, the relentless performance culture that increases profit per ton of finished steel.
“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.”
Indeed, you could have given the exact same technology at the exact same time to any number of companies with the exact same resources as Nucor—and even still, they would have failed to deliver Nucor’s results.
Like the Daytona 500, the primary variable in winning is not the car, but the driver and his team. Not that the car is unimportant, but it is secondary.
