Good to Great

Jim Collins, Stanford graduate, after 5 year long research brings to us Good to Great –Why some companies make the leap and others don’t. Getting inspiration from Bill Meeham’s challenge to picking up 11 amidst 1435 companies, Collins decipher the formula from being good to great in step by step manner. The chapters takes up the case studies from each of 11 selected companies namely Abbott, Circuit City, Fannie Mae, Gillette, Kimberly Clark, Kroger, Nucor, Philip Morris, Pitney Bowes, Walgreens and Wells Fargo.

The book lays down everything possible to decipher the greatness out of these selected companies, right from there selection process to performance over last 15 years and a common pattern found among all.

Chapter One - Good is the enemy of the Great - This lays down the overview of the book, the purpose, process and pattern found in great companies. It summaries the entire book in less than 15 pages and guides about the concepts or ideas of convergence among great companies. Each chapter takes up one quality in that order and guides us through case studies and examples from the 11 companies and their competition, the thing which differentiates them and take good to great.

“Greatness is not a function of circumstance. Greatness is largely a matter of conscious choice.”       

Level 5 leadership which describes the hierarchical evolution of leads and put L5 leaders on the top, the ones who exhibit Humility and Will. George Cain (Abbott CEO) – destroying nepotism and bringing in executives – the ones who don’t need to be told what to do. Joseph Cullman (Philip Morris) to Alan Wurtzel of Walgreens the chapter covers data –quantitative and qualitative for L5 leaders.

First who then what – The role that management plays in running a business, and how they decide the fate in long turn. It coves case study of Wells Fargo vs. Bank of America, the intent and approach of management with the coming up of new regulations in banking industry. Further case studies like Singleton and Teledyne, Nucor and high paying executives, Maxwell and Fannie Mae, Wurtzel’s Circuit city vs. Silo and role of Colman Muckler at Gillette clubs together to narrate having an able management can do to company. The 3 iron rules - When in doubt, don’t hire; Best people are biggest opportunity; when you know you need change, act.

Confront the brutal facts – “The moment a leader allows himself to become primary reality people worry about, rather than reality being primary reality, you have recipe for mediocrity.” Create a climate where truth is heard – Lead them with Socratic questions over answers (Alan Wurtzel case study), engage in debate not coercion (Nucor), conduct autopsies without blame and build red flag mechanisms (Stanford case study). THE STOCKDALE PARADOX helps to lead – To retail the faith that you will prevail in the end no matter how many difficulties come and at the same time accept the brutal facts. Chapter covers case studies from Gillette and takeover battles, Nucor and imports, Wells Fargo and deregulation, Abbott and product recall, Pitney Bowes losing monopoly and Kroger and its need to replace its 100% stores –all these companies leaped to greatness by accepting the moment, the reality.

The Hedgehog concept – The hedgehog only knows one thing to protect itself while the focus tries multiple ways to protect and hunt [prey, the hedgehog used simple technique over and over again. Collins here uses this analogy to give the understanding about hedgehog – interplay of passion, money and skills you are best at. Case study of Walgreens (high profit convenient drug stores) vs. Eckerd (hodge podge stores), Wells Fargo vs. Bank of America and Abbott (most affordable healthcare brand) vs. Upjohn (wanted to beat mammoth Merck). The chapter covers all three aspects of Hedgehog for 11 selected companies in tabular format which makes it one of the most important one.

Culture of Discipline – The people who adhere to a consistent value system yet have freedom and responsibility within the framework of that system. Abbott case study highlights the concept quite aptly establishing a link between hedgehog and frame of discipline. Abbott using responsible accounting to play mix of financial discipline and divergent thinking, using hedgehog to give cost effective healthcare, run by free decision within the broad frame of honest accounting. Circuit city and McD working in the frame, making system work and hiring self disciplined people. Another concept to “rinse the cottage cheese” to get rid of extra fat i.e. doing small efforts with diligence and intensity to be better overtime. Stop doing wrong thing.

Technology accelerators – Collins found no link of great companies to hyping and using expensive, not of great use technical solutions so as to make attractive annual reports. Do the technology fits in the hedgehog, if yes then great companies use that technological accelerator. The chapter covers case studies to show hot great companies takes the view that fits within their hedgehog. Starting with the dot com bubble era, how companies rise and fall like winter wheat to. In a tabular format, how 11 selected companies used technology. Drugstore.com vs. Walgreens, Nucor’s mix of technology and culture, IBM vs. VisiCale, Apple vs. Palm Company, US Tech heavy in Vietnam war yet lost. The idea covers how technology alone cannot help a company to transform from good to great. Other factor like Level5 leadership, hedgehog, first who then what and brutal facts comes prior to it. Through the history of economic and technology, the pattern of 2^nd follower prevails over early trailblazers. The idea is to use technology as accelerator not creator of momentum.

The Flywheel and the doom loop – How gradually with little or no media coverage, slowly turning of the flywheel, turn by turn in companies like Circuit city for nine years, Nucor for ten, Gillette for five, Three for Fannie Mae and two for Pitney Bowes. It takes time for flywheel to start, but once it gets going it is hard to follow through. Chapter uses tables and diagrams to explain the concept of Flywheel vs Doom loop case by case, company by company basis, from Abbott to Warner-Lambert how the loop goes on reiterating. This chapter comes from a deep research about finding a similar pattern among failed acquisitions and doom loop effect.    

Finally, Collins talks about another how Good to Great is different from Built to Last – using time frames to analyze, basis of research and overlap in concepts. Like BHAG and hedgehog- using good BHAG and hedgehog way clubbed together to make up a great company. Jim sees Good to Great as prequel to Built to last, which comes with an extra concept of GREATNESS. Case studies of HP, Wal-Mart and Merck, training at school analogy is used to lay out the differences and similarity between the two books. 

“Get involved in something that you care so much about that you want to make it the greatest it can possibly be, not because of what you will get, just because of it can be done.”

Further, the time, effort and hours Collins put in to write this masterpiece is commendable –right from case studies, diagrams to tabular study, Q&A at last and Appendices to represent the data. Good to Great is one such book which needs to be read and reread. The pack of wisdom clubbed with real world facts makes a lethal and practical combination which is quite a rare trait in present day finance books. Next comes Great by Choice and How the Mighty Fall in the same time line by Collins. I will try to summarize them in upcoming blogs soon.  Give it a read once and you will cherish every chapter.