THE BOOK•Written by Jim Collins•Translated in 35languages•Result of 5-year intensiveresearch•3 Million Copies Sold•One of the mostinfluential business bookbefore the 21st century
“Our five-year quest yielded many insights,a number of them surprising and quitecontrary to conventional wisdom, but onegiant conclusion stands above the others: -We believe that almost any organizationcan substantially improve its stature andperformance, perhaps even become great, ifit conscientiously applies the framework ofideas we’ve uncovered.” - Jim Collins
COMPANIES STUDIED GOOD TO GREAT COMPANIES COMPARISON COMPANIESAbbott (3.98) UpjohnCircuit City (18.5) SiloFannie Mae (7.56) Great WesternGillette (7.39) Warner-LambertKimberly Clark (3.42) Scott PaperKroger (4.17) A&PNucor (5.16) Bethlehem SteelPhilip Morris (7.06) RJ ReynoldsPitney Bowes (7.16) AddressographWalgreens (7.34) EckerdWells Fargo (3.99) Bank of America* 15-year return compared to general stock market
LEVEL 5 – EXECUTIVEBuilds enduring greatness through a blend ofPERSONAL HUMILITY and PROFESSIONAL WILL.LEVEL 4 – EFFECTIVE LEADERVigorous pursuit of clear and compelling vision,stimulating higher performance standards.LEVEL 3 – COMPETENT MANAGEROrganizes people and resources towards effective pursuitof pre-determined objectives.LEVEL 2 – CONTRIBUTING TEAM MEMBERWorks effectively with others for the achievement of its objectives.LEVEL 1 – HIGHLY CAPABLE INDIVIDUALKnowledge, Skills and Good Work Habits
• CEO of Kimberly Clark• Stodgy old paper companywhose stock has fallen 36%behind the general market overpast 20 years.• Other management team toldhim that he lack qualifications• Among the 10 Greatest CEO ofall times
•CEO of Fannie Mae•Company is losing $1M dollardaily when he joined but earned$4M every business day 9 yearsafter.•Set up his successor for success•“I want to look out from my porchsomeday and look at Fannie Maeand say “I used to work there”.
• CEO of Chrysler• Talented yet egocentric• Chrysler rose to height halfway of his tenure• Diverted his attention• Made himself one of the most celebrated CEO’s in America’s history• His book sold 7 Million copies• Chrysler fell 31% behind the market and return to glory 5 years after his retirement
THE 11 GTG CEO’SMost remarkable CEO’s of the century:• George Cain “Did I have a lot to do with it?”• Alan Wurtzel “There are plenty of people in this• David Maxwell company who could do my job better than I do.”• Colman Mockler “I hope I am not sounding like a big• Darwin Smith shot.”• Jim Herring,• Lyle Everingham.........but almost no one ever remarked about them...
1. Right people on the bus2. Wrong people off the bus3. Proper seats for the right people
•Foresaw that banking industry would eventually undergo wrenching change •Focused on “injecting an endless stream of talent” directly into the veins of the company •He hired the most talented management team in the industry instead of mapping strategy for“That is how you changebuild the future.” – Dick Cooley •Wells Fargo outperformed the market 3 times when banking industry fell 59% behind
•Followed “Weak Generals, Strong Lieutenants”model•Strong lieutenants will stick around if weakgenerals are picked.•Weak generals for Bank of America would wait fordirection instead of seeking solution to problems.•After losing over $1 Billion in mid 80’s, theyrecruited a gang of strong generals (from Wells)•They refer themselves as “Wells of America”•BA began to climb upward again
• One genius is the driving force in company’s success• Does not need a management team• Does not give serious thought on succession planning• Effective unless genius isn’t there to make decision
LEVEL 5 + A “GENIUS WITH MANAGEMENT THOUSAND HELPERS” (Good to Great Companies) (Comparison Companies) LEVEL 5 LEADER LEVEL 4 LEADER FIRST WHO FIRST WHATGet the right people on the bus. Set a vision for where to drive theBuild a superior executive team. bus. Develop a road map. THEN WHAT THEN WHOOnce you have the right people in Enlist a crew of highly capableplace, figure out the best path for “helpers” to make the vision greatness. happen.
WALGREENS ECKERD (Cork Walgreen) CORPORATION (Jack Eckerd)Picked the right people to Picked the right stores tohire buyWhich people should go in Which stores should inwhat seats what locationBest executive team in the Had no executive teamindustrySelection of a great With bunch of capablesuccessor helpers
• Made every decision• From small enterprise to #295 in the Fortune 500 in just 6 years• Completed 10 acquisitions in 10 years• No serious thought given to succession• Failed 66% behind the market when he left the company
1. Set up steel factories in provinces with farmers who go to bed early, rise at dawn and get right to work without fanfare2. Idea of “You can teach farmers how to make a steel but you can’t teach work ethic to people who don’t have it in the first place”3. Pays more than any other steel company in the world, with bonus tied directly with productivity
Three (3) Practical Disciplines on how to be rigorous in people decision.
No company can grow revenues consistently faster that its ability to get enough of the right people to implement that growth and still become a great company.If your growth rate in revenues consistently outspaces growth rate in people, you simply will not – indeed cannot – build a great company.
CIRCUIT CITY SILO (Alan Wurtzel) (Sidney Cooper)Goal - Build the best, most Goal – To grow as fast asprofessional management possibleteam in the industrySpent the bulk of his time Focused his time on thehiring the right people right stores to buyTook off like a rocket and Could not even performbeat the general stock basics - Deliveriesmarket at 18.5:1“Always Looking for Great Bought by a foreignPeople” company
When you know you need to make a people change, ACT!!
We have wrong person on the bus and we know it. Yet wewait, we delay, we try other alternatives, we give a 3rd and 4thchance hoping that situation will improve, we invest time intrying to properly manage this person but we fail. We gohome and we find our energy diverted by thinking (or talkingto your spouse) about that person.Worse is, all the time and energy we spend on that oneperson takes the energy away from developing and workingwith all the right people.We continue to stumble along until this person leaves on hisown or we finally act after waiting for so long. Meanwhile,our best people will wonder and ask “WHAT TOOK YOU SOLONG?”.
•Letting the wrong people hang around isunfair to all the right people•Waiting too long before acting is equallyunfair to the people who need to get off thebus•Two key questions – Would you hire thatperson again? Would you feel terriblydisappointed if that person leaves?
Put your best people on yourbiggest opportunities, not your biggest problems.
Identified international markets as the best opportunity for growth even with less than 1% of total co. Revenue Came up with brilliant answer to “Who” and not “What” Assign his number one executive, Joe George Weissman who was running 99%Cullman of the company that time Few years later, Marlboro became the best selling cigarette in the world, 3 years before it became number one in US
UNEXPECTED FINDINGS:1. There is no link between executive compensation and the shift from good to great. The purpose of compensation is not to motivate the right behavior from the wrong people, but to get and keep the right people.2. The old adage “People are your most important asset” is wrong. The right people are.3. “Right Person” has more to do with character, traits and inner capabilities than with specific knowledge, background and skills.
1950’s - Largest 1950’s – Unspectacularretailing corporation in grocery chain, half theUS size of A&P1960’s – Began to falter 1960’s – Began to lay the foundations to becomeLagged behind the great companymarket 25 years later, generated cumulative returns 10x the market and 8x better than A&P
•Old company facing •Old company facing newnew reality (111 years) reality (82 years)•All assets invested in •All assets invested intraditional grocery traditional grocery storesstores •Brutal fact – this model•Brutal fact – this model was going to becomewas going to become extinctextinct •Confronted the brutal•Never dealt with the fact heads on and changefacts its whole system•Failed to adapt •Became very successful
1973-199825 years later, generated cumulative returns 10x the market like arocket and 8x better than A&P, while A&P lagged behind the market
•Postage meters •Address-duplicating machines•Year 1973 – similar revenue and •Year 1973 – similar revenue andheadcount headcount•Imminent reality of losing their •Imminent reality of losing theirmonopoly monopoly•Management meetings – 15 •Charismatic leader – Roy Ashminutes discussion about •Set a vision to dominate IBM,accomplishments and 2 hours Xerox and Kodakabout “scary squiggly things” •Refused to confront that his planthat might impede future results has a little chance of success and•Year 2000 – with 30,000 was doomed to failemployees and revenue of $4 •Year 2000 – only 670 employeesBillion and revenue of &100 million •Company closed •Ash thrown out of the office
Pitney BowesPitney Bowes outperformed Addressography by 3,581 to 1. (3,581 times better)
“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.”
How to Create a Climate Where the Truth is HeardLead with questions, not answersEngage in dialogue and debate, not coercionConduct autopsies, without blameBuild “Red Flag” mechanism
Each MBA student will have a bright red sheet of paper, withthe following instructions:“This is your red flag for the quarter. If you raise your handwith your red flag, the classroom will stop for you. There areno restrictions on when and how to use your red flag; thedecision rests entirely in your hands. You can use it to voicean observation, share a personal experience, present ananalysis, disagree with the professor, challenge a CEO guest,respond to a fellow student, ask a questions, make asuggestion, or whatever. There will be no penalty whatsoeverfor any use of a red flag. Your red flag can be used only onceduring the quarter. Your red flag is nontransferable; youcannot give or sell it to another student.”
Key psychology for leadingcompanies from good to great...
• Named after Jim Stockdale• Highest ranking US military officer during Vietnam war• Tortured over 28 times during his 8-year imprisonment• No prisoner’s rights, no set release date, and no certainty he would even survive to see his family again.• Never lost faith during his ordeal:“I never doubted not only that I would get out, but also that I would prevail in the end and turn the experience into the defining event of my life, which, in retrospect, I would not trade.”
He noted that it was always the mostoptimistic of his prison mates who failedto make it out of there alive.“They were the ones who said, „We‟regoing to be out by Christmas.‟ AndChristmas would come, and Christmaswould go. Then they‟d say, „We‟re goingto be out by Easter.‟ And Easter wouldcome, and Easter would go. And thenThanksgiving, and then it would beChristmas again. And they died of abroken heart.”
Retain absolutefaith that you canand will prevail at the end... And at the same time...confront the brutal facts of reality whatever they might be.
Life is unfair – sometimes to our advantage andsometimes to our disadvantage. We will allexperience disappointments and crushing eventssomewhere along the way.What separates people is not the presence orabsence of difficulty but how we deal with them.
What are you deeply Passionate about? WhatWhat you drives yourcan be the Economicbest in the engine?World at?
You cannot manufacture passion or motivate people to feel passionate.You can only discover what ignites your passion and the passions around you.
CIRCUIT CITYBest at implementing 4S Model (Service, Selection, Savings and SatisfactionFANNIE MAEBest capital market player in anything that pertains to mortgagestGILETTEBest at building premier global brands of daily necessities of sophisticatedtechnologyKIMBERLY CLARKBest in the world at paper-based consumer productNUCORBest in technology to produce low cost steelPHILIP MORRISBest at “sinful” products like tobacco, beer, coffee and chocolate (Marlboro,Miller, Maxwell House and Toblerone)WELLS FARGOBest at running a bank like a business.ABBOTT LABORATORIESBest at creating portfolio that lowers cost of health care
COMPANY ECONOMIC DENOMINATORABBOTT Profit per employeeCIRCUIT CITY Profit per economic regionGILETTE Profit per customerKIMBERLY CLARK Profit per customer brandKROGER Profit per local populationNUCOR Profit per ton of finished steelPHILIP MORRIS Profit per global brand categoryWALGREENS Profit per customer visitWELLS FARGO Profit per employee
•Breakthrough Strategy - •Acquire lumps of storesBest, most convenient – 46 here 36 there – withdrugstores with high profit no unifying themeper customer visit •Lurched after growth•Became the best in the •Purchased Americanworld at convenient Home Video Corp.drugstores •Produced &31 million in•Exceeded the market lossesover 15 times beating •Eckerd ceased to existgreat companies like as an independentCoke, Intel and GE. company
Author of the book Good to Great (1)What are the 3 broad stages of transformation from beinggood to great company (2-4)Two distinguishing characters of Level 5 leader (5-6)Three steps to implement the “First Who then What”concept (7-9)What do you call this psychology that states “ Retainabsolute faith that you can and will prevail at the end... And atthe same time...confront the brutal facts of reality whateverthey might be. (10)Three dimensions of the Hedgehog Concept (11-13)
What does the title“Culture of Discipline” bring to your mind?
AN AIRLINE PILOT•Heads $84 Million piece of machinery•Sits in a cockpit surrounded by dozes ofcomplicated gauges switches•Begins with pre flight checklist,systematically moves through methodical stepby step procedure•Cleared for departure, he begins working withair traffic control•Once aloft, communicates continually withflight-control centers•Hits a ferocious thunder and hail storm, wingstilt to the left and right*•Did some maneauvers until it safely lands
•Dave Scott•Won Hawaii Triathlon 6 times•Would ride his bike 75 miles,swim 20,000 meters and run 17miles•No weight problem•Believed that low-fat dietwould give him extra edge•Literally rinse his cottagecheese to get the extra fat off
•Froze executive salaries for 2 •Preserved their poshyears executive kingdom•Shut the executive dining •CEO’s office has largeroom and replaced with food attached conference room,service caterer oriental rugs, floor-to-ceiling•Closed the executive elevator windows, with a sweeping•Sold the corporate jets panorama view of•Banned green plants from Golden GateExecutive Suite •“Why rinse the cheese when•Threw fancy-binded reports life is so good?”•“Would you spend your ownmoney this way?”
• Good to Great companies had Level 5 leaders who built an enduring culture of discipline• Comparison companies had Level 4 leaders who personally disciplined the organization through sheer force
EXAMPLES:1. Stanley Gault of Rubbermaid – imposed strict disciplines, arrives work at 6:30 am and worked 80 hours a week and expects his managers to do the same. Rose dramatically but also declined when he departed.2. Lee Iacocca of Chrysler – imposed his towering personality to discipline the organization, overhauled the management structure, instituted strict financial controls, improved quality measures, conduct mass lay off, etc.3. Ray MacDonald of Burroughs – controlled the conversations, told all jokes and criticized those not as smart as he. Company succeeded but no culture of discipline to endure beyond him, failed 93% below the market after he left
MANTRA :“Anything that does not fit with our Hedgehog Concept, we will not do.”
•Stopped the Annual Forecast Game with Wall Street •Unplugged titles of executives •Unplugged layers in the organization •Unplugged Kimberly from all paper industry trade associationsDARWIN SMITHKimberly Clark
Good to Great companies institutionalized the discipline of“Stop Doing” through the use of unique budget mechanism. “Budgeting is a discipline to decide which arenas should be fully funded and which should not be funded at all....determining which activities best support the Hedgehog concept and should be fully strengthened and which should be eliminated entirely.”
StopDoing List Is more important than To Do List
The key question is :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 you can settle for parity or ignore it entirely.
No Technology can:• Make you a level 5 leader!• Turn wrong people into right people!• Instill discipline to confront the brutal facts!• Create a culture of discipline!
“If you ever find yourselfthinking that technology alone holds the key to success, then think of the US-Vietnam war. The Americans lost to the Vietnamese despite superior technology.”
•Technology by itself, is never a primary root cause ofeither greatness or decline•Across 48 interviews with GTG executives, 80% didnot even mention technology as one of the top fivefactors in the transformation.•“Crawl, walk, run” can be a very effective approach,even during times of rapid and radical technologicalchange.
A massive metal disk30 feet diameter2 feet thick5,000 pounds in weightIt’s your job to turn thiswheel and get it going asfast and long as possibleTurning this wheel islike moving a companyso it will begin toproduce results
Good to Greattransformations do nothappen overnight or in onebig leap.Rather, it starts onemovement at a time,gradually building upmomentum till there isbreakthrough.
•Egg sitting there•No one pays attention•Egg cracks open•Out jumps a chick•Media •“The Transformation” •“The Remarkable Evolution” •“Stunning Turnaround”•GTG companies had no name for theirtransformation, no launch event, no tagline, there were no miracle moment!
ABBOTT“It wasn’t a binding flash or sudden revelation fromabove”. Our change was a major change, and yet inmany respects simply a series of incrementalchanges...”FANNIE MAE“There was no one magical event, no one turningpoint, It was a combination of things. More of anevolution, though the end results were dramatic.”WELLS FARGO“It wasn’t a single switch that was thrown at onetime. Little by little, the themes became moreapparent and stronger....”
Is your organization on a FLYWHEEL or on a DOOMLOOP? You are in a Flywheel, if you: •Follow a pattern of build up, leading to breakthrough •Confront the brutal facts to see what steps must be taken to build momentum •Attain consistency with a clear “Hedgehog Concept”, staying within the 3 circles •Follow the pattern of disciplined people, thought and action •Harness appropriate technologies to your Hedgehog concept •Spend little energy trying to motivate or align people; the effect of Flywheel is infectious •Maintain consistency over time.
Is your organization on a FLYWHEEL or on a DOOMLOOP? You are in a Doomloop, if you: •Skip build up and jump right into breakthrough •Implement big programs, radical change efforts, dramatic revolutions and chronic restructuring •Embrace fads and engage in management hoopla, rather than confront the brutal facts •Demonstrate chronic inconsistency, lurching back and forth, and straying outside the 3 circles •Jump right into action, without disciplined thought, or first getting the right people on the bus •Spend a lot of energy trying to align and motivate people, rallying them around new visions •Sell the future to compensate for lack of results in the present
It is about having disciplined people engaged in disciplinedthought and who then take disciplined action (14)A very effective approach in considering technology in ourbusiness (15)Concept of going from build up to breakthrough (16)Two popular doomloops to avoid (17-18)What are the 7 concepts of being good to great company?(19-25)
Author of the book Good to Great (1) JIM COLLINSWhat are the 3 broad stages of transformation from being good to greatcompany (2-4) DISCIPLINED PEOPLE, DISCIPLINED THOUGHT AND DISCIPLINEDACTIONTwo distinguishing characters of Level 5 leader (5-6) PERSONAL HUMILITY ORMODESTY AND POLITICAL WILLThree steps to implement the “First Who then What” concept (7-9) RIGHTPEOPLE ON THE BUS, WRONG PEOPLE OFF THE BUS, RIGHT SEAT FOR THERIGHT PEOPLE.What do you call this psychology that states “ Retain absolute faith that you canand will prevail at the end... And at the same time...confront the brutal facts ofreality whatever they might be. (10) STOCKDALE PARADOXThree dimensions of the Hedgehog Concept (11-13) WHAT YOU CAN BE THEBEST AT, WHAT ARE YOU PASSIONATE ABOUT, WHAT DRIVES YOUR ECONOMICENGINE
It is about having disciplined people engaged in disciplined thought and whothen take disciplined action (14) – CULTURE OF DISCIPLINEA very effective approach in considering technology in our business (15)CRAWL, WALK, RUNConcept of going from build up to breakthrough (16) FLYWHEELTwo popular doomloops to avoid (17-18) MISGUIDED ACQUISITIONS ANDLEADERS WHO STOPS THE FLYWHEELWhat are the 7 concepts of being good to great company? (19-25) LEVEL 5LEADER, FIRST WHO THEN WHAT, HEDGEHOG CONCEPT, CULTURE OFDISCIPLINE, TECHNOLOGY ACCELERATORS, FLYWHEEL