1. Good toGood to GreatGreat
Jim Collins
(c) 2001

2. Good to Great
First sentence of chapter 1:
“Good is the enemy of great.”
• Why is that true?

3. Companies Studied
(15-year return compared to general stock market)
• Abbott (3.98)
• Circuit City (18.5)
• Fannie Mae (7.56)
• Gillette (7.39)
• Kimberly-Clark (3.42)
• Kroger (4.17)
• Nucor (5.16)
• Philip Morris (7.06)
• Pitney Bowes (7.16)
• Walgreens (7.34)
• Wells Fargo (3.99)
 UpjohnUpjohn
 SiloSilo
 Great WesternGreat Western
 Warner-LambertWarner-Lambert
 Scott PaperScott Paper
 A&PA&P
 Bethlehem SteelBethlehem Steel
 R.J. ReynoldsR.J. Reynolds
 AddressographAddressograph
 EckerdEckerd
 Bank of AmericaBank of America
Unsustained: Burroughs, Chrysler, Harris, Hasbro, Rubbermaid, Teledyne (Kirk Wakefield)

5. Overview
• While presenting his first book, Bill Meehan,
the managing director of the San Francisco
office of McKinsey & Company, told Jim
Collins,
– “You know, Jim, we love Built to Last around here.
You and your coauthor did a very fine job on the
research and writing. Unfortunately, it’s useless.”
• This was the spark of curiosity that began five
years of research and resulted in Good to
Great.

6. Overview
• The five-year research effort yielded many
insights, but one conclusion stands out
above the others
– Most any organization can substantially
improve its stature and performance, perhaps
even become great, if it conscientiously applies
the framework of ideas we’ve uncovered

7. Phase 1: The Search
• First task was to find companies that showed
the good-to-great pattern (Table 1)
• Launched a six-month “death march of
financial analysis,” looking for companies that
showed the following basic pattern:
– Fifteen-year cumulative stock returns at or below
the general stock market, punctuated by a transition
point, then cumulative returns at least three times
the market over the next fifteen years

8. Phase 1: The Search
Company Results from Transition
Point to 15 Years beyond
Transition Point*
T Year to T Year + 15
Abbot 3.98 times the market 1974 – 1989
Circuit City 18.50 times the market 1982 – 1997
Fannie Mae 7.56 times the market 1984 - 1999
Gillette 7.39 times the market 1980 - 1995
Kimberly-Clark 3.42 times the market 1972 – 1987
Kroger 4.17 times the market 1973 – 1988
Nucor 5.16 times the market 1975 – 1990
Philip Morris 7.06 times the market 1964 – 1979
Pitney Bowes 7.16 times the market 1973 – 1988
Walgreens 7.34 times the market 1975 – 1990
Wells Fargo 3.99 times the market 1983 – 1998
*Ratio of cumulative stock returns relative to the general stock

9. Phase 1: The Search
• Criteria for Selection as a Good-to-Great
Company
– Company shows a pattern of “good” performance
punctuated by a transition point, after which it
shifts to “great” performance
– Good-to-great shift must be a company shift, not
an industry event
– At the transition point, the company must have
been an established, ongoing company, not a start-
up

10. Phase 1: The Search
• Criteria for Selection as a Good-to-Great
Company, continued
– The transition point had to occur before 1985 so
that there would be enough data to assess the
sustainability of the transition
– Whatever the year of transition, the company still
had to be a significant, ongoing, stand-alone company
at the time of selection
– At the time of selection, the company should still
show an upward trend

11. Phase 1: The Search
• The Good-to-Great Screening and Selection
Process
– Cut 1: From the Universe of Companies to 1,435
Companies
• Selected from the Fortune 500, 1965 – 1995
– Cut 2: From 1,435 Companies to 126 Companies
• Selected into full CRSP data pattern analysis
– Cut 3: From 126 Companies to 19 Companies
• Selected into Industry Analysis
– Cut 4: From 19 Companies to 11 Good-to-Great
Companies
• Selected into Good-to-Great Set

12. Phase 2: Compared to What?
• Two types of comparison companies
– Direct comparisons
• Companies that were in the same industry as the good-to-
great opportunities and similar resources at the time of
transition, but showed no leap from good to great
– Unsustained comparisons
• Companies that made a short-term shift from good to
great but failed to maintain the trajectory
• Intended to address the question of sustainability
• Comparisons are displayed in Appendix 1.C, page 234

13. Phase 2: Compared to What,
• Direct Comparisons
– Purpose of direct comparison analysis is to create
as close to a “historical controlled experiment” as
possible
– Helped in identifying distinguishing variables that
account for the transition from good to great
– Performed a systematic and methodical collection
and scoring of all obvious comparison candidates
for each good-to-great company

14. Phase 2: Compared to What?,
• Direct Comparison Criteria
– Business Fit
• At the time of transition, the comparison candidate had
similar products and services as the good-to-great
company
– Size Fit
• At the time of transition, the comparison candidate was
the same basic size as the good-to-great company
– Age Fit
• The comparison candidate was founded in the same era
as the good-to-great company

15. Phase 2: Compared to What?,
• Direct Comparison Criteria, continued
– Stock Chart Fit
• The cumulative stock returns to market chart of the
comparison candidate roughly tracks the pattern of the good-
to-great company until the point of transition
– Conservative Test
• At the time of transition, the comparison candidate was more
successful than the good-to-great company
– Face Validity
• Takes into account two factors
– Comparison candidate is in a similar line of business at the time of
selection
– Comparison candidate is less successful than the good-to-great
company at the time of selection

16. Phase 2: Compared to What?,
• Direct Comparison Scoring
– Scored each comparison candidate on each of
the six criteria on a scale of 1 to 4:
• 4 = comparison candidate fits the criteria extremely
well—there are no issues or qualifiers
• 3 = comparison candidate fits the criteria reasonably
well—there are minor issues or qualifiers
• 2 = comparison candidate fits the criteria poorly—
there are major issues and concerns
• 1 = comparison candidate fails the criteria

17. Phase 2: Compared to What?,
The Entire Study Set
Good-to-Great
Companies
Comparison
Companies
Abbot Upjohn
Circuit City Silo
Fannie Mae Great Western
Gillette Warner-Lambert
Kimberly-Clark Scott Paper
Kroger A&P
Nucor Bethlehem Steel
Philip Morris R.J. Reynolds
Pitney Bowes Addressograph
Walgreens Eckerd
Wells Fargo Bank of America
Unsustained Companies
Burroughs
Chrysler
Harris
Hasbro
Rubbermaid
Teledyne

18. Phase 3: Inside the Black Box
• Research Phase
– Systematically coded all materials into
categories, conducted interviews, and initiated a
wide range of analyses
• Project began with the goal of building a
theory from the ground up

19. Phase 3: Inside the Black Box,
• In the study, what they didn’t find turned
out to be some of the best clues to the inner
workings of good to great
Good Results
What’s
Inside the
BLACK
BOX?
What’s
Inside the
BLACK
BOX?
Great
Results

20. Phase 3: Inside the Black Box,
• Company Coding Documents Collected
– All major articles published on the company over
its entire history
– Materials obtained directly from companies
– Books written about the industry, company, and/or
its leaders
– Business school case studies and industry analyses
– Business and industry reference materials
– Annual reports, proxy statements, analyst reports,
and any other materials available on the company,
especially during the transition era

21. Phase 3: Inside the Black Box,
• Coding System Categories
– Category 1: Organizing Arrangements
– Category 2: Social Factors
– Category 3: Business Strategy, Strategic
Processes
– Category 4: Markets, Competitors, and
Environment
– Category 5: Leadership
– Category 6: Products and Services

22. Phase 3: Inside the Black Box,
• Coding System Categories, continued
– Category 7: Physical Setting and Location
– Category 8: Use of Technology
– Category 9: Vision: Core Values, Purpose, and
BHAGs
– Category 10
• A: Change/Transition Activities during Transition Era
of Corresponding Good-to-Great Company (Direct
Comparisons Only)
• B: Attempted Transition Era (Unsustained Comparisons
Only)
– Category 11: Posttransition Decline (Unsustained
Comparisons Only)

23. Phase 3: Inside the Black Box,
• Other Research Elements
– Financial Spreadsheet Analysis
• Examined all financial variables for 980 combined
years of data (35 years on average per company)
• Comprised gathering raw income and balance sheet data
and examining variables in both the pre- and
posttransition decades
– Executive Interviews
• Conducted interviews of senior management and board
members, focusing on those in office during the
transition era

24. Phase 3: Inside the Black Box,
• Special Analysis Units
– Acquisitions and Divestitures
• Sought to understand the role of acquisitions and divestments
in the transition from good to great
– Industry Performance Analysis
• Looked at the performance of the companies versus the
performance of the industries
– Executive Churn Analysis
• Looked at the extent to which the executive teams changed
during the crucial points in companies’ histories
– CEO Analysis
• Performed a qualitative examination of each set of CEOs
during the transition eras in all three sets of companies

25. Phase 3: Inside the Black Box,
• Special Analysis Units, continued
– Executive Compensation
• Examined across the twenty-eight companies studied, from ten
years before the transition point to 1998
– Role of Layoffs
• Sought to examine all companies for evidence of layoffs as a
conscious tactic to improve company performance
– Corporate Ownership Analysis
• Aimed to determine if there were any significant differences
between companies
– Media Hype Analysis
• Looked at the degree of “media hype” surrounding the companies
– Technology Analysis
• Examined the role of technology, drawing largely upon executive
interviews and written source materials

26. Phase 3: Inside the Black Box,
• Comparative Analysis Frameworks
– Performed throughout the research effort
– While less detailed than the other portions of
the research effort, all were derived directly
from research evidence
– Included topics such as
• The use of bold corporate moves
• Executive class versus egalitarianism
• Three-circle analysis and fit with core values and
purpose

27. Phase 4: Chaos to Concept
• Every primary concept in the final framework
showed up as a change variable in 100 percent
of the good-to-great companies and in less than
30 percent of the comparison companies
during the pivotal years
• The Flywheel captures the gestalt of the entire
process of going from good to great

28. Phase 4: Chaos to Concept,
DISCIPLINED
PEOPLE
DISCIPLINED
PEOPLE
DISCIPLINED
THOUGHT
DISCIPLINED
THOUGHT
DISCIPLINED
ACTION
DISCIPLINED
ACTION
FIRST WHO..
THEN WHAT
LEVEL 5
LEADERSHIP
TECHNOLOGY
ACCELERATOR
S
HEDGEHO
G
CONCEPT
BUILDUP
…
BREAKTHROU
GH!
FLYWHEEL
CULTURE
OF
DISCIPLINE
CONFRONT
THE BRUTAL
FACTS

29. Phase 4: Chaos to Concept,
• The Flywheel—Disciplined People
– Level 5 Leadership
• Good-to-great leaders are self-effacing, reserved, even
shy—a paradoxical blend of personal humility and
professional will
– First Who…Then What
• Good-to-great leaders first got the right people on the
bus, the wrong people off the bus, and the right people
in the right seats
• Then they figured out where to drive it
• People are not your most important asset. The right
people are.

30. Phase 4: Chaos to Concept, (cont.)
• The Flywheel—Disciplined Thought
– Confront the Brutal Facts (Yet Never Lose Faith)
• Every good-to-great company embraced what came to be
called the Stockdale Paradox
– Must maintain unwavering faith that you can and will prevail in
the end, regardless of the difficulties, AND at the same time have
the discipline to confront the most brutal facts of your current
reality, whatever they might be
– The Hedgehog Concept (Simplicity within the Three
Circles)
• To go from good to great requires transcending the curse of
competence
• If you cannot be the best in the world at your core business,
then your core business absolutely cannot form the basis of a
great company
– It must be replaced with a simple concept that reflects deep
understanding of three intersecting circles

31. Phase 4: Chaos to Concept, (cont.)
• The Flywheel—Disciplined Action
– A Culture of Discipline
• 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 alchemy of great
performance

32. Phase 4: Chaos to Concept, (cont.)
• The Flywheel—Disciplined Action, Continued
– Technology Accelerators
• Good-to-great companies think differently about the role
of technology
– They never use technology as the primary means of igniting a
transformation
• Paradoxically, they are pioneers in the application of
carefully selected technologies
• Technology by itself is never a primary, root cause of
either greatness or decline

33. Phase 4: Chaos to Concept, (cont.)
• The Flywheel and the Doom Loop
– Those who launch revolutions, dramatic change
programs, and wrenching restructurings will
almost certainly fail to make the leap from good
to great
• Good-to-great transformations never happened in
one fell swoop
– Rather, the process resembled relentlessly
pushing a giant heavy flywheel in one
direction, building momentum until a point of
breakthrough

34. Phase 4: Chaos to Concept, (cont.)
• From Good to Great to Built to Last
– Built to Last is about how you take a company
with great results and turn it into an enduring
great company of iconic stature
• To make that shift requires core values and a
purpose beyond just making money combined with
the key dynamic of preserve the core / stimulate
progressGood to
Great
Concepts
Sustained
Great
Results
Built to
Last
Concepts
Enduring
Great
Company

35. The Timeless “Physics” of Good to Great
• This book is ultimately about one thing:
– The timeless principles of good to great
• It’s about how you take a good organization of any type
and turn it into one that produces sustained great results,
using whatever definition of results best applies to your
organization
• That good is the enemy of great is not just a
business problem—it is a human problem
– If we have cracked the code on the question of
good to great, we should have something of value
to any type of organization

36. Lesson #1: Leadership
• Humility + Will = Level 5 leadership
• Modest, willful, humble, fearless
• Ego-driven, genius-types, may produce short-term
positive results, but cannot sustain results
• 1=highly capable; 2= contributing team member,
3= competent manager, 4= effective leader,
5=executive that builds enduring greatness thru
personal humility & professional

37. Leadership
Professional Will
• Creates superb results, a clear
catalyst in the transition from
good to great
• Demonstrates an unwavering
resolve to do whatever must be
done to produce the best long-
term results, no matter how
difficult
• Sets the standard of building an
enduring great company; will
settle for nothing less
• Looks in the mirror, not out the
window, to apportion
responsibility for poor results,
never blaming other people,
external factors, or bad luck
Personal Humility
 Demonstrates a compelling
modesty, shunning public
adulation; never boastful
 Acts with quiet, calm
determination; relies principally
on inspired standards, not
inspiring charisma to motivate
 Channels ambition into the
company, not the self; sets up
successors for even greater
success in the next generation
 Looks out the window, not in
the mirror, to apportion credit
for the success of the company
—to other people, external
factors, and good luck

38. Level 5
Leadership
First Who…
Then What
Confront the
Brutal Facts
Hedgehog
Concept
Culture of
Discipline
Technology
Accelerators
Disciplined People Disciplined Thought Disciplined Action
Buildup
Breakthrough
Good to Great

39. Level 5
Leadership
First Who…
Then What
Confront the
Brutal Facts
Hedgehog
Concept
Culture of
Discipline
Technology
Accelerators
Disciplined People Disciplined Thought Disciplined Action
Buildup
Breakthrough
Level 5
Leadership
Good to Great

40. Level 5 Leadership
5–Level 5 Executive
4–Effective Leader
3–Competent Manager
2–Contributing Team Member
1–Highly Capable Individual

41. Level 5 Leadership
Leaders who employ a paradoxical mix of
personal humility and professional will
Set up successors for even greater
success
Compelling modesty, self-effacing,
understated
5–Level 5 Executive
4–Effective Leader
3–Competent Manager
2–Contributing Team Member
1–Highly Capable Individual
Fanatically driven to
produce sustainable
results
More plow horse than
show horse

42. Level 5 Leadership
5–Level 5 Executive
4–Effective Leader
3–Competent Manager
2–Contributing Team Member
1–Highly Capable Individual
Look in mirror and
take full responsibility
for poor decisions
Many people have the
potential to evolve
into Level 5
Attribute success to
other than themselves

43. Level 5
Leadership
First Who…
Then What
Confront the
Brutal Facts
Hedgehog
Concept
Culture of
Discipline
Technology
Accelerators
Disciplined People Disciplined Thought Disciplined Action
Buildup
Breakthrough
First Who…
Then What
Good to Great

44. First Who . . . Then What
Leaders began the
transformation by
first getting the
right people on the
bus (and the
wrong people off
the bus).
“Who” questions came before “what”
decisions - before vision, strategy,
organization structure, and tactics.

45. First Who . . . Then What
Three practical disciplines for being
rigorous:
When in doubt, don’t hire
When you know you need to make a
people decision, act
Put your best people
on your best
opportunities, not
biggest problems
Leaders were rigorous, not ruthless in
people decisions.

46. First Who . . . Then What
Management teams debate vigorously
to find best answers, yet unify behind
decisions.
“Right” person has
more to do with
character traits and
innate capabilities
than with knowledge,
background, or skills.