Good to Great Summary: Jim Collins

by Nico
Republished from Nicobros, March 9 ,2018

Good to Great Summary provides a free book summary, key takeaways, review, top quotes, author biography and other key points of Jim Collins’ famous book on management. Jim Collins describes why some companies become Great from Good. He also explains why others don’t.

This classic was first published in 2001. It quickly became the very famous publication of all time. Jim Collins is the author of this classic. He is a creative business author and consultant. Collins also wrote How the Mighty Fail and Managing the Small to Mid-Sized Company. He was the co-author of Built to Last and Great by Choice. In this book Good to Great, Collins tries to answer one basic question. That is, can a good firm turn into a great firm? And if yes, then how?

The theory of this “good-to-great” formula still holds true. But, most of the firms he found to be great, didn’t last. The reason? Collins’ principles of “good-to-great” identify great solid management practices. For example, hire the correct staff, focus on outcomes, take tough decisions, etc. These are the core principles now taught in every business school. Still, uncertain factors like CEO ego, unexpected markets, etc. can damage even great firms. They shift from great to good to bad to failures. This classic manual is now 18 years old. But, a careful read of Collins’ tenets can help avoid the fall.

Good to Great Summary

Fail or Thrive

All of Collins’ famous books have one common theme. That is, why and how companies thrive or fail. This is his field of study. He deeply draws on his studies. Then he gives an in-depth analysis of factors which push or pull businesses. Collins writes like a business consultant. The readers will enjoy his commonsense style of writing. But his layman style doesn’t prevent him from offering memorable sayings.

Anyone looking for ideas about creating a successful business can take advice from this book. They can learn from Collins’ thought process and style of presenting information.

One Thousand Four Hundred and Thirty-Five

Collins with his team studied through 1,435 Fortune 500 firms. They could find just a few firms which met their research standard for greatness. The criteria were 15-year collective stock returns below or at the general share market. These should be interrupted by some change. Then collective returns at least thrice the market in the next 15 years. Only 11 firms met the criteria in 2001. These were Gillette, Abbott, Pitney Bowes, Kroger, Walgreens, Kimberly-Clark, Wells Fargo, Philip Morris, Fannie Mae, Circuit City and Nucor. Collins compared these firms with 11 other companies in the same sectors. These other firms had parallel resources but were unable to become great. They even compared their 11 winning firms with six other firms. These six firms became great for some time but weren’t able to sustain it.

The team studied all eleven firms in-depth. They even interviewed the CEOs and executives. The researchers carefully examined the financial statements, corporate culture, and business strategies. They were struck by elements their study found invalid. For example, having a popular superhero CEO doesn’t make a firm great. Or that, executive salary doesn’t relate with business achievement.

Collins outlines a path of “good-to-great” firms. It’s a process of buildup which leads to a breakthrough. There are 3 phases in this process of development.

First stage, “disciplined people,” needs “Level 5 Leadership.” This includes modest and driven leaders who place business results before personal success. Such leaders also embrace responsibility and pic, great heirs.

Disciplined Thought

The second stage is “disciplined thought.” It needs leaders to face the harsh realities. Here, as per Collins, executives should ask tough questions. They must make decisions based on facts and embrace the truth. This requires four protocols. That is “don’t lead with answers, but questions”; “engage in discussion, not coercion”; “perform analysis without blaming”; and “create red-flag systems.”

Disciplined Action

The third stage is “disciplined action.” Under this, firms incorporate a culture of discipline. Start-ups which become successful at the start, often get trapped in a dangerous cycle. Early on, passion and innovation drive growth. But, with growth comes the need to structure operations. These robust demand staffing, reliable processes, and culture. Now, all these factors choke the creativity which made the firm initially. Hence, Collins advises not to fall into that rabbit hole. Instead, he suggests creating a disciplined system and encourages creativity within.

Technology won’t ensure greatness. Nor will strategy or acquisitions. Great firms bloom in pedestrian sectors. Greatness doesn’t come from huge launches or motivational campaigns. Instead, the shift from “good-to-great” evolves in an alert, voluntary cycle of development. This is followed by a leap ahead. Such process happens within the “Flywheel”. That is an overall system of collective efforts put in a steady direction.

“The Flywheel and the Doom Loop”

In 1973, CEO Alan Wurtzel took charge of Circuit City. The company was nearing bankruptcy at that time. But, Wurtzel and his team slowly built the firm’s warehouse-retailing concept. They changed the traditional stores into superstores during the late 1970s. This concept took over and gained drive throughout the 1980s and 90s. The Circuit City way of evolution gives a “good-to-great” example. Its success came from a steady buildup. That is the collective efforts of small wins and sound decisions. It didn’t have any miracle moment or a sudden rise.

This way of gradual “buildup and revolution” resembles a flywheel which builds motion. The “flywheel effect” is cyclic and gains from collective efforts in a steady direction. Firms which Collins compared with good-to-great firms were trapped in the doom cycle. They introduced miracle programs. Even tried buying success through mergers and acquisitions. Plus, they went through a leadership change and restructured very often.

“The Hedgehog Concept”

In a Greek tale, a fox is a pit against a hedgehog. The fox is smart, cunning and sneaky. In contrast, the hedgehog is slow and dull. The fox is very smart in its attack. But, regardless of the fox’s smartness, the hedgehog rolls into a ball. Hence, its spikes would stick outward. In the end, the fox leaves, unable to beat the hedgehog. The moral is, the hedgehog knows its strong points and sticks to that.

Good-to-great firms are also like hedgehogs. They focus on their strengths. For example, Walgreens left Eckerd, a competitor, in the dust during 1975-2000. Walgreens concentrated on one hedgehog theory with consistency and clarity. That is, it sought to become the most convenient drugstore in the USA. It picked high-traffic locations and led the concept of drive-through pickups. Walgreens wed its focus on the ease with its mission of raising its “profit-per-customer-visit.” Its enthusiasm in the two fields led to its rise to the top. Collins advises finding the hedgehog concept by seeing which asset surfaces at the intersection of 3 ideas. First, what can you do better than others – and what you can’t? Second, how do you earn money? And lastly, what work inspires your sincere commitment?

The steps a firm takes considering its hedgehog theory result in both small and big achievements. Such achievements create a record of tangible outcomes. Hence, everyone involved gets motivated. United and motivated workers push the flywheel faster and harder. Thus, the company gains more vigor and strength.

On Target

Collings’ layman language may shadow how precise and practical his findings are. He doesn’t stress a specific theory or theme beyond a point. Unlike other famous business writers, Collins’ brand isn’t about him. Instead, he earned his name by cautiously studying the questions he explores. He then presents his insights with no ax to grind. This is hard to find and welcome method. The simplicity of Collins’ explanations makes his insights more memorable and valuable. And, business – big or small – can all follow them.

Good to Great Quotes

“When [what you are deeply passionate about, what you can be best in the world at and what drives your economic engine] come together, not only does your work move toward greatness, but so does your life. For, in the end, it is impossible to have a great life unless it is a meaningful life. And it is very difficult to have a meaningful life without meaningful work. Perhaps, then, you might gain that rare tranquility that comes from knowing that you’ve had a hand in creating something of intrinsic excellence that makes a contribution. Indeed, you might even gain that deepest of all satisfactions: knowing that your short time here on this earth has been well spent, and that it mattered.”

“Great vision without great people is irrelevant.”

“A company should limit its growth based on its ability to attract enough of the right people.”

“For, in the end, it is impossible to have a great life unless it is a meaningful life. And it is very difficult to have a meaningful life without meaningful work.”

“Letting the wrong people hang around is unfair to all the right people, as they inevitably find themselves compensating for the inadequacies of the wrong people. Worse, it can drive away the best people. Strong performers are intrinsically motivated by performance, and when they see their efforts impeded by carrying extra weight, they eventually become frustrated.”

“Good is the enemy of great. And that is one of the key reasons why we have so little that becomes great. We don’t have great schools, principally because we have good schools. We don’t have great government, principally because we have good government. Few people attain great lives, in large part because it is just so easy to settle for a good life.”

“The purpose of bureaucracy is to compensate for incompetence and lack of discipline.”

“Greatness is not a function of circumstance. Greatness, it turns out, is largely a matter of conscious choice, and discipline.”