Jim Collins’s 2001 classic still has ample relevant wisdom to offer if greatness is your goal, even if some companies he tagged as examples didn’t have quite as long a run as he might have predicted.
Collins’s remarkably popular books share a common theme: how and why businesses fail or thrive. That’s his area of study, and he draws deeply on his research to produce in-depth examinations of the forces that sustain or undermine businesses. Collins writes, as you might expect, like a business consultant. The readers most likely to relish his unadorned, commonsense style are businesspeople. But his generally pedestrian prose doesn’t keep him from producing memorable, pithy aphorisms like, “While you can buy your way to growth, you absolutely cannot buy your way to greatness.”
Anyone seeking ideas about building a top-flight organization with a culture to match can gain wisdom from Collins’s way of thinking and presenting information.
One Thousand Four Hundred and Thirty-Five
Collins and his researchers sifted through 1,435 Fortune 500 companies to find the few that met their study’s criteria for greatness, which were: “15-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 15 years.” The 11 companies that made the grade in 2001 were Abbott, Circuit City, Fannie Mae, Gillette, Kimberly-Clark, Kroger, Nucor, Philip Morris, Pitney Bowes, Walgreens and Wells Fargo. Researchers directly compared these companies with 11 firms in the same industries that had similar resources and challenges but failed to become great. They also compared their 11 winners with six firms that achieved greatness for a time, but didn’t sustain it.
Breakthrough results come about by a series of good decisions, diligently executed and accumulated one on top of another.Jim Collins
The researchers conducted an in-depth analysis of each then-great company – including interviews with its executives and CEOs and a close examination of its financial records, acquisitions, compensation plans, business strategies and corporate culture. Researchers were struck by the factors their research negated. For example, having a famous superhero CEO doesn’t make a company great, and executive compensation doesn’t correlate with corporate achievement.
Collins structures the path of good-to-great firms as “a process of buildup followed by breakthrough” in three stages of corporate development. Stage 1, “disciplined people,” requires “Level 5 Leadership,” featuring professionally driven, humble leaders who put corporate results ahead of personal success, accept responsibility and choose great successors. Stage 2, “disciplined thought,” requires leaders to “confront the brutal facts.” Here, Collins says, executives must ask hard questions, make fact-based decisions and accept the truth derived by using four protocols: “Lead with questions, not answers”; “engage in dialogue and debate, not coercion”; “conduct autopsies without blame”; and “build red-flag mechanisms” to alert you to data you can’t ignore.
During Collins’s Stage 3, “disciplined action,” companies imbed a “culture of discipline.” Successful start-ups often fall into a hazardous cycle. Early on, he says, creativity and passion fuel growth. But growth brings the need to organize operations, with solid staffing, production processes and corporate systems – all of which stifle the creativity that built the enterprise in the first place. Instead of falling down that rabbit hole, Collins advises you to create a disciplined managerial framework and promote creativity within it.
The Flywheel and the Doom Loop
Strategy doesn’t ensure greatness, nor does technology or acquisitions. Great companies thrive in pedestrian industries. Greatness doesn’t result from big launch events, motivational programs or management upheavals. Collins found that the transformation from “Good to Great” evolves in a careful, deliberate cycle of development followed by a leap forward. This process functions within the “Flywheel,” a holistic frame of accumulated “effort applied in a consistent direction.”
Good-to-great leaders were able to strip away so much noise and clutter and just focus on the few things that would have the greatest impact.
Success springs from a gradual buildup, the cumulative effect of small victories and good decisions made over time, not from some “miracle moment” – such as a single transformational development. This pattern of steady “buildup and breakthrough” is analogous to a flywheel that builds momentum. Companies that Collins compared with good-to-great corporations but that didn’t make the grade, fell into the doom loop. They launched new “miracle” programs, tried to buy success with acquisitions or mergers, and underwent frequent restructuring and leadership change.
Be a Hedgehog
A Greek fable pits a fox against a hedgehog. The fox is cunning, smart and sneaky; the hedgehog is plodding and slow. But no matter how much ingenuity the fox shows in its attack, the hedgehog rolls into a ball with its spikes sticking outward. Finally, the fox leaves, defeated. The hedgehog knows its strengths and sticks to what it does best.
Good-to-great companies are like hedgehogs, says Collins, concentrating on what they do better than any other organization. For example, Walgreens left Eckerd, a rival drugstore chain, in the dust between 1975 and 2000 by focusing on one hedgehog concept with clarity and consistency: Walgreens sought to become America’s most convenient drugstore. It chose high-traffic sites and pioneered the idea of drive-through prescription pickups. Walgreens married its focus on convenience with its goal of increasing its “profit per customer visit.” Its zeal in these two areas fueled its rise to the top. Collins says you, too, can find your hedgehog concept by considering what asset emerges at the intersection of three ideas: What can you do better than any other company – and what are you unable to do better? How do you make money? What work evokes your heartfelt dedication?
If you cannot be the best in the world at your core business, then your core business cannot form the basis of your Hedgehog Concept.
The steps an organization takes in alignment with its hedgehog concept lead to both big and small accomplishments. These advances build a record of visible results, which energize everyone involved. Enthusiastic, united employees push the flywheel harder and faster as the firm gains strength and momentum. On the road to greatness, the flywheel builds momentum through consistency and commitment to the focused hedgehog concept.
At times, Collins’s workmanlike language can obscure how insightful, on-target, unsentimental and practicable his discoveries are. Collins doesn’t push a particular theme or theory. Instead, he became a widely respected best-selling author by carefully researching the questions he explores and presenting his perceptive answers with no axe to grind. That is a rare and welcome approach. The simplicity with which Collins explains complex forces, ideas and solutions make his insights all the more valuable and memorable. Like some – though not all – of this study’s great companies, he has survived the test of time.