Good to Great

As Collins and his team compiled the list of good-to-great companies, they needed to contextualize their research by using apt comparisons. According to Collins, these direct comparisons “were in the same industry as the good-to-great companies with the same opportunities and similar resources at the time of transition, but [...] showed no leap from good to great” (8). Some of the most notable examples include the comparison between Wells Fargo (good-to-great) and Bank of America (direct comparison), Fannie Mae (good-to-great) and Great Western (direct comparison), and Kroger (good-to-great) and A & P (direct comparison). Without researching the performance of these direct comparison companies, Collins and his team would have been limited in their ability to draw conclusions about what made the good-to-great companies’ accomplishments so spectacular.

Here are the 11 direct comparison companies Collins cites as having met his search team’s criteria: Upjohn, Silo, Great Western, Warner-Lambert, Scott Paper, A&P, Bethlehem Steel, R.J. Reynolds, Addressograph, Eckerd, and Bank of America.

In companies that were not able to sustain the good-to-great transition, Collins and his research team identified a pattern they called the “doom loop.” These companies became trapped in a vicious cycle characterized by the four following steps: disappointing results; reaction without understanding; new direction, program, leader, event, fad, or acquisition; no build-up and thus no accelerated momentum. Two features in particular stood out in the research: the misguided use of acquisitions, and leaders who ultimately undid the work of previous generations. The lasting effect of the doom loop is a systematic failure to produce the long-term consistency or coherence that drives a company forward into greatness.

For companies that made the transition from good to great, Collins uses the image of a flywheel to explain their momentum. If a company followed the seven steps of the good-to-great framework (not necessarily in linear fashion), it would work like a flywheel, generating its own momentum by consistency and repetition. According to Collins, the flywheel momentum follows “a pattern of buildup leading to breakthrough” (183); each leader builds on the work of the previous generation, generating momentum from within the company and capitalizing on its best qualities rather than skipping steps in order to magically arrive at breakthrough as quickly as possible. While flywheel momentum often requires an incredible amount of patience, Collins argues that this kind of momentum is vital in order for a company to achieve greatness.

A good-to-great company, according to Collins, experiences a shift that results in increased performance. More specifically, Collins defines “great” as “a cumulative total stock return of at least 3 times the general market for the period from the point of transition through fifteen years” (219). To achieve this benchmark of greatness, Collins found that companies generally had to adhere to the seven elements of the momentum flywheel. Companies that failed to ever reach greatness, on the other hand, were perpetually in a cycle of inconsistency that sometimes allowed them to be “good,” but not great. Collins suggests that many of the defining qualities of the good-to-great companies are applicable to one’s personal life, offering the following advice: “[G]et 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, but just because it can be done” (209).

Here are the 11 good-to-great companies Collins cites as having met the criteria he and his team used in the selection process: Abbott, Circuit City, Fannie Mae, Gillette, Kimberly-Clark, Kroger, Nucor, Philip Morris, Pitney Bowes, Walgreens, and Wells Fargo.

Collins argues that adherence to the Hedgehog Concept is a necessary aspect of transitioning from good to great. A hedgehog “reduces all challenges and dilemmas to simple—indeed almost simplistic—hedgehog ideas… anything that does not somehow relate to the hedgehog idea holds no relevance” (91). In the business world, a company becomes a hedgehog by uncomplicating the nature of its business and becoming the best in the world at one thing, rather than trying to be the answer to everyone and everything. Walgreens and Wells Fargo, for instance, focused on the following simple goals: become the best at convenient drugstores (Walgreens), and become the best at running a bank like a business, with a focus on the western United States (Wells Fargo). At the heart of the Hedgehog Concept lie three concentric circles: what you are deeply passionate about, what you can be best at in the world, and what drives your economic engine. Companies thrive by adopting what exists at the intersection of these circles as their Hedgehog Concept.

According to Collins, a Level 5 leader is a necessary element of a good-to-great company. By definition, a Level 5 leader is not especially charismatic or flashy, but instead relies on a combination of humility and intensely focused resolve to see the company succeed. Level 5 leaders are not egotistical, downplaying their own wealth or accomplishments in order to make their companies great. Collins cites CEOs such as Darwin E. Smith and Alan Wurtzel as highly effective Level 5s, while naming former Chrysler CEO Lee Iacocca as a counterexample. Collins also argues that Level 5 leaders are actually quite common, but that companies often pass over these types of leaders as CEO candidates in favor of more “dazzling, celebrity leaders” (38), who actually negatively correlate with a company’s chances of becoming great.

This term alludes to the story of Admiral Jim Stockdale, who was a POW at the “Hanoi Hilton” during the Vietnam War. Throughout his time as a POW, Stockdale was able to hold two seemingly contradictory ideas in his mind, which Collins calls the Stockdale Paradox: “[A] key psychology for leading from good to great is the Stockdale Paradox: Retain absolute faith that you can and will prevail in the end, regardless of the difficulties, AND at the same time confront the most brutal facts of your current reality, whatever they might be” (88). As good-to-great companies come to terms with their own unique brutal facts, they also have to believe that transformation is possible.

Collins argues that “stop-doing” lists are actually more important than “to-do” lists for companies. At Kimberly-Clark, for example, Darwin Smith stopped forecasting future earnings and eliminated titles, except when necessary. The result was a company-wide increase in focus and efficiency, which led to a shift from good to great. By eliminating practices and procedures that don’t speak to a company’s core business, a company is able to pursue that business with the kind of resolve that Collins associates with the Hedgehog Concept. Collins offers the following question to anyone who may be skeptical of the need for “stop-doing” lists: “[O]nce you know the right thing, do you have the discipline to do the right thing and, equally important, to stop doing the wrong things” (141)?

Collins and his team found through their research that good-to-great companies used technology to accelerate momentum, rather than solely relying on technology to create momentum: “[T]he good-to-great companies never began their transitions with pioneering technology, for the simple reason that you cannot make good use of technology until you know which technologies are relevant” (153). While technology is a necessary component of any company’s operations, it alone was never the principal factor in making the good-to-great companies outliers in their respective industries. Rather, companies succeed when they incorporate technology in compliance with their Hedgehog Concept.