Good To Great Summary
The goal of Good to Great by Jim Collins is to find the traits of great companies, through an extensive data collection project. Collins and his team tracked 28 companies from a variety of industries to find common traits that separated the “great” companies from the “good” companies. His team identifies six characteristics that separate good companies from great companies. Of these six, I personally found “First Who… Then What, the Hedgehog Concept, and the Culture of Discipline” the most interesting characteristics of the book. These three are absolutely critical to the continued success of an enterprise. Along with these three, the other characteristics of great companies identified by Collins relate to Enterprise Engineering, because each characteristic relates to the strategy and leadership of an enterprise. One of the main strengths of the book is this identification; that ultimately companies become great through sound strategy and effective leadership.
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However, one thing I believe that could have made the book more effective is the addition of practical tips to implement the change from Good to Great. Collins identifies the main characteristics but does not give a game plan for currently good companies to transition to great companies. If Collins had written in the style of Ray Dalio in his recent book Principles, I believe it would have been more effective. Ultimately, Collins gave invaluable insight to readers about the factors that drive company success. At the time of publication, this was a novel contribution to the business landscape, because no other group had compiled such extensive data on a large number of companies.
To analyze what makes great companies, great, Collins and his team tracked 28 companies over a 15-year span. At the time, this was one of the largest, most comprehensive studies to understand the factors that were the driving forces of company success. To ensure that his findings were not sector dependent, Collins and his team analyzed companies from various sectors (i.e. electronics, personal goods, banking, steel, etc.). The main finding of Collins’ group is that success operates on a “flywheel”. There are many things that companies can do to be great, but it will be very difficult at the beginning because the metaphorical flywheel does not have any momentum. However, as these things are repeated, the flywheel starts to spin faster and faster, thus propelling the company to greatness. His team identified 6 key characteristics that help propel the flywheel to continue spinning: great leadership, identifying the right people, brutal honesty, identifying core competencies, a culture of discipline, and the use of technology as an accelerant. These characteristics can roughly be divided into two sections: buildup (i.e. the first three characteristics) and breakthrough (i.e. the last three characteristics). The buildup ensures that the flywheel is unobstructed in spinning, while the breakthrough controls the speed of the flywheel. Collins believes that a company with this combination of characteristics will be great because their flywheel will be virtually unobstructed.
Although all of the characteristics found by Collins’ team are interesting, I found three in particular fascinating due to personal experience with each of them. First, identifying the right people was interesting to me, because it sounds counterintuitive. In today’s job environment, it is very common for positions to be filled by uniquely skilled individuals. However, I think that this is probably the exception rather than the rule. Even when hiring for a specified position, it seems to be more important to hire a good culture fit that may not be as qualified as opposed to a super qualified individual, who is not a good culture fit. In addition, there have been other entrepreneurs who stress the importance of hiring the right people, so it must be very critical. Second, identifying core competencies (i.e. the hedgehog principle) was an idea I have always believed was important, but had never seen it formalized as Collins did. Companies stretch themselves much further than they often need because they see a “cash cow” opportunity. It is very rare for a company to completely change course and still be a successful company. One example that comes to mind is Amazon, who recently announced their involvement in the health sector. I will be interested to see how well that investment pays off because it seems to be far from their core competency of internet dominance. Finally, the culture of discipline was interesting. I was a little disappointed that Collins didn’t talk more about how to establish this culture of discipline. While a firm CEO can set the bar, culture is one of the items that often changes drastically after a CEO leaves. Culture is obviously important, but more advice on how to continue a good culture through leadership changes would have helped.
Good to Great addresses many issues within the enterprise, specifically strategy and leadership. Ultimately, the six characteristics can be sub-divided into two groups: strategy (identifying right people, identifying core competencies, and use of technology) and leadership (leadership, brutal honesty, and culture of discipline), with some overlap between the two groups (i.e. being brutally honest can be seen as a strategy). Within strategy, identifying core competencies is critical for the enterprise. The term enterprise implies a big organization, however, if the organization becomes stretched too thin it will likely fail. Collins formalizes this belief in the “hedgehog concept”, which implies that a company should act like a hedgehog and stay close to their core competencies. Within leadership, hiring “level 5” leaders is critical to the continued success of the enterprise. If the leaders of an enterprise are subpar, their direct reports will not be empowered to work to their full potential. If any of these direct reports have direct reports, the chain continues. Ultimately, having poor leadership at the top will lead to inefficiency and problems in the enterprise. Collins book is a guide for the enterprise manager on how to more successfully run the enterprise.
Collins and his team did an extensive data collection on a variety of companies and found many important characteristics. However, I am not confident that company success can be so easily distilled into these six characteristics. Collins team recorded data on 28 companies and then based on how the companies did over the 15-year time span, went to find the differences between these companies. His group attributes all of the differences between companies due to their operating procedures, however, I don’t think this is an accurate representation of company success. For almost all companies, there is calculated risk (luck) that is required to become a great company. In fact, a recent study showed that there is barely a statistically significant relationship that the super successful companies are actually overperforming and not just random outliers [1]. At the time of writing, there was no way to tell which companies were truly overperforming and not just random outliers. However, if right after the book was released you purchased stock in each company, it would have underperformed the SAP 500 through 2008 [2]. Today, the only company still overperforming is Nucor, showing that only one of the companies Collins investigated was truly a great company. This is a common problem with analyzing past data, humans assume there are patterns that don’t truly exist. In an environment as dynamic and stochastic as the economy, many “patterns” will arise that are not true patterns. In my opinion, this does not necessarily diminish Collins work, because the main goal is to identify characteristics of companies that did overperform. However, I don’t think that these characteristics are surefire indicators of future performance for a company.
Collins and his team revolutionized the business world at the time of publication with Good to Great.
This was the most comprehensive analysis of business performance to date. The main finding from Collins is that business success is a flywheel, a lot of little actions help get the flywheel started, and then the flywheel is able to propel itself. The six main characteristics of successful companies help the flywheel to spin as fast as possible. Each of these relates to either strategy or management, which is critical for a budding enterprise. However, there are still questions about how good these characteristics are at sustaining greatness. Out of the 11 “great” companies identified by Collins, only one is still overperforming today. Thus, it is likely that Collins “looking at the past” analysis identified trends that were truly random noise. However, Collins work gives fundamental principles that will be necessary for the evolution of any business from good to great, which is the overall goal of the
book.
However, one thing I believe that could have made the book more effective is the addition of practical tips to implement the change from Good to Great. Collins identifies the main characteristics but does not give a game plan for currently good companies to transition to great companies. If Collins had written in the style of Ray Dalio in his recent book Principles, I believe it would have been more effective. Ultimately, Collins gave invaluable insight to readers about the factors that drive company success. At the time of publication, this was a novel contribution to the business landscape, because no other group had compiled such extensive data on a large number of companies.
To analyze what makes great companies, great, Collins and his team tracked 28 companies over a 15-year span. At the time, this was one of the largest, most comprehensive studies to understand the factors that were the driving forces of company success. To ensure that his findings were not sector dependent, Collins and his team analyzed companies from various sectors (i.e. electronics, personal goods, banking, steel, etc.). The main finding of Collins’ group is that success operates on a “flywheel”. There are many things that companies can do to be great, but it will be very difficult at the beginning because the metaphorical flywheel does not have any momentum. However, as these things are repeated, the flywheel starts to spin faster and faster, thus propelling the company to greatness. His team identified 6 key characteristics that help propel the flywheel to continue spinning: great leadership, identifying the right people, brutal honesty, identifying core competencies, a culture of discipline, and the use of technology as an accelerant. These characteristics can roughly be divided into two sections: buildup (i.e. the first three characteristics) and breakthrough (i.e. the last three characteristics). The buildup ensures that the flywheel is unobstructed in spinning, while the breakthrough controls the speed of the flywheel. Collins believes that a company with this combination of characteristics will be great because their flywheel will be virtually unobstructed.
Although all of the characteristics found by Collins’ team are interesting, I found three in particular fascinating due to personal experience with each of them. First, identifying the right people was interesting to me, because it sounds counterintuitive. In today’s job environment, it is very common for positions to be filled by uniquely skilled individuals. However, I think that this is probably the exception rather than the rule. Even when hiring for a specified position, it seems to be more important to hire a good culture fit that may not be as qualified as opposed to a super qualified individual, who is not a good culture fit. In addition, there have been other entrepreneurs who stress the importance of hiring the right people, so it must be very critical. Second, identifying core competencies (i.e. the hedgehog principle) was an idea I have always believed was important, but had never seen it formalized as Collins did. Companies stretch themselves much further than they often need because they see a “cash cow” opportunity. It is very rare for a company to completely change course and still be a successful company. One example that comes to mind is Amazon, who recently announced their involvement in the health sector. I will be interested to see how well that investment pays off because it seems to be far from their core competency of internet dominance. Finally, the culture of discipline was interesting. I was a little disappointed that Collins didn’t talk more about how to establish this culture of discipline. While a firm CEO can set the bar, culture is one of the items that often changes drastically after a CEO leaves. Culture is obviously important, but more advice on how to continue a good culture through leadership changes would have helped.
Good to Great addresses many issues within the enterprise, specifically strategy and leadership. Ultimately, the six characteristics can be sub-divided into two groups: strategy (identifying right people, identifying core competencies, and use of technology) and leadership (leadership, brutal honesty, and culture of discipline), with some overlap between the two groups (i.e. being brutally honest can be seen as a strategy). Within strategy, identifying core competencies is critical for the enterprise. The term enterprise implies a big organization, however, if the organization becomes stretched too thin it will likely fail. Collins formalizes this belief in the “hedgehog concept”, which implies that a company should act like a hedgehog and stay close to their core competencies. Within leadership, hiring “level 5” leaders is critical to the continued success of the enterprise. If the leaders of an enterprise are subpar, their direct reports will not be empowered to work to their full potential. If any of these direct reports have direct reports, the chain continues. Ultimately, having poor leadership at the top will lead to inefficiency and problems in the enterprise. Collins book is a guide for the enterprise manager on how to more successfully run the enterprise.
Collins and his team did an extensive data collection on a variety of companies and found many important characteristics. However, I am not confident that company success can be so easily distilled into these six characteristics. Collins team recorded data on 28 companies and then based on how the companies did over the 15-year time span, went to find the differences between these companies. His group attributes all of the differences between companies due to their operating procedures, however, I don’t think this is an accurate representation of company success. For almost all companies, there is calculated risk (luck) that is required to become a great company. In fact, a recent study showed that there is barely a statistically significant relationship that the super successful companies are actually overperforming and not just random outliers [1]. At the time of writing, there was no way to tell which companies were truly overperforming and not just random outliers. However, if right after the book was released you purchased stock in each company, it would have underperformed the SAP 500 through 2008 [2]. Today, the only company still overperforming is Nucor, showing that only one of the companies Collins investigated was truly a great company. This is a common problem with analyzing past data, humans assume there are patterns that don’t truly exist. In an environment as dynamic and stochastic as the economy, many “patterns” will arise that are not true patterns. In my opinion, this does not necessarily diminish Collins work, because the main goal is to identify characteristics of companies that did overperform. However, I don’t think that these characteristics are surefire indicators of future performance for a company.
Collins and his team revolutionized the business world at the time of publication with Good to Great.
This was the most comprehensive analysis of business performance to date. The main finding from Collins is that business success is a flywheel, a lot of little actions help get the flywheel started, and then the flywheel is able to propel itself. The six main characteristics of successful companies help the flywheel to spin as fast as possible. Each of these relates to either strategy or management, which is critical for a budding enterprise. However, there are still questions about how good these characteristics are at sustaining greatness. Out of the 11 “great” companies identified by Collins, only one is still overperforming today. Thus, it is likely that Collins “looking at the past” analysis identified trends that were truly random noise. However, Collins work gives fundamental principles that will be necessary for the evolution of any business from good to great, which is the overall goal of the
book.