P2M May 2012 Issue

Friends, I am keen to share some insights that I gleaned from Jim Collins wildly popular book Good to Great: Why Some Companies Make the Leap...and Others Don’t. Released in 2001, this book was an instant bestseller in the genre and even today is widely regarded as a modern classic of management theory by management practitioners, corporate leaders, students and investors.

Jim Collins presents the factors that allow a small fraction of companies to make the transition from being merely good to truly great. One overarching theme that links together virtually all of Collins’ arguments is the need to define a narrowly focused objective and field of competency and then focus all of the company’s resources toward that area of strength. Repeatedly, Collins warns that straying too far from a company’s established strengths is inimical to the attainment of greatness.

Discipline: Disciplined people, disciplined thought, and disciplined action are the most significant factors in determining a company’s ability to achieve greatness.
Level 5 Leadership: Quality and nature of leadership in the company is of paramount importance. Great companies are led by “Level 5” leaders who have an unusual mix of intense determination and profound humility. These leaders often have a long-term personal sense of investment in the company and its success, often cultivated through a career-spanning climb up the company’s ranks. The personal ego and individual financial gain are not as important as the long-term benefit of the team and the company to true Level 5 leaders.
“First Who”- “Then What”:Jim asserts that the process of securing high-quality, high-talent individuals with Level 5 leadership abilities must be undertaken before an overarching strategy can be developed. With the right people in the right positions, Collins contends that many of the management problems that plague companies and sap valuable resources will automatically dissipate. As such, he argues, firms seeking to make the Good to Great transition may find it worthwhile to expend extra energy and time on personnel searches and decision-making.
Get Real: Great companies identify and assess the real defining facts in the larger business environment accurately and realistically. Jim warns that an inability to keep pace with changes often results in company failure. Collins outlines a four-step process to promote awareness of emerging trends and potential problems: 1) Lead with questions, not answers; 2) Engage in dialogue and debate, not coercion; 3) Conduct autopsies without blame; and 4) Build red flag mechanisms that turn information into information that cannot be ignored.
The Hedgehog Concept (Simplicity within the Three Circles): The way to make the transformation from Good to Great is often not doing many things well, but instead, doing one thing better than anyone else in the world. Collins uses the metaphor of the hedgehog to illustrate the seemingly contradictory principle that simplicity can sometimes lead to greatness. When confronted by predators, the hedgehog’s simple but surprisingly effective response is to roll up into a ball. While other predators, such as the fox, may be impressively clever, few can devise a strategy that is effective enough to overcome the hedgehog’s simple, repetitive response. It may take time to identify the single function that will be a particular firm’s "hedgehog concept," but those who do successfully identify it are often rewarded with singular success. In order to help expedite this process, Collins suggests using the following three criteria: 1) Determine what you can be best in the world at and what you cannot be best in the world at; 2) Determine what drives your economic engine; and 3) Determine what you are deeply passionate about.
A Culture of Discipline: Great companies have an overarching organizational culture of discipline. Each manager and staff member is driven by an unrelenting inner sense of determination. Each individual functions as an entrepreneur, with a deeply rooted personal investment in both their own work and the company’s success.
Technology Accelerators: Great companies are careful while deploying new technologies and carefully assess the cost and benefits of adoption. They apply technology in a manner that is reflective of their "hedgehog concepts" -- typically by selecting and focusing solely upon the development of a few technologies that are fundamentally compatible with their established strengths and objectives. Collins characterizes the ideal approach to technology with the following cycle: "Pause -- Think -- Crawl -- Walk -- Run."

The Flywheel: By making decisions and taking actions that reinforce and affirm the company’s "hedgehog" competencies, executives initiate positive momentum. This, in turn, results in the accumulation of tangible positive outcomes, which serve to energize and earn the investment and loyalty of the staff. This revitalization of the team serves to further build momentum. If the cycle continues to repeat in this manner, the transition from Good to Great is likely to transpire. This is the flywheel effect.
Longevity of purpose: Collins contends that companies need a set of core values in order to achieve the kind of long-term, sustainable success that may lead to greatness. Companies need to exist for a higher purpose than mere profit generation in order to transcend the category of merely good. According to Collins, this purpose does not have to be specific -- even if the shared values that compel the company toward success are as open-ended as being the best at what they do and achieving excellence consistently, that may be sufficient as long as the team members are equally dedicated to the same set of values.