Good to Great: Why Some Companies Make the Leap . . . and Others Don’t, by Jim Collins. New York: HarperCollins, 2001. 260 pp. $29.99 (hardcover).
Do you want to live a good life—or a great one? Do you want to run a good business—or a great one? “Good is the enemy of great,” writes Jim Collins in the opening line of Good to Great: Why Some Companies Make the Leap . . . and Others Don’t.
Collins asks, “Can a good company become a great company, and, if so, how?” (p. 3). Toward answering this question, Collins examines eleven companies that made the leap. Over the course of five years, Collins and his team perused thousands of articles, interviewed executives for hundreds of hours, analyzed stock performances, and more. From this chaotic trove of data, Collins and his team sifted out key principles and practices that move a company from good to great.
Collins makes clear that his aim was not to create the next fad, but to identify timeless principles:
While the practices of engineering continually evolve and change, the laws of physics remain relatively fixed. I like to think of our work as a search for timeless principles—the enduring physics of great organizations—that will remain true and relevant no matter how the world changes around us. (p. 15)
Collins’s standard for greatness is so high that not even General Electric made the cut; in fact, the companies he and his team examined dramatically outperformed GE. To make the final cut, a company had to have “extraordinary results, averaging cumulative stock returns 6.9 times the general market in the fifteen years following their transition point” (p. 3)—the transition point being when a company makes the leap from good to great.
Collins looks at less-than-great companies for comparison. The fundamental question of the study, he points out, is not
what did the good-to-great companies share in common? Rather, the crucial question is, What did the good-to-great companies share in common that distinguished them from the comparison companies? Think of it this way: Suppose you wanted to study what makes gold medal winners in the Olympic games. If you only studied the gold medal winners by themselves, you’d find that they all had coaches. But if you looked at the athletes that made the Olympic team, but never won a gold medal, you’d find that they also had coaches! The key question is, What systematically distinguishes gold medal winners from those who never won a medal? (pp. 7–8)
Collins devotes much of his discussion to the traits of a great leader, the type of person who can take a company from merely good, or even very good, to sustained greatness. One characteristic of great leaders is that they seek an objective understanding of pertinent facts when making decisions. In Collins’s terms, great leaders use a window to look objectively at the outside world and a mirror to look objectively at themselves. For example, great leaders give credit where it is due and take full responsibility for problems concerning their business or industry. They “look out the window to apportion credit outside themselves when things go well. . . . At the same time, they look in the mirror to apportion responsibility never blaming bad luck when things go poorly” (p. 35).
To concretize this point, Collins compares the CEOs of Nucor and Bethlehem Steel. Both companies offered practically identical steel products, and both faced competitors from overseas. But only Nucor became great. Why? Whereas Bethlehem’s CEO sought political means to impede competition from abroad, saying “our first, second and third problems are imports” (p 34), Ken Iverson of Nucor saw the upside. He said, “Aren’t we lucky; steel is heavy and they have to ship all the way across the ocean, giving us a huge advantage” (p. 34). Instead of seeking to blame imports for his problems, he chose to improve the management of his company.
He even went so far as to speak out publicly against government protection against imports, telling a stunned gathering of fellow steel executives in 1977 that the real problems facing the American steel industry lay in the fact that management had failed to keep pace with innovation. (p. 34)
Collins devotes his fifth chapter to what he calls the “Hedgehog Concept,” which pertains to a company’s discipline and focus. The phrase refers to the ancient parable, “The fox knows many things, but the hedgehog knows one great thing” (p. 90). Fundamentally, the “Hedgehog Concept” does not describe a “goal to be the best, a strategy to be the best, an intention to be the best, a plan to be the best.” Rather, it pertains to the importance of determining “what you can be the best at” (p. 98).
One great company, Gillette, formulated its focus as “building premier global brands of daily necessities that require sophisticated manufacturing technology” (p. 102). It stuck with this “hedgehog” strategy for decades. Once the company had built momentum by using this concept to make every decision, it outperformed the general market by six times for fifteen years. Meanwhile, another company with similar origins, Warner Lambert, flip-flopped between different products and aims and remained substantially less than great.
Collins observes that great leaders and great companies create a “culture of discipline.” For example, Wells Fargo’s CEO, Carl Reichardt, knew his company had to be disciplined in cutting waste. He said, “There’s too much waste in banking . . . getting rid of it takes tenacity, not brilliance” (p. 128). Wells Fargo developed the “hedgehog concept” of “running a bank like a business” (p. 103). This meant focusing on the bottom line. Toward this end, Reichardt
froze executive salaries for two years (despite the fact that Wells Fargo was enjoying some of the most profitable years in its history). He shut the executive dining room and replaced it with a college dorm food-service caterer. He closed the executive elevator, sold the corporate jets, and banned green plants from the executive suite as too expensive to water. He removed free coffee from the executive suite. He eliminated Christmas trees for management. He threw reports back at people who’d submitted them in fancy binders, with the admonishment: “would you spend your own money this way? What does a binder add to anything?” Reichardt would sit through meetings with fellow executives in a beat-up old chair with the stuffing hanging out. Sometimes he would just sit there and pick at the stuffing while listening to proposals to spend money. . . . [As one executive said,] “a lot of must-do projects just melted away.” (p. 128)
Meanwhile, Bank of America didn’t develop the discipline to cut waste; for instance, its executives “preserved their posh executive kingdom in its imposing tower in downtown San Francisco” (p. 129).
Readers may wonder whether Collins’s book provides value for those running organizations substantially smaller than Nucor, Wells Fargo, and the like. It does. The book’s purpose is to identify and elucidate universal principles of greatness, principles that apply not only to huge corporations, but also to small businesses and, as Collins points out, even to high school track teams.
Whatever the size and nature of your organization, whether it becomes great is largely up to you. Will you discover and employ the principles of greatness? “Greatness,” writes Collins, “is not a function of circumstance. Greatness, it turns out, is largely a matter of conscious choice.”