Good to Great: Why Some Companies Make the Leap…And Others Don’t

Chapter 1: Good is the enemy of great

• Celebrity leaders who ride in from the outside are negatively correlated with taking a company from good to great. Ten of eleven good-to-great CEOs came from inside the company,
• Focus equally on what not to do and what to stop doing.
• Pay scant attention to managing change, motivating people, or creating alignment.
• The good-to-great companies had no name, tag line, launch event, or program to signify their transformations. Indeed, some reported being unaware of the magnitude of the transformation at the time; only later, in retrospect, did it become clear.
• The good-to-great companies were not, by and large, in great industries, and some were in terrible industries.
• Compared to high-profile leaders with big personalities who make headlines and become celebrities, the good-to-great leaders seem to have come from Mars. Self-effacing, quiet, reserved, even shy—these leaders are a paradoxical blend of personal humility and professional will.

Chapter 2: Level 5 Leadership

• You can accomplish anything in life, provided that you do not mind who gets the credit. —HARRY S. TRUMAN
• Level 5 leaders are a study in duality: modest and willful, humble and fearless.
• Level 5 leaders want to see the company even more successful in the next generation

Chapter 3: First who, then what

• Determining “the right people,” the good-to-great companies placed greater weight on character attributes than on specific educational background, practical skills, specialized knowledge, or work experience. Not that specific knowledge or skills are unimportant, but they viewed these traits as more teachable (or at least learnable), whereas they believed dimensions like character, work ethic, basic intelligence, dedication to fulfilling commitments, and values are more ingrained.
• Those who build great companies understand that the ultimate throttle on growth for any great company is not markets, or technology, or competition, or products. It is one thing above all others: the ability to get and keep enough of the right people.
• 1960s, R. J. Reynolds in Philip Morris identified international markets as the single best opportunity for long-term growth, despite the fact that the company derived less than 1 percent of its revenues from overseas. He pulled his number one executive, George Weissman, off the primary domestic business, and put him in charge of international. At the time, international amounted to almost nothing. “When Joe put George in charge of international, a lot of people wondered what George had done wrong,” quipped one of Weissman’s colleagues.51 “I didn’t know whether I was being thrown sideways, downstairs or out the window,” said Weissman. “Here I was running 99% of the company and the next day I’d be running 1% or less.” Yet in fact, under Weissman’s stewardship, Marlboro became the best-selling cigarette in the world three years before it became number one in the United States.
• You need executives, on the one hand, who argue and debate—sometimes violently—in pursuit of the best answers, yet, on the other hand, who unify fully behind a decision.
• If we don’t spend the vast majority of our time with people we love and respect, we cannot possibly have a great life.
• A company should limit its growth based on its ability to attract enough of the right people.

Chapter 4: Confront the brutal facts (Yet never lose faith)

• We also learned that you had to be number one or number two in each market, or you had to exit.
• all the good-to-great companies had a penchant for intense dialogue. Phrases like “loud debate,” “heated discussions,” and “healthy conflict”
• 1. Lead with questions, not answers. 2. Engage in dialogue and debate, not coercion. 3. Conduct autopsies, without blame. 4. Build red flag mechanisms that turn information into information that cannot be ignored.

Chapter 5: The Hedgehop concept

• The three circles in Hedgehop concept : 1. What you can be the best in the world at (and, equally important, what you cannot be the best in the world at). 2. What drives your economic engine. 3. What you are deeply passionate about.
• The Hedgehog Concept is not a goal, strategy, or intention; it is an understanding.
• It doesn’t mean, however, that you have to be passionate about the mechanics of the business per se (although you might be). The passion circle can be focused equally on what the company stands for. For example, the Fannie Mae people were not passionate about the mechanical process of packaging mortgages into market securities. But they were terrifically motivated by the whole idea of helping people of all classes, backgrounds, and races realize the American dream of owning their home.
• One particularly useful mechanism for moving the process along is a device that we came to call the Council. The Council consists of a group of the right people who participate in dialogue and debate. Characteristics of the Council:
  1. The council exists as a device to gain understanding about important issues facing the organization.
  2. The Council is assembled and used by the leading executive and usually consists of five to twelve people.
  3. Each Council member has the ability to argue and debate in search of understanding, not from the egoistic need to win a point or protect a parochial interest.
  4. Each Council member retains the respect of every other Council member, without exception.
  5. Council members come from a range of perspectives, but each member has deep knowledge about some aspect of the organization and/or the environment in which it operates.
  6. The Council includes key members of the management team but is not limited to members of the management team, nor is every executive automatically a member.
  7. The Council is a standing body, not an ad hoc committee assembled for a specific project.
  8. The Council meets periodically, as much as once a week or as infrequently as once per quarter.
  9. The Council does not seek consensus, recognizing that consensus decisions are often at odds with intelligent decisions. The responsibility for the final decision remains with the leading executive.
  10. The Council is an informal body, not listed on any formal organization chart or in any formal documents.
  11. The Council can have a range of possible names, usually quite innocuous. In the good-to-great companies, they had benign names like Long-Range Profit Improvement Committee, Corporate Products Committee, Strategic Thinking Group, and Executive Council.
• Infused with the Stockdale Paradox (“There must be something we can become the best at, and we will find it! We must also confront the brutal facts of what we cannot be the best at, and we will not delude ourselves!”)

Chapter 6:  A culture of discipline

• Freedom is only part of the story and half the truth….
• As a company grows and becomes more complex, it begins to trip over its own success—too many new people, too many new customers, too many new orders, too many new products. What was once great fun becomes an unwieldy ball of disorganized stuff. Lack of planning, lack of accounting, lack of systems, and lack of hiring constraints create friction.
• “This isn’t fun anymore. I used to be able to just get things done. Now I have to fill out these stupid forms and follow these stupid rules. Worst of all, I have to spend a horrendous amount of time in useless meetings.”
• Most companies build their bureaucratic rules to manage the small percentage of wrong people on the bus.
• every Abbott manager in every type of job was responsible for his or her return on investment, with the same rigor that an investor holds an entrepreneur responsible.
• They hired self-disciplined people who didn’t need to be managed, and then managed the system, not the people.
• The people at the top of the corporate hierarchy grant themselves privilege after privilege, flaunt those privileges before the men and women who do the real work, then wonder why employees are unmoved by management’s invocations to cut costs and boost profitability…. When I think of the millions of dollars spent by people at the top of the management hierarchy on efforts to motivate people who are continually put down by that hierarchy, I can only shake my head in wonder.
• aligning worker interests with management interests
• budgeting is a discipline to decide which arenas should be fully funded and which should not be funded at all. In other words, the budget process is not about figuring out how much each activity gets, but about determining which activities best support the Hedgehog Concept and should be fully strengthened and which should be eliminated entirely.
• Level 5 leaders who get the right people on the bus, if you confront the brutal facts of reality, if you create a climate where the truth is heard, if you have a Council and work within the three circles, if you frame all decisions in the context of a crystalline Hedgehog Concept, if you act from understanding, not bravado—if you do all these things, then you are likely to be right on the big decisions.

Chapter 7: Technology Accelerators

• Gillette invested over $200 million in design and development, most of it focused on manufacturing breakthroughs.
• Mediocrity results first and foremost from management failure, not technological failure.
• technology as an accelerator, not a cause.
• IBM did not have the early lead in computers. It lagged so far behind Remington Rand (which had the UNIVAC, the first commercially successful large-scale computer) that people called its first computer “IBM’s UNIVAC.”30 Boeing did not pioneer the commercial jet. De Havilland did. GE did not pioneer the AC electrical system; Westinghouse did.32 Palm Computing did not pioneer the personal digital assistant; Apple did, with its high-profile Newton.33 AOL did not pioneer the consumer Internet community; CompuServe and Prodigy did.34 We could make a long list of companies that were technology leaders but that failed to prevail in the end as great companies.

Chapter 8: The Flywheel and the Doom Loop

• “Creating alignment,” to use the jargon—would be one of the top challenges
• The other frequently observed doom loop pattern is that of new leaders who stepped in, stopped an already spinning flywheel, and threw it in an entirely new direction.
• Good-to-great leaders spent essentially no energy trying to “create alignment,” “motivate the troops,” or “manage change.” Under the right conditions, the problems of commitment, alignment, motivation, and change largely take care of themselves.

Chapter 9: From Good to Great to Built to Last

• Indeed, in a truly great company, profits and cash flow become like blood and water to a healthy body: They are absolutely essential for life, but they are not the very point of life.
• we met the man who brought Disney products to the Middle East. “The whole idea,” he told us with pride, “is to bring a smile to a child’s face. That’s really important here, where there aren’t enough smiles on the children.” Walt Disney provides a classic case of preserve the core and stimulate progress, holding a core ideology fixed while changing strategies and practices over time, and its adherence to this principle is the fundamental reason why it has endured as a great company.
• Build an organization that can endure and adapt through multiple generations of leaders and multiple product life cycles.
• Instill core values (essential and enduring tenets) and core purpose (fundamental reason for being beyond just making money) as principles to guide decisions and inspire people throughout the organization over a long period of time.
• the search for meaning, or more precisely, the search for meaningful work.
• If you’re engaged in work that you love and care about, for whatever reason, then the question needs no answer. The question is not why, but how.

Epilogue: FAQ

• boards play a key role in picking Level 5 leaders.
• boards at corporations should distinguish between share value and share price.
• take advantage of difficult economic times to hire great people, even if you don’t have a specific job in mind.
• hire the right people for every opening, gradually creating an environment where the wrong people felt increasingly uncomfortable and eventually retired
• Fill seats entirely with the right people, and just ignore the others.