Great to read how a current “good” company can make a leap to being “great”. This is not about startup, but about a business at its maturity.

It’s worth quoting the ending paragraph first:

Perhaps, then, you might gain that rare tranquillity that comes from knowing that you’ve had a hand in creating something of intrinsic excellence that makes a contribution. Indeed, you might even gain that deepest of all satisfactions: knowing that your short time here on this earth has been well spent, and that it mattered.

Characteristics of leaders at the helm of these companies

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. They are more like Lincoln and Socrates than Patton or Caesar.

Paradox of embracing difficulties and hope

Every good-to-great company embraced what we came to call the Stockdale Paradox: You must maintain unwavering faith that you can and will prevail in the end, regardless of the difficulties, AND at the same time have the discipline to confront the most brutal facts of your current reality, whatever they might be.

What are the timeless principles?

Yes, the world is changing, and will continue to do so. But that does not mean we should stop the search for timeless principles. Think of it this way: While the practices of engineering continually evolve and change, the laws of physics remain relatively fixed.

Ambition for the company, not themselves

Level 5 leaders channel their ego needs away from themselves and into the larger goal of building a great company. It’s not that Level 5 leaders have no ego or self-interest. Indeed, they are incredibly ambitious—but their ambition is first and foremost for the institution, not themselves.

The future will be better than present

leaders want to see the company even more successful in the next generation, comfortable with the idea that most people won’t even know that the roots of that success trace back to their efforts. As one Level 5 leader said, “I want to look out from my porch at one of the great companies in the world someday and be able to say, ‘I used to work there.’ ”

Talked more about the company and people’s contribution

During interviews with the good-to-great leaders, they’d talk about the company and the contributions of other executives as long as we’d like but would deflect discussion about their own contributions.

Humility, modesty and ferocity

It is very important to grasp that Level 5 leadership is not just about humility and modesty. It is equally about ferocious resolve, an almost stoic determination to do whatever needs to be done to make the company great.

When things go well - praise others, when things go bad - take responsibility

Level 5 leaders look out the window to apportion credit to factors outside themselves when things go well (and if they cannot find a specific person or event to give credit to, they credit good luck). At the same time, they look in the mirror to apportion responsibility, never blaming bad luck when things go poorly.

Right people in right roles, then right direction

They said, in essence, “Look, I don’t really know where we should take this bus. But I know this much: If we get the right people on the bus, the right people in the right seats, and the wrong people off the bus, then we’ll figure out how to take it someplace great.”

Begin with who, then what

First, if you begin with “who,” rather than “what,” you can more easily adapt to a changing world. If people join the bus primarily because of where it is going, what happens if you get ten miles down the road and you need to change direction?

Right people and motivation

if you have the right people on the bus, the problem of how to motivate and manage people largely goes away. The right people don’t need to be tightly managed or fired up; they will be self-motivated by the inner drive to produce the best results and to be part of creating something great.

Hired good people without specific job in mind

They hired outstanding people whenever and wherever they found them, often without any specific job in mind. “That’s how you build the future,” he said. “If I’m not smart enough to see the changes that are coming, they will. And they’ll be flexible enough to deal with them.”

Purpose of compensation

The purpose of a compensation system should not be to get the right behaviors from the wrong people, but to get the right people on the bus in the first place, and to keep them there.

Character & attitudes more than skills and knowledge

In 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.

Ruthless vs rigorous

If you don’t have what it takes, you probably won’t last long. But they’re not ruthless cultures, they’re rigorous cultures. And the distinction is crucial.

Rigor starts from the top

Rigor in a good-to-great company applies first at the top, focused on those who hold the largest burden of responsibility.

Being rigorous rather than ruthless:

  1. When in doubt, don’t hire—keep looking
    • When you know you need to make a people change, act
    • Put your best people on your biggest

Right peple at right slots

When I asked how Mockler accomplished all of this, the executive said, “Oh, it really wasn’t that hard for him. He was so good at assembling the right people around him, and putting the right people in the right slots, that he just didn’t need to be there all hours of the day and night. That was Colman’s whole secret to success and balance.”

Friendship and fun!

Members of the good-to-great teams tended to become and remain friends for life. In many cases, they are still in close contact with each other years or decades after working together. It was striking to hear them talk about the transition era, for no matter how dark the days or how big the tasks, these people had fun!

Good decisions with brutal facts

And even if all decisions do not become self-evident, one thing is certain: You absolutely cannot make a series of good decisions without first confronting the brutal facts.

Wrong leadership to lead with fear

Throughout the study, we found comparison companies where the top leader led with such force or instilled such fear that people worried more about the leader—what he would say, what he would think, what he would do— than they worried about external reality and what it could do to the company.

Recipe for mediocrity is fear of the leader

The moment a leader allows himself to become the primary reality people worry about, rather than reality being the primary reality, you have a recipe for mediocrity, or worse. This is one of the key reasons why less charismatic leaders often produce better long-term results than their more charismatic counterparts.

Winston Churchill

Winston Churchill understood the liabilities of his strong personality, and he compensated for them beautifully during the Second World War. Churchill, as you know, maintained a bold and unwavering vision that Britain would not just survive, but prevail as a great nation—despite the whole world wondering not if but when Britain would sue for peace. During the darkest days, with nearly all of Europe and North Africa under Nazi control, the United States hoping to stay out of the conflict, and Hitler fighting a one-front war (he had not yet turned on Russia), Churchill said: “We are resolved to destroy Hitler and every vestige of the Nazi regime. From this, nothing will turn us. Nothing! We will never parley. We will never negotiate with Hitler or any of his gang. We shall fight him by land. We shall fight him by sea. We shall fight him in the air. Until, with God’s help, we have rid the earth of his shadow.”

information source is different from the command / leadership source

He feared that his towering, charismatic personality might deter bad news from reaching him in its starkest form. So, early in the war, he created an entirely separate department outside the normal chain of command, called the Statistical Office, with the principal function of feeding him—continuously updated and completely unfiltered—the most brutal facts of reality.

Facts are better than dreams

He relied heavily on this special unit throughout the war, repeatedly asking for facts, just the facts. As the Nazi panzers swept across Europe, Churchill went to bed and slept soundly: “I… had no need for cheering dreams,” he wrote. “Facts are better than dreams.”

Candor, frankness, truth

Yes, leadership is about vision. But leadership is equally about creating a climate where the truth is heard and the brutal facts confronted.

Stop doing lists

Do you have a “to do” list? Do you also have a “stop doing” list? Most of us lead busy but undisciplined lives. We have ever-expanding “to do” lists, trying to build momentum by doing, doing, doing—and doing more. And it rarely works. Those who built the good-to-great companies, however, made as much use of “stop doing” lists as “to do” lists. They displayed a remarkable discipline to unplug all sorts of extraneous junk.

Simplifying the layers

So he simply unplugged a huge stack of layers with a simple elegant mechanism: If you couldn’t justify to your peers the need for at least fifteen people reporting to you to fulfill your responsibilities, then you would have zero people reporting to you.

The undiversified portfolio with focus

The most effective investment strategy is a highly undiversified portfolio when you are right. As facetious as that sounds, that’s essentially the approach the good-to-great companies took.

Zoom out from the bubbles

To be clear: The point of this chapter has little to do with the specifics of the Internet bubble, per se. Bubbles come and bubbles go. It happened with the railroads. It happened with electricity. It happened with radio. It happened with the personal computer. It happened with the Internet. And it will happen again with unforeseen new technologies.

Accelerator, not a creator

When used right, technology becomes an accelerator of momentum, not a creator of it. The 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.

People » Technology

We were quite surprised to find that fully 80 percent of the good-to-great executives we interviewed didn’t even mention technology as one of the top five factors in the transition.

Primary factors

“The primary factors,” said Ken Iverson, “were the consistency of the company, and our ability to project its philosophies throughout the whole organization, enabled by our lack of layers and bureaucracy.”

Tech is never a primary cause

Certainly, technology is important—you can’t remain a laggard and hope to be great. But technology by itself is never a primary cause of either greatness or decline.

War and technology

History teaches this lesson repeatedly. Consider the United States debacle in Vietnam. The United States had the most technologically advanced fighting force the world has ever known. Super jet fighters. Helicopter gunships. Advanced weapons. Computers. Sophisticated communications. Miles of high-tech border sensors. Indeed, the reliance on technology created a false sense of invulnerability. The Americans lacked not technology, but a simple and coherent concept for the war, on which to attach that technology. It lurched back and forth across a variety of ineffective strategies, never getting the upper hand. Meanwhile, the technologically inferior North Vietnamese forces adhered to a simple, coherent concept: a guerrilla war of attrition, aimed at methodically wearing down public support for the war at home. What little technology the North Vietnamese did employ, such as the AK 47 rifle (much more reliable and easier to maintain in the field than the complicated M-16), linked directly to that simple concept. And in the end, as you know, the United States—despite all its technological sophistication—did not succeed in Vietnam.

When technology is a liability

Indeed, thoughtless reliance on technology is a liability, not an asset. Yes, when used right—when linked to a simple, clear, and coherent concept rooted in deep understanding—technology is an essential driver in accelerating forward momentum.

Proactive not reactive

Yes, they did talk about strategy, and they did talk about performance, and they did talk about becoming the best, and they even talked about winning. But they never talked in reactionary terms and never defined their strategies principally in response to what others were doing. They talked in terms of what they were trying to create and how they were trying to improve relative to an absolute standard of excellence.

Momentum and flywheel

Each turn of the flywheel builds upon work done earlier, compounding your investment of effort. A thousand times faster, then ten thousand, then a hundred thousand. The huge heavy disk flies forward, with almost unstoppable momentum.

Media and perception of transformations

Often, the media does not cover a company until the flywheel is already turning at a thousand rotations per minute. This entirely skews our perception of how such transformations happen, making it seem as if they jumped right to breakthrough as some sort of an overnight metamorphosis.

When media articles appeared… after more than a decade

Yet the first major article in Business Week did not appear until 1978, thirteen years after the start of the transition, and not in Fortune until sixteen years out. From 1965 through 1975, we found only eleven articles on Nucor, none of them significant.

Organic development process

From the outside, they look like dramatic, almost revolutionary breakthroughs. But from the inside, they feel completely different, more like an organic development process.

consistent for extended period of time, quietly, deliberately

Rather, it was a quiet, deliberate process of figuring out what needed to be done to create the best future results and then simply taking those steps, one after the other, turn by turn of the flywheel. After pushing on that flywheel in a consistent direction over an extended period of time, they’d inevitably hit a point of breakthrough.

15 years of hard work followed by 12 years of streaks

Most basketball fans know that the Bruins won ten NCAA Championships in twelve years, at one point assembling a sixty-one-game winning streak, under the legendary coach John Wooden. But do you know how many years Wooden coached the Bruins before his first NCAA Championship? Fifteen. From 1948 to 1963, Wooden worked in relative obscurity before winning his first championship in 1964.

Under promise over deliver

They simply focused on accumulating results, often practicing the time-honored discipline of under-promising and over-delivering. And as the results began to accumulate—as the flywheel built momentum—the investing community came along with great enthusiasm.

Rapid iteration

Herring understood that the way to get people lined up behind a bold new vision is to turn the flywheel consistent with that vision—from two turns to four, then four to eight, then eight to sixteen—and then to say, “See what we’re doing, and how well it is working? Extrapolate from that, and that’s where we’re going.”

Quiet confidence

And I said to him, ‘Now, Ken, when are you going to be number one?’ ‘I don’t know,’ he said. ‘But if we just keep doing what we’re doing, there’s no reason why we can’t become number one.’ ”

Quiet, small steps vs fanfare and hoopla

We found a very different pattern at the comparison companies. Instead of a quiet, deliberate process of figuring out what needed to be done and then simply doing it, the comparison companies frequently launched new programs—often with great fanfare and hoopla aimed at “motivating the troops”—only to see the programs fail to produce sustained results. They sought the single defining action, the grand program, the one killer innovation, the miracle moment that would allow them to skip the arduous buildup stage and jump right to breakthrough.

Acquitions and buying

They never learned the simple truth that, while you can buy your way to growth, you absolutely cannot buy your way to greatness. Two big mediocrities joined together never make one great company.

Focus and consistency

When I look over the good-to-great transformations, the one word that keeps coming to mind is consistency.

Each piece

However you phrase it, the basic idea is the same: Each piece of the system reinforces the other parts of the system to form an integrated whole that is much more powerful than the sum of the parts. It is only through consistency over time, through multiple generations, that you get maximum results.

Momentum and then breakthrough

In short, if you diligently and successfully apply each concept in the framework, and you continue to push in a consistent direction on the fly-wheel, accumulating momentum step by step and turn by turn, you will eventually reach breakthrough.

Beginning of Wal Mart

Sam Walton began in 1945 with a single dime store. He didn’t open his second store until seven years later. Walton built incrementally, step by step, turn by turn of the flywheel, until the Hedgehog Concept of large discount marts popped out as a natural evolutionary step in the mid-1960s.

Doesn’t matter what the core value is

A company need not have passion for its customers (Sony didn’t), or respect for the individual (Disney didn’t), or quality (Wal-Mart didn’t), or social responsibility (Ford didn’t) in order to become enduring and great. This was one of the most paradoxical findings from Built to Last—core values are essential for enduring greatness, but it doesn’t seem to matter what those core values are

What is a BHAG

Bad BHAGs, it turns out, are set with bravado; good BHAGs are set with understanding. Indeed, when you combine quiet understanding of the three circles with the audacity of a BHAG, you get a powerful, almost magical mix.

Beginning of Boeing

Today, we take for granted that most air travel takes place on Boeing jets, but in 1952, almost no one outside the military flew on Boeing.

Cumulative experience in a complementary field

They came to understand that, whereas Boeing could not have been the best commercial plane maker a decade earlier, the cumulative experience in jets and big planes they had gained from military contracts now made such a dream possible. They also came to see that the economics of commercial aircraft would be vastly superior to the military market and—of no small importance—they were just flat-out turned on by the whole idea of building a commercial jet.

Calm and equanimity

Boeing’s executives understood with calm, equanimity that (1) the company could become the best in the world at commercial jet manufacturing even though it had no presence in the market, (2) the shift would significantly improve Boeing’s economics by increasing profit per aircraft model, and (3) the Boeing people were very passionate about the idea.

Might as well go for greatness

First, I believe that it is no harder to build something great than to build something good. It might be statistically more rare to reach greatness, but it does not require more suffering than perpetuating mediocrity.

Let people see it for themselves

Then, one day out on a training run, one boy said to his teammates, “Hey, I think we could win state.” “Yeah, I think so, too,” said another. Everyone kept running, the goal quietly understood. The coaching staff never once mentioned the state championship idea until the kids saw for themselves that they could do it.

Well worth it

And along the way, you just might make what you’re building great. So, I ask again: If it’s no harder (given these ideas), the results better, and the process so much more fun—well, why wouldn’t you go for greatness?

Perpetuation mediocrity vs building momentum

Yes, turning good into great takes energy, but the building of momentum adds more energy back into the pool than it takes out. Conversely, perpetuating mediocrity is an inherently depressing process and drains much more energy out of the pool than it puts back in.

Focus on the wrong things and wrong times

The problem is not the statistical odds; the problem is that people are squandering their time and resources on the wrong things.

A big mistake is to not know

As Robert Burgelman, one of my favorite professors from Stanford Business School, taught me years ago, “The single biggest danger in business and life, other than outright failure, is to be successful without being resolutely clear about why you are successful in the first place.”

When there are rockstar CEOs… sounds like rockstar startup founders?

The recent spate of boards enamored with charismatic CEOs, especially “rock star” celebrity types, is one of the most damaging trends for the long-term health of companies.

Hiring and being patient

First, at the top levels of your organization, you absolutely must have the discipline not to hire until you find the right people. The single most harmful step you can take in a journey from good to great is to put the wrong people in key positions. Second, widen your definition of “right people” to focus more on the character attributes of the person and less on specialized knowledge.

How to create change within an organization

The director of academic medicine changed the entire faculty, but it took him two decades. He could not fire tenured professors, but he could hire the right people for every opening, gradually creating an environment where the wrong people felt increasingly uncomfortable and eventually retired or decided to go elsewhere.

Carrying on with the wrong people

Yes, you might still have to carry the wrong people along, but you can essentially restrict them to backseats on the bus by not including them on the Council.

Foxes and hedgehogs

Berlin extrapolated from this little parable to divide people into two basic groups: foxes and hedgehogs. Foxes pursue many ends at the same time and see the world in all its complexity. They are “scattered or diffused, moving on many levels,” says Berlin, never integrating their thinking into one overall concept or unifying vision. Hedgehogs, on the other hand, simplify a complex world into a single organizing idea, a basic principle or concept that unifies and guides everything.

Insight

No, the hedgehogs aren’t simpletons; they have a piercing insight that allows them to see through complexity and discern underlying patterns. Hedgehogs see what is essential, and ignore the rest.

Despite all the noise

In a world overrun by management faddists, brilliant visionaries, ranting futurists, fearmongers, motivational gurus, and all the rest, it’s refreshing to see a company succeed so brilliantly by taking one simple concept and just doing it with excellence and imagination.

Hedgehog 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. All the good-to-great companies attained piercing insight into how to most effectively generate sustained and robust cash flow and profitability
  3. What you are deeply passionate about. The good-to-great companies focused on those activities that ignited their passion. The idea here is not to stimulate passion but to discover what makes you passionate.

Understanding and not a strategy

A Hedgehog Concept is not a goal to be the best, a strategy to be the best, an intention to be the best, a plan to be the best. It is an understanding of what you can be the best at. The distinction is absolutely crucial.

Experience != greatness

Just because something is your core business—just because you’ve been doing it for years or perhaps even decades—does not necessarily mean that you can be the best in the world at it.

Choosing a metric

Think about it in terms of the following question: If you could pick one and only one ratio—profit per x (or, in the social sector, cash flow per x)— to systematically increase over time, what x would have the greatest and most sustainable impact on your economic engine?

Choosing the right metric or ratio

Recall how Walgreens switched its focus from profit per store to profit per customer visit. Convenient locations are expensive, but by increasing profit per customer visit, Walgreens was able to increase convenience (nine stores in a mile!) and simultaneously increase profitability across its entire system.

Cannot manufacture passion

You can’t manufacture passion or “motivate” people to feel passionate. You can only discover what ignites your passion and the passions of those around you.

Hedgehog + momentum

if you have the right Hedgehog Concept and make decisions relentlessly consistent with it, you will create such momentum that your main problem will not be how to grow, but how not to grow too fast.

Insight + years of groping

Insight just doesn’t happen that way. It took Einstein ten years of groping through the fog to get the theory of special relativity, and he was a bright guy.

4 years to know the Hedgehog

It took about four years on average for the good-to-great companies to clarify their Hedgehog Concepts. Like scientific insight, a Hedgehog Concept simplifies a complex world and makes decisions much easier. But while it has crystalline clarity and elegant simplicity once you have it, getting the concept can be devilishly difficult and takes time.

No show

Her words had no bravado in them, no hype, no agitation, no pleading. She didn’t try to convince me. She simply observed what she had come to understand was a fact, a truth no more shocking than stating that the walls were painted white. She had the passion. She had the genetics.