The vast majority of companies never become great, precisely because the vast majority become quite good— and that is their main problem. (Location 83)
truly great companies, for the most part, have always been great. And the vast majority of good companies remain just that— good, but not great. (Location 92)
question– Can a good company become a great company and, if so, how?— and our search for timeless, universal answers that can be applied by any organization. (Location 129)
It is important to understand that we developed all of the concepts in this book by making empirical deductions directly from the data. We did not begin this project with a theory to test or prove. We sought to build a theory from the ground up, derived directly from the evidence. (Location 190)
Ten of eleven good-to-great CEOs came from inside the company, whereas the comparison companies tried outside CEOs six times more often. (Location 202)
The idea that the structure of executive compensation is a key driver in corporate performance is simply not supported by the data.• (Location 204)
Strategy per se did not separate the good-to-great companies from the comparison companies. Both sets of companies had well-defined strategies, and there is no evidence that the good-to-great companies spent more time on long-range strategic planning than the comparison companies. (Location 206)
The good-to-great companies did not focus principally on what to do to become great; they focused equally on what not to do and what to stop doing. (Location 208)
Technology and technology-driven change has virtually nothing to do with igniting a transformation from good to great. Technology can accelerate a transformation, but technology cannot cause a transformation. (Location 210)
The good-to-great companies paid scant attention to managing change, motivating people, or creating alignment. Under the right conditions, the problems of commitment, alignment, motivation, and change largely melt away. (Location 215)
Greatness is not a function of circumstance. Greatness, it turns out, is largely a matter of conscious choice. (Location 222)
the type of leadership required for turning a good company into a great one. 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. (Location 238)
We expected that good-to-great leaders would begin by setting a new vision and strategy. We found instead that they first got the right people on the bus, the wrong people off the bus, and the right people in the right seats— and then they figured out where to drive it. (Location 242)
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. (Location 248)
To go from good to great requires transcending the curse of competence. Just because something is your core business— just because you’ve been doing it for years or perhaps even decades— does not necessarily mean you can be the best in the world at it. And if you cannot be the best in the world at your core business, then your core business absolutely cannot form the basis of a great company. (Location 251)
When you have disciplined people, you don’t need hierarchy. When you have disciplined thought, you don’t need bureaucracy. When you have disciplined action, you don’t need excessive controls. When you combine a culture of discipline with an ethic of entrepreneurship, you get the magical alchemy of great performance. (Location 256)
Good-to-great companies think differently about the role of technology. They never use technology as the primary means of igniting a transformation. Yet, paradoxically, they are pioneers in the application of carefully selected technologies. (Location 259)
There was no single defining action, no grand program, no one killer innovation, no solitary lucky break, no miracle moment. Rather, the process resembled relentlessly pushing a giant heavy flywheel in one direction, turn upon turn, building momentum until a point of breakthrough, and beyond. (Location 264)
If (Location 271)
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. Yes, the specific application will change (the engineering), but certain immutable laws of organized human performance (the physics) will endure. (Location 280)
You can accomplish anything in life, provided that you do not mind who gets the credit. (Location 315)
His awkward shyness and lack of pretense was coupled with a fierce, even stoic, resolve toward life. (Location 338)
Smith brought that same ferocious resolve to rebuilding Kimberly-Clark, especially when he made the most dramatic decision in the company’s history: Sell the mills. 8 Shortly after he became CEO, Smith and his team had concluded that the traditional core business— coated paper— was doomed to mediocrity. Its economics were bad and the competition weak. 9 But, they reasoned, if Kimberly-Clark thrust itself into the fire of the consumer paper-products industry, world-class competition like Procter & Gamble would force it to achieve greatness or perish. (Location 348)
So, (Location 356)
Level 5 leader— an individual who blends extreme personal humility with intense professional will. We found leaders of this type at the helm of every good-to-great company during the transition era. Like Smith, they were self-effacing individuals who displayed the fierce resolve to do whatever needed to be done to make the company great. (Location 367)
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. (Location 370)
Level 5 refers to the highest level in a hierarchy of executive capabilities that we identified in our research. (Location 373)
the “Leadership is the answer to everything” perspective is the modern equivalent of the “God is the answer to everything” perspective that held back our scientific understanding of the physical world in the Dark Ages. (Location 381)
All the good-to-great companies had Level 5 leadership at the time of transition. Furthermore, the absence of Level 5 leadership showed up as a consistent pattern in the comparison companies. (Location 394)
Level 5 leaders are a study in duality: modest and willful, humble and fearless. (Location 398)
Abraham Lincoln (one of the few Level 5 presidents in United States history), who never let his ego get in the way of his primary ambition for the larger cause of an enduring great nation. (Location 399)
His placid persona hid an inner intensity, a dedication to making anything he touched the best it could possibly be— not just because of what he would get, but because he simply couldn’t imagine doing it any other way. (Location 449)
ambition first and foremost for the company and concern for its success rather than for one’s own riches and personal renown. (Location 464)
Level 5 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.’ ” (Location 465)
the comparison leaders, concerned more with their own reputation for personal greatness, often failed to set the company up for success in the next generation. After all, what better testament to your own personal greatness than that the place falls apart after you leave? (Location 467)
In over three quarters of the comparison companies, we found executives who set their successors up for failure or chose weak successors, or both. (Location 470)
Gault had every reason to be proud of his executive success. Rubbermaid generated forty consecutive quarters of earnings growth under his leadership— an impressive performance, and one that deserves respect. But— and this is the key point— Gault did not leave behind a company that would be great without him. (Location 483)
good-to-great leaders didn’t talk about themselves. 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. (Location 495)
good-to-great leaders continually used words like quiet, humble, modest, reserved, shy, gracious, mild-mannered, self-effacing, understated, did not believe his own clippings; (Location 501)
The good-to-great leaders never wanted to become larger-than-life heroes. They never aspired to be put on a pedestal or become unreachable icons. They were seemingly ordinary people quietly producing extraordinary results. (Location 518)
In over two thirds of the comparison cases, we noted the presence of a gargantuan personal ego that contributed to the demise or continued mediocrity of the company. (Location 536)
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. (Location 563)
Level 5 leaders are fanatically driven, infected with an incurable need to produce results. They will sell the mills or fire their brother, if that’s what it takes to make the company great. (Location 571)
He could not stand mediocrity in any form and was utterly intolerant of anyone who would accept the idea that good is good enough. (Location 575)
Cain then set out to destroy one of the key causes of Abbott’s mediocrity: nepotism. Systematically rebuilding both the board and the executive team with the best people he could find, Cain made it clear that neither family ties nor length of tenure would have anything to do with whether you held a key position in the company. If you didn’t have the capacity to become the best executive in the industry in your span of responsibility, then you would lose your paycheck. 39 (Location 576)
Unlike George Cain, Upjohn’s CEO never showed the same resolve to break the mediocrity of nepotism. By the time Abbott had filled all key seats with the best people, regardless of family background, Upjohn still had B level family members holding key positions. (Location 586)
The evidence does not support the idea that you need an outside leader to come in and shake up the place to go from good to great. In fact, going for a high-profile outside change agent is negatively correlated with a sustained transformation from good to great. (Location 592)
Ten out of eleven good-to-great CEOs came from inside the company, three of them by family inheritance. The comparison companies turned to outsiders with six times greater frequency— yet they failed to produce sustained great results. (Location 595)
Luck. What an odd factor to talk about. Yet the good-to-great executives talked a lot about luck in our interviews. (Location 638)
the comparison executives: They credited substantial blame to bad luck, frequently bemoaning the difficulties of the environment they faced. (Location 651)
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. (Location 665)
The comparison leaders did just the opposite. They’d look out the window for something or someone outside themselves to blame for poor results, but would preen in front of the mirror and credit themselves when things went well. (Location 668)
My (Location 682)
The great irony is that the animus and personal ambition that often drive people to positions of power stand at odds with the humility required for Level 5 leadership. When you combine that irony with the fact that boards of directors frequently operate under the false belief that they need to hire a larger-than-life, egocentric leader to make an organization great, you can quickly see why Level 5 leaders rarely appear at the top of our institutions. (Location 687)
My best advice, based on the research, is to begin practicing the other good-to-great disciplines we discovered. We found a symbiotic relationship between Level 5 and the remaining findings. On the one hand, Level 5 traits enable you to implement the other findings; on the other hand, practicing the other findings helps you to become Level 5. (Location 711)
Level 5 leaders embody a paradoxical mix of personal humility and professional will. They are ambitious, to be sure, but ambitious first and foremost for the company, not themselves. (Location 726)
Level 5 leaders set up their successors for even greater success in the next generation, whereas egocentric Level 4 leaders often set up their successors for failure. (Location 728)
Level 5 leaders display a workmanlike diligence— more plow horse than show horse. (Location 735)
Level 5 leaders look out the window to attribute success to factors other than themselves. When things go poorly, however, they look in the mirror and blame themselves, taking full responsibility. (Location 736)
Level 5 leaders attribute much of their success to good luck, rather than personal greatness. (Location 747)
The executives who ignited the transformations from good to great did not first figure out where to drive the bus and then get people to take it there. No, they first got the right people on the bus (and the wrong people off the bus) and then figured out where to drive it. (Location 760)
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? You’ve got a problem. (Location 764)
“Hey, I got on this bus because of who else is on it; if we need to change direction to be more successful, fine with me.” Second, if you have the right people on the bus, the problem of how to motivate and manage people largely goes away. (Location 767)
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. (Location 768)
if you have the wrong people, it doesn’t matter whether you discover the right direction; you still won’t have a great company. Great vision without great people is irrelevant. (Location 770)
Cooley foresaw that the banking industry would eventually undergo wrenching change, but he did not pretend to know what form that change would take. So instead of mapping out a strategy for change, he and chairman Ernie Arbuckle focused on “injecting an endless stream of talent” directly into the veins of the company. (Location 775)
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.” (Location 777)
You get the best people, you build them into the best managers in the industry, and you accept the fact that some of them will be recruited to become CEOs of other companies. 7 (Location 794)
something called the “weak generals, strong lieutenants” model. 8 If you pick strong generals for key positions, their competitors will leave. But if you pick weak generals— placeholders, rather than highly capable executives— then the strong lieutenants are more likely to stick around. (Location 798)
Whereas the Wells Fargo crew acted as a strong team of equal partners, ferociously debating eyeball-to-eyeball in search of the best answers, the Bank of America weak generals would wait for directions from above. Sam Armacost, who inherited the weak generals model, described the management climate: “I came away quite distressed from my first couple of management meetings. Not only couldn’t I get conflict, I couldn’t even get comment. They were all waiting to see which way the wind blew.” 9 (Location 802)
“Plastic People” who’d been trained to quietly submit to the dictates of a domineering CEO. 10 Later, after losing over $ 1 billion in the (Location 807)
the main point of this chapter is not just about assembling the right team— that’s nothing new. The main point is to first get the right people on the bus (and the wrong people off the bus) before you figure out where to drive it. The second key point is the degree of sheer rigor needed in people decisions in order to take a company from good to great. (Location 818)
“First who” is a very simple idea to grasp, and a very difficult idea to do— and most don’t do it well. It’s easy to talk about paying attention to people decisions, but how many executives have the discipline of David Maxwell, who held off on developing a strategy until he got the right people in place, while the company was losing 1millioneverysinglebusinessdaywith 56 billion of loans underwater? (Location 822)
Wells Fargo and Fannie Mae both illustrate the idea that “who” questions come before “what” questions— before vision, before strategy, before tactics, before organizational structure, before technology. Dick Cooley and David Maxwell both exemplified a classic Level 5 style when they said, “I don’t know where we should take this company, but I do know that if I start with the right people, ask them the right questions, and engage them in vigorous debate, we will find a way to make this company great.” (Location 843)
In contrast to the good-to-great companies, which built deep and strong executive teams, many of the comparison companies followed a “genius with a thousand helpers” model. In this model, the company is a platform for the talents of an extraordinary individual. In these cases, the towering genius, the primary driving force in the company’s success, is a great asset— as long as the genius sticks around. The geniuses seldom build great management teams, for the simple reason that they don’t need one, and often don’t want one. If you’re a genius, you don’t need a Wells Fargo– caliber management team of people who could run their own shows elsewhere. No, you just need an army of good soldiers who can help implement your great ideas. (Location 848)
when the genius leaves, the helpers are often lost. Or, worse, they try to mimic their predecessor with bold, visionary moves (trying to act like a genius, without being a genius) that prove unsuccessful. (Location 853)
The (Location 872)
will win no awards for humility, but who can avoid standing in awe of his impressive record?” Singleton continued to run the company well into his seventies, with no serious thought given to succession. After all, why worry about succession when the very point of the whole thing is to serve as a platform to leverage the talents of your remarkable genius? “If there is a single weakness in this otherwise brilliant picture,” the article continued, “it is this: Teledyne is not so much a system as it is the reflection of one man’s singular discipline.” (Location 886)
We found no systematic pattern linking executive compensation to the process of going from good to great. The evidence simply does not support the idea that the specific structure of executive compensation acts as a key lever in taking a company from good to great. (Location 900)
The only significant difference we found was that the good-to-great executives received slightly less total cash compensation ten years after the transition than their counterparts at the still-mediocre comparison companies! 26 (Location 907)
But once you’ve structured something that makes basic sense, executive compensation falls away as a distinguishing variable in moving an organization from good to great. (Location 912)
It’s not how you compensate your executives, it’s which executives you have to compensate in the first place. If you have the right executives on the bus, they will do everything within their power to build a great company, not because of what they will “get” for it, but because they simply cannot imagine settling for anything less. Their moral code requires building excellence for its own sake, and you’re no more likely to change that with a compensation package than you’re likely to affect whether they breathe. (Location 914)
compensation and incentives are important, but for very different reasons in good-to-great companies. 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. (Location 919)
A particularly vivid example is Nucor. Nucor built its entire system on the idea that you can teach farmers how to make steel, but you can’t teach a farmer work ethic to people who don’t have it in the first place. (Location 925)
The Nucor system did not aim to turn lazy people into hard workers, but to create an environment where hardworking people would thrive and lazy workers would either jump or get thrown right off the bus. (Location 941)
Nucor rejected the old adage that people are your most important asset. In a good-to-great transformation, people are not your most important asset. The right people are. (Location 945)
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. (Location 947)
The good-to-great companies probably sound like tough places to work— and they are. 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. (Location 961)
To be ruthless means hacking and cutting, especially in difficult times, or wantonly firing people without any thoughtful consideration. To be rigorous means consistently applying exacting standards at all times and at all levels, especially in upper management. To be rigorous, not ruthless, means that the best people need not worry about their positions and can concentrate fully on their work. (Location 963)
When it came to management, the Wells Fargo standards were ferocious and consistent. Like a professional sports team, only the best made the annual cut, regardless of position or tenure. (Location 980)
“The only way to deliver to the people who are achieving is to not burden them with the people who are not achieving.” (Location 982)
To let people languish in uncertainty for months or years, stealing precious time in their lives that they could use to move on to something else, when in the end they aren’t going to make it anyway— that would be ruthless. To deal with it right up front and let people get on with their lives— that is rigorous. (Location 991)
Rigor in a good-to-great company applies first at the top, focused on those who hold the largest burden of responsibility. (Location 1000)
The good-to-great companies rarely used head-count lopping as a tactic and almost never used it as a primary strategy. (Location 1004)
It would be a mistake— a tragic mistake, indeed— to think that the way you ignite a transition from good to great is by wantonly swinging the ax on vast numbers of hardworking people. Endless restructuring and mindless hacking were never part of the good-to-great model. (Location 1011)
Practical Discipline 1: When in doubt, don’t hire— keep looking. One of the immutable laws of management physics is “Packard’s Law.” (Location 1015)
No company can grow revenues consistently faster than its ability to get enough of the right people to implement that growth and still become a great company. If your growth rate in revenues consistently outpaces your growth rate in people, you simply will not— indeed cannot— build a great company. (Location 1017)
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. (Location 1020)
A huge part of our transition can be attributed to our discipline in picking the right people.” (Location 1027)
Practical Discipline 2: When you know you need to make a people change, act. (Location 1048)
The moment you feel the need to tightly manage someone, you’ve made a hiring mistake. (Location 1049)
The best people don’t need to be managed. Guided, taught, led— yes. But not tightly managed. We’ve all experienced or observed the following scenario. (Location 1049)
Letting the wrong people hang around is unfair to all the right people, as they inevitably find themselves compensating for the inadequacies of the wrong people. Worse, it can drive away the best people. Strong performers are intrinsically motivated by performance, and when they see their efforts impeded by carrying extra weight, they eventually become frustrated. (Location 1056)
Waiting too long before acting is equally unfair to the people who need to get off the bus. For every minute you allow a person to continue holding a seat when you know that person will not make it in the end, you’re stealing a portion of his life, time that he could spend finding a better place where he could flourish. (Location 1059)
the reason we wait too long often has less to do with concern for that person and more to do with our own convenience. He’s doing an okay job and it would be a huge hassle to replace him, so we avoid the issue. Or we find the whole process of dealing with the issue to be stressful and distasteful. So, to save ourselves stress and discomfort, we wait. And wait. And wait. (Location 1061)
The good-to-great companies showed the following bipolar pattern at the top management level: People either stayed on the bus for a long time or got off the bus in a hurry. In other words, the good-to-great companies did not churn more, they churned better. (Location 1069)
The good-to-great leaders did not pursue an expedient “try a lot of people and keep who works” model of management. Instead, they adopted the following approach: “Let’s take the time to make rigorous A + selections right up front. If we get it right, we’ll do everything we can to try to keep them on board for a long time. If we make a mistake, then we’ll confront that fact so that we can get on with our work and they can get on with their lives.” (Location 1071)
invested substantial effort in determining whether they had someone in the wrong seat before concluding that they had the wrong person on the bus entirely. (Location 1075)
When Colman Mockler became CEO of Gillette, he didn’t go on a rampage, wantonly throwing people out the windows of a moving bus. Instead, he spent fully 55 percent of his time during his first two years in office jiggering around with the management team, changing or moving thirty-eight of the top fifty people. Said Mockler, “Every minute devoted to putting the proper person in the proper slot is worth weeks of time later.” (Location 1076)
Instead of firing honest and able people who are not performing well, it is important to try to move them once or even two or three times to other positions where they might blossom. (Location 1084)
It might take time to know for certain if someone is simply in the wrong seat or whether he needs to get off the bus altogether. Nonetheless, when the good-to-great leaders knew they had to make a people change, they would act. (Location 1086)
if it were a hiring decision (rather than a “should this person get off the bus?” decision), would you hire the person again? Second, if the person came to tell you that he or she is leaving to pursue an exciting new opportunity, would you feel terribly disappointed or secretly relieved? (Location 1089)
Put your best people on your biggest opportunities, not your biggest problems. (Location 1091)
The good-to-great companies made a habit of putting their best people on their best opportunities, not their biggest problems. The comparison companies had a penchant for doing just the opposite, failing to grasp the fact that managing your problems can only make you good, whereas building your opportunities is the only way to become great. (Location 1110)
the difference between a Level 5 executive team member and just being a good soldier?” A Level 5 executive team member does not blindly acquiesce to authority and is a strong leader in her own right, so driven and talented that she builds her arena into one of the very best in the world. Yet each team member must also have the ability to meld that strength into doing whatever it takes to make the company great. (Location 1134)
were always in search of the best answer. In the end, everybody stood behind the decision. All of the debates were for the common good of the company, not your own interests.” (Location 1143)
Adherence to the idea of “first who” might be the closest link between a great company and a great life. For no matter what we achieve, if we don’t spend the vast majority of our time with people we love and respect, we cannot possibly have a great life. But if we spend the vast majority of our time with people we love and respect— people we really enjoy being on the bus with and who will never disappoint us— then we will almost certainly have a great life, no matter where the bus goes. (Location 1179)
The good-to-great leaders began the transformation by first getting the right people on the bus (and the wrong people off the bus) and then figured out where to drive it. (Location 1186)
The key point of this chapter is not just the idea of getting the right people on the team. The key point is that “who” questions come before “what” decisions— before vision, before strategy, before organization structure, before tactics. First who, then what— as a rigorous discipline, consistently applied. (Location 1188)
The good-to-great leaders were rigorous, not ruthless, in people decisions. They did not rely on layoffs and restructuring as a primary strategy for improving performance. The comparison companies used layoffs to a much greater extent. (Location 1194)
We uncovered three practical disciplines for being rigorous in people decisions: 1. When in doubt, don’t hire— keep looking. (Corollary: A company should limit its growth based on its ability to attract enough of the right people.) 2. When you know you need to make a people change, act. (Corollary: First be sure you don’t simply have someone in the wrong seat.) 3. Put your best people on your biggest opportunities, not your biggest problems. (Corollary: If you sell off your problems, don’t sell off your best people.) (Location 1196)
Good-to-great management teams consist of people who debate vigorously in search of the best answers, yet who unify behind decisions, regardless of parochial interests. (Location 1204)
A& P had a perfect model for the first half of the twentieth century, when two world wars and a depression imposed frugality upon Americans: cheap, plentiful groceries sold in utilitarian stores. But in the affluent second half of the twentieth century, Americans changed. They wanted nicer stores, bigger stores, more choices in stores. They wanted fresh-baked bread, flowers, health foods, cold medicines, fresh produce, forty-five choices of cereal, and ten types of milk. They wanted offbeat items, like five different types of expensive sprouts and various concoctions of protein powder and Chinese healing herbs. Oh, and they wanted to be able to do their banking and get their annual flu shots while shopping. (Location 1238)
one of these two companies confronted the brutal facts of reality head-on and completely changed its entire system in response; the other stuck its head in the sand. (Location 1250)
In one series of events, the company opened a new store called The Golden Key, a separate brand wherein it could experiment with new methods and models to learn what customers wanted. 7 It sold no A& P-branded products, it gave the store manager more freedom, it experimented with innovative new departments, and it began to evolve toward the modern superstore. Customers really liked it. Here, right under their noses, they began to discover the answer to the questions of why they were losing market share and what they could do about it. What did A& P executives do with The Golden Key? They didn’t like the answers that it gave, so they closed it. (Location 1264)
A& P then began a pattern of lurching from one strategy to another, always looking for a single-stroke solution to its problems. It held pep rallies, launched programs, grabbed fads, fired CEOs, hired CEOs, and fired them yet again. It launched what one industry observer called a “scorched earth policy,” a radical price-cutting strategy to build market share, but never dealt with the basic fact that customers wanted not lower prices, but different stores. (Location 1272)
The old-model grocery store (which accounted for nearly 100 percent of Kroger’s business) was going to become extinct. Unlike A& P, however, Kroger confronted this brutal truth and acted on it. (Location 1283)
breakthrough results come about by a series of good decisions, diligently executed and accumulated one on top of another. Of course, the good-to-great companies did not have a perfect track record. But on the whole, they made many more good decisions than bad ones, and they made many more good decisions than the comparison companies. (Location 1300)
There is nothing wrong with pursuing a vision for greatness. After all, the good-to-great companies also set out to create greatness. But, unlike the comparison companies, the good-to-great companies continually refined the path to greatness with the brutal facts of reality. (Location 1346)
is a culture that is very hostile to complacency,” said one executive. 26 “We have an itch that what we just accomplished, no matter how great, is never going to be good enough to sustain us,” said another. (Location 1352)
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. (Location 1367)
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. (Location 1371)
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. 32 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.” 33 (Location 1386)
How do you manage in such a way as not to de-motivate people? And one of the single most de-motivating actions you can take is to hold out false hopes, soon to be swept away by events. (Location 1398)
Yes, leadership is about vision. But leadership is equally about creating a climate where the truth is heard and the brutal facts confronted. (Location 1399)
There’s a huge difference between the opportunity to “have your say” and the opportunity to be heard. The good-to-great leaders understood this distinction, creating a culture wherein people had a tremendous opportunity to be heard and, ultimately, for the truth to be heard. (Location 1400)
Lead with questions, not answers. (Location 1404)
leaders in each of the good-to-great transitions operated with a somewhat Socratic style. Furthermore, they used questions for one and only one reason: to gain understanding. (Location 1421)
the humility to grasp the fact that you do not yet understand enough to have the answers and then to ask the questions that will lead to the best possible insights. (Location 1430)
Engage in dialogue and debate, not coercion. (Location 1432)
Nucor benefited from the emergence of a Level 5 leader, Ken Iverson, promoted to CEO from general manager of the joist division. Second, Iverson got the right people on the bus, building a remarkable team of people like Sam Siegel (described by one of his colleagues as “the best money manager in the world, a magician”) and David Aycock, an operations genius. 37 (Location 1443)
Iverson dreamed of building a great company, but refused to begin with “the answer” for how to get there. Instead, he played the role of Socratic moderator in a series of raging debates. “We established an ongoing series of general manager meetings, and my role was more as a mediator,” commented Iverson. “They were chaos. We would stay there for hours, ironing out the issues, until we came to something… At times, the meetings would get so violent that people almost went across the table at each other… People yelled. They waved their arms around and pounded on tables. Faces would get red and veins bulged out.” 38 (Location 1448)
all the good-to-great companies had a penchant for intense dialogue. Phrases like “loud debate,” “heated discussions,” and “healthy conflict” peppered the articles and interview transcripts from all the companies. They didn’t use discussion as a sham process to let people “have their say” so that they could “buy in” to a predetermined decision. The process was more like a heated scientific debate, with people engaged in a search for the best answers. (Location 1462)
When you conduct autopsies without blame, you go a long way toward creating a climate where the truth is heard. If you have the right people on the bus, you should almost never need to assign blame but need only to search for understanding and learning. (Location 1486)
Build “red flag” mechanisms. (Location 1489)
The key, then, lies not in better information, but in turning information into information that cannot be ignored. One particularly powerful way to accomplish this is through red flag mechanisms. (Location 1507)
Short pay gives the customer full discretionary power to decide whether and how much to pay on an invoice based upon his own subjective evaluation of how satisfied he feels with a product or service. Short pay is not a refund policy. The customer does not need to return the product, nor does he need to call Graniterock for permission. He simply circles the offending item on the invoice, deducts it from the total, and sends a check for the balance. When I asked Woolpert his reasons for short pay, he said, “You can get a lot of information from customer surveys, but there are always ways of explaining away the data. With short pay, you absolutely have to pay attention to the data. You often don’t know that a customer is upset until you lose that customer entirely. Short pay acts as an early warning system that forces us to adjust quickly, long before we would lose that customer.” (Location 1521)
you’re a fully developed Level 5 leader, you might not need red flag mechanisms. But if you are not yet a Level 5 leader, or if you suffer the liability of charisma, red flag mechanisms give you a practical and useful tool for turning information into information that cannot be ignored and for creating a climate where the truth is heard.* UNWAVERING (Location 1530)
the good-to-great companies left themselves stronger and more resilient, not weaker and more dispirited. There is a sense of exhilaration that comes in facing head-on the hard truths and saying, “We will never give up. We will never capitulate. It might take a long time, but we will find a way to prevail.” (Location 1560)
On the one hand, they stoically accepted the brutal facts of reality. On the other hand, they maintained an unwavering faith in the endgame, and a commitment to prevail as a great company despite the brutal facts. We came to call this duality the Stockdale Paradox. (Location 1607)
never lost faith in the end of the story,” he said, when I asked him. “I never doubted not only that I would get out, but also that I would prevail in the end and turn the experience into the defining event of my life, which, in retrospect, I would not trade.” * (Location 1633)
“This is a very important lesson. You must never confuse faith that you will prevail in the end— which you can never afford to lose— with the discipline to confront the most brutal facts of your current reality, whatever they might be.” (Location 1643)
the Stockdale Paradox (you must retain faith that you will prevail in the end and you must also confront the most brutal facts of your current reality) has proved powerful for coming back from difficulties not weakened, but stronger— not just for me, but for all those who’ve learned the lesson and tried to apply it. (Location 1651)
All good-to-great companies began the process of finding a path to greatness by confronting the brutal facts of their current reality. (Location 1686)
When you start with an honest and diligent effort to determine the truth of your situation, the right decisions often become self-evident. It is impossible to make good decisions without infusing the entire process with an honest confrontation of the brutal facts. (Location 1688)
A primary task in taking a company from good to great is to create a culture wherein people have a tremendous opportunity to be heard and, ultimately, for the truth to be heard. (Location 1691)
Creating a climate where the truth is heard involves four basic practices: 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. (Location 1693)
The good-to-great companies faced just as much adversity as the comparison companies, but responded to that adversity differently. They hit the realities of their situation head-on. As a result, they emerged from adversity even stronger. (Location 1699)
A key psychology for leading from good to great is the Stockdale Paradox: Retain absolute faith that you can and will prevail in the end, regardless of the difficulties, AND at the same time confront the most brutal facts of (Location 1702)
Charisma can be as much a liability as an asset, as the strength of your leadership personality can deter people from bringing you the brutal facts. (Location 1706)
Leadership does not begin just with vision. It begins with getting people to confront the brutal facts and to act on the implications. (Location 1707)
Spending time and energy trying to “motivate” people is a waste of effort. The real question is not, “How do we motivate our people?” If you have the right people, they will be self-motivated. The key is to not de-motivate them. One of the primary ways to de-motivate people is to ignore the brutal facts of reality. (Location 1709)
In his famous essay “The Hedgehog and the Fox,” Isaiah Berlin divided the world into hedgehogs and foxes, based upon an ancient Greek parable: “The fox knows many things, but the hedgehog knows one big thing.” (Location 1719)
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. It doesn’t matter how complex the world, a hedgehog reduces all challenges and dilemmas to simple— indeed almost simplistic— hedgehog ideas. For a hedgehog, anything that does not somehow relate to the hedgehog idea holds no relevance. (Location 1732)
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. (Location 1745)
Those who built the good-to-great companies were, to one degree or another, hedgehogs. They used their hedgehog nature to drive toward what we came to call a Hedgehog Concept for their companies. Those who led the comparison companies tended to be foxes, never gaining the clarifying advantage of a Hedgehog Concept, being instead scattered, diffused, and inconsistent. (Location 1748)
Walgreens then linked its convenience concept to a simple economic idea, profit per customer visit. Tight clustering (nine stores per mile!) leads to local economies of scale, which provides the cash for more clustering, which in turn draws more customers. By adding high-margin services, like one-hour photo developing, Walgreens increased its profit per customer visit. More convenience led to more customer visits, which, when multiplied times increased profit per customer visit, threw cash back into the system to build even more convenient stores. Store by store, block by block, city by city, region by region, Walgreens became more and more of a hedgehog with this incredibly simple idea. (Location 1769)
Strategy per se did not distinguish the good-to-great companies from the comparison companies. Both sets of companies had strategic plans, and there is absolutely no evidence that the good-to-great companies invested more time and energy in strategy development and long-range planning. (Location 1799)
It soon became abundantly clear that all the good-to-great companies attained a very simple concept that they used as a frame of reference for all their decisions, and this understanding coincided with breakthrough results. Meanwhile, the comparison companies like Eckerd got all tripped up by their snazzy strategies for growth. “Okay,” I pushed back, “but is simplicity enough? Just because it’s simple doesn’t mean it’s right. The world is filled with failed companies that had simple but wrong ideas.” (Location 1805)
First, the good-to-great companies founded their strategies on deep understanding along three key dimensions— what we came to call the three circles. Second, the good-to-great companies translated that understanding into a simple, crystalline concept that guided all their efforts— hence the term Hedgehog Concept. (Location 1813)
Hedgehog Concept is a simple, crystalline concept that flows from deep understanding about the intersection of (Location 1816)
What you can be the best in the world at (and, equally important, what you cannot be the best in the world at). This discerning standard goes far beyond core competence. Just because you possess a core competence doesn’t necessarily mean you can be the best in the world at it. Conversely, what you can be the best at might not even be something in which you are currently engaged. (Location 1817)
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. In particular, they discovered the single denominator— profit per x— that had the greatest impact on their economics. (It would be cash flow per x in the social sector.) 3. (Location 1820)
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. (Location 1823)
To (Location 1825)
“They stick with what they understand and let their abilities, not their egos, determine what they attempt.” (Location 1837)
What can we potentially do better than any other company, and, equally important, what can we not do better than any other company? And if we can’t be the best at it, then why are we doing it at all? (Location 1843)
We just took a hard-nosed look at what we were doing and decided to focus entirely on those few things we knew we could do better than anyone else, not getting distracted into arenas that would feed our egos and at which we could not be the best.” (Location 1865)
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. (Location 1867)
Every company would like to be the best at something, but few actually understand— with piercing insight and egoless clarity— what they actually have the potential to be the best at and, just as important, what they cannot be the best at. And it is this distinction that stands as one of the primary contrasts between the good-to-great companies and the comparison companies. (Location 1870)
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. And if you cannot be the best in the world at your core business, then your core business cannot form the basis of your Hedgehog Concept. (Location 1899)
Hedgehog Concept is not the same as a core competence. You can have competence at something but not necessarily have the potential to be the best in the world at (Location 1902)
The Hedgehog Concept requires a severe standard of excellence. It’s not just about building on strength and competence, but about understanding what your organization truly has the potential to be the very best at and sticking to it. (Location 1911)
To go from good to great requires transcending the curse of competence. It requires the discipline to say, “Just because we are good at it— just because we’re making money and generating growth— doesn’t necessarily mean we can become the best at it.” The good-to-great companies understood that doing what you are good at will only make you good; focusing solely on what you can potentially do better than any other organization is the only path to greatness. (Location 1915)
Every good-to-great company eventually gained deep understanding of this principle and pinned their futures on allocating resources to those few arenas where they could potentially be the best. (Location 1919)
The good-to-great companies frequently produced spectacular returns in very unspectacular industries. (Location 1923)
Our study clearly shows that a company does not need to be in a great industry to become a great company. Each good-to-great company built a fabulous economic engine, regardless of the industry. They were able to do this because they attained profound insights into their economics. (Location 1928)
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? We learned that this single question leads to profound insight into the inner workings of an organization’s economics. (Location 1935)
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. The standard metric of profit per store would have run contrary to the convenience concept. (Location 1938)
When the Wells team confronted the brutal fact that deregulation would transform banking into a commodity, they realized that standard banker metrics, like profit per loan and profit per deposit, would no longer be the key drivers. Instead, they grasped a new denominator: profit per employee. Following this logic, Wells Fargo became one of the first banks to change its distribution system to rely primarily on stripped-down branches and ATMs. (Location 1943)
The denominator can be quite subtle, sometimes even unobvious. The key is to use the question of the denominator to gain understanding and insight into your economic model. (Location 1946)
Fannie Mae grasped the subtle denominator of profit per mortgage risk level, not per mortgage (which would be the “obvious” choice). It’s a brilliant insight. The real driver in Fannie Mae’s economics is the ability to understand risk of default in a package of mortgages better than anyone else. Then it makes money selling insurance and managing the spread on that risk. Simple, insightful, unobvious— and right. (Location 1948)
Nucor, for example, made its mark in the ferociously price competitive steel industry with the denominator profit per ton of finished steel. At first glance, you might think that per employee or per fixed cost might be the proper denominator. But the Nucor people understood that the driving force in its economic engine was a combination of a strong-work-ethic culture and the application of advanced manufacturing technology. Profit per employee or per fixed cost would not capture this duality as well as profit per ton of finished steel. (Location 1951)
Do you need to have a single denominator? No, but pushing for a single denominator tends to produce better insight than letting yourself off the hook with three or four denominators. The denominator question serves as a mechanism to force deeper understanding of the key drivers in your economic engine. (Location 1955)
All (Location 1961)
All (Location 1962)
If you successfully apply these ideas, but then stop doing them, you will slide backward, from great to good, or worse. The only way to remain great is to keep applying the fundamental principles that made you great. (Location 1971)
passion became a key part of the Hedgehog Concept. 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. (Location 1994)
The good-to-great companies did not say, “Okay, folks, let’s get passionate about what we do.” Sensibly, they went the other way entirely: We should only do those things that we can get passionate about. (Location 1996)
This 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. (Location 2012)
the comparison companies never asked the right questions, the questions prompted by the three circles. Second, they set their goals and strategies more from bravado than from understanding. (Location 2033)
Nowhere is this more evident than in the comparison companies’ mindless pursuit of growth: Over two thirds of the comparison companies displayed an obsession with growth without the benefit of a Hedgehog Concept. (Location 2035)
not one of the good-to-great companies focused obsessively on growth. Yet they created sustained, profitable growth far greater than the comparison companies that made growth their mantra. (Location 2039)
“Growth!” is not a Hedgehog Concept. Rather, 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. (Location 2056)
The Hedgehog Concept is a turning point in the journey from good to great. In most cases, the transition date follows within a few years of the Hedgehog Concept. Furthermore, everything from here on out in the book hinges upon having the Hedgehog Concept. As will become abundantly clear in the following chapters, disciplined action— the third big chunk in the framework after disciplined people and disciplined thought— only makes sense in the context of the Hedgehog Concept. (Location 2059)
while it has crystalline clarity and elegant simplicity once you have it, getting the concept can be devilishly difficult and takes time. Recognize that getting a Hedgehog Concept is an inherently iterative process, not an event. (Location 2078)
The essence of the process is to get the right people engaged in vigorous dialogue and debate, infused with the brutal facts and guided by questions formed by the three circles. Do we really understand what we can be the best in the world at, as distinct from what we can just be successful at? Do we really understand the drivers in our economic engine, including our economic denominator? Do we really understand what best ignites our passion? (Location 2080)
The Council consists of a group of the right people who participate in dialogue and debate guided by the three circles, iteratively and over time, about vital issues and decisions facing the organization. (Location 2084)
In (Location 2086)
“Build the Council, and use that as a model. Ask the right questions, engage in vigorous debate, make decisions, autopsy the results, and learn— all guided within the context of the three circles. Just keep going through that cycle of understanding.” (Location 2088)
the number of times you go around that full cycle in a given period of time.” If you go through this cycle enough times, guided resolutely by the three circles, you will eventually gain the depth of understanding required for a Hedgehog Concept. It will not happen overnight, but it will eventually happen. (Location 2090)
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. (Location 2094)
In the majority of cases, the good-to-great companies were not the best in the world at anything and showed no prospects of becoming so. 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!”), every good-to-great company, no matter how awful at the start of the process, prevailed in its search for a Hedgehog Concept. (Location 2114)
When you get your Hedgehog Concept right, it has the quiet ping of truth, like a single, clear, perfectly struck note hanging in the air in the hushed silence of a full auditorium at the end of a quiet movement of a Mozart piano concerto. There is no need to say much of anything; the quiet truth speaks for itself. (Location 2120)
To go from good to great requires a deep understanding of three intersecting circles translated into a simple, crystalline concept (the Hedgehog Concept): (Location 2143)
• (Location 2145)
The key is to understand what your organization can be the best in the world at, and equally important what it cannot be the best at— not what it “wants” to be the best at. The Hedgehog Concept is not a goal, strategy, or intention; it is an understanding. (Location 2146)
If you cannot be the best in the world at your core business, then your core business cannot form the basis of your Hedgehog Concept. (Location 2149)
The “best in the world” understanding is a much more severe standard than a core competence. You might have a competence but not necessarily have the capacity to be truly the best in the world at that competence. Conversely, there may be activities at which you could become the best in the world, but at which you have no current competence. (Location 2151)
To get insight into the drivers of your economic engine, search for the one denominator (profit per x or, in the social sector, cash flow per x) that has the single greatest impact. (Location 2154)
Good-to-great companies set their goals and strategies based on understanding; comparison companies set their goals and strategies based on bravado. (Location 2156)
Getting the Hedgehog Concept is an iterative process. The Council can be a useful device. (Location 2158)
The good-to-great companies are more like hedgehogs— simple, dowdy creatures that know “one big thing” and stick to it. The comparison companies are more like foxes— crafty, cunning creatures that know many things yet lack consistency. (Location 2160)
It took four years on average for the good-to-great companies to get a Hedgehog Concept.• (Location 2162)
Strategy per se did not separate the good-to-great companies from the comparison companies. Both sets had strategies, and there is no evidence that the good-to-great companies spent more time on strategic planning than the comparison companies. (Location 2164)
You absolutely do not need to be in a great industry to produce sustained great results. No matter how bad the industry, every good-to-great company figured out how to produce truly superior economic returns. (Location 2166)
Few successful start-ups become great companies, in large part because they respond to growth and success in the wrong way. Entrepreneurial success is fueled by creativity, imagination, bold moves into uncharted waters, and visionary zeal. 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. Problems surface— with (Location 2182)
someone (often a board member) says, “It’s time to grow up. This place needs some professional management.” The company begins to hire MBAs and seasoned executives from blue-chip companies. Processes, procedures, checklists, and all the rest begin to sprout up like weeds. What was once an egalitarian environment gets replaced with a hierarchy. Chains of command appear for the first time. Reporting relationships become clear, and an executive class with special perks begins to appear. “We” and “they” segmentations appear— just like in a real company. (Location 2187)
The professional managers finally rein in the mess. They create order out of chaos, but they also kill the entrepreneurial spirit. Members of the founding team begin to grumble, “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.” The creative magic begins to wane as some of the most innovative people leave, disgusted by the burgeoning bureaucracy and hierarchy. The exciting start-up transforms into just another company, with nothing special to recommend it. The cancer of mediocrity begins to grow in earnest. (Location 2191)
George Rathmann avoided this entrepreneurial death spiral. He understood that the purpose of bureaucracy is to compensate for incompetence and lack of discipline— a problem that largely goes away if you have the right people in the first place. Most companies build their bureaucratic rules to manage the small percentage of wrong people on the bus, which in turn drives away the right people on the bus, which then increases the percentage of wrong people on the bus, which increases the need for more bureaucracy to compensate for incompetence and lack of discipline, which then further drives the right people away, and so forth. (Location 2196)
Rathmann also understood an alternative exists: Avoid bureaucracy and hierarchy and instead create a culture of discipline. When you put these two complementary forces together— a culture of discipline with an ethic of entrepreneurship— you get a magical alchemy of superior performance and sustained results. (Location 2200)
Why (Location 2203)
What I got from Abbott was the idea that when you set your objectives for the year, you record them in concrete. You can change your plans through the year, but you never change what you measure yourself against. You are rigorous at the end of the year, adhering exactly to what you said was going to happen. (Location 2205)
You never just focus on what you’ve accomplished for the year; you focus on what you’ve accomplished relative to exactly what you said you were going to accomplish— no matter how tough the measure. (Location 2209)
financial officer named Bernard H. Semler. Semler did not see his job as a traditional financial controller or accountant. Rather, he set out to invent mechanisms that would drive cultural change. He created a whole new framework of accounting that he called Responsibility Accounting, wherein every item of cost, income, and investment would be clearly identified with a single individual responsible for that item. 4 The idea, radical for the 1960s, was to create a system wherein 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. (Location 2213)
But the beauty of the Abbott system lay not just in its rigor, but in how it used rigor and discipline to enable creativity and entrepreneurship. “Abbott developed a very disciplined organization, but not in a linear way of thinking,” said George Rathmann. “[ It] was exemplary at having both financial discipline and the divergent thinking of creative work. We used financial discipline as a way to provide resources for the really creative work.” 6 Abbott reduced its administrative costs as a percentage of sales to the lowest in the industry (by a significant margin) and at the same time became a new product innovation machine (Location 2221)
Abbott recruited entrepreneurial leaders and gave them freedom to determine the best path to achieving their objectives. On the other hand, individuals had to commit fully to the Abbott system and were held rigorously accountable for their objectives. They had freedom, but freedom within a framework. Abbott instilled the entrepreneur’s zeal for opportunistic flexibility. (Location 2230)
Build a culture full of people who take disciplined action within the three circles, fanatically consistent with the Hedgehog Concept. (Location 2239)
Build a culture around the idea of freedom and responsibility, within a framework. (Location 2241)
Fill that culture with self-disciplined people who are willing to go to extreme lengths to fulfill their responsibilities. (Location 2242)
Don’t confuse a culture of discipline with a tyrannical disciplinarian. (Location 2244)
Adhere with great consistency to the Hedgehog Concept, exercising an almost religious focus on the intersection of the three circles. Equally important, create a “stop doing list” and systematically unplug anything extraneous. (Location 2245)
The point here is not that a company should have a system as strict and inflexible as the air traffic system. After all, if a corporate system fails, people don’t die by the hundreds in burning, twisted hunks of steel. (Location 2271)
The point of this analogy is that when we looked inside the good-to-great companies, we were reminded of the best part of the airline pilot model: freedom and responsibility within the framework of a highly developed system. (Location 2273)
The good-to-great companies built a consistent system with clear constraints, but they also gave people freedom and responsibility within the framework of that system. They hired self-disciplined people who didn’t need to be managed, and then managed the system, not the people. (Location 2275)
much of this book is about creating a culture of discipline. It all starts with disciplined people. The transition begins not by trying to discipline the wrong people into the right behaviors, but by getting self-disciplined people on the bus in the first place. Next we have disciplined thought. You need the discipline to confront the brutal facts of reality, while retaining resolute faith that you can and will create a path to greatness. Most importantly, you need the discipline to persist in the search for understanding until you get your Hedgehog Concept. Finally, we have disciplined action, the primary subject of this chapter. This order is important. The comparison companies often tried to jump right to disciplined action. But disciplined action without self-disciplined people is impossible to sustain, and disciplined action without disciplined thought is a recipe for disaster. (Location 2290)
the point is to first get self-disciplined people who engage in very rigorous thinking, who then take disciplined action within the framework of a consistent system designed around the Hedgehog Concept. (Location 2298)
People in the good-to-great companies became somewhat extreme in the fulfillment of their responsibilities, bordering in some cases on fanaticism. (Location 2303)
Much of the answer to the question of “good to great” lies in the discipline to do whatever it takes to become the best within carefully selected arenas and then to seek continual improvement from there. It’s really just that simple. And it’s really just that difficult. (Location 2315)
Everyone would like to be the best, but most organizations lack the discipline to figure out with egoless clarity what they can be the best at and the will to do whatever it takes to turn that potential into reality. (Location 2317)
Whereas the good-to-great companies had Level 5 leaders who built an enduring culture of discipline, the unsustained comparisons had Level 4 leaders who personally disciplined the organization through sheer force. (Location 2365)
discipline is essential for great results, but disciplined action without disciplined understanding of the three circles cannot produce sustained great results. (Location 2431)
Pitney Bowes wasn’t so much a great company as it was a company with a great monopoly. (Location 2439)
The good-to-great companies at their best followed a simple mantra: “Anything that does not fit with our Hedgehog Concept, we will not do. We will not launch unrelated businesses. We will not make unrelated acquisitions. We will not do unrelated joint ventures. If it doesn’t fit, we don’t do it. Period.” (Location 2466)
we found a lack of discipline to stay within the three circles as a key factor in the demise of nearly all the comparison companies. Every comparison either (1) lacked the discipline to understand its three circles or (2) lacked the discipline to stay within the three circles. (Location 2468)
simple paradox: The more an organization has the discipline to stay within its three circles, the more it will have attractive opportunities for growth. Indeed, a great company is much more likely to die of indigestion from too much opportunity than starvation from too little. The challenge becomes not opportunity creation, but opportunity selection. It takes discipline to say “No, thank you” to big opportunities. The fact that something is a “once-in-a-lifetime opportunity” is irrelevant if it doesn’t fit within the three circles. (Location 2497)
Inequality still runs rampant in most business corporations. I’m referring now to hierarchical inequality which legitimizes and institutionalizes the principle of “We” vs. “They.”… 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. 51 (Location 2506)
Executives (Location 2520)
Executives did not receive better benefits than frontline workers. In fact, executives had fewer perks. For example, all workers (but not executives) were eligible to receive $ 2,000 per year for each child for up to four years of post– high school education. (Location 2521)
When Nucor had a highly profitable year, everyone in the company would have a very profitable year. Nucor workers became so well paid that one woman told her husband, “If you get fired from Nucor, I’ll divorce you.” 56 But when Nucor faced difficult times, everyone from top to bottom suffered. But people at the top suffered more. In the 1982 recession, for example, worker pay went down 25 percent, officer pay went down 60 percent, and the CEO’s pay went down 75 percent. 57 (Location 2528)
Bethlehem declined first and foremost because it was a culture wherein people focused their efforts on negotiating the nuances of an intricate social hierarchy, not on customers, competitors, or changes in the external world. (Location 2553)
Do you have a “to do” list? Do you also have a “stop doing” list? (Location 2572)
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. (Location 2574)
In a good-to-great transformation, 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. (Location 2591)
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. “Being right” means getting the Hedgehog Concept; “highly undiversified” means investing fully in those things that fit squarely within the three circles and getting rid of everything else. (Location 2608)
“When you are right.” But how do you know when you’re right? In studying the companies, we learned that “being right” just isn’t that hard if you have all the pieces in place. If you have 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. The real question is, once you know the right thing, do you have the discipline to do the right thing and, equally important, to stop doing the wrong things? (Location 2611)
Sustained great results depend upon building a culture full of self-disciplined people who take disciplined action, fanatically consistent with the three circles. (Location 2620)
Bureaucratic cultures arise to compensate for incompetence and lack of discipline, which arise from having the wrong people on the bus in the first place. If you get the right people on the bus, and the wrong people off, you don’t need stultifying bureaucracy. (Location 2622)
A culture of discipline involves a duality. On the one hand, it requires people who adhere to a consistent system; yet, on the other hand, it gives people freedom and responsibility within the framework of that system. (Location 2625)
A culture of discipline is not just about action. It is about getting disciplined people who engage in disciplined thought and who then take disciplined action. (Location 2627)
The good-to-great companies appear boring and pedestrian looking in from the outside, but upon closer inspection, they’re full of people who display extreme diligence and a stunning intensity (they “rinse their cottage cheese”). (Location 2629)
Do not confuse a culture of discipline with a tyrant who disciplines— they are very different concepts, one highly functional, the other highly dysfunctional. Savior CEOs who personally discipline through sheer force of personality usually fail to produce sustained results. (Location 2631)
The single most important form of discipline for sustained results is fanatical adherence to the Hedgehog Concept and the willingness to shun opportunities that fall outside the three circles. (Location 2634)
The more an organization has the discipline to stay within its three circles, with almost religious consistency, the more it will have opportunities for growth.• (Location 2637)
The fact that something is a “once-in-a-lifetime opportunity” is irrelevant, unless it fits within the three circles. A great company will have many once-in-a-lifetime opportunities. (Location 2639)
The purpose of budgeting in a good-to-great company is not to decide how much each activity gets, but to decide which arenas best fit with the Hedgehog Concept and should be fully funded and which should not be funded at (Location 2641)
“Stop doing” lists are more important than “to do” lists. (Location 2644)
“It’s the great Internet landgrab: Be there first, be there fast, build market share— no matter how expensive— and you win,” yelled the entrepreneurs. (Location 2658)
We entered a remarkable moment in history when the whole idea of trying to build a great company seemed quaint and outdated. “Built to Flip” became the mantra of the day. Just tell people you were doing something, anything, connected to the Internet, and— presto!— you became rich by flipping shares to the public, even if you had no profits (or even a real company). (Location 2659)
Why take all the hard steps to go from buildup to breakthrough, creating a model that actually works, when you could yell, “New technology!” or “New economy!” and convince people to give you hundreds of millions of dollars? (Location 2662)
Some entrepreneurs didn’t even bother to suggest that they would build a real company at all, much less a great one. One even filed to go public in March of 2000 with an enterprise that consisted solely of an informational Web site and a business plan, nothing more. The entrepreneur admitted to the Industry Standard that it seemed strange to go public before starting a business, but that didn’t stop him from trying to persuade investors to buy 1.1 million shares at 7to 9 per share, despite having no revenues, no employees, no customers, no company. 3 With the new technology of the Internet, who needs all those archaic relics of the old economy? Or so the logic went. (Location 2664)
“We’re a crawl, walk, run company,” Dan Jorndt told Forbes in describing his deliberate, methodical approach to the Internet. Instead of reacting like Chicken Little, Walgreens executives did something quite unusual for the times. They decided to pause and reflect. They decided to use their brains. They decided to think! (Location 2678)
engaging in intense internal dialogue and debate about its implications, within the context of its own peculiar Hedgehog Concept. “How will the Internet connect to our convenience concept? How can we tie it to our economic denominator of cash flow per customer visit? How can we use the Web to enhance what we do better than any other company in the world and in a way that we’re passionate about?” Throughout, Walgreens executives embraced the Stockdale Paradox: “We have complete faith that we can prevail in an Internet world as a great company; yet, we must also confront the brutal facts of reality about the Internet.” (Location 2681)
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. (Location 2709)
most of the truly great companies of the last hundred years— from Wal-Mart to Walgreens, from Procter & Gamble to Kimberly-Clark, from Merck to Abbott— trace their roots back through multiple generations of technology change, be it electricity, the television, or the Internet. They’ve adapted before and emerged great. (Location 2712)
Walgreens didn’t adopt all of this advanced technology just for the sake of advanced technology or in fearful reaction to falling behind. No, it used technology as a tool to accelerate momentum after hitting breakthrough, and tied technology directly to its Hedgehog Concept of convenient drugstores increasing profit per customer visit. (Location 2731)
Its Hedgehog Concept would drive its use of technology, not the other way around. (Location 2736)
In every good-to-great case, we found technological sophistication. However, it was never technology per se, but the pioneering application of carefully selected technologies. Every good-to-great company became a pioneer in the application of technology, but the technologies themselves varied greatly. (Location 2737)
Imagine walking back into the warehouse and instead of seeing boxes of cereal and crates of apples, you see stacks and stacks of dollar bills— hundreds of thousands and millions of freshly minted, crisp and crinkly dollar bills just sitting there on pallets, piled high to the ceiling. That’s exactly how you should think of inventory. Every single case of canned carrots is not just a case of canned carrots, it’s cash. And it’s cash just sitting there useless, until you sell that case of canned carrots. (Location 2742)
Technology (Location 2767)
Technology (Location 2768)
Technology as an Accelerator, Not a Creator, of Momentum (Location 2768)
technology became of prime importance to Fannie Mae, but after it discovered its Hedgehog Concept and after it reached breakthrough. Technology was a key part of what Fannie Mae leaders called “the second wind” of the transformation and acted as an accelerating factor. 19 The same pattern holds for Kroger, Gillette, Walgreens, and all the good-to-great companies— the pioneering application of technology usually came late in the transition and never at the start. (Location 2783)
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. And which are those? Those— and only those— that link directly to the three intersecting circles of the Hedgehog Concept. (Location 2789)
Does the technology fit directly with your Hedgehog Concept? If yes, then you need to become a pioneer in the application of that technology. If no, then ask, do you need this technology at all? If yes, then all you need is parity. (You don’t necessarily need the world’s most advanced phone system to be a great company.) If no, then the technology is irrelevant, and you can ignore it. (Location 2793)
good-to-great companies remained disciplined within the frame of their Hedgehog Concept. Conceptually, their relationship to technology is no different from their relationship to any other category of decisions: disciplined people, who engage in disciplined thought, and who then take disciplined action. If a technology doesn’t fit squarely within their three circles, they ignore all the hype and fear and just go about their business with a remarkable degree of equanimity. However, once they understand which technologies are relevant, they become fanatical and creative in the application of those technologies. (Location 2796)
technology alone cannot create sustained great results. (Location 2803)
“People don’t know what they don’t know,” they said. “And they’re always afraid that some new technology is going to sneak up on them from behind and knock them on the head. They don’t understand technology, and many fear it. All they know for sure is that technology is an important force of change, and that they’d better pay attention to it.” (Location 2831)
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. Furthermore, in the cases where they did mention technology, it had a median ranking of fourth, with only two executives of eighty-four interviewed ranking it number one. (Location 2836)
The evidence from our study does not support the idea that technological change plays the principal role in the decline of once-great companies (or the perpetual mediocrity of others). 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. (Location 2878)
This pattern of the second (or third or fourth) follower prevailing over the early trailblazers shows up through the entire history of technological and economic change. 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 (Location 2890)
We could make a long list of companies that were technology leaders but that failed to prevail in the end as great companies. It would be a fascinating list in itself, but all the examples would underscore a basic truth: Technology cannot turn a good enterprise into a great one, nor by itself prevent disaster. (Location 2903)
If you ever find yourself thinking that technology alone holds the key to success, then think again of Vietnam. (Location 2913)
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. But when used wrong— when grasped as an easy solution, without deep understanding of how it links to a clear and coherent concept— technology simply accelerates your own self-created demise. (Location 2914)
our technology finding is just a special case of disciplined action, and it belongs in the previous chapter. Disciplined action means staying within the three circles, and that’s the essence of our technology finding.” (Location 2921)
the utter absence of talk about “competitive strategy.” 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. (Location 2932)
Those who built the good-to-great companies weren’t motivated by fear. They weren’t driven by fear of what they didn’t understand. They weren’t driven by fear of looking like a chump. They weren’t driven by fear of watching others hit it big while they didn’t. They weren’t driven by the fear of being hammered by the competition. No, those who turn good into great are motivated by a deep creative urge and an inner compulsion for sheer unadulterated excellence for its own sake. Those who build and perpetuate mediocrity, in contrast, are motivated more by the fear of being left behind. (Location 2943)
No technology, no matter how amazing— not computers, not telecommunications, not robotics, not the Internet— can by itself ignite a shift from good to great. No technology can make you Level 5. No technology can turn the wrong people into the right people. No technology can instill the discipline to confront brutal facts of reality, nor can it instill unwavering faith. No technology can supplant the need for deep understanding of the three circles and the translation of that understanding into a simple Hedgehog Concept. No technology can create a culture of discipline. No technology can instill the simple inner belief that leaving unrealized potential on the table— letting something remain good when it can become great— is a secular sin. (Location 2952)
Good-to-great organizations avoid technology fads and bandwagons, yet they become pioneers in the application of carefully selected technologies. (Location 2966)
The key question about any technology is, Does the technology fit directly with your Hedgehog Concept? If yes, then you need to become a pioneer in the application of that technology. If no, then you can settle for parity or ignore it entirely. (Location 2967)
The good-to-great companies used technology as an accelerator of momentum, not a creator of it. None of the good-to-great companies began their transformations with pioneering technology, yet they all became pioneers in the application of technology once they grasped how it fit with their three circles and after they hit breakthrough. (Location 2970)
How a company reacts to technological change is a good indicator of its inner drive for greatness versus mediocrity. Great companies respond with thoughtfulness and creativity, driven by a compulsion to turn unrealized potential into results; mediocre companies react and lurch about, motivated by fear of being left behind. (Location 2976)
“Crawl, walk, run” can be a very effective approach, even during times of rapid and radical technological change. (Location 2985)
The flywheel image captures the overall feel of what it was like inside the companies as they went from good to great. No matter how dramatic the end result, the good-to-great transformations never happened in one fell swoop. There was no single defining action, no grand program, no one killer innovation, no solitary lucky break, no wrenching revolution. Good to great comes about by a cumulative process— step by step, action by action, decision by decision, turn by turn of the flywheel— that adds up to sustained and spectacular results. (Location 3009)
We’ve allowed the way transitions look from the outside to drive our perception of what they must feel like to those going through them on the inside. From the outside, they look like dramatic, almost revolutionary breakthroughs. But from the inside, they feel completely different, more like an organic development process. (Location 3050)
The good-to-great companies had no name for their transformations. There was no launch event, no tag line, no programmatic feel whatsoever. Some executives said that they weren’t even aware that a major transformation was under way until they were well into it. It was often more obvious to them after the fact than at the time. (Location 3081)
Although it may have looked like a single-stroke breakthrough to those peering in from the outside, it was anything but that to people experiencing the transformation from within. 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. (Location 3085)
When (Location 3088)
When (Location 3089)
The good-to-great companies were subject to the same short-term pressures from Wall Street as the comparison companies. Yet, unlike the comparison companies, they had the patience and discipline to follow the buildup-breakthrough flywheel model despite these pressures. And in the end, they attained extraordinary results by Wall Street’s own measure of success. (Location 3115)
Abbott would tell Wall Street analysts that it expected to grow earnings a specified amount— say, 15 percent. At the same time, it would set an internal goal of a much higher growth rate— say, 25 percent, or even 30 percent. Meanwhile, it kept a rank-ordered list of proposed entrepreneurial projects that had not yet been funded— the Blue Plans. Toward the end of the year, Abbott would pick a number that exceeded analyst expectations but that fell short of its actual growth. It would then take the difference between the “make the analysts happy” growth and the actual growth and channel those funds into the Blue Plans. It was a brilliant mechanism for managing short-term pressures while systematically investing in the future. 23 (Location 3119)
They simply focused on accumulating results, often practicing the time-honored discipline of under-promising and overdelivering. And as the results began to accumulate— as the flywheel built momentum— the investing community came along with great enthusiasm. (Location 3136)
Tremendous power exists in the fact of continued improvement and the delivery of results. Point to tangible accomplishments— however incremental at first— and show how these steps fit into the context of an overall concept that will work. When you do this in such a way that people see and feel the buildup of momentum, they will line up with enthusiasm. We came to call this the flywheel effect, and it applies not only to outside investors but also to internal constituent groups. (Location 3139)
Let (Location 3143)
the good-to-great companies did get incredible commitment and alignment— they artfully managed change— but they never really spent much time thinking about it. It was utterly transparent to them. We learned that under the right conditions, the problems of commitment, alignment, motivation, and change just melt away. They largely take care of themselves. (Location 3156)
presented what we were doing in such a way that people saw our accomplishments,” said Herring. “We tried to bring our plans to successful conclusion step by step, so that the mass of people would gain confidence from the successes, not just the words.” 25 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.” (Location 3164)
When you let the flywheel do the talking, you don’t need to fervently communicate your goals. People can just extrapolate from the momentum of the flywheel for themselves: “Hey, if we just keep doing this, look at where we can go!” As people decide among themselves to turn the fact of potential into the fact of results, the goal almost sets itself. (Location 3183)
What do the right people want more than almost anything else? They want to be part of a winning team. They want to contribute to producing visible, tangible results. They want to feel the excitement of being involved in something that just flat-out works. When the right people see a simple plan born of confronting the brutal facts— a plan developed from understanding, not bravado— they are likely to say, “That’ll work. Count me in.” When they see the monolithic unity of the executive team behind the simple plan and the selfless, dedicated qualities of Level 5 leadership, they’ll drop their cynicism. (Location 3186)
When people begin to feel the magic of momentum— when they begin to see tangible results, when they can feel the flywheel beginning to build speed— that’s when the bulk of people line up to throw their shoulders against the wheel and push. (Location 3190)
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. (Location 3193)
They would push the fly-wheel in one direction, then stop, change course, and throw it in a new direction— and then they would stop, change course, and throw it into yet another direction. After years of lurching back and forth, the comparison companies failed to build sustained momentum and fell instead into what we came to call the doom loop. (Location 3196)
Peter Drucker once observed that the drive for mergers and acquisitions comes less from sound reasoning and more from the fact that doing deals is a much more exciting way to spend your day than doing actual work. 35 Indeed, the comparison companies would have well understood the popular bumper sticker from the 1980s, “When the going gets tough, we go shopping!” (Location 3227)
Why did the good-to-great companies have a substantially higher success rate with acquisitions, especially major acquisitions? The key to their success was that their big acquisitions generally took place after development of the Hedgehog Concept and after the flywheel had built significant momentum. They used acquisitions as an accelerator of flywheel momentum, not a creator of it. (Location 3235)
Often with their core business under siege, the comparison companies would dive into a big acquisition as a way to increase growth, diversify away their troubles, or make a CEO look good. Yet they never addressed the fundamental question: “What can we do better than any other company in the world, that fits our economic denominator and that we have passion for?” (Location 3240)
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. (Location 3244)
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. (Location 3276)
It all starts with Level 5 leaders, who naturally gravitate toward the fly-wheel model. They’re less interested in flashy programs that make it look like they are Leading! with a capital L. They’re more interested in the quiet, deliberate process of pushing on the flywheel to produce Results! with a capital R. Getting the right people on the bus, the wrong people off the bus, and the right people in the right seats— these are all crucial steps in the early stages of buildup, very important pushes on the flywheel. Equally important is to remember the Stockdale Paradox: “We’re not going to hit breakthrough by Christmas, but if we keep pushing in the right direction, we will eventually hit breakthrough.” This process of confronting the brutal facts helps you see the obvious, albeit difficult, steps that must be taken to turn the flywheel. Faith in the endgame helps you live through the months or years of buildup. Next, when you attain deep understanding about the three circles of your Hedgehog Concept and begin to push in a direction consistent with that understanding, you hit breakthrough momentum and accelerate with key accelerators, chief among them pioneering the application of technology tied directly back to your three circles. Ultimately, to reach breakthrough means having the discipline to make a series of good decisions consistent with your Hedgehog Concept— disciplined action, following from disciplined people who exercise disciplined thought. That’s it. That’s the essence of the breakthrough process. (Location 3281)
Good-to-great transformations often look like dramatic, revolutionary events to those observing from the outside, but they feel like organic, cumulative processes to people on the inside. The confusion of end outcomes (dramatic results) with process (organic and cumulative) skews our perception of what really works over the long haul. (Location 3310)
No matter how dramatic the end result, the good-to-great transformations never happened in one fell swoop. There was no single defining action, no grand program, no one killer innovation, no solitary lucky break, no miracle moment. (Location 3313)
Sustainable transformations follow a predictable pattern of buildup and breakthrough. Like pushing on a giant, heavy flywheel, it takes a lot of effort to get the thing moving at all, but with persistent pushing in a consistent direction over a long period of time, the flywheel builds momentum, eventually hitting a point of breakthrough. (Location 3315)
The comparison companies followed a different pattern, the doom loop. Rather than accumulating momentum— turn by turn of the flywheel— they tried to skip buildup and jump immediately to breakthrough. Then, with disappointing results, they’d lurch back and forth, failing to maintain a consistent direction. (Location 3318)
The comparison companies frequently tried to create a breakthrough with large, misguided acquisitions. The good-to-great companies, in contrast, principally used large acquisitions after breakthrough, to accelerate momentum in an already fast-spinning flywheel. (Location 3321)
Those inside the good-to-great companies were often unaware of the magnitude of their transformation at the time; only later, in retrospect, did it become clear. They had no name, tag line, launch event, or program to signify what they were doing at the time.• (Location 3325)
The 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. Alignment principally follows from results and momentum, not the other way around. (Location 3327)
The short-term pressures of Wall Street were not inconsistent with following this model. The flywheel effect is not in conflict with these pressures. Indeed, it is the key to managing them. (Location 3330)
When I consider the enduring great companies from Built to Last, I now see substantial evidence that their early leaders followed the good-to-great framework. The only real difference is that they did so as entrepreneurs in small, early-stage enterprises trying to get off the ground, rather than as CEOs trying to transform established companies from good to great. (Location 3365)
Apply the findings in this book to create sustained great results, as a start-up or an established organization, and then apply the findings in Built to Last to go from great results to an enduring great company. (Location 3370)
To make the shift from a company with sustained great results to an enduring great company of iconic stature, apply the central concept from Built to Last: Discover your core values and purpose beyond just making money (core ideology) and combine this with the dynamic of preserve the core/ stimulate progress. (Location 3372)
Somehow over the years people have gotten the impression that Wal-Mart was… just this great idea that turned into an overnight success. But… it was an outgrowth of everything we’d been doing since [1945]… And like most overnight successes, it was about twenty years in the making. 3 (Location 3389)
It didn’t really matter what the company made in the very early days, as long as it made a technical contribution and would enable Hewlett and Packard to build a company together and with other like-minded people. 6 It was the ultimate “first who… then what” start-up. (Location 3407)
“No company can grow revenues consistently faster than its ability to get enough of the right people to implement that growth and still become a great company.” Hewlett and Packard lived and breathed this concept and obtained a surplus of great people whenever the opportunity presented itself. (Location 3413)
The “HP Way,” as it became known, reflected a deeply held set of core values that distinguished the company more than any of its products. These values included technical contribution, respect for the individual, responsibility to the communities in which the company operates, and a deeply held belief that profit is not the fundamental goal of a company. (Location 3437)
Hewlett and Packard exemplify a key “extra dimension” that helped elevate their company to the elite status of an enduring great company, a vital dimension for making the transition from good to great to built to last. That extra dimension is a guiding philosophy or a “core ideology,” which consists of core values and a core purpose (reason for being beyond just making money). These resemble the principles in the Declaration of Independence (“ We hold these truths to be self-evident”)— never perfectly followed, but always present as an inspiring standard and an answer to the question of why it is important that we exist. (Location 3443)
Enduring great companies don’t exist merely to deliver returns to shareholders. 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. (Location 3448)
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. The point is not what core values you have, but that you have core values at all, that you know what they are, that you build them explicitly into the organization, and that you preserve them over time. (Location 3466)
This notion of preserving your core ideology is a central feature of enduring great companies. The obvious question is, How do you preserve the core and yet adapt to a changing world? The answer: Embrace the key concept of preserve the core/ stimulate progress. (Location 3469)
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. (Location 3489)
Clock Building, Not Time Telling. Build an organization that can endure and adapt through multiple generations of leaders and multiple product life cycles; the exact opposite of being built around a single great leader or a single great idea. (Location 3499)
Genius of AND. Embrace both extremes on a number of dimensions at the same time. Instead of choosing A OR B, figure out how to have A AND B— purpose AND profit, continuity AND change, freedom AND responsibility, etc. (Location 3501)
Core Ideology. 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. (Location 3503)
Preserve the Core/ Stimulate Progress. Preserve the core ideology as an anchor point while stimulating change, improvement, innovation, and renewal in everything else. Change practices and strategies while holding core values and purpose fixed. Set and achieve BHAGs consistent with the core ideology. (Location 3506)
A BHAG (pronounced bee-hag, short for “Big Hairy Audacious Goal”) is a huge and daunting goal— like a big mountain to climb. It is clear, compelling, and people “get it” right away. A BHAG serves as a unifying focal point of effort, galvanizing people and creating team spirit as people strive toward a finish line. Like the 1960s NASA moon mission, a BHAG captures the imagination and grabs people in the gut. (Location 3512)
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. (Location 3518)
So, (Location 3536)
Boeing’s BHAG, while huge and daunting, was not any random goal. It was a goal that made sense within the context of the three circles. 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. Boeing acted with understanding, not bravado, at this pivotal moment in its history, and that is one of the key reasons why it endured as a great company. (Location 3545)
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. Indeed, if some of the comparison companies in our study are any indication, it involves less suffering, and perhaps even less work. (Location 3573)
Indeed, the point of this entire book is not that we should “add” these findings to what we are already doing and make ourselves even more overworked. No, the point is to realize that much of what we’re doing is at best a waste of energy. If we organized the majority of our work time around applying these principles, and pretty much ignored or stopped doing everything else, our lives would be simpler and our results vastly improved. (Location 3577)
As the program built momentum, it attracted more kids and more great coaches. People want to be part of this spinning flywheel; they want to be part of a championship team; they want to be part of a first-class culture. When the cross-country team posts yet another championship banner in the gym, more kids sign up, the gene pool deepens, the team gets faster, which produces more championships, which attracts more kids, which creates even faster teams, and so forth and so on, in the infectious flywheel effect. (Location 3612)
I am asserting that those who strive to turn good into great find the process no more painful or exhausting than those who settle for just letting things wallow along in mind-numbing mediocrity. 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. (Location 3625)
