Whenever I ask a room full of business owners to raise their hands if they want their business to be better than average, you’ll not be surprised to discover that everyone puts their hands up. Of course they do! It’s the same emotion that parents have for their children – hope that they’ll thrive and float rather than sink.
Let’s just pause and think about this for a second. Given that only half of any given sample can be above average it is obvious that this simply can’t happen. We’re all smart people and intuitively we already know this. It’s probably what’s led you to read this article. And it’s why we need a clear plan of action for our business and the discipline to implement it rather than relying on hopes, wishes and sheer graft.
In 2007 we started our company and named it Good2Great inspired by the book Good to Great by Jim Collins, which is a must-read for any business leader looking to take their organisation to the next level. It examines why some companies make the leap from good to great while others remain stuck in mediocrity.
It identifies seven key distinguishers and how great companies approach these to become exceptional in their field and build sustainable, profitable growth.
We’ve summarised these principles here for you and outlined how you can apply these to your business so you can make the changes necessary to achieve your organisational goals.
Of course, we’ve been doing this for some time now and recognise that change is hard and risky, especially if you’re a leader who is already busy. So, if you want an extra set of eyes on what you’re doing to set you off in the right direction, don’t be afraid to reach out. We’re ready and waiting to help.
Principle #1: Level 5 Leadership
One of the key factors in a company’s success is its leadership. In Good to Great, author Jim Collins identifies a particular type of leadership as critical for transforming a good company into a great one: Level 5 Leadership.
According to Collins, Level 5 Leaders possess a unique combination of personal humility and professional will. They are incredibly ambitious, yet they prioritise the company’s success over their own personal success. They are not afraid to take risks or make difficult decisions, but they always act in the organisation’s best interest.
One of the most fascinating findings of Collins’ research is that Level 5 Leaders are not necessarily charismatic or visionary. In fact, many of the Level 5 Leaders identified in the study were described as quiet and unassuming. Their focus was always on the company’s success, not on their own personal glory.
Collins uses the example of Darwin E. Smith, the former CEO of Kimberly-Clark, to illustrate Level 5 Leadership. When Smith took over as CEO in 1971, the company was struggling. So rather than make sweeping changes, Smith first focused on building a strong management team. He then implemented a long-term strategy that would eventually lead to the company’s transformation into a global leader in the consumer goods industry.
Throughout the process, Smith was known for his humility, his willingness to listen to others, and his commitment to doing what was best for the company. His leadership style was not flashy or attention-grabbing, but it was effective.
So why is Level 5 Leadership so important? According to Collins, Level 5 Leaders can inspire their teams to achieve greatness. They create a culture of excellence that attracts and retains top talent. And they are able to make difficult decisions that lead to long-term success rather than short-term gains.
If you are looking to transform your company from good to great, one of the first steps you should take is to cultivate Level 5 Leadership within your organisation. Look for leaders and future leaders who are willing to put the company’s needs above their own, and who are willing to take risks in pursuit of long-term success. With the right leadership in place, anything is possible.
Principle #2: First Who…Then What
Collins emphasises the importance of building a strong team before anything else. He suggests that companies should focus on finding and hiring the right people rather than trying to determine the direction of the company first.
He argues that great companies don’t necessarily start with a great vision or plan. Instead, they begin by hiring talented individuals with the same values and passion for success. Then, once the right team is assembled, they can work together to develop a shared vision and direction for the company.
The concept of “First Who…Then What” is crucial because it helps companies avoid making the mistake of hiring the wrong people. Collins warns that hiring mediocre or incompatible individuals can lead to a stagnant or even toxic work environment. Instead, companies should aim to hire people who are passionate, motivated, and willing to work towards a common goal.
Collins suggests that companies use a rigorous and thorough hiring process to find the right people. This includes conducting multiple interviews, checking references, and asking behavioural-based questions to assess a candidate’s work ethic and problem-solving skills.
Once the right team is assembled, Collins emphasises the importance of giving them the freedom and autonomy to do their jobs. Great leaders trust their team to make decisions and take risks, and they empower their employees to be creative and innovative.
Overall, the “First Who…Then What” concept highlights the importance of building a strong team with a shared vision and passion for success. By finding and hiring the right people, companies can achieve great things and create a positive and fulfilling work environment for everyone involved.
Principle #3: The Hedgehog Concept
One of the most significant takeaways from the book is the hedgehog concept. Businesses that want to become great must clearly understand their core competencies and what they can do better than anyone else in the market. This concept, referred to as the Hedgehog Concept, is essential for any company looking to move from average to exceptional.
So, what exactly is the Hedgehog Concept? Collins uses a metaphor to describe it, based on the story of the fox and the hedgehog. The fox knows many things, but the hedgehog knows one big thing. The hedgehog understands how to defend itself against its predator by rolling up into a tight ball, while the fox, who knows many things, tries every tactic to catch the hedgehog it inevitably fails. The Hedgehog Concept applies to businesses because it describes how great companies can narrowly focus on their core strengths while ignoring anything outside of their expertise.
According to Collins, the Hedgehog Concept is the intersection of three key components – passion, skill, and economic opportunity. The first component is passion, which is defined as the company’s guiding purpose, the reason it exists beyond making a profit. The second component is skill, which includes the company’s unique strengths and capabilities that it does better than any other company. Finally, the third component is economic opportunity, which is the market need or opportunity the company can capitalise on to generate revenue.
Companies can establish a clear and compelling identity that distinguishes them from the competition by focusing on their core competencies and what they do better than anyone else. This identity becomes a beacon that attracts the right customers, employees, and partners while allowing the company to ignore any other distractions that may come their way.
Collins also stresses that the Hedgehog Concept is not a one-time event but rather an ongoing process of self-discovery and refinement. Therefore, a company must continuously evaluate its passion, skills, and economic opportunities, adapting as necessary to remain relevant and thriving in the marketplace.
Overall, the Hedgehog Concept is an essential component of the Good to Great framework that businesses must understand to become great. By focusing on what they do best, companies can establish a clear identity that resonates with their stakeholders and creates a sustainable competitive advantage.
Principle #4: A Culture of Discipline
One of the key concepts that Jim Collins emphasises is the importance of building a culture of discipline within an organisation. In the world of business, the term “discipline” often brings to mind images of strict rules and rigid protocols, but Collins argues that discipline is actually about creating a system of accountability and ensuring that everyone is aligned toward the same goals.
To create a culture of discipline, he suggests that leaders should start by defining their core values and ensuring that every employee understands them. Then, these core values should be used to guide decision-making at every level of the organisation, from the CEO down to the front-line employees.
Once the core values are in place, he recommends setting up a performance metrics system that allows employees to measure their progress and hold themselves accountable for achieving their goals. These metrics should be based on objective data rather than subjective opinions, and should be tracked regularly to ensure that everyone is staying on track.
Of course, creating a culture of discipline isn’t just about setting up rules and metrics. It’s also about empowering employees to take ownership of their work and feel invested in the success of the company. This means providing opportunities for professional development and growth, as well as recognising and rewarding employees who go above and beyond.
In addition, Collins notes that a culture of discipline requires a willingness to confront and address problems when they arise. This means creating an environment where it’s safe to speak up and share concerns, and where everyone is committed to finding solutions rather than placing blame.
Ultimately, the goal of a culture of discipline is to create an organisation that is focused, accountable, and aligned toward a common purpose. As Collins writes, “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.”
Principle #5: Technology Accelerators
Collins identified technology as one of the six key accelerators that can help a company move from being good to being great. But he makes an important caveat: technology is not a solution in and of itself. It is merely a tool, one that can amplify or accelerate the results of the other key factors, but it cannot substitute for them.
To use technology as an accelerator, he recommends linking back to the hedgehog principle and taking the “three circles” approach. The first circle is understanding what your company is truly passionate about. The second circle is understanding what your company can be the best in the world at. The third circle is understanding what drives your economic engine. You can then identify the technologies that will truly make a difference for your company by finding the intersection of these three circles.
Once you have identified the technologies that matter, Collins recommends a disciplined approach to their adoption. First, he argues that companies should focus on the right technology, not the bleeding edge. Instead of trying to be the first to adopt the latest buzzword, companies should focus on finding the technologies that can make the biggest difference for their specific needs.
Second, he stresses the importance of being disciplined about the use of technology. Instead of trying to be a jack of all trades, companies should focus on using technology to enable them to do what they already do well even better. Technology can help companies automate, optimise, and accelerate their existing processes, but it cannot fundamentally transform them.
Finally, Collins suggests that companies should be careful about over investing in technology. While technology can be a powerful accelerator, it can also be a dangerous distraction if it is allowed to consume too many resources or if it leads to a loss of focus on the core factors that drive success. Companies need to be able to strike a balance between leveraging technology to improve their performance and remaining focused on their long-term goals.
Overall, technology is an important accelerator that can help companies move from good to great. But it is only one piece of the puzzle. To truly succeed, companies need to be clear about what they are passionate about, what they can be the best in the world at, and what drives their economic engine. Only by aligning these factors can they identify the technologies that will truly make a difference and use them in a disciplined way that supports their long-term success.
Principle #6: The Flywheel and the Doom Loop
The book places a huge emphasis on the importance of understanding the flywheel effect and avoiding the doom loop.
The flywheel concept is the idea that small gains and successes can lead to larger ones over time. It is this principle that knits together the previous five to unlock greatness in your company. The flywheel is a metaphor for the continuous momentum that builds over time, leading to significant progress and growth. It comprises multiple stages, each of which contributes to the company’s overall success.
The first stage is to determine the company’s hedgehog concept by taking the “three circles” approach. With this concept in place, the company can then determine the key drivers that will push the flywheel forward.
Collins stresses the importance of a disciplined culture, where employees are encouraged to experiment and make small, incremental improvements. These improvements may not result in immediate success but will add to the flywheel’s momentum.
As the flywheel continues to build momentum, the company will experience a breakthrough moment resulting from sustained effort and continuous improvement.
The opposite of the flywheel effect is the doom loop which occurs when a company’s strategy is unclear or unfocused and leads to a lack of progress or failure. As a result, the company may experience short-term success, but it is unsustainable, and the flywheel eventually grinds to a halt.
One common cause of the doom loop is an overemphasis on technology as a solution to problems. As a result, companies often invest in new technology without understanding how it fits into their overall strategy or culture, leading to wasted resources and ineffective implementation.
Another cause of the doom loop is the tendency to blame external factors for a lack of success, rather than taking responsibility for internal issues. This lack of accountability leads to a lack of progress and eventually failure.
Embracing the flywheel concept is crucial if you are looking to achieve sustainable profitable growth. By focusing on minor, incremental improvements and building momentum over time, you will experience breakthrough moments that lead to significant growth.
In contrast, a lack of clarity, discipline, and accountability will lead you into a doom loop that halts progress and eventually leads to failure. Creating this culture and maintaining focus and objectivity can be hard. You should regularly review progress and seek external validation to keep you on track and make sure you don’t inadvertently find yourself taking a costly or even terminal wrong turn.
Principle #7: The BHAG
This isn’t, strictly speaking, part of the Good to Great book, but it’s definitely worth including here as a seventh principle. After publishing Good to Great, Jim Collins realised that simply being a great company was not enough. He saw the need for businesses to become great and sustain that greatness over time. This realisation led him to write his next book, Built to Last: Successful Habits of Visionary Companies. In this book, Collins and his co-author Jerry Porras studied 18 companies that had demonstrated long-term success, and they identified specific characteristics that made them different from less successful companies.
One of the key takeaways from Built to Last is the idea of a “Big Hairy Audacious Goal,” or BHAG. This concept involves setting an ambitious, long-term goal that inspires employees and helps to guide the company’s decisions and actions. Collins and Porras found that companies with a BHAG tend to be more successful over the long term than those without one.
Another important characteristic of visionary companies is the ability to maintain a strong culture. Collins and Porras found that successful companies had a clearly defined set of core values that were reinforced and upheld by all employees. They also found that these companies tended to be more adaptive to change while still maintaining their core values.
One of the most exciting findings from Built to Last is the idea of the “Tyranny of the OR” versus the “Genius of the AND.” They observed that many companies feel they have to choose between two seemingly incompatible options, when in fact there is often a way to combine them. For example, companies may feel that they have to choose between being innovative or being efficient. However, the most successful companies are able to find ways to be both innovative and efficient, creating a competitive advantage.
Built to Last also identified the importance of leadership in sustaining a successful company over the long term. They found that visionary companies had leaders who were not only effective managers but also passionate and committed to the company’s core values and mission. These leaders were able to inspire their employees to go above and beyond in their work, even during difficult times.
In conclusion, while Good to Great focused on the process of transforming a company from average to exceptional, Built to Last focuses on what it takes to sustain that excellence over the long term.
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