Stepping From Good to Great

Edition: February 2003 - Vol 11 Number 02
Article#: 1455
Author: Mark Thill

Jim Collins’s most recent book, Good to Great, has good to great news for the mortal man and woman: Building something great is more the result of hard work than of gee-whiz genius or vision.

Yes, we’ve all heard the quote, attributed to U.S. inventor Thomas Edison, that genius is 1 percent inspiration and 99 percent perspiration. Yet how many of us still get the willies when our boss asks, “What are your plans for the second half of the year?” “How do you intend to move this product into the future?” “When can you have your five-year-plan on my desk?”

How many of us look at legendary business leaders, such as Lee Iacocca and Jack Welch and think, “These are the superstars. These are men of vision and action. They’re not like me.”

How many of us believe, deep down, that unless someone is planning or doing something really dramatic – making a major acquisition, laying off a lot of people, divesting a key business, introducing a radically new product or realigning the sales force – he or she (and his or her organization) is doomed to mediocrity?

Bold may be beautiful, says Collins, co-author (with Jerry Porras) of the 1994 book Built to Last, about building enduring companies. But it’s also very likely a flash in the plan. Hotshot execs may grab the press and even build good companies or organizations. But it’s the hard-working ones – the ones who are focused on their passions, their strengths and their profitability – who are building truly great organizations.



The Quest for the Best

Collins’ previous book, Built to Last, asked, “How can long-term, sustained performance be engineered into a company from the beginning?” Good to Great takes another spin: How can good or even mediocre companies turn around to become great companies?

Collins and his team of 20 researchers searched for truly great companies using a list of 1,435 firms on the Fortune rankings of America’s largest public companies. Not only were such companies likely to be well-established, ongoing concerns, they reasoned, but they also were publicly traded companies, which allowed the team to use financial stock return data as the basis for screening and analysis.

Using Fortune rate-of-return data, the research team pared down the list to 126 companies. Based on cumulative stock returns, they identified 19 of those 126 companies that were in the middle of the pack for a period of time, then catapulted to a new level, far outperforming the market (called “comparison companies” by Collins). Finally, the team identified the 11 “good-to-great” companies, based on their track record of far outperforming companies in their industry. (“We wanted to find companies that made a transition, not industries that made a transition,” writes Collins. “Merely being in the right industry at the right time would not qualify a company for the study.”)

The team studied these 11 “good-to-great” companies as well as their direct comparisons (that is, competitors that could have been great, but never made it.)



Traits of Greatness

According to Collins, every good-to-great company exhibits three traits: disciplined people, disciplined thought and disciplined action. These three traits encompass six key concepts:

1. Level 5 Leadership. Leaders of good-to-great companies exhibit “a paradoxical blend of personal humility and professional will,” says Collins. (Think Abraham Lincoln or Socrates, not General George Patton or Julius Caesar.)

2. First Who …Then What. “We expected that good-to-great leaders would begin by setting a new vision and strategy,” writes Collins. “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.”

3. Confront the Brutal Facts (Yet Never Lose Faith). Good-to-great leaders “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.”

4. The Hedgehog Concept. “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,” writes Collins. “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.” Great companies focus on what Collins calls the “hedgehog concept,” which reflects a deep understanding of three intersecting circles – that which you are deeply passionate about, that which you can be the best in the world at, and that which drives your economic engine.

5. A Culture of Discipline. “When you have disciplined people, you don’t need hierarchy,” says Collins. “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.”

6. Technology Accelerators. Good-to-great companies don’t view technology as the primary means of igniting a transformation, says Collins. “Yet, paradoxically, they are pioneers in the application of carefully selected technologies. We learned that technology by itself is never a primary, root cause of either greatness or decline.”



Leadership

Collins’s theories are exciting, but it’s the anecdotes that make Good to Great a fun read. And Collins has scores of them, beginning with the story of Darwin E. Smith.

Smith became the CEO of Kimberly-Clark in 1971. The “stodgy old paper company” had trailed the general market for 20 years. By the time this “mild-mannered in-house lawyer” left the company 20 years later, he had transformed Kimberly-Clark into the leading paper-based consumer products company in the world, beating Scott Paper and Procter & Gamble.

According to Collins, one of Smith’s credentials for Level 5 leadership is the fact that the Wall Street Journal never wrote a splashy feature on him. Possessed of “a fierce, even stoic, resolve toward life,” the shy, reserved Smith nevertheless made the gutsy decision to sell K-C’s mills and move into the consumer paper-products industry. Why? Because Smith could see that the company’s tried-and-true business – coated paper – was doomed to mediocrity.

Level 5 leaders harbor ambition first and foremost for their company and its success, rather than for their own riches or personal renown. (Contrast Darwin Smith with, say, Lee Iacocca.) At the same time, they have strong professional will.

The story of Colman Mockler, CEO of Gillette from 1975 to 1991, illustrates this point. The publicity-shy Mockler withstood three vicious takeover attempts (including one by Ronald Perelman of Revlon, whom Collins describes as “a cigar-chomping raider with a reputation for breaking apart companies to pay down junk bonds and finance more hostile raids.”) Perelman dangled a good hunk of change to Gillette shareholders, but Mockler resisted, believing the company could do better in the long-term. So Mockler invested in new, advanced systems (later known as Sensor and Mach3) and brought Gillette long, steady growth.

Reading about the hot-winded, blustering leaders of the so-called comparison companies is even more entertaining than reading about Level 5 leaders. Example: Stanley Gault, the architect of Rubbermaid’s meteoric rise (and fall). “In 312 articles collected on Rubbermaid, Gault comes through as a hard-driving, egocentric executive,” writes Collins. “In one article, he responds to the accusation of being a tyrant with the statement, ‘Yes, but I’m a sincere tyrant.’”

In a nutshell, Level 5 leaders want to see their companies successful in the next generation, and don’t care whether people know their role in that success or not. In contrast, leaders of the comparison companies often set their successors up for failure, or they choose weak successors, or both. Either way, the company loses.



Morality Play

Though Collins’s book is based on many hours of research, it still reads a little like a morality play.

For example, in Collins’ world, the braggadocio always loses in the end. Lee Iacocca, for example, turned Chrysler around in a crucial moment in its history. But then he got a little too engaged with TV commercials, speech-making and hobnobbing with muckety-mucks. Eventually, he got his comeuppance; Chrysler collapsed again, and finally was acquired by Daimler.

In Collins’s world, long, hard work pays off in the end, which is good news for those of us who can’t include “visionary” in our credentials. He calls it the “flywheel effect.”

“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, and 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.”

Good-to-great companies often don’t even know they’re on the path to greatness. What others see as overnight success, they see as slow, plodding work, doing the right things, and recruiting the right people. Circuit City is a good example. Forbes wrote the first national-level profile of the company on Aug. 27, 1984. But as Collins points out, the company’s story had been over a decade in the making, beginning with Alan Wurtzel inheriting CEO responsibility from his father in 1973, with the firm close to bankruptcy.

Nucor Steel is another case. The steel-maker apparently came from nowhere to beat the giants, Bethlehem Steel and U.S. Steel. In reality, Ken Iverson and Sam Siegel took over the company in 1965. For 10 years, no one paid any attention to Nucor Steel. By 1975, the company had already built its third mini-mill, and was well on its way to becoming the most profitable steel company in America. Yet the first major article in Business Week didn’t appear until 1978, and not in Fortune until 1981 – 16 years after the two took over.

The Circuit City, Nucor Steel (and Wal-Mart, for that matter) stories all illustrate a point, says Collins: “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.”

Finally, in Collins’ world, rugged individualism always wins over herd mentality. The good-to-great companies look at the brutal facts as well as their core strengths and passions, and then make the tough decisions. Example: Kroger and A&P were two aging grocery chains in the 1960s. Both had founded their empires on “cheap, plentiful groceries sold in utilitarian stores,” a winning formula for the first half of the 20th century. But by the more affluent 1960s, consumers wanted more. They wanted greater selections, brighter stores and other services. In short, they wanted superstores.

Kroger looked at the data and began eliminating, changing or replacing every single one of its stores, a massive project that wasn’t finished until the early 1990s. By 1999, Kroger was the No. 1 grocery chain in the country, while A&P “still had over half its stores in the old 1950s size and had dwindled to a sad remnant of a once-great American institution.”

Moral: No great decisions can be made without facing the brutal truth. There’s a corollary worth paying attention to: A charismatic CEO’s strength of personality can actually lead to people filtering the facts from him or her, with dire results. “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,” writes Collins. “This is one of the key reasons why less charismatic leaders often produce better long-term results than their more charismatic counterparts.”

Collins’ book is entertaining and reassuring. It’s a book for the everyman and – woman; that is, for the uncharismatic.

If there’s a flaw, it’s that Collins brings himself and his researchers into the narrative a little too much. Several of his anecdotes show how he had an idea or theory, only to be disproved by one of his researchers. It’s as if he’s trying to show us how much of a Level 5 leader he is – that is, one who is modest and willing to listen to the truth as uttered by his underlings.

If that’s his only delusion, that’s OK. Would that more CEOs had the same one!



Companies Studied



Good-to-GreatCompanies

Abbott

Circuit City

Fannie Mae

Gillette

Kimberly-Clark

Kroger

Nucor

Philip Morris

Pitney Bowes

Walgreens

Wells Fargo



Direct Comparisons

Upjohn

Silo

Great Western

Warner-Lambert

Scott Paper

A&P

Bethlehem Steel

R.J. Reynolds

Addressograph

Eckerd

Bank of America