Good to Great, by Jim Collins

Good to Great: Critically Summarize In Good to Great, by Jim Collins, a number of distinctions are drawn between what distinguishes a “good” company from a “great” company. Utilising a research team to do systemic quantitative and qualitative research of thousands of companies, the books intention is to identify exactly how good companies become great and outperform other companies in their specific business sector progressively and consistently. His team underwent a rigorous process of constantly interrogating and questioning certain hypotheses in order to expunge the main themes and trends behind what makes a great company, and, using a series of colourful anecdotes and metaphors, attempts to highlight exactly what companies need to do in order to be great. He looks specifically at 11 companies that, in terms of outperforming their competitors on a consistent and regular basis, are great companies. It is a surprising set of choices, but based entirely on objective analysis based on growth rates and wealth in comparison to competing companies in a similar market. He looks at Abbott Laboratories, which outperformed other companies in a similar field at a rate of 4 to 1, Fannie Mae, which outperformed other companies at 7.56 to 1, Gillette at 7.39 to 1, Kimberly-Clark at 3.42 to 1, Kroger at 4.17 times the market, Nucor at 5.16, Phillip Norris at 7.06, Pitney Bowes at 7.16, Walgreens at 7.36, Wells Fargo at 3.99, and finally, Circuit City, which outperformed the market at a rate of 18.5 to 1. Thus, by distinguishing the great companies and analysing them in a systemic and rigorous way, Collins hoped to dissect exactly what patterns emerged and how these companies correlate in their business models and philosophies, reaching conclusions about how the company ends up not only being great, but also being consistently great over a period of decades. The book acts as a prequel to Jim Collins other book, Built to Last, which he touches on in this work. He argues that a company that is solely built around the machinations of one, egotistic leader may boost revenues for a company temporarily, but that doesn’t necessarily guarantee that the company itself is a great company.

Although this is contentious, he argues that a great company can survive any number of changes to its personnel, because the people who work for the companies in question, are screened as the right people. There have been many instances of a company that has folded due to the resignation or (at times) the deliberate sabotage of a company prior to the departure of a big CEO. The companies that he distinguishes as great don’t have leaders of this ilk, but instead have a complete business policy and strategy built around Jim Collins’ carefully and systemically accrued theories about how to make a company great and for it to remain so. In searching for this, he talks about “Level 5” leaders, who, he argues, unlike the egotistical and self-serving bosses that tend to grab the limelight, are modest, even shy individuals who rarely get the attention that they deserve or even want. He also talks about companies that have emerged from a crisis. Gillette, Fannie May, and Kimberly-Clark were previously seen as struggling companies but managed to change things by, Collins argues, a combination of great leadership, defined and logical goals, which Collins elaborates by using a number of metaphors involving the three circles, the “hedgehog concept”, and “the flywheel”. By using these metaphors, Collins’ manages to explain a complex business situation in the simplest of terms. The “hedgehog concept” is about looking for what the company is best at doing, and sticking to that in a disciplined way. The three intersecting circles are elaborated as follows: “What you can be the best in the world at”, “What economic denominator best drives your economic engine”, and finally, “what you are deeply passionate about”. When this is combined with other factors, such as the employment of the right people, the appropriate use of technology, and in working towards specific and achievable factors for success, Collins argues that the traditional difficulties associated with managing and making a great company dissipate. First, Collins argues that it is not simply the case that the people make a business successful, but more that the right people make a business successful. In it, he uses the example of the steel company, Nucor.

With Nucor, the company spent a great deal of time hiring and firing the workers based on their abilities to produce steel, in the end whittling down the workforce and upping the wages, making Nucor one of the most prestigious steel companies to work for. Thus, the people themselves aren’t important, but the employment of the right people are. He extends this philosophy to leadership. He argues the case for something he terms the “Level 5” leader.

The “Level 5” leader has a combination of specific traits that make them great. It exists in a hierarchy of capabilities. “Level 1” is being a highly competent individual. “Level 2” is being a team player. “Level 3” is being a competent manager. “Level 4” is to be an effective leader. Fully developed “Level 5” leaders combine all four levels, and more. The level 5 leader has the ability to be both selfless and ruthless, and gives him/herself entirely to making the company a success, with little regard for personal acclaim. He argues that a great leader is one who combines deep personal humility with intense professional will. He draws the example of Darwin Smith from Kimberly-Clark. He suggests that his selfless channelling of his ego and his ambition led to the creation of the Kimberly-Clark empire. Upon receiving the post of CEO in the failing company, Darwin Smith made the decision to sell the paper mills upon which Kimberly-Clark were solely dependent on, in order to branch out into the service sector.

Collins’ argues that this courageous act, along with the hiring and firing of the right people, who showed a total commitment to the company, epitomises what makes a Level 5 Leader. Indeed, most of the companies he turns to have had grave problems in the past and have emerged due to, Collins’ believes, the abilities of the CEOs of the companies. However, he makes the distinction between what makes a great CEO and what the standard media perceive as a great CEO. The CEOs of all of the companies listed are relatively unknown to the mainstream press. When the manager of Gillette was printed on the front of the New York Times holding a giant razor and looking like a Greek God, he had a heart attack and died instantly. Collins’ distinguishes these people from the traditional CEO because, he suggests, they retain a modesty, yet a steeliness and an iron resolve, coupled with a total commitment to the company they work for. He argues that enormous salaries and changing personnel seem relatively irrelevant because there is no correlation between high pay for executives, and successful companies. In a world of executive egos and big-shots, the symbol of the CEO as a bastion of sensibility and self-deprecation, even shyness, seems incongruous, but Collins’, through systemic analysis of these eleven companies, identifies each of the CEOs as, what he calls, Level 5 leaders.

However, the term Level 5 leader remains vague, only pulled together by a series of fairly loose concepts about selflessness and virtue, combined with a ruthless and commanding commitment to the values of the company and of being a success. Collins also utilises another term, which he coins The Stockdale Paradox. It is simply a personality duality that occurs in the mindset of great companies, which focuses on first, a stark realisation of the problems in hand, with an, at times, brutal realisation that the company is doing something gravely wrong, and has to change radically in order to succeed in becoming great. Secondly, it is a stoicism and an unwavering faith in the companies eventual success. This is a powerful concept, and together, confidence and self-scrutiny combine to make a great company.

However, this argument is not without its flaws, and the woolliness of the terminology is often to the detriment of Collins’ ideas. Arguably, anybody could see themselves as a level 5 leader, because conceptually, it remains very vague and dependent on personality and subjective reflection on a person’s character traits. Also, the Stockdale Paradox could be equally attributed to companies that don’t become successful, or indeed, remains vague enough to be attributed to almost anything. All of the other arguments Collins’ elaborates upon stem from this initial hiring and firing of the right people, until a skeleton stock of people who are totally committed to the company emerge, and subsequently form an integral part in the success of the company. Salaries, stock value, rate of growth and other tangible factors to determine a company remain a footnote when compared to the concept of hiring the right people. Unfortunately, Collins’ fails to distinguish exactly who the right people are. It can easily be argued that a company will try to hire the right person for the job, because it would be logical to do so. By bypassing tangible, solid statistical results for conjecture and certain, uneasily defined personality traits, the flaw in Collins’ argument so far becomes apparent. The book then focuses on how a company succeeds, and, he argues, this is dependent on looking starkly at the brutal facts, but never losing track of the goal in mind.

Level 5 leaders embody this characteristic, because, as well as possessing a total, passionate commitment to the company, they are also self-deprecating and humble, and, whenever something with the company is wrong, they see themselves as personally accountable for the problem. Secondly, Collins talks in detail about what he calls “The Hedgehog Concept”. Drawing distinction between a hedgehog and a fox, he argues that while the fox scurries around, constantly and listlessly searching for a purpose, the hedgehog is defined by its concept.

This is elaborated by his three intersecting circles, in which he suggests that a company needs to have a defined, solid, and simple aim in order to succeed and become a great company. The Hedgehog Concept is achieved when this aim is identified and can, he argues, take many years. The three circles state the following. The first concept is to define what the company can be the best in the world at. In this, the example of Wells Fargo is drawn upon to elaborate the metaphor.

Wells Fargo is a financial services company, who faced great competition from other banks in the International sector. By identifying what the company could be best at, which was focussing purely on becoming the best bank in West America, the first objective of The Hedgehog Concept was achieved. Secondly, it is important for the company to remain profitable. Cashflow, Collins’ argues, is also an important concept, and, the defined aim has to take this into account. Thirdly, the company has to determine exactly what it is passionate about. For instance, Collins argues that Wells Fargo, by identifying a goal, meant that the right people occupying the various roles were also deeply passionate about becoming the best in that particular market. He argues that, by facing up to their inability to be successful in certain fields, and by limiting the company aim to a single, easily identifiable trait, then the company was automatically driven by a passion to achieve that goal.

Like Kimberly-Clark’s selling of the paper mills that, until then provided a staple for the rest of the company, and by focussing instead entirely on becoming the best and most recognised producer of paper-based products in the Western world, that the company were no longer divided on a number of fronts, and that the raison d’etre of the company was subsequently restored, via the identification of the three circles and of the fulfilment of The Hedgehog Concept. Thirdly, Collins’ talks about “disciplined action”, which again focuses on refining and boiling down the aims of the company into a tangible and easily identifiable goal, and achieving that goal in a systemic and procedural manner. In this section, he uses the metaphor of a flywheel. If the flywheel is constantly pushing in different directions, then the original intentions of the company are underwhelmed. He suggests that the so-called “overnight” success stories aren’t so much empires built in a day, but are instead due to the slow, systemic hard work and effort that was initially put into both establishing an easily identifiable and plausible goal for the company, and sticking to that goal persistently and succinctly. With this, Collins’ draws an analogy to an egg. The egg sits there, doing nothing for years and years, and nobody takes notice of the egg until it hatches, and suddenly it is seen as an overnight success. Also, the metaphor of the flywheel is used as the device that gathers momentum gradually over a period of years. He argues that the stock-market and its inherent short-termism doesn’t necessarily equate to the impossibility of defining long-term goals in the company.

Moreover, he believes that growth should occur naturally, and when feasible. He equates this to Walmart, and the gradual process of building a profitable set of stores, using distinct and achievable aims, and pushing consistently on the flywheel and allowing all personnel in the company to push in the right direction and with equal passion and veracity, were a hallmark of the astonishing success of the Walmart empire. Technology, he argues, in the “great” companies that Collins managed to distinguish from the other companies that remained merely “good”, is used primarily in order to achieve something else, and is never used as an end in itself. It is unfortunate, he suggests, that companies tend to utilise technology in the sense that it will offer them solutions to a problem that will remain afterwards. In a survey done of the 11 companies classified as great, Collins’ asked them what the five main contributory factors for their success were, and only one of the eleven companies even mentioned technology as a key factor in becoming successful. The success of a business depends on the implementation of the right technology at the right time. In order for the company to succeed, technology cannot simply be implemented, but must be used with a distinct purpose in mind. Pioneers, he argues, in various technologies, very rarely become “great” companies. On the contrary, many listless companies who jump in at the deep end of the technological pool end up sinking. So, Collins argues that technology is important for the success of the company, but only as a secondary means for promoting the primary aim, as identified by The Hedgehog Concept. In this section, Collins looks at Gillette, and at how they implemented Internet technology into their company, arguing that technology “accelerates” getting to the goal a company sets (or the glibly titled BHAG, an acronym for Big Hairy Audacious Goal) but doesn’t actually “define” a purpose for the company. That is the job of the personnel of the company. Overall, Good to Great offers a few interesting glimpses into what makes a good company into a great company, and then has a sustained period of growth that can last for decades. The conceptual framework Collins’ draws from the months of painstaking research into the companies involved certainly cannot be criticised based on the rigour with which they got to their conclusions.

However, the book remains problematic, insofar as it tends to cross the threshold between what is essentially a scientific, business studies manual, documenting with scientific and objective precision what exactly the quantifiable elements of what makes a company great, and a self-help book. The numerous concepts that are expounded and elaborated upon in grand, metaphorical detail don’t exactly contain the specificity of what exactly makes a good company.

For instance, as a primary means, Collins argues that the right people make the company great. Although this seems obvious, it fails to help or assist anybody trying to make their companies great themselves, simply because the concept behind it is too vague. Also, the “level 5” leader, as being an embodiment of the characteristics of the previous four levels on the hierarchy, is also sweeping in its vagueness. Collins describes the level 5 leader as self-effacing, but also stern and resilient under pressure.

Although some distinction is drawn between these companies with the level 5 leaders in charge, and other companies with egotistical leaders in charge, that tend to implode following the resignation of the leader, it fails to draw comparisons with companies that may have these kinds of level 5 leaders, or could certainly be described as such, but for some reason, still fail to succeed. The analysis, by concentrating on a handful of companies in a qualitative analysis, drawing upon a single comparison company, fails to be convincing in its delivery. Although a great deal of analysis was done, the comparative analysis in the book remains insubstantial. The concepts that are sketched out in the book are nicely and elegantly drawn out with extended metaphors and examples, but, conceptually and terminologically, the book lacks a certain depth of analysis to prove the points. Also, the points made about employing the “right” people, and about having a “level 5” leader fail to eschew the vagueness of a self-help manual.

Overall, however flawed the book may be, the concepts elaborated upon in turn shed light upon and helps to purge the ghosts of certain myths about exactly what makes a great company great.

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