times over a 15-year period. (This long time frame means one-off events were filtered out). In other words, these 11 companies had genuinely shown they had made a sustainable transition from being good (or average or mediocre) to great.
So the question now becomes: How did these 11 companies become great, and are those lessons replicable? The answer is stunning in its simplicity. None of these companies launched radical or high profile change programs. Nor did they have a miracle moment where a flash of inspiration showed them the way to the ‘Promised Land’. Instead, they used down-to-earth and pragmatic programs to commit to a standard of excellence founded around three elements:
- Disciplined People – getting the right people in the business and then keeping them focused on excellence.
- Disciplined Thought – being brutally honest about the facts and avoiding the temptation to get sidetracked on non-core ideas.
- Disciplined Action – realizing what is important to achieve and what isn’t.
In all, these three elements can be broken down into six key concepts that embody the good-to-great transition process: Note that a ‘flywheel effect’ is also involved. The first three concepts build momentum in just the same way as a lot of initial effort is required to get a heavy flywheel turning.
- Level 5 Leadership >
- First “Who” Then “What” >
- Confront the True Facts
Companies build momentum for change in a positive direction when they stop doing senseless things that consume time and attention resources. Getting the flywheel turning takes years of consistent effort rather than a blinding flash of inspiration, but once the flywheel has built up speed, it will sustain a prolonged period of breakthrough performance. People get energized by the early results and that motivates them to do more – ensuring the flywheel will drive forward momentum for some time to come.
JIM COLLINS is the founder of a management research laboratory in Boulder, Colorado. He has spent more than 10 years studying and analyzing how great companies achieve superior performance, grow and then perform consistently well. The results of this analysis have been contained in the four books Mr. Collins has co-authored including Built to Last (1994) and Beyond Entrepreneurship (1995).
First “WHO”, Then “WHAT”
The key to making a good-to-great transition isn’t setting the right objective. Instead, concentrate on getting the right people on board, and then they will figure out what the most important objective should be. And the more people with initiative and skills that join the team, the better.
The conventional approach to growing a company can be described as a “genius with a thousand helpers” model.
That is, a smart, charismatic leader is appointed to set the company’s vision and nominate what the key objective should be. He or she then enlists the aid of managers to make the vision happen. Or put differently, the conventional approach is to put the “What” questions before the “Who” decisions.
The weakness of this approach is that if the genius gets a better offer to go elsewhere, the entire organization suffers. Good-to-great companies take a completely different approach. They concentrate on getting the right people involved. Once that’s done, those people can then decide where the entire organization should head. Good-to-great companies put the “Who” decision before every “What” decision – before vision, before strategy, before tactics, even before the organizational structure. Quite literally, good-to-great companies put getting the right people first.
There are other benefits to putting the “Who” decision first:
- It becomes easier for the company to change direction to adapt to a changing world – because people have joined the company primarily because of who they get to work with rather than what they get to do.
- The challenge of motivating and managing people goes away – because the right people will be far more motivated by their desire to achieve and be part of something great. They won’t need to be managed – they will naturally be fired up.
- The company has the potential to become great – because even if it heads in the right direction, if the wrong people are involved, the company won’t achieve true greatness. Great people are an essential element in executing a great business strategy.
There are also three practical disciplines good-to-great companies apply in making rigorous personnel decisions:
- When in doubt, don’t hire – just keep looking.
Good-to-great companies are willing to grow only at the rate at which they are successful in attracting the right people. They know that any time their rate of revenue growth outstrips their ability to attract the right people, the company is moving towards mediocrity rather than greatness.
- If it’s obvious a change in personnel is needed, act quickly.
The best people never need to be tightly managed. They will know instinctively what needs to be done without lengthy sets of instructions. Therefore, when good-to-great companies find someone is under-performing, they first try and decide whether that person is better suited somewhere else in the company, and if not, they fire them quickly and decisively. That sends the clear signal the high performers will not be required to compensate for poor hiring decisions.
- Put the best people on the biggest opportunities, not the biggest problems.
Managing problems efficiently will make a company good but exploiting opportunities can make it great. Therefore, good-to-great companies put their best people precisely where they can generate the most substantial benefits. These opportunities will always outweigh what could be added by making savings in a poorly performing part of the business. And, it has one other flow-on benefit. If the decision is made to divest a problem business, good-to-great companies avoid getting placed into a situation where they sell off their best people along with their poorest performing business unit. That means changes of direction can be made without problems.
Placing “Who” decisions before “What” decisions doesn’t stifle debate about the direction a good-to-great company should take. On the contrary, it stimulates the level of argument and debate because there will be highly talented people involved who will feel passionate about divergent points of view. Robust debate ensures the best answers emerge. The hallmark, however, of having the right management team in place at good-to-great companies is once a decision is made, everyone unites behind it, regardless of their parochial interests and preferences. Achieve that, and great accomplishments can follow.
Invariably, when the right people are involved, everyone will enjoy their work. The leaders of good-to-great companies often become firm personal friends. Since everyone enjoys associating with the others, meetings are something to look forward to and enjoy rather than endure. That sense of comradeship and shared purpose often flows over into the personal lives of executives and their families.
“We expected to find that changes in incentive systems, especially executive incentives, would be highly correlated with making the leap from good to great. Surely, we thought, the amount and structure of compensation must play a key role in going from good to great. How else do you get people to do the right things to produce great results? We were dead wrong in our expectations. 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 the specific structure of executive compensation acts as a key lever in taking a company from good to great. It’s who you pay, not how you pay them.”
- Jim Collins
“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.”
- Jim Collins
“The old adage, ‘People are your most important asset’ is wrong. People are not your most important asset. The right people are. Whether someone is the ‘right person’ has more to do with character traits and innate capabilities than with specific knowledge, background or skills.”
- Jim Collins
“Good-to-great management teams debate vigorously but then unify behind decisions, regardless of parochial interests.”
- Jim Collins
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