One of Jim Collinss top-selling works titled Built to Last describes what successful businesses do to remain leaders and maintain their productivity. Still, the majority of enterprises do not achieve same results. That is why the following issue is so important: what is necessary to trade in mediocrity for remarkable success? What can their rivals do being average at most to improve?
Jim Collins and his fellow researchers divided American public businesses into three categories and examined them for 5 years in order to find the solution.
The first category included the good-to-great businesses, the stock market performance of which had been either mediocre or poorer for more than a decade and then became superior, meaning the companies started to earn cumulative returns minimum thrice greater than the general stock market in the following decade.
The second category comprised of direct comparison enterprises, which either stayed average or faded away despite having relatively similar opportunities as the first category businesses undergoing the change.
The third category included unsustained comparison enterprise, which joined the great businesses for a while and then became considerably poor performers at the stock market following their previous success.
The study conducted by Collins and his fellow researchers investigated more than 2,000 pages of executive surveys and 6,000 published articles. They wanted to determine the reason behind the success of the good-to-great businesses and allow other enterprises to make a similar transition.
Businesses defined as good-to-great provide insight into achieving similar progress.
A simple hedgehog tactic illuminates the steps to take
When a fox hunts a hedgehog, it develops a number of intricate plans to lure the prey into a trap or catch it off guard in order to have a delicious meal when hungry. In turn, the hedgehog uses the same tactic every time: it becomes an unbreakable ball of sharp needles. In fact, the hedgehog survives because it follows the same simple principle.
Every good-to-great business has an individual hedgehog tactic, which is formed on the basis of the answers to the following questions:
Is there something we are able to do better than everyone else?
What do we love to do?
What primary economic market should we focus on?
Having searched for answers for about 5 years in most cases, implemented changes over and over again, and discussed every aspect dozens of times, good-to-great enterprises ended up with individual hedgehog tactics. Then, success was inevitable provided the business adhered to that tactic.
Take the Walgreens Company, for example. Their hedgehog tactic presupposed being the best and most helpful store selling medicine that received big profits from every visitor. By adamantly adhering to their principle, they surpassed others on the general stock market enjoying a 7 times greater performance.
In contrast, Walgreens rival, Eckerd Pharmacy, did not have any hedgehog tactics and had a couple of irregular and unwise surges, which cost them their autonomy in business.
A simple hedgehog tactic illuminates the steps to take.
A sequence of small spurs on a proper path ensures future achievements.
With the benefit of hindsight, good-to-great enterprises apparently had a number of radical and unexpected changes. Still, the businesses frequently did not even realize they were transforming: their reconstruction did not have any motto, grand opening, or campaign.
Instead, their achievements comprised of an accumulation of small spurs toward the hedgehog tactic that led them on the proper path. Such little advances set the whole system in motion like small gears in a mechanism, which encouraged people to build up necessary momentum for the advancement. The adamant belief in the hedgehog tactic and consistency in following it resulted in a cycle of prompts and breakthroughs.
For example, the steelmaking business, Nucor surpassed others on the general stock market performing five times better. Having faced the challenge of bankruptcy in 1965, Nucor realized that they could produce less expensive steel of higher quality compared to their competitors with the help of mini-mills, which was a more economical and adaptable steel production method. The company acquired a mini-mill, which attracted clients and allowed to get a second mill, thus ensuring progress.
In the 70s, Kenneth Iverson, who was the Chief Executive of Nucor, understood that relentlessly following the set-out path could transform the company into the most successful on the American market in the future. This objective was achieved in the end, though after more than 20 years.
Instead of gathering speed for a breakthrough, comparison enterprises opted for sudden adjustments and unwise procurements. Not having any fruitful outcomes, they were not motivated and had to make another adjustment preventing the build-up of momentum.
A sequence of small spurs on a proper path ensures future achievements.
The latest innovations in technology are not the objective but the means of achieving it faster.
Technological innovations were utilized by good-to-great enterprises to speed up the progress on the path they chose but not to define the path itself. They believed that technology was an instrument of achieving a goal, not vice versa.
In contrast, comparison enterprises usually viewed latest technologies as a danger and feared obsolescence accepting the innovations without any strategy.
However, good-to-great businesses evaluated the potential of each technology in terms of its usefulness for achieving their goals. When the technology was promising, the company was the first to implement it, and when it was useless, they discarded it or adopted it to a certain extent in order to not lag behind.
Consider the Walgreens Company, which demonstrates how a recent technology can be fully exploited.
When e-commerce began to develop rapidly, the online business Drugstore.com appeared during the huge market promotion. Even the impression of being not as quick to go online caused Walgreens to lose 40 percent in share value, and they were always being pushed to join in with the trend.
Instead of succumbing to influence, the company examined the possible benefits of going online for achieving their established goal: improving the customer experience in their stores and increasing their earning from each client.
Finally, in a year, Walgreens.com was introduced, which helped the company on the path to their goals with the help of online prescriptions, for instance. When the initial value of Drugstore.com declined drastically, that of Walgreens returned to its original mark while the companys stock price became twice as big.
The latest innovations in technology are not the objective but the means of achieving it faster.
The so-called level 5 leaders encourage fruitful changes when the company goes from good to great.
Every good-to-great enterprise undergoing transformation has a level 5 leader.
Apart from being remarkable people, excellent team players, bosses, and organizers, level 5 leaders are also relentlessly resourceful for the good of the business. Yet, they are still modest. Such people are determined to achieve results and wish for their enterprise to go on even following their departure.
Level 5 leaders certainly are not egotistic; in fact, they are rather humble and quiet. Furthermore, being praised for their enterprises success, such leaders lessen their input in it while fully accepting criticism and accusations in case of a failure.
Darwin Smith can provide a good example being responsible for making Kimberly-Clark one of the best businesses in the global consumer packaged goods industry. Smith did nothing to promote his image or make him look important. His clothes were more suitable for a farmer, and Smiths farm in Wisconsin was his vacation resort while his friends included mostly blue-collars.
Conversely, about 70 percent of the executives of comparison enterprises had a great feeling of self-importance, which undermined the continuing achievements of the businesses. It was obvious due to the lacking succession planning.
Consider Stanley Gault, the famous authoritarian Chief Executive of Rubbermaid, who achieved personal success but whose negligence in terms of successive management resulted in Rubbermaids losing its Fortune Magazines most admired status and becoming likely to be bought by a rival in some five years.
The so-called level 5 leaders encourage fruitful changes when the company goes from good to great.
Greatness is achieved in the right places by the right people.
Subjects have to come before objects. When going from good to great, the first step was always about finding the right people for the enterprise and getting rid of the wrong people while determining the future direction came afterward.
In the end, the right people determine the direction toward prosperity. For instance, Wells Fargos Chief Executive, Dick Cooley, having assumed his position, concluded that he would not be able to comprehend the effects of the impending banking industrys deregulation.
However, Cooley figured that acquiring the smartest and the greatest individuals for the company would allow the business to triumph. His reasoning did not fail. Afterward, Warren Buffett named the directors of Wells Fargo the best management team in business since the business achieved amazing success.
Instead of looking for individuals with a set of professional skills, good-to-great enterprises chose people with the particular personalities stating that they would be able to prepare and teach the right people.
The right people did not require any motivation from the companies. The businesses concentrated on the employees instead of employing and provided such conditions, which hard-working people enjoyed and the careless ones fled. In turn, the companys leaders usually left right away if they did not mean to work long term.
Being in need of employees, good-to-great enterprises brought in only the right people (never the wrong ones) even if there were not enough of them and the company did not have concrete work for them.
Having found amidst their employees the wrong individual, good-to-great businesses moved right away. This person would be fired or at most transferred to another workplace, which would fit their skills. The companys concern only grows if the issue of having the wrong people is not addressed immediately.
Greatness is achieved in the right places by the right people.
In order to achieve something, one needs to face the naked truth and yet stick to ones beliefs at the same time.
Often, good-to-great businesses deal with the situations that fit the Stockdale Paradox, named after an American military officer held captive during the Vietnam War.
Admiral Stockdale was held at the notorious Hanoi Hilton jail suffering torture and being uncertain whether he would ever rejoin his family. Even in that horrible situation, Stockdale remained adamant in his belief that someday he would be free again.
However, he did not succumb to vain attempts to escape reality like the other captives, who would hope to go home on holidays, for example, and then feel utterly depressed when nothing changed. Afterward, Stockdale assured that he prevailed only because his belief was supplemented by his capability to face reality.
Similarly, good-to-great enterprises face the ugly truth of their reality while preserving their unchanging beliefs in their eventual success.
When adjusting to new regulations or battling fierce competitors, good-to-great businesses confronted the problem rather than hiding from it while maintaining a positive attitude. Take Procter & Gambles entrance into the paper-based goods market for instance when the two contemporary leaders had rather varied responses.
Scott Paper decided that it was their end and that they would never be able to oppose such a titan as Procter & Gamble (P&G). Therefore, the company opted for diversification and attempted to fill the niches where P&G did not offer its products.
In contrast, a chance to clash with such a rival excited Kimberly-Clark, who even had a moment of silence for P&G at one of their board meetings.
Twenty years later, the outcome was the following: Kimberly-Clark acquired Scott Paper and beat P&G in 75 percent of product groups.
In order to achieve something, one needs to face the naked truth and yet stick to ones beliefs at the same time.
Leaders have to create such an atmosphere that would encourage the expression of the ugly truth.
A charming and able leader may cause more harm than good if no one is able to deliver them the bad news.
When having a meeting with managers, a leader has to initiate and control the conversation by asking questions in order to see what people really think. Leaders should avoid presenting prepared answers; instead, they are advised to prompt heated discussions to find the best solutions.
For example, Pitney Bowes, a manufacturer of postage meters whose monopoly almost became bankrupt, managed to become a leader in the field of providing document handling solutions and performing seven times better than others on the general stock market. Nevertheless, the directors of at Pitney Bowes talked more about various unpleasant matters at their meetings instead of enjoying their achievements.
In case of making errors, one has to analyze them carefully in order to determine the reason of failure though no accusation should be made so not to dissuade people from voicing their opinions and revealing the truth.
Using the system of red flags, which warns about business troubles, may prompt the management to face the ugly truth.
Both good-to-great and comparison businesses had the same information; the difference was in their approaches: the former faced the difficulties and remained true to their beliefs.
Leaders have to create such an atmosphere that would encourage the expression of the ugly truth.
Following the hedgehog tactic requires a climate of meticulous self-discipline.
A triathlon competitor in the past, Dave Scott was accustomed to ride a bike for 75 miles, jog 17 miles, and swim 12 miles on a daily basis. Even such a harsh routine did not discourage him from cleaning his everyday meal of cottage cheese before consumption to reduce his fat intake.
Good-to-great enterprises consisted of such people like Dave Scott, who had a lot of willpower and resolve, and who followed their simple plan and the hedgehog tactic of the business.
Wells Fargo, for example, realized that efficient operations would become critical in the deregulated banking industry. The bank fixed the managers salaries, got rid of the companys jets and executive dining room replacing the latter with an inexpensive caterer. The Chief Executive resorted to scolding those who spent more than necessary on the report binders. Even though not every measure taken by Wells Fargo was essential for success, their implementation shows the readiness of the enterprise to make more effort.
A climate of self-discipline differs from a lone disciplinary authoritarian. Such despotic executives may achieve a short-time feeling of businesss success at times, but when they leave, the companies usually collapse.
Stanley Gault, for example, was Rubbermaids Chief Executive who confessed to being a genuine despot and expecting his managers to work 80 hours per week like he did. After Gault had retired without establishing a climate of discipline, Rubbermaids value decreased by more than a half in a couple of the following years.
Following the hedgehog tactic requires a climate of meticulous self-discipline.
Final Summary
The main idea is as follows:
Businesses may evolve from average enterprises to superior companies through the adherence to a basic principle with the right managers and employees working in a climate of meticulous self-discipline.
The questions, to which the answers have been provided:
Why does one need to investigate good-to-great enterprises?
- Businesses defined as good-to-great provide insight into achieving similar progress.
What are the differences between the strategic management of good-to-great businesses and that of the average ones?
- A simple hedgehog tactic illuminates the steps to take.
- A sequence of small spurs on a proper path ensures future achievements.
- The latest innovations in technology are not the objective but the means of achieving it faster.
What are the differences between the employees and environment of good-to-great businesses and those of the average ones?
- The so-called level 5 leaders encourage fruitful changes when the company goes from good to great.
- Greatness is achieved in the right places by the right people.
- In order to achieve something, one needs to face the naked truth and yet stick to ones beliefs at the same time.
- Leaders have to create such an atmosphere that would encourage the expression of the ugly truth.
- Following the hedgehog tactic requires a climate of meticulous self-discipline.