Good to Great Book Review
To transform a good company to great company is all manages’ dream, but only few of them make it. To find out the core factors which lead to a good company became a great company is very difficult, because in different era, different industry companies face different opportunities and threats. To begin the research for the Good-to-Great study, Jim Collins and his research team searched for companies that: performed at or below the general stock market for at least fifteen years; then at a transition point began to pull away from the competition, and sustained returns of at least 3 times the general market for the next fifteen years. He started with a list of 1,435 companies and found eleven that met his criteria. These eleven companies produced, on average, a return of 6.9 times the general stock market during the 15 years following the transition points. Collins chose a 15-year span to avoid “one-hit wonders” and lucky breaks. In the book, Collins highlights some important factors which are the result of the research. They are level 5 leadership, fist who then what, confront the brutal facts, the hedgehog concept, culture of discipline, and technology accelerators, (Collins, 2001, p.12).
According to Wheelen ; Hunger, strategic management “is that set of managerial decisions and actions that determines the long-run performance of a corporation. It includes environmental scanning (both external and internal), strategy formulation (strategic or long-range planning), strategy implementation, and evaluation and control” (2004, p2). All eleven good to great companies are benefit from strategic management and gain long term strategic advantage then lead to outperforming compared companies.
The first factor is level 5 leadership. A leader is the soul of the company. Base on the research, every good-to-great company had level 5 leaders during the pivotal transition years. In the book, level 5 leaders embody a paradoxical blend of personal humility and professional will (Collins, 2001, p.13). Darwin E. Smith is an example of lever 5 leasers. Smith transforms Kimberly-Clark into the leading paper-based consumer products company in the world within twenty years. Generated cumulative stocks return 4.1 times the general market, furthermore beating its direct rivals Procter ; Gamble and Scott Paper. Level 5 leaderships’ ambition is first and foremost for the institution, not themselves. After environmental scanning and industry analysis Smith announced the decision to sell the mills, very few people understand that, but in the long-run it is the most important turning point of the company.
Another important character of level 5 leadership is the window and the mirror concept. Level 5 leaders look out the window to apportion credit to factors outside themselves when things go well (and if they cannot find a specific person or event to give credit to, they credit good luck). At the same time, they look in the mirror to apportion responsibility, never blaming bad luck when things go poorly (Collins, 2001, p.35). In other words, level 5 leaders are very modesty. The level 5 leaders were seemingly ordinary people quietly producing unordinary results. Compared with Kimberly-Clark’s CEO, Scott Paper’s CEO, Al Dunlap, called himself a nickname: Rambo in Pinstripes in his book after selling off the company and pocketing his quick millions dollar within 603 days leading Scott Paper.
The second factor are staffing (first who then what). Some companies decided what to do then choose appropriate people to do the job. It like a genius point out the direction and thousand helpers help him to go there. The book show us a different way which is select right people on the bus and get the wrong people off it then start to find out where to go with these right people. That is opposite with our common sense, but this factor very helps companies from good to great.
Bank of America versus Wells Fargo is the perfect case shows us how the concept works. During 1970s, Bank of America broadly used “Plastic People” who’d been trained to submit to the dictates of a domineering CEO. In the same time, Wells Fargo recruited talented people into the company without any specific job, because the CEO believed that these smart people could help company to face and deal with the future changes and difficulties (Collins, 2001, p.42). Well Fargo is easy to adapt to a changing world when banking deregulation arrived. Moreover, Wells Fargo went three times higher than general stock market which the banking fell 59 percent behind. CEO of Wells Fargo, Dick Cooley a level 5 leader, understand three simple truths. First, if you begin with “who,” rather than “what,” you can more easily adapt to a changing world. Second, if you have the right people on the bus, there are no problem to motivate and manage people goes. Right people are self-motivated by the inner drive to produce the best results, and right people don’t need to be tightly managed, they know what they should or should not do. Third, if you have the wrong people on the bus, you won’t get to the place where you want to go, whatever how hard to motivate and manage them. Right people are the most important asset in the company. Right people can turn a nearly bankruptcy company to Fortune 500 company.
The third reason why good-to-great companies outperform, is they do not cover up the bad news (confront the brutal facts). Nobody likes to hear the bad news, but we have to facing it and take reaction about it. Furthermore all good to great companies create a culture wherein people have a tremendous opportunity to be heard and, ultimately, for the truth to be heard. When A;P executives recognized their customer liked the modern superstore from the result of The Golden Key, they just closed it because they didn’t like the answer (Collins, 2001, p.68). Unlike A&P, Kroger faced this cruel result bravely, and decided to “eliminate, change, or replace every single store and depart every region that did not fit the new realities” (Collins, 2001, p.69). After more than 20 years effort, Kroger became the number one grocery chain in America (Collins, 2001, p.69).
Compared with two cases, we conclude that “it is impossible to make superior decisions without knowing the entire process with an honest confrontation of the brutal facts” (Collins, 2001, p.88), Focus on corporation’s strategic management, a company which can confront the brutal fact will help it to make the right decision (strategy formulation), get the real result of its program and make the correction (evaluation and control). That’s why good to great companies faced the similar difficulty as comparisons companies but they responded differently, achieve great result.
Hedgehog concepts to all good-to-great companies: they are very good at doing one big thing. They are able to simplify a complex business into a single organizing concept that guides everything. This does not mean that the businesses themselves are uncomplicated. However, the Good-to-Great leaders are able to see through the complexity and fundamental economic driver of the business. Jim Collins simplicity within the three circles which are what you are deeply passionate about, what you can be the best in the world at and what drives your economic engine (Collins, 2001, p.96). By comparing case of Eckerd versus Walgreens; Walgreens has a simple hedgehog concept that is to be “the best, most convenient drugstores, with high profit per customer visit” (Collins, 2001, p.92). Under this concept, it opens drugstores in every possible convenient location and added extra services to the store not only selling drugs, to increase the profit per customer visit. As a result, “Walgreens generated cumulative stock returns from the end of 1975 to 2000 the exceeded the market by over fifteen times” (Collins, 2001, p.92).
A simple formula does not imply a simple business. Good-to-Great leaders continually analyze their organizations, until they really understand what drives their financial success. This goes hand in hand with learning from mistakes and figuring out what works. Since figuring out three circles of the hedgehog concept, we have to remain great is to keep applying the fundamental principles that made you great. If you stop doing them, you will slide backward, from great to good, or worse (Collins, 2001, p.108). Hasbro case is an example. Hasbro became the best in the world at acquiring and renewing tried-and-true toys, reintroducing and recycling them at just the right time to increase profit per classic brand. And its people had great passion for the business. Hasbro became an unsustained transition in part because it lost the discipline to stay within the three circles, after the unexpected death of CEO Stephen Hassenfeld (Collins, 2001, p.108).
Discipline culture is another important factor drive good-to-grate companies to success. Nucor, for example, has “the Hedgehog Concept of harnessing culture and technology to produce steel. Central to the Nucor concept was the idea of aligning worker interests with management and shareholder interests through an egalitarian meritocracy largely devoid of class distinctions” (Collins, 2001, p.136). Because of the culture of discipline, Nucor have the simplest managing structure, the least managing staff and highest employee’s benefits. When people are fed up by more and more union strike, Nucor’s workers even reject to unionize.
Technology not likes leader, concept, and culture; it is an accelerator for the company. Good-to-great companies used technology as an accelerator of momentum, not a creator of it. None of the good-to-great company began their transformations with pioneering technology, yet they all became pioneers in the application of technology once they grasped how it fit with their three circles and after they hit breakthrough (Collins, 2001, p.162). Before become a pioneer in the application of the technology, we have to do the external and internal scanning to see is it the technology fit our long term strategic and hedgehog concept.
Generally speaking, Good-to-Great are base on six major factors: leadership, staffing, information, concept, culture and technology. All these factors drive the companies good to great. Without a doubt, this is a must read for anyone in business, running a business or starting a business.
Collins, J. (2001). Don’t Good to Great – Why Some Companies Make the Leapand Others. New York: HarperCollins Publishers Inc.
Wheelen T.L., ; Hunger J.D. (2004). Strategic Management and Business Policy
(9thed.). Upper Saddle River: Pearson Education, Inc.