Good to Great

"Good is the enemy of great."

— Jim Collins

Collins was a professor at Stanford's business school and is coauthor of Built to Last, one of the most-read strategy books of the nineties. For Good to Great, his team spent five years reviewing 1,435 Fortune 500 companies and found only eleven that, after years of average results, made a leap and accumulated stock returns of at least three times the market over fifteen years. Each was compared with a competitor in the same industry that had the same opportunities and didn't make the leap.

The lessons on leadership and people are the ones that most contradict intuition:

• The leaders of the eleven companies were not media figures. Collins calls them Level 5 leaders: they combine personal humility with fierce professional will, and their ambition is directed at the company, not at themselves.
• First who, then what. Before deciding where the bus is going, they get the right people on, the wrong people off and everyone in the right seat.
• When in doubt, they don't hire; they keep looking. And when someone isn't working out, they act early instead of waiting for them to improve.
• The right people don't need to be over-motivated or over-controlled; they motivate themselves.

The exemplary case is Darwin Smith at Kimberly-Clark. He was an in-house lawyer, discreet and low-profile. As CEO he made the decision to sell the paper mills, the company's traditional business, including the one that bore the name of the town of Kimberly, and put all the money into consumer products to compete against Procter & Gamble. Analysts criticized him. Twenty-five years later, Kimberly-Clark was the largest paper-based consumer products company in the world.

On strategy, the book recommends:

• Confront the brutal facts. Collins explains it with the Stockdale paradox, the admiral who survived eight years as a prisoner in Vietnam: absolute faith that you will prevail in the end, and at the same time the discipline to see reality as it is today.
• Create an environment where the truth is heard: ask more than you answer, debate without looking for culprits and have mechanisms for uncomfortable data to reach the top.
• Define the hedgehog concept, the intersection of three circles: what you can be the best in the world at, what drives your economic engine and what your people are passionate about.
• Choose a single economic indicator to guide decisions. Walgreens went from measuring profit per store to profit per customer visit, and that explained why it opened pharmacies so close to one another.
• Keep a stop-doing list, as important as the to-do list.

On execution, Collins observes two patterns:

• A culture of discipline: disciplined people, with disciplined thought, who take disciplined action. With that, hierarchy and bureaucracy become unnecessary.
• Technology as an accelerator, not as the origin of the leap. The eleven companies adopted technology only when it served their hedgehog concept.

The concept to master is the flywheel. None of the eleven companies had a single moment of transformation; their executives couldn't point to the day of the change. It was a constant effort in the same direction, pushing a heavy flywheel turn after turn until it gained momentum. The comparison companies lived the opposite, the doom loop: a new program every year, a new CEO with a new strategy, acquisitions to cover the lack of direction, and the flywheel stopped every time it started to turn.

How to apply it? Gather your leadership team for an afternoon and draw the three hedgehog circles for your company. Write down what you can be the best at (not what you want to be the best at), which per-unit indicator drives your economics and what you are truly passionate about. Then review the list of current projects and mark those that don't fit in the intersection. That's your first stop-doing list.

As a founder it will help you resist the temptation to change strategy every quarter and to take seriously that people decisions come before strategy decisions. And with your team and your partners it gives you a clear language to explain why your company says no to opportunities that look attractive.