‘Good is the enemy of Great’. This might sound odd but it is actually true. That’s why good to great transitions are very damn difficult and they rarely happen. Jim Collins in his book called Good to Great wants to answer this question. How do companies go from good to great? To answer this question, he has studied many of us public companies and their goal was to find out what the good to great companies have done differently. He has found out the systematic phases that any great company goes through before making the transition from good to great. These findings can help other companies to make the same leap. In this summary, I’ll share with you three key lessons that I learned from the book.
Key Lesson #1: First who, then what
Asking who must come before asking what. The transformation from good to great always began with getting the right people into the company and the wrong people out of it, even before defining a clear path forward. Once you have the right people, they will eventually find a path to success. It is important to assemble a team of great people first and then decide on the strategy or vision for the company to make it great. The main reason is that when people join you for the strategy or the direction of the company then there is no guarantee that they will stick around or be equally motivated when the company changes its path. When Dick Cooley took over as the CEO of Wells Fargo, he didn’t know what to do. But, he realized that if he got the best-talented people into the company, together they would find a way to prevail. He was right. Warren Buffet later called Wells Fargo’s executives “the best management team in the business.” With the right people in the company, you don’t need to worry about how to motivate them. Moreover, good to great companies never hire the wrong person even if they are in absolute need. And if they have the wrong person, they would either get rid of them or try to put them in more suitable positions. The right people in the right place are the foundation of greatness.
Key Lesson #2: The Hedgehog Concept
Finding a simple hedgehog concept provides a clear path to follow. Imagine a fox trying to hunt a hedgehog. He would come up with all sorts of sneaky tactics to surprise and capture the tasty food. Hedgehog, on the other hand, has only one response, to curl up in a spiky ball. Because it sticks to such a simple strategy, the hedgehog overcomes the fox day after day. Good to great companies all have a simple hedgehog concept. This concept affects all of their decision-making. To find the hedgehog concept, the company needs to answer three questions.
1- What can we be the best in the world?
2- What can we be passionate about?
3- What economic metrics we should concentrate on?
The intersection of these will give the hedgehog. Good to great companies find their hedgehog concept and after that, every decision in the company is made in line with it and success follows. For example, Walgreens which is a drugstore chain decided that it would be the best and most convenient drugstore. This was their hedgehog concept and the only thing they pursued. As a result, they outperformed the stock market by a factor of seven. Their competitor, Eckard Pharmacy didn’t have such a simple hedgehog concept and pursued several directions and now they don’t even exist.
Key Lesson #3: Building momentum in one direction
Success comes from many tiny incremental pushes in the right direction. Good to great companies may seem to go through a sudden transformation but their success is often a sum of tiny pushes in the direction of their hedgehog concept. Like pushing a flywheel, these small improvements generated results that motivated people to push further, until there was enough speed for a breakthrough. For example, Nucor which is a steel manufacturing company was battling with bankruptcy in 1965. But they understood they could make steel better and cheaper than anyone else by using mini-mills. They just kept pushing in this direction and in just two decades they became the most profitable steel company in the US. Meanwhile, their competitors didn’t try to build momentum in one direction. Because they made dramatic changes here and then, they didn’t let the flywheel gather speed.
In summary, companies can make the leap from mediocrity to greatness by first bringing the right people into the company and then defining a clear simple path to follow. A small move forward every day in that direction will eventually build momentum and make the company great.