Good to Great – Part 7

This is the final installment of a multi-part blog, sharing my thoughts on the book Good to Great by Jim Collins.  Here are links to Part 1, Part 2, Part 3, Part 4, Part 5, and Part 6.  In this update I’m covering the last chapter of the book.

 Chapter 9 – From Good To Great to Built To Last

Mr. Collins’ first book (Built to Last) focused on companies that were considered to be visionaries, lasting for 50 years or longer and well known by many people, even ones outside their industry sector.  In this last chapter he attempts to make some correlations between the findings of the two studies.  The two concepts I’d like to review are Core Ideology and Preserving the Core While Stimulating Progress.

Core Ideology

 My favorite thing about this chapter is what I learned about Hewlett-Packard, one of the companies the author profiled in his earlier book.  We’ll start with a paragraph explaining how HP got started:

Bill Hewlett and David Packard’s entire founding concept for HP was not what, but who – starting with each other.  They’d been best friends in graduate school and simply wanted to build a great company together that would attract other people with similar values and standards.  The founding minutes of their first meeting on August 23rd, 1937, begin by stating that they would design, manufacture, and sell products in the electrical engineering fields, very broadly defined.  But then those same founding minutes go on to say, ‘The question of what to manufacture was postponed…'”

This aligns with Good to Great’s idea of getting the right people on the bus.  They did that from the very start.  They fumbled around for a few years trying to define what we would call their Hedgehog Concept.  But aside from their contributions to the world’s technology they also influenced the management side of the business world:

The ‘HP Way’, as it became known, reflected a deeply held set of core values that distinguish the company more than any of its products.  These values included technical contribution, respect for the individual, responsibility to the communities in which the company operates, and a deeply held belief that profit is not the fundamental goal of a company.  These principles, while fairly standard today, were radical and progressive in the 1950s.  David Packard said of businessmen from those days, ‘While they were reasonably polite in their disagreement, it was quite evident that they firmly believed that I was not one of them, and obviously not qualified to manage an important enterprise.'”

This also aligns with Getting The Right People On the Bus, but it ties in with what Mr. Collins learned while writing Built to Last.  Namely, that Built to Last companies had some internal values that extended beyond the desire to make money.  Believing that corporations exist (as do people) to improve life for everyone is an important part of being successful long-term.  As Mr. Collins points out, “In a truly great company, profits and cash flow become like blood and water to a healthy body: They are absolutely essential for life, but they are not the very point of life.”

In a similar vein, Merck developed a cure for river-blindness, a disease affecting over a million people in poor countries.  Because the people suffering from the disease had no money Merck created a distribution system to get the drug to these people and gave it to them for free.  As the author states:

“To be clear, Merck is not a charity organization, nor does it view itself as such.  …  Yet, despite its remarkable financial performance, Merck does not view its ultimate reason for being as making money.  In 1950, George Merck 2d, son of the founder, set forth his company’s philosophy:

 We try to remember that medicine is for the patient … it is not for the profits.  The profits follow, and if we have remembered that, they have never failed to appear.  The better we have remembered it, they larger they have been.”

To balance this, the book goes on to explain a bit of a paradox – that your company needs core values, but they don’t necessarily have to be good ones: “A company need not have passion for its customers (Sony didn’t), or respect for the individual (Disney didn’t), or quality (Wal-Mart didn’t) , or social responsibility (Ford didn’t).”  I think Mr. Collins misses some important points here.  I think maybe what he means to point out is that your values don’t need to be all-encompassing.

Each of the companies mentioned there do have values, but I don’t think it’s possible to cover every single value a person could hold.  So they pick which ones they want to focus on, and yes, that means some do get left out.  I don’t know of any company that has been a multi-decade success with the intent of killing people.  Even arms dealers phrase their business values as to say they’re helping people defend themselves and their property.  That is a value, whether you agree with it (or its sometimes faulty interpretations) or not.

Preserving the Core While Stimulating Progress

 To explain one of the topics in Built to Last the author writes, “Preserve the core ideology as an anchor point while stimulating change, improvement, innovation, and renewal in everything else.  Change practices and strategies while holding core values and purpose fixed.  Set and achieve BHAGs consistent with the core ideology.”  (BHAG stands for Big Hairy Audacious Goal.)  Specifically, the author explained that an unanswered question from Built to Last was, “What is the difference between a “good” BHAG and a “bad” BHAG?”

We find the answer in Good to Great by understanding the Hedgehog Concept.  A BHAG that drives towards the center of our Hedgehog Concept is a good BHAG; a bad one does not.  “Bad BHAGs are set with bravado; good BHAGs are set with understanding.”  When you have that understanding your BHAG may seem daunting but it’s a worthwhile goal.  A bad BHAG turns into a flywheel stopper.

Packard’s Law

The last thing I’d like to share is Packard’s Law, which I learned of through this book: “No company can grow revenues consistently faster than its ability to get enough of the right people to implement that growth and still become a great company.”  I think this is a brilliant phrase. Time and again I’ve worked for companies that would swallow as many orders as they could without having the staff to fulfill those orders.  If you don’t have the staff and you’re not willing to get only the right people – not the best people, the right people – then there’s a very high chance you’ll wind up with the wrong people and your organization will suffer. At best, this leads to slow production; at worst, shoddy workmanship and costly errors to be dealt with.

The way HP overcame?  They didn’t wait for business to be created before they hired good people.  They snapped them up, and then found or made something for them to do – sometimes by simply asking them, “What would you like to do?”  In a lesser company that could lead to random projects going in every direction, but if that person’s project is aligned with your Hedgehog Concept then not only do you have a winning project, you also have good synergy between your company and your new employee.

What’s Next?

Thank you all for reading my notes on this book, I hope you’ve found them helpful.  I may take a few weeks off from posting.  I’m going on a trip and closing on my house sometime in the next two weeks (EDIT: I already have – that’s the reason for the delay posting this), and I need to decide what I’d like to post next.  I started taking notes on Charles J. Givens’ More Wealth Without Risk but there’s so much that’s either completely false or only partially true that it’s really, really difficult to get through the book.  With Good to Great I was able to sum up 150 pages in about 20 pages of notes, with More Wealth I have almost 40 pages of notes and I’m only a quarter of the way through the book.  At this rate I’d have enough material for 28 blog posts.

Another possible direction I’ve been thinking about is to create some serious How to Sell on eBay videos.  I had a business for five years selling RAM on eBay and have a lot I could share.  The other videos I’ve seen on the market are so overly simplistic they’re almost insulting.

Well, something to think about.

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