Good to Great – Part 6

This is part five 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, and Part 5.  In this update I’ll be covering chapters 7 and 8 from the book.

Chapter 7 – Technology Accelerators

Much of this chapter talks about how everyone in business (and society at large) is caught up on technology and fears that if they don’t keep on top of it they’ll be left behind.  However according to their study, technology was not that significant:

“We were quite surprised to find that fully 80 percent of the good-to-great executives we interviewed didn’t even mention technology as one of the top five factors in the transition.  Furthermore, in the cases where they did mention technology, it had a median ranking of fourth, with only two executives out of eighty-four interviewed ranking it number one.”

Considering how important technology was to some companies this may be surprising, but most CEOs focused on other parts of their company – either their people, their culture, their organization, etc.  The author then sums it up well in two sentences: “Like the Daytona 500, the primary variable in winning is not the car, but the driver and his team.  Not that the car is unimportant, but it is secondary.  Mediocrity results first and foremost from management failure, not technological failure.”

They also gave an interesting non-business example: Vietnam.  The US was technologically superior, but technology alone wasn’t enough to win the war.  We could spend days talking about businesses who thought some technology was going to be their ticket to untold millions, only to fail miserably.

In short, the question goes back to your company’s Hedgehog Concept.  Your Hedgehog Concept may not have anything to do with technology once you really get to the heart of it.  It may be that technology is simply being used to leverage your approach toward your Hedgehog Concept.  The book shares a great example of this with Walgreens.

Walgreens decided they were in the business of being a convenience store.  They got rid of their lunch counters and moved stores from the middle of the block to the intersections in order to increase traffic flow (even if the move cost them millions of dollars up front). Most importantly, Walgreens came up with a system to connect all their pharmacies so customers could pick up prescriptions at any Walgreens location, nationwide.

The technology required to connect all their pharmacies was a game-changing event.  There was no other company in the world that had anything like it at the time.  But the technology was being driven BY their Hedgehog Concept – not the other way around.  Their aim was to be the best convenience store possible, not to revolutionize technology.

I particularly liked this passage from the book: “This brings us to the central point of this chapter.  When used right, technology becomes an accelerator of momentum, not a creator of it.  The good-to-great companies never began their transitions with pioneering technology, for the simple reason that you cannot make good use of technology until you know which technologies are relevant.”

Again, this reminds me of celebrity CEOs who had grand visions of technical revolutions that didn’t pan out.  Heck, it’s even true of the ones that do pan out.  A quick Google search will find thousands of articles discussing how iPod and iTunes aren’t revolutionary technology, and how the key to Apple‘s success has been their marketing (Link 1, Link 2, Link 3).  That makes sense, when you think about it.  I don’t know what Apple’s Hedgehog Concept is, but I’d be willing to bet it’s centered strongly on how their customers feel when using Apple products – and that’s tied much more closely to marketing than it is to MP3 technology.

Again, the technology was used to leverage what was in the Hedgehog Concept, not the other way around.  Once you know what you’re trying to achieve then it’s much easier to look towards technology and ask, “Which technologies will help us reach our goal?”  If you don’t need a certain technology (or you don’t need it to be cutting edge to get the job done) that relieves a lot of tension and fear of being left behind.  Who cares about being left behind if that’s not the direction you want to go in the first place?

Chapter 8 – The Flywheel and the Doom Loop

Think of a fully loaded eighteen-wheeler – once it’s up to 60mph it’s really hard to stop suddenly.  Now imagine the weight of a fully-loaded eighteen-wheeler going 60mph compressed into a circle six feet around.  That’s a flywheel.  A flywheel is a way to store that energy in one place, instead of having it driving down the street.  When it’s stored in one place you can take a little out, or put a little in as needed without too much effort.  Meanwhile you have a whole lot of energy available if you need it.

Getting the flywheel up to speed is like getting the semi up to speed: first you start off in low gear, moving very slow.  As you pick up speed you change gears.  Doing this multiple times you’ll eventually get up to great speeds.  Good to Great companies come about by building up the same way.  One step at a time, each decision, each action building on the one before.

Now imagine what it’s like to work at a place where you spend a week getting the flywheel up to speed spinning in one direction only for your boss to come in and stop the wheel.  Then you’re told to spend the next week getting the wheel up to speed in the other direction.  Again your boss comes in and stops the wheel, and tells you next week you’ll be getting the wheel spinning in the first direction again.   This keeps momentum from building, and keeps a company from going anywhere.  Even if each change of direction is accompanied by a kickoff party, media, and fanfare the effect is the same.

Good to Great companies have the discipline needed to get their flywheel up to speed, but it comes from having done all the steps discussed earlier in the book.  When you get your Hedgehog Concept crystallized, that tells you which direction you need that flywheel to spin.  When you get the right people into the right seats (and the wrong people off the bus) that gets everyone aligned to spin in the same direction.  Once you get the flywheel spinning in the right direction you can look for technology that accelerates you.

Aside from internal pressures there are also external ones: customers and shareholders.  The book only mentions shareholders, but I’d like to mention customers too.  Customers can’t tell you what your Hedgehog Concept is.  Only you can do that.  As the old saying goes, if you try to please everyone the only thing you’ll succeed in doing is driving yourself crazy.  The important thing is to dig deep and find your Hedgehog Concept.  If you want to change from a hot dog stand to a taco stand, you’ll lose some customers and gain others.

The book tells the story of Gillette, who revolutionized the shaving industry when they introduced the Mach 3 with three razor blades.  Before Gillette finalized the product and released it to the world they fought off a hostile takeover that was so enticing to shareholders that CEO Coleman Mockler and other officials in the company spent time personally calling the largest shareholders and basically saying, “We’ve been working on a secret project that’s going to increase Gillete’s stock price far above what these people are offering you.  The project is nearly complete, just hold out until next year and you won’t regret it.”

Shareholders can be a source of pressure too, but the important thing to remember is that shareholders were a pressure to both Good to Great companies as well as companies who didn’t make it.  Again, it goes back to having the discipline to hold your course.  The book gives a number of examples supporting this that I don’t have space to go into – feel free to buy the book or check your local library if you’d like to read more on that.

A Word About the Misguided Use of Acquisitions

This book also gives example after example of companies that made acquisitions that put the company belly up.  Growing for the sake of growth itself will lead to failure.  Making an acquisition as a way to spark new growth or motivate people leads to failure.  The CEO may increase the value of the company in the short-term, cash out, and be gone in 3-5 years, but then the deck of cards will fall when everyone realizes the acquisition was a bad decision.  Hold off on making acquisitions until after you have your Hedgehog Concept figured out, and make choices based on how it strengthens your core goals.  Your chances of success will be much improved.

 That wraps up Chapters 7 and 8.  Next week I’ll post the last installment of this series, covering the last chapter in the book.

Good to Great – Part 5

This is part five 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, and Part 4.

Chapter 6 – A Culture of Discipline

I’m going to start off with one of the best quotes of this chapter, and maybe the entire book: “The purpose of bureaucracy is to compensate for incompetence and lack of discipline – a problem that goes away if you have the right people in the first place.”  He continues, “Most companies build their bureaucratic rules to manage the small percentage of wrong people on the bus, this in turn drives away the right people on the bus, which then increases the percentage of wrong people on the bus, which increases the need for more bureaucracy to compensate for the incompetence and lack of discipline, which then further drives away the right people.”

I could probably write an entire blog about that one quote and all the different ways I’ve seen it play out in my career.  You probably could too.  This particular chapter is pretty long though, so rather than get caught up on the one quote, let’s see what other interesting thoughts Mr. Collins brings up.  Actually, before we do that let me provide some context.  The quote above comes a few paragraphs into the chapter.  Prior to that Mr. Collins is describing a startup company growing into a more professional organization.  That process often involves hiring management; these managers often start with instituting process controls.  Then we see the quote above.

That quote allows us to segue into how important it is for an entrepreneur to have discipline, and how future employees or partners may not have that same discipline.  Finding partners and employees with a high level of discipline enables a company to go farther before needing the red tape of bureaucracy.  I particularly enjoyed a chart presented in the book, which contrasts the axis of Discipline and Entrepreneurial Spirit:

I thought it interesting that an organization with a lot of discipline but little entrepreneurial spirit was labeled hierarchical.  It reminds me of the military, where they achieve balance by compartmentalizing discipline and entrepreneurship.  I’ve heard a few examples of military inventiveness that started in the rank and file, but from what I’ve seen and heard that doesn’t seem to be the norm.  The rank and file experiences mostly discipline, and then some groups are created specifically to experiment.  If those experiments pan out the results are spread to the rest of the organization.  As mentioned earlier, Churchill created a channel for obtaining information from outside his political bubble to work around these kinds of limitations.

Mr. Collins mentions Responsibility Accounting (an accounting framework created by Bernard H. Semler at Abbott Laboratories in the 1960s) as a good example of innovation that tied together Discipline with Entrepreneurship.  When managers are responsible for the returns made on the expenditures of their departments they have a good reason to keep track of costs and profitability.  The idea is to have controls without being too strict.

The rest of the chapter gives details about the next five concepts:

• Build a culture around the idea of freedom and responsibility, within a framework.
• Fill that culture with self-disciplined people who are willing to go to extreme lengths to fulfill their responsibilities.  They will “Rinse their cottage cheese.”
• Don’t confuse a culture of discipline with a tyrannical disciplinarian.
• Adhere with great consistency to the Hedgehog Concept, exercising an almost religious focus on the intersection of the three circles.
• Equally important, create a “stop doing” list and systematically unplug anything extraneous.

Freedom (and Responsibility) Within A Framework

The book gives an example of an airline pilot attempting to land in rough weather.  The plane almost lands but then the passengers find themselves thrust backwards into the seat as the plane accelerates back into the sky.  There were some bad crosswinds and the plane lands on their second attempt.  The analogy here is that the airline industry is extremely regulated, but there are certain freedoms in the right places to enable a pilot to do the right thing – extremely important when the pilot is ultimately responsible for many lives.

There is another point well-made in this subsection of the chapter, written clearly enough that I have to include it verbatim (emphasis added by me):

“In a sense, much of this book is about creating a culture of discipline.  It all starts with disciplined people.  The transition begins not by trying to discipline the wrong people into the right behaviors, but by getting self-disciplined people on the bus in the first place.  Next we have disciplined thought.  You need the discipline to confront the brutal facts of reality, while retaining resolute faith that you can and will create a path to greatness.  Most importantly, you need the discipline to persist in the search for understanding until you get your Hedgehog Concept. Finally we have disciplined action, the primary subject of this chapter.  This order is important.  The comparison companies often tried to jump right to disciplined action.  But disciplined action without disciplined thought is a recipe for disaster.“

That paragraph does an excellent job of underscoring points made earlier in the book about having leaders that lean too much on discipline, or bringing in celebrity CEOs who have a great vision that doesn’t align with the company’s core.  It’s great to have discipline, but it can destroy an organization if it’s not being used in the right place or right time.

Rinsing Your Cottage Cheese

“Rinsing your cottage cheese” is a phrase the author uses to refer to extreme discipline.  The phrase refers to Dave Scott, six-time winner of the Hawaii Ironman Triathalon:  “In training, Scott would ride his bike 75 miles, swim 20,000 meters, and run 17 miles – on average, every single day.  Dave Scott did not have a weight problem! Yet he believed that a low-fat, high-carbohydrate diet would give him an extra edge.  So, Dave Scott – a man who burned at least 5,000 calories a day in training – would literally rinse his cottage cheese to get the extra fat off.”

I liken it to that phrase, “You miss 100% of the shots you don’t take.”  It’s the willingness to take those extra shots that made the difference, even if some of the shots you took were misses.  This man’s dedication meant that he was willing to take a few extra steps in order to achieve his goal.  Even if that specific step wasn’t what gave him his winning edge, it was part of an overall package.  He took those extra shots, and some of them scored.

 A Culture, Not A Tyrant

“Whereas the good-to-great companies had Level 5 leaders who built an enduring culture of discipline, the unsustained companies had Level 4 leaders who personally disciplined the organization through sheer force.” (Emphasis in original.)

The unsustained comparison companies failed to sustain their excellence because they didn’t make it part of the organizational culture.  When the leader left they went back to their prior level of experience.  This section also contained another note I enjoyed because it was exactly how I felt when I read the material in my own college Ethics class:  “It kind of reminds me of Lawrence Kohlberg’s stages of moral development that I learned about in my college Ethics class.  Doing the right thing because it’s the right thing to do is higher on the moral development chart than doing the right thing out of fear of being punished.”  If you want people to keep doing the right thing after you’re gone you have to teach them the value of doing the right thing because it’s the right thing to do.

Fanatical Adherence to the Hedgehog Concept

This section can really be summed up by these two quotes:

 “The good-to-great companies at their best followed a simple mantra: ‘Anything that does not fit our Hedgehog Concept, we will not do.  We will not launch unrelated businesses.  We will not make unrelated acquisitions.  We will not do unrelated joint ventures.  If it doesn’t fit, we don’t do it.  Period.’”

“In contrast, we found a lack of discipline to stay within the three circles as a key factor in the demise of nearly all the comparison companies.  Every comparison either (a) lacked the discipline to understand its three circles, or (b) lacked the discipline to stay within the three circles.”

I liked one of the supporting statements, which spoke about leadership being faced with “once-in-a-lifetime opportunities” – specifically, that if you stay true to your Hedgehog Concept you may come across more of these opportunities than you’d expect.  As an aside, in my personal life I’m finding things like this more and more as I get older.  I’ll only have a limited number of hours in my life and I’ve had to accept that certain things on my “to do” list may never, ever get done.  That’s not to say it wouldn’t be nice if I could do something, but that I really have to start being aware of the choices I make with my time now.

The seven bullet points that follow are taken verbatim from the book, discussing steel producer Nucor.  I’m pulling out the most important lines, and then I’ll discuss below.

• This notion of fanatical consistency relative to the Hedgehog Concept doesn’t just concern the portfolio of strategic activities.  It can relate to the entire way you manage and build an organization.  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.
• When we interviewed Ken Iverson, he told us that nearly 100 percent of the success of Nucor was due to its ability to translate its simple concept into disciplined action consistent with that concept.
• It grew into a $3.5 billion Fortune 500 company with only four layers of management and a corporate headquarters staff of fewer than twenty-five people – executive, financial, secretarial, the whole shebang – crammed into a rented office the size of a small dental practice.
• Executives did not receive better benefits than frontline workers.  In fact, executives had fewer perks.
• But when Nucor faced difficult times, everyone from top to bottom suffered.  But people at the top suffered more.  In the 1982 recession, for example, worker pay went down by 25 percent, officer pay went down 60 percent, and the CEO’s pay went down 75 percent.
• Nucor had no union and enjoyed remarkably good relations with its workers.  In fact, when union organizers visited one plant, workers felt so ferociously loyal to Nucor that management had to protect the union organizers from workers who began shouting and throwing sand at them.
• But the union argument begs a crucial question: Why did Nucor have such a better relationship with its workers in the first place?  Because Ken Iverson and his team had a simple crystalline Hedgehog Concept about aligning worker interests and management interests and – most importantly – because they were willing to go to almost extreme lengths to build the entire enterprise consistent with that concept.

I was very impressed with the example of what Nucor did.  I’ve been a supporter of running a lean company for a long time, and a supporter of the idea that when employees see their bosses living and acting like normal people instead of kings and queens they are much more motivated by that than by anything else.  Employees know when their employers are loyal to them, and when they’re being given lip service.  If Nucor can build themselves a $3 billion business with employee loyalty like that there’s no reason other people can’t do it as well.

Start a “Stop Doing” List

Once you’ve determined your Hedgehog Concept and you whittle away all the distractions from it pursuing that goal is almost easy.  Indeed, doing all the study and preparation necessary to come to your Hedgehog Concept is where the hardest work seems to be.  In one section of the book Mr. Collins mentions the leaders of the Good to Great companies were often confused by the interview questions.  They considered the work of finding their Hedgehog Concepts to be common sense, a part of the process that was so intuitive they couldn’t imagine not doing it.

From that perspective, once that’s done everything that comes after is easy.  So the leaders just chalked all their success up to luck.  More specifically, what they felt was lucky was getting a group of people who could work on this process – getting the right people on the bus.  Having worked in organizations with people who were either the wrong people or in the wrong seats, it’s easy to understand how lucky it would feel to find myself on a bus where everyone’s where they need to be.

Anyway, whittling away the distractions is an important piece.  This is one I really need to do for myself.  A few paragraphs up I said I’m finding myself prioritizing differently, but I really like the idea of making a concrete list of things I need to stop doing.  Without a “stop doing” list our “to do” list can just keep growing and growing.  If left unchecked we wind up getting pulled away from our Hedgehog Concept.  The same is true of any organization.

In my next installment I’m going to combine chapters 7 and 8 (“Technology Accelerators” and “The Flywheel and the Doom Loop”).  Again, if all goes as planned that’ll be up next week.  Thanks for reading!

Good to Great (Part 3)

This is part three of a multi-part blog, sharing my thoughts on the book Good to Great by Jim Collins.  Here are links to Part 1 and Part 2.

Chapter 4 – Confront the Brutal Facts (Yet Never Lose Faith)

The fourth chapter of Good to Great has some really good material in it, separated into a few subsections.  The main thrust of the chapter was described in the sections titled Facts Are Better Than Dreams, Unwavering Faith Amid the Brutal Facts, and The Stockdale Paradox, and then there were five other subtopics that contained related information.  I’m going to rearrange the layout a bit; hopefully this will organize the material a bit better.

 Facts Are Better Than Dreams

 I think “Facts Are Better Than Dreams” was a bad choice for the topic of this subsection of the book.  The phrase comes from a quote by Winston Churchill that’s in a different subtopic, which leads to confusion.  This section could’ve been called, “My job is to look at the squiggly things,” which comes from this quote by Fred Perdue (of Pitney Bowes):

 “When you turn over rocks and look down at the squiggly things underneath, you can either put the rock down, or you can say, ‘My job is to look at the squiggly things,’ even if what you see can scare the hell out of you.”

Another item from this section worth sharing:

 [Pitney Bowes] created a long-standing tradition of forums where people could stand up and tell senior executives what the company was doing wrong, shoving rocks with squiggly things in their faces, and saying, “Look, you’d better pay attention to this.”

This is what supports the first half of the chapter’s title, Confront the Brutal Facts (Yet Never Lose Faith).

Unwavering Faith Amid the Brutal Facts

The second half of the chapter’s title is summed up with this passage:

 Robert Aders of Kroger summed this up nicely at the end of his interview, describing the psychology of the Kroger team as it faced the daunting twenty-year task of methodically turning over the entire Kroger system.  “We had a very strong will to live, the sense that we are Kroger, Kroger was here before and will be here long after we’re gone, and, by god, we are going to win this thing.  It might take us a hundred years, but we will persist for a hundred years, if that’s what it takes.”

 Having the facts in front of your face is only half the picture because if you don’t have the faith that you’ll overcome then you can’t succeed.  To highlight this, the book gives the example of Scott Paper.  When Procter & Gamble decided to enter the paper-based consumer sector Scott Paper “simply resigned itself to second place without a fight and began looking for ways to diversify.”  You have to have a keen insight, and dedication.

 The Stockdale Paradox

 The title of this subtopic refers to Admiral James Stockdale, senior ranking American POW in Vietnam for 8 years.  Interestingly, about a year ago I read a speech Admiral Stockdale gave on Stoicism (the philosophical approach) explaining how it helped him through his captivity, so I was prepared when Mr. Collins included this material.  (For those interested, you can find his speech on Stoicism here: Part I, Part II … you’ll note some of the passages below appear to be taken verbatim from the Admiral’s speech.  I’m not sure which was published first.)

Again, I’ll let the book speak for itself:

 “I never lost faith in the end of the story, “he said, when I asked him.  “I never doubted not only that I would get out, but also that I would prevail in the end and turn the experience into the defining moment of my life, which, in retrospect, I would not trade.”

 I asked, “Who didn’t make it out?”  “Oh, that’s easy,” he said.  “The optimists.”

 The optimists? I don’t understand, “I said, now completely confused.

 “The optimists. Oh, they were the ones who said, ‘We’re going to be out by Christmas.’ And Christmas would come, and Christmas would go.  Then they’d say, ‘We’re going to be out by Easter.’ And Easter would come, and Easter would go.  And then Thanksgiving, and it would be Christmas again.  And they died of a broken heart.”

 Then he turned to me and said, “This is a very important lesson.  You must never confuse faith that you will prevail in the end – which you can never afford to lose – with the discipline to confront the most brutal facts of your current reality, whatever they might be.”

Now, personally I don’t see this as a paradox.  They are two separate things – the future and the present – and the future may be a lot farther off than we think.  This passage also reminds me of my favorite books, Peace Is Every Step, by Thich Nhat Hanh.  Here’s a link to an excerpt from that book called Hope As An Obstacle, but the gist of it is that letting myself live in hope can stop me from doing what needs to be done today.

What have we learned so far?  You have to look at the squiggly things, but you can’t let yourself be hamstrung by either fear (like Scott Paper) or delusion (like some POWs in Admiral Stockdale’s story).  You have to have faith in the outcome, but you also have to be able to be realistic about what it is you can do to work towards your goals today.

So, that having been said, let’s look at some of the related material in this chapter…

The Rest of Chapter 4

I have to stop for a moment and explain that I think the material in this book is great, but I would have organized it differently.  There are nine chapters in the book, the first two are introductory and the last is a conclusion.  The middle six are grouped into three pairs.  I think this book could’ve been grouped into three main sections (like A, B, and C), each section containing multiple chapters.  One of those sections could’ve been titled Level 5 Leadership.  I say this because the other subtopics in Chapter 4 could’ve been rolled up into a chapter called, “Create a climate where the truth is heard” which, in my opinion, is part of Level 5 Leadership.  The material in the following sections list behaviors that underline and support building such an atmosphere.

Lead With Questions, Not Answers

Don’t use questions as a form of manipulation (“Don’t you agree with me on this?”) or as a way to blame others (“Why did you mess this up?).  If people don’t trust your motives they’ll never tell the complete truth.  If they think you’re out to assign blame or to imply others need to agree with you then they’ll filter their information based on those details. Use questions for one and only one reason: to gain understanding without blame.

Engage In Dialogue and Debate, Not Coercion

This is a really difficult topic.  Some people define “debating” and “arguing” as the same thing, some people consider them to be different things.  Personally I see them as different things, and the difference is that debating sticks to facts.  Arguing gets personal, emotional.

What makes it hard to separate them is that a lot of people say things without choosing their words carefully enough.  When you’re discussing facts but imply something personal the debate goes out the window and it turns into arguing.  What’s even more difficult is when someone does accidentally make a personal comment but then refuses to correct themselves, blaming the other party for inferring more than was implied.  Then they complain that they have to choose their words too carefully.  Well, if you want to engage in civilized debate, then yes, you do.  And you have to be willing to recant, apologize, and try gain.  If you’re not willing to do these things then you’re being a source of the conflict, not the solution.

But I digress.  Great companies don’t simply pay lip service and pretend that everyone gets to have input.  They have healthy – and sometimes loud and strenuous – debate over what the best ideas are, and they let the best idea win.  Equally important, everyone gets on board once a decision has been made.  Fight for the best idea, but don’t let personal politics get in the way of your ability to be a team player.

Conduct Autopsies Without Blame

There are two quotes in this section I like:

• “I will take responsibility for this bad decision.  But we will all take responsibility for extracting the maximum learning from the tuition we’ve paid.”

•  “If you have the right people on the bus, you should almost never need to assign blame but need only to search for understanding and learning.”

Obviously if someone intentionally throws a wrench into the works you need to get that person out of the organization.  That kind of behavior is unhealthy and can be toxic.  But sometimes mistakes happen, and that’s why getting the right people on the bus was in one of the first chapters.  When you have good people on the bus you know everyone will be willing to pitch in and do their part to keep the mistake from happening again.  As we’ll get to in a future chapter, that doesn’t always mean adding layers of red tape, sometimes it’s simply accepting personal responsibility to maintain a disciplined approach to the job.

Build Red Flag Mechanisms

At the beginning of the book the author listed some of the more unusual findings of their study, things that went against the grain of either popular conception or current business school teachings.  One of the items on that list was that less charismatic leaders often produce better long-term results than more charismatic leaders.  Here’s a quote to explain:

 “The moment a leader allows himself to become the primary reality people worry about, rather than reality being the primary reality, you have a recipe for mediocrity, or worse.  This is one of the key reasons why less charismatic leaders often produce better long-term results than their more charismatic counterparts.”

Note, people can seem charismatic for a number of reasons.  Some are warm and welcoming; some are less warm but exude a different sense of personal power.  The study found people didn’t want to let down warmer leaders any more than the colder ones.  Now we get to the Churchill quote:

Churchill created a separate department outside the normal chain of command, called the Statistical Office, with the principal function of feeding him—continuously updated and completely unfiltered—the most brutal facts of reality, “I … had no need for cheering dreams,” he wrote.  “Facts are better than dreams.”

The other value of red flag mechanisms is their immediacy.  Again, I’ll quote a passage from the book, as it sums it up perfectly:

In one situation a student used her red flag to state, “Professor Collins, I think you are doing a particularly ineffective job of running class today.  You are leading too much with your questions and stifling our independent thinking.  Let us think for ourselves.”  The red flag confronted me with the brutal fact that my own questioning style stood in the way of people’s learning.  A student survey at the end of the quarter would have given me that same information, but the red flag – real time, in front of everyone in the classroom – turned information about the shortcomings of the class into information that I absolutely could not ignore.

Other Interesting Bits

Here are some other interesting things I found in this chapter:

If you have the right people on the bus, they will be self-motivated.  The real question then becomes: How do you manage in such a way as not to de-motivate people?  And one of the single most de-motivating actions you can take is to hold out false hopes, soon to be swept away by events.

I really like those first two sentences.  They can be applied to so many sections of this entire book, but they’re particularly useful in relation to the subheadings Lead With Questions, Not Answers, Engage In Dialogue and Debate, Not Coercion, and Conduct Autopsies Without Blame. The last sentence though, that applies to what the author called The Stockdale Paradox.

“You either had to be #1 or #2 in each local market or get out.”

This was from the section that talks about Kroger versus A&P but it’s equally applicable to a number of different industries, and I find it a fascinating concept.  I guess if you’re anything below #2 your profits aren’t enough to make it worth the effort (you’d be better off seeking another market where you can be #1 or #2).  But I wonder if that would also be true of a non-profit or co-op.

Good To Great (Part 1)

I like to read … a lot.  I tend to like articles over books, but I do have a few books I’ve wanted to read for a while now.  And when I do read books, I like to take notes.  Today it occurred to me that I could post my notes here on my blog.  Maybe they’ll be of use to someone who otherwise wouldn’t have read the book, or maybe did read it but would like to hear someone else’s view on the material.

The first book I’ll post my notes on is Good to Great, by Jim Collins.  The book was published in 2001 after a very long, intensive study of multiple large corporations.  IIRC, the study took over a year, maybe over two years.  Mr. Collins’ researchers grouped the companies into three categories:

• Companies that roughly followed the performance of the general stock market
• Companies that far exceeded the performance of the stock market, but were unable to sustain that level of performance
• Companies that far exceeded the performance of the stock market, and sustained that level of performance for at least 15 years

The book (and my notes) uses the phrase “unsustained comparison companies” to refer to that second group of companies.  These unsustained companies distinguish really great companies from temporarily great companies – after all, if you want to be great you want to know how to make it a lasting greatness.  More importantly, comparing the sustained and unsustained companies does a great job of highlighting ideas that appear to be beneficial on the surface, but in the long run are not.

There were a few places that Mr. Collins used more than one example to highlight his topics, which made the book a bit wordy, but overall the book was so good that many times I copied entire sections of it into my notes, verbatim.  I wound up with 23 pages of notes because of that, but obviously I won’t be posting all of it here.  I do have enough for a series of posts though, so make sure to come back for more posts later.

Okay.  On to Mr. Collins’ book.  I have to say: I loved this book.  Often I’ve worked for companies where I’ve instinctively known there were problems, and talked with my coworkers about the problems.  Sometimes we were just stabbing in the dark, guessing what the source of the problem might be.  Reading Good To Great was like turning on a light and putting my finger on precisely what the issue was.  I was finally able to say, “Yes!  That was exactly it!”  That’s why this book was a best-seller – it gave people the vocabulary they needed to get to the heart of their problems.  Once you see a problem clearly you have a much better chance of fixing it.

The book has 9 chapters.  The first is an introduction, and chapter 9 compares the ideas from chapters 2-8 to topics in Mr. Collins’ earlier book, Built To Last.  I’m going to use material from Chapters 1 and 2 for this post.

Mr. Collins and his team of researchers did an exhaustive study – the end of the book had 100 pages of technical data backing up their findings.  In the process of sorting the data they came across a number of findings that very much went against what most people thought of as true:

• 10 out of 11 good-to-great CEOs were promoted from within.  Comparison companies tried outside CEOs 6x more often.
• No systematic pattern tying executive compensation to performance.  “The idea that the structure of executive compensation is a key driver in corporate performance is simply not supported by the data.”
• Both sets of companies had well-defined long term strategies.  There’s no evidence that good-to-great companies had spent more time on their plans.
• The good to great companies did not focus principally on what to DO to become great; the focused on what NOT to do, and what to STOP doing.
• Technology cannot cause a transformation, but it can be an accelerator once you’re heading in the right direction.
• Mergers and acquisitions play no role in determining good-to-great companies.
• The good-to-great companies paid scant attention to managing change, motivating people, or creating alignment.  Under the right conditions the problems of commitment, alignment, motivation, and change largely melt away.
• They produced a revolutionary change in their companies often without even realizing it (until after it had happened) because the changes did not require a revolutionary process.
• No one went from good-to-great due to luck.  Greatness is not a matter of circumstance; it is a matter of choice.

The other important thing introduced in Chapter 1 was this visual aid, which we’ll come back to again as we go over the material in the book:

So let’s jump right to Chapter 2: Level 5 Leadership.  What is Level 5 Leadership?  Here are some of my notes:

“Level 5 leaders channel their ego needs away from themselves and into the larger goal of building a great company.  They have the will to do what must be done (even if it means firing a relative), but retain humility.  Level 5 leaders set up their successors for success (lesser leaders set up successors for failure).  Lesser leaders are I-centered, Level 5 leaders are we-centered.”

There’s always been a trend in management to downplay one’s ego and promote the work of your team but I think after this book came out it’s become something that managers have learned to do just to appear to be a Level 5 Leader.  So how can we tell who’s seriously a Level 5 Leader?  One phrase I liked from the book was, “Are you more of a show horse or a plow horse?”  It’s good to toot your own horn now and then, but how much work are you doing, and how much tooting are you doing?  (Pun intended.)

The author also provides a good metaphor called “The window and the mirror”: Good leaders look out the window to see what went right; they look in the mirror to see what went wrong.  Bad leaders do the opposite – they look out the window to see what went wrong, and look in the mirror for what went right.

… which is very similar to that saying, “When you point your finger at someone else, you’re actually pointing three fingers at yourself.”

Another great point they made, and were able to back up with cold, hard numbers: “One of the most damaging trends in recent history is the tendency (especially by boards of directors) to select dazzling, celebrity leaders and to de-select potential Level 5 leaders.”

The book discusses this in more detail later, giving plenty of examples of “celebrity” leaders who come into the company with a lot of fanfare and made sweeping changes that appear to be very productive at first.  Then either the leader’s efficiency wanes or they leave the company, and the company slides back to where they were before, or worse.  And this is not just a “once in a blue moon” problem – going back to the table in Chapter 1: “10 out of 11 good-to-great CEOs were promoted from within.  Comparison companies tried outside CEOs 6x more often.”  I did the math on this, and let me put it into different words for you: If you hire a CEO from outside your company, you have a 55% chance of failing to sustain any improvements your company makes.  Companies that promoted from within sustained their greatness 91% of the time.

The book also listed a table that tried to explain the Five Levels of Leadership.  The distinction between Level 4 and Level 5 was that Level 4 Leaders tended to control the company through their own personal power (charisma, verbal and/or mental power, personal discipline, etc).  On the nice end of the spectrum they were considered tenacious, visionaries who wouldn’t take no for an answer.  On the not-so-nice end of the spectrum they were called tyrants, verbally abusive, etc.

By comparison, Level 5 Leaders were also tenacious, but they strove for excellence not for their own ego’s sake, but for the sake of the company.  There’s an entire section later in the book about how the successful companies created a culture of discipline … meaning it was the culture of the whole corporation, not just the leader of the company.  When you have the right people on the bus you don’t need to be a disciplinarian.  When you have the right people they take care of things without being told to, and even better, the company will continue to do the right thing even after the Level 5 Leader retires or moves on.  When a Level 4 Leader leaves a company it falls back to where it was, or worse.

The problem is that Level 4 Leaders tend to be a lot more celebrity-like than Level 5 Leaders, so when a Board of Executives interviews for a CEO position lately (or at least at the time the book was written) they’ve been picking Level 4 Leaders over Level 5 Leaders, which just causes problems down the road.  But isn’t that exactly what we’ve been saying for the last 20 years?  One of the problems with the world lately is that corporations seem to keep making short-sighted choices for immediate profit rather than being smart and thinking about the long-term benefits.

Well – that’s a lot of writing for one post.  In a few days I’ll write up a post covering Chapter 3.  Be sure to subscribe – subscribing is free – to be notified when I post more material.  The box to add your email address is on the upper right side of this page.  (Not to mention I’ll also be continuing to post notes on other books as I read them.)  See you soon!