Why do some good companies become great, while others do not? Reporting the results of their latest research, Jim Collins and his team examined companies that successfully made the leap from good to great, and answer the question: "What did the good-to-great companies have in common that distinguished them from comparison companies that remained merely 'good'?".

Using solid research methodology, the project focused on investigating companies based on their history in the stock market. The final sample of eleven companies had at least 30 years of history: the first 15 years with stock returns at or below market performance, a marked transition point, and then cumulative returns of at least three times the market over the next 15 years. In addition, the team selected out companies that showed this pattern as an echo of their entire industry having shared the experience. The final eleven companies thus could be said to have done something differently from their competitors which made a difference in their performance, and were therefore interesting to the study.

The final eleven:
Abbott, Circuit City, Fannie Mae, Gillette, Kimberley-Clark, Kroger, Nucor, Phillip Morris, Pitney-Bowes, Walgreens, and Wells-Fargo.

Two comparison groups were selected:

• companies in the same industry with the same resources with no leap in performance, and

• companies which showed a short-term change but failed to sustain the performance.

The core findings in what DID NOT contribute to the good-to-great transformation:

• "Larger than life, celebrity leaders...are negatively correlated with taking a company from good to great"(p.10). Company leaders were promoted from among existing employees in ten out of eleven companies. That is, they were "insiders", not external candidates.

• The salary or compensation of the leader was not a distinguishing factor in moving the company from good to great.

• Corporate strategy was not a distinguishing factor: comparison companies also had well-defined strategies.

• Good-to-great companies focus on what to do but also on what NOT to do and what to STOP doing.

• Technology is not a distinguishing feature. It can accelerate a transformation, not cause one.

• Mergers and Acquisitions were not a distinguishing factor.

• Good-to-great companies did not invest a great deal in managing change, motivation, or creating alignment.

• They did not set out to create a transformation. In some instances they only realized it had happened in hindsight.

• The industry in which they were operating was not a factor. Companies were in poorly performing as well as blossoming industries.

What DID contribute toward moving from good to great? Collins and team use a framework on which to build their distinguishing factors:

disciplined people,

disciplined thought, and

disciplined action.

Disciplined people consists of two elements: Level 5 leaders at the helm of the organization, and a focus on who first, then what.

Level 5 leaders "build enduring greatness through a paradoxical blend of personal humility and professional will."(p.20) Shared characteristics included ambition for the company rather than themselves, personal modesty, unwavering resolve to improve the company's performance, and a focus on attributing good results to other people, and taking responsibility themselves for bad results.

First who, then what. "In a good-to-great transformation, people are not your most important asset. The right people are." (p.51) The right people are defined more by character traits than knowledge or skills.

Good-to-great companies focus first on getting the right people and then on creating a rigorous culture, using three rules: first, when in doubt, don't hire - keep looking. A company should limit its growth based on its ability to attract enough of the right people. Second, when you know you need to make a people change, act. Don't delay layoffs or reorganizations but also don't use them as your first response to difficult situations. Third, put your best people on your biggest opportunities, not your biggest problems. Use your best talent to move the company forward.

DISCIPLINED THOUGHT

Confront the brutal facts (yet never lose faith)
"Unlike comparison companies, the good-to-great companies continually refined the path to greatness with the brutal facts of reality." (p.71) Face difficult situations head-on and don't deny the truth. Create a climate where the truth is heard, acknowledged, and acted upon, by:

• leading with questions, not answers.

• engaging in dialogue and debate, not coercion.

• conducting autopsies without blame.

• building red flag mechanisms to turn information into information that cannot be ignored.

Practice the Stockdale paradox: Retain faith that you will prevail in the end, regardless of the difficulties, and at the same time, confront the most brutal facts of your current reality, whatever they might be.(p.86)

The Hedgehog Concept
The essence of profound insight is simplicity. "Hedgehogs see what is essential and ignore the rest." (p.91) Good-to-great companies practiced this concept by finding the intersection of three circles: what you can be the best in the world at, what drives your economic engine, and what you are deeply passionate about. Once the intersection is defined, they single-mindedly focus on only those activities that fall in that space.

DISCIPLINED ACTION

Build a culture of discipline
A culture of discipline combined with an ethic of entrepreneurship results in superior performance and sustained results. Avoid hierarchy and bureaucracy and focus on building freedom and responsibility. Hire self-disciplined people, focus on the hedgehog concept, and stop doing whatever doesn't fit. The fact that something is a once in a lifetime opportunity is irrelevant if it doesn't fit the three circles.

Good to great companies built a consistent system with clear constraints, but they also gave people freedom and responsibility within the framework of that system.

OTHER FINDINGS

Technology
Good-to-great organizations avoid technology fads, yet they become pioneers in the application of carefully selected technologies. The key question is does the technology fit with your Hedgehog Concept?

The Flywheel Effect
Good-to-great companies understand the tremendous power inherent in continued improvement and the delivery of results. Results energize people and contribute to future improvement, which improves results, in a reinforcing loop.

Doom Loop
"We found a very different pattern at comparison companies. Instead of a quiet, deliberate process of figuring out what needed to be done and then simply doing it, the comparison companies frequently launched new programs ...only to see them fail to produce sustained results"(p.178). Acquisitions often fall into this category.

Conclusion
"Much of the answer to the question of good-to-great lies in the discipline to do whatever it takes to become the best within carefully selected arenas and then seek continual improvement from there. It's really just that simple. And it's really just that difficult."(p.128)

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