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I recently read good to great by author
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Jim Collins Collins and his team spent a
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combined total of ten point five years
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researching 11 publicly traded companies
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that went from good to great each of the
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companies went from performing at or
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below the market average to at least
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three times above the market average
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over a 15 year period to prove that
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these 11 companies were doing something
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special Collins and his team compared
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each of the companies to companies in
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the same industry of a similar size who
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had similar access to resources but
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failed to outperform the market when
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contrasting the good to great companies
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with these comparison companies Collins
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and his team discovered that the good to
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great companies had mastered three
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concepts you can think of these three
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concepts like three mental models you
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can use to evaluate a company you invest
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in a company you work for or use to
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transition your own business from good
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to great the three concepts are the
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Hedgehog the bus and the level five
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leader the first way to assess if a
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company can go from good to great is to
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determine if that company has a hedgehog
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mentality an ancient Greek parable says
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the Fox knows many things but the
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Hedgehog knows one big thing when a
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hedgehog waddles down a familiar path to
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retrieve its lunch a fox tries to attack
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it in different ways and at different
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points along its route but every time
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the clever Fox thinks it's about to
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catch the Hedgehog off-guard the
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Hedgehog notices a fox rolls into a ball
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and becomes a sphere of sharp spikes the
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Fox insists on a new strategy every day
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while the Hedgehog relies on one
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tried-and-true strategy and the Hedgehog
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always wins good two great companies had
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the Hedgehog mentality they look to
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distill their business into a simple
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strategy a core concept a unifying
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vision the good agreed companies develop
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a hedgehog mentality by focusing on
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three circles the first circle
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represents what they can be the best ad
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and more importantly what they can't be
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the best ad in the book
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Collins explains that Wells Fargo a bank
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that outperformed the market by a
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multiple of four from 1980
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three to 1998 accepted the truth that
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they couldn't be better than the rival
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Citicorp in global banking so Wells
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Fargo turned its attention to what it
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could be the best at running a bank like
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a business with a focus on the western
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United States by obsessively focusing on
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that single strategy
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Wells Fargo transformed from a mediocre
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Citicorp wannabe to one of the best
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performing banks in the world the second
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circle represents a company's economic
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engine more specifically how that
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company can generate more profit per X
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than any other company in the industry X
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can be customers of a certain
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demographic like new mothers living in
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Manhattan or a number of employees or a
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number of stores Wells Fargo discovered
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that they could restructure their bank
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to have more ATMs and fewer employees
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per branch so that they could generate
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more profit per employee than any other
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bank in the eighties and the last circle
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is passion all the good to great
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companies asked are we in this just for
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the money or are we passionate about our
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business while comparison companies
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merely develop products and services
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that they thought would make money good
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to great companies only invested in
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products and services they loved a big
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difference between Philip Morris a good
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a great company from 1964 to 1979 and
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other tobacco companies was executives
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at Philip Morris genuinely believed life
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was better with cigarettes
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despite the long-term health risks I
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Philip Morris vice chairman once said I
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love cigarettes it's one of those things
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that makes life really worth living
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every good - great transition occurred
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because the good great companies spent
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years discovering what they could be the
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best at and what they couldn't then
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develop their primary economic engine
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and only invested in products they were
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truly passionate about at the
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intersection of these three circles is
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what Collins calls a hedgehog concept
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every good great company simplified its
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business around their Hedgehog concept
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and had the discipline not to get
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distracted by business opportunities
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that didn't align with their Hedgehog
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concept the second question to ask to
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determine if a company can go from good
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to great is how does the company manage
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their bus more specifically who gets on
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the bus when do they get off the bus and
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where do people sit on
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when I say who gets on the bus I'm
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saying who is the company hire when
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Collins looked at comparison companies
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the companies that didn't go from good
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to great he found that the companies had
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the mentality of a genius with a
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thousand helpers they had brilliant
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leaders but a management team that
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simply took orders and were afraid to
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challenge their leader contrast that to
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good to grey companies who hired people
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with an entrepreneurial spirit people
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that didn't need to be managed or
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motivated the leaders of good to great
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companies didn't look for obedient
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people they looked for people with
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strong character and similar values that
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they could train to be exceptional
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leaders every good great company had a
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management team that could drive the bus
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at Wells Fargo every executive on their
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team during their great years later went
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on to become a CEO of a major company
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but oftentimes even gray companies can
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bring people onto the bus that aren't
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the right fit which begs the question
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when do people get off the bus in a good
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degree company Colin says good great
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companies show the following bipolar
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pattern at the top management level
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people either stayed on the bus for a
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long time or got off the bus in a hurry
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if you were hired by a good to great
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company your first few months would be
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crucial after a few months of working at
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the company management would ask
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themselves two questions would we hire
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this person again and if this person
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pulled us he or she was leaving to
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pursue a new exciting opportunity would
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we feel terribly disappointed or
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secretly relieved if you pass this test
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and got through the initial trial period
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a good degree company would be extremely
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loyal to you and you wouldn't need to
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worry about sweeping layoffs in the
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future six of the eleven good great
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companies didn't have a single layoff
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for over 30 years and four others
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reported only one or two layoffs rather
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than resorting to layoffs CEOs of good
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to great companies devoted a lot of
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their time to putting the right people
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in the right seats one CEO changed or
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moved thirty-eight of the top 50 people
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in his organization another CEO called
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it putting square pegs and square holes
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and round pegs in round holes which
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brings us to the last question regarding
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the bus where do people sit on the bus
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imagine a bus having two sections a
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front section and a rear section the
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front section is reserved for people who
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are pursuing the company's best
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opportunities for growth the rear
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section is reserved for people who
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resolve the
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company's biggest problems in every good
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to great company the front half of the
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bus is filled with the company's highest
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performers because a good degree company
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knows if you're just obsessed with
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solving problems you've just maintained
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the status quo but if you have the
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brightest minds on the biggest
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opportunities you're always one step
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ahead of the competition at Philip
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Morris it meant putting their best
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people on emerging market opportunities
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emerging markets seem like a bad
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assignment because these markets were
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full of challenges but Philip Morris's
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best people routinely transform these
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emerging markets into major profit
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engines for the company now the last and
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most important question to determine if
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the company can go from good to great is
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does the company have a level five
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leader every good leader advances
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through three levels first they become a
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skilled worker then they become a
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reliable teammate then they become an
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organized manager and at some point
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they're reached level four by becoming a
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visionary with a compelling message that
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people buy into but very few leaders
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reach level five level five is reserved
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for leaders with extreme humility and
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extreme resolve the prototypical level 5
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leader is Abraham Lincoln Lincoln put
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his ego aside when he was elected
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president and surrounded himself with
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the best people even if those people
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adamantly disagreed with him when a
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member of his executive team called him
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a damn fool for wanting to go to war
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Lincoln said if he said I was a damn
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fool then I must be one for he is nearly
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always right and generally says what he
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means
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Lincoln was fast to admit when he was
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wrong but when Lincoln knew he was
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taking the right course of action his
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resolve was absolute his stubbornness is
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the primary reason slavery ended when it
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did all good two great leaders were
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Lincolnesque they were all level 5
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leaders when Collins interviewed leaders
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of good two great companies they'd say
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things like I don't think I can take
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much credit we were blessed with
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marvelous people or there are plenty of
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people in this company who could do my
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job better than I do in the end but
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don't mistake a level 5 leaders humility
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for weakness as Colin says every level 5
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leader had an almost stoic determination
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to do whatever needed to be done to make
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the company great one good great CEO of
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a family pharmaceutical company kicked
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family members off the board when he
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took over the company
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because that's what was needed to move
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the company forward level five leaders
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don't care about being popular they only
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care about doing what's best for the
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company in the end if you want to
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determine if a company can go from good
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to great
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first determine if they have a hedgehog
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mentality then study how they bring
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people on the bus when they take them
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off the bus and where they put the best
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people on the bus then lastly determine
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if they have a level five leader someone
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who is humble but has a ferocious
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resolve to make a company great that was
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the core message that I gathered from
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good to great by Jim Collins this is a
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business classic it's loaded with well
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researched and well explained business
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strategies I highly recommend it
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if you would like a one-page PDF summary
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of insights that I gather from this book
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just click the link below and I'd be
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happy to email to you if you already
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subscribe to the free productivity game
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email newsletter this PDF is sitting in
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your inbox if you like this video please
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share it and as always thanks for
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watching and have yourself a productive
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week
