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    Good to Great: Why Some Companies Make the Leap...And Others Don't
    Good to Great: Why Some Companies Make the Leap...And Others Don't
    Good to Great: Why Some Companies Make the Leap...And Others Don't
    Ebook520 pages7 hours

    Good to Great: Why Some Companies Make the Leap...And Others Don't

    By Jim Collins

    4.5/5

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    • Leadership

    • Good-To-Great Companies

    • Organizational Change

    • Decision Making

    • Business Transformation

    • Mentor

    • Fall From Grace

    • Hero's Journey

    • Chosen One

    • Reluctant Hero

    • Underdog

    • Comeback

    • Mentorship

    • Rags to Riches

    • Quest

    • Business Management

    • Company Performance

    • Business

    • Comparison Companies

    • Management

    About this ebook

    The Challenge
    Built to Last, the defining management study of the nineties, showed how great companies triumph over time and how long-term sustained performance can be engineered into the DNA of an enterprise from the verybeginning.

    But what about the company that is not born with great DNA? How can good companies, mediocre companies, even bad companies achieve enduring greatness?

    The Study
    For years, this question preyed on the mind of Jim Collins. Are there companies that defy gravity and convert long-term mediocrity or worse into long-term superiority? And if so, what are the universal distinguishing characteristics that cause a company to go from good to great?

    The Standards
    Using tough benchmarks, Collins and his research team identified a set of elite companies that made the leap to great results and sustained those results for at least fifteen years. How great? After the leap, the good-to-great companies generated cumulative stock returns that beat the general stock market by an average of seven times in fifteen years, better than twice the results delivered by a composite index of the world's greatest companies, including Coca-Cola, Intel, General Electric, and Merck.

    The Comparisons
    The research team contrasted the good-to-great companies with a carefully selected set of comparison companies that failed to make the leap from good to great. What was different? Why did one set of companies become truly great performers while the other set remained only good?

    Over five years, the team analyzed the histories of all twenty-eight companies in the study. After sifting through mountains of data and thousands of pages of interviews, Collins and his crew discovered the key determinants of greatness -- why some companies make the leap and others don't.

    The Findings
    The findings of the Good to Great study will surprise many readers and shed light on virtually every area of management strategy and practice. The findings include:

    • Level 5 Leaders: The research team was shocked to discover the type of leadership required to achieve greatness.
    • The Hedgehog Concept (Simplicity within the Three Circles): To go from good to great requires transcending the curse of competence.
    • A Culture of Discipline: When you combine a culture of discipline with an ethic of entrepreneurship, you get the magical alchemy of great results. Technology Accelerators: Good-to-great companies think differently about the role of technology.
    • The Flywheel and the Doom Loop: Those who launch radical change programs and wrenching restructurings will almost certainly fail to make the leap.

    “Some of the key concepts discerned in the study,” comments Jim Collins, "fly in the face of our modern business culture and will, quite frankly, upset some people.”

    Perhaps, but who can afford to ignore these findings?

    Editor's Note

    Level up your leadership…

    Learn how to become a Level 5 leader that can take your whole company to the next level. After sifting through years of performance data, Collins discovered seven characteristics companies that went from good to great share.

    LanguageEnglish
    PublisherHarperCollins
    Release dateJul 19, 2011
    ISBN9780062119209
    Author

    Jim Collins

    Jim Collins is a student and teacher of what makes great companies tick, and a Socratic advisor to leaders in the business and social sectors. Having invested more than a quarter-century in rigorous research, he has authored or coauthored six books that have sold in total more than 10 million copies worldwide. They include Good to Great, Built to Last, How the Mighty Fall, and Great by Choice. Driven by a relentless curiosity, Jim began his research and teaching career on the faculty at the Stanford Graduate School of Business, where he received the Distinguished Teaching Award in 1992. In 1995, he founded a management laboratory in Boulder, Colorado. In addition to his work in the business sector, Jim has a passion for learning and teaching in the social sectors, including education, healthcare, government, faith-based organizations, social ventures, and cause-driven nonprofits. In 2012 and 2013, he had the honor to serve a two-year appointment as the Class of 1951 Chair for the Study of Leadership at the United States Military Academy at West Point. In 2017, Forbes selected Jim as one of the 100 Greatest Living Business Minds. Jim has been an avid rock climber for more than forty years and has completed single-day ascents of El Capitan and Half Dome in Yosemite Valley. Learn more about Jim and his concepts at his website, where you’ll find articles, videos, and useful tools. jimcollins.com

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    Reviews for Good to Great

    4.5/5

    155 ratings52 reviews

    What our readers think

    Readers find this title to be an excellent read, with insightful observations and practical information. The book presents good theories backed by data and is well-written. It offers interesting and inspiring concepts that can be applied on both organizational and individual levels. The integration of numerous concepts creates a synergy in companies. It is a must-read for those who never want to settle for good. Overall, readers appreciate the book and find it enjoyable and appreciable.

    What did you think?

    Tap to rate

    Review must be at least 10 words

    • 3/5
      I learned a bit from this book, and was impressed at the analysis that went into it. Interesting to see that two of the companies are not great anymore (as noted by others, Fannie Mae & Circuit City). Level 5 leadership is needed everywhere. I need to read this again!
    • 5/5
      Anyone who manages anything could learn a great deal from the in-depth research and extremely accessible writing of Collins and his team. Collins proves that it is not about money, but about the person in charge, the people who support them, and the cohesiveness of ideas. An excellent read.
    • 4/5
      I learned a lot from this book. It makes me to think about the scoop of my company.
    • 4/5
      Lots of good theories - wondeing what the story is with some of his profiled companies - Circuit City, Fannie Mae, Freddie Mac
    • 3/5
      The chapter on leadership was very good and completely applicable to any time period. Where the book misses is in using specific company examples; a few of which are no longer around. I also thought there were too many charts and the appendix was a bit overwhelming - perhaps meant more for an academic textbook. It could become a classic with some editing- I so agree with the premise that most are comfortable with just being "good" - life is easier and more comfortable. The leap to great is more rare.
    • 4/5
      This is all about how to take a company from good, or mediocre to great! Not quite tailored to non-profits but discusses some good theories: level 5 leaders, hedgehog concepts and more. Not as dry as other management books, Collins uses lots of examples which helps a non commercially minded person get a grasp on his concepts.
    • 4/5
      I'm loving this book. It really speaks to me on so many levels. I really like that it reflects real data and not just the latest management fad.
    • 5/5
      A primer in the management of people. Use their strengths, put them in the right place and you will be rewarded.
    • 4/5
      Good read, interesting if you are starting out in business to make a great company, this book would help you make better decision to make a better company. Funny that some of these companies are no longer in existence.
    • 3/5
      Good overview of what can make the difference in companies and how they perform in the market.
    • 5/5
      This strong text is the contemporary equivalent of 'In Search of Excellence' that every self-respecting manager had on their bookshelf during the 1980s. Time will tell if the conclusions of this book are any more reliable than Peters & Waterman's contribution.The pretext of this book is 'how do you take a good company and make it great?' Finding case studies to answer this question is no easy task and the research team set about it by finding companies that performed at the industry average for 15 years, then outperformed the market for the next 15 years by a factor of 3:1. The team then interview and investigate the companies themselves and come up with some interesting and thought provoking findings. Out of these investigations come some concepts that will have enduring impact on management discourse - the most notable of which is the concept of a Level 5 leader (a person combining personal humility with professional will).So why not a 5 star rating? The one weakness is the relatively lightweight approach to case study. From an academic perspective, this book repeats the same mistake made by so many other studies - it interviews only senior managers and makes too much use of media reports (written by journalists who talk to senior managers). Whilst I appreciate the access issues, good quality case study work involves a wider range of people and the theoretical conclusions of this book may - like its 'excellent' predecessor - unravel due to a failure to investigate any views other than those of managers.
    • 4/5
      Remarkably similar to the Covey books (7 Habits + 8th Habit).No shortcuts to success, continuous improvement, passion for your role are all good lessons from these books.
    • 5/5
      Good is the enemy to great. Great organizations are not characterized by charismatic leaders, product trends, or media hype. Rather, great organizations are doggedly disciplined around what Collins terms a "hedgehog concept" - the singular intersection of what an organization is passionate about, what an organization can be best in the world at, and the economic engine of an organization. Once an organization understands its "hedgehog concept," greatness means discipline: disciplined leadership making disciplined decisions in the context of its "hedgehog concept" - resulting in a disciplined culture. This sort of determination isn't the result of training, but of recruiting. The "who" of an organization must take priority over its "what" - or as Collins says "who first, then what." Good to Great is an engaging and thoroughly interesting read. Although the research is in the context of the business world, it is readily applicable both individually and in other organizational contexts. A+
    • 4/5
      Even though this book is over 10 years old, the concepts are still relevant and provide guidance on how to manage effectively for the long haul. Following the principles can assist with getting better employee engagement and formulating a business strategy designed for success. It's important to note that many of these concepts will take some effort and that there are no "silver bullets" that can suddenly turn a failing company into a great one, however the author does a great job of explaining the principal differences between the companies that took off (what he refers to as the "fly wheel") and those who remained stagnant or died.I did some additional research and while the majority of the companies on the "good to great" list are no longer "great" - I found that many of these companies made changes that deviated from the principles outlined in the book. Would these companies have declined if they hadn't made those changes? We'll never know for certain, since the research is merely inductive and there is no way to prove causation. I do know this is a wonderful book for mentoring new managers and getting them on course to be excellent leaders.
    • 3/5
      If you're interested in the information contained in this book you'll be very happy with what it offers. I was interested in what the book had to say, but I have to admit I ended up wishing I could just finish the book. It all became a bit much. But I do believe it has a lot of great information in it.
    • 5/5
      This book is a classic for a reason. His teams extensive research has been distilled into a few clearly articulated points in an engaging way. What is not included is just as important as what is included to make a great company.
    • 4/5
      I enjoyed Good to Great as part of our book club at work. I appreciate that the findings were based on data and research, and not anecdotes and poorly remembered details from specific business personalities. I would love to see an updated version twenty years later with how the internet has transformed things, but the book did mention how great companies use technology smartly and not rely on it completely.
    • 5/5
      Well researched. I enjoyed this book very much. I feel it is a must read. Mr. Collin's ideas on "Optimal Thinking" are very interesting. This book spurned so much creativity from within me. I was really able to upgrade in capitalizing on my strengths. Very motivating and entertaining.
    • 5/5
      Contrary to some of the negative reviews, I found Collin's methodology to be pretty consistent. He lines up a bunch of stock-market data over the long term (the quantitative), and then tries to find explanations for why some companies just keep getting better (the qualitative). He also tests which companies don't fit the hypothesis even though quantitatively fit.

      The odd thing is that if you look at stock market investment strategies, what this book actually recommends is a strategy that looks pretty close to Warren Buffet's. Don't take my word for it; go look up some investment screens for choosing companies and apply Collin's principles, and see whose investment strategy the resulting screen most resembles.
    • 4/5
      Good is the enemy of great. Collins and his team (in Boulder, CO) researched what factors appear to drive companies from solid, stable operations, into consistent, lasting growth. They used empirical data, ultimately identifying about 13 out of the fortune 500. The 6 factors held up across all of these firms, and didn't appear in a control set that started with a similar track record. The 6 factors: Level 5 Leadership (humble, driven), First Who... then what, Confront the Brutal Facts (but never lose faith), The Hedgehog Concept (simplicity within the three circles), A Culture of Discipline, and Technology Accelerators.
    • 5/5
      I found Jim's book to be a shot of reality of what it takes to succeed as a company in a world caught up in the quick fix. As an entrepreneur, I have seen first hand that the principles Jim outlines as being as being critical to an organization's success. It was great to read a book that focused on building strong fundamentals and sticking to the basics rather than always looking for solutions through tactics. Read this book, you’ll be a better business book for it.
    • 4/5
      Interesting commonalities in some of the highest performing American companies.
    • 4/5
      Good to Great is a perennial entry on lists of top business books, and for good reason. Jim Collins and his team of researchers spent years examining the characteristics of companies that made the transition from being merely “good” to being leaders in their respective industries.The factors that Collins identified — hiring, training, and retaining the right people; identifying and building on core organizational strengths; and working for small, incremental growth — are factors that can also be used to build up great parishes, Catholic schools, and other ministries.I love Good to Great’s reliance on solid research and data demonstrating that what we think are the characteristics of great organizations — especially the idea of a dynamic genius in charge — are rarely effective in promoting real success.Collins wrote a short follow-up, Good to Great in the Social Sectors, in 2005 — it treats the Good to Great concept in the context of non-profit organizations. But the original book contains all the foundational themes of Collins’ work.
    • 5/5
      Different than Built to Last. This one is still a research-based study with strict controls and exhaustive research. However, this one is not used to identify 'what' a great and enduring company is but 'how' to become a great company if you're only a good one now. It's really a step by step recipe or handbook that a company (or team or association or foundation) can progress through to become great. We used this at my company for this purpose and the results were startling.
    • 4/5
      Collins, in the tradition of the case study, names names and finds unique properties in the management of a number of Fortune 500 companies over a 30 year period. From a unique set of criteria he pursues, with no preconceived notions, what it takes to sustain profitability in a large public corporation which had previously been only mediocre. His findings are clear, well thought out and often surprising. In the realm of business books, this one is especially refreshing for a number of reasons.This is a hardheaded skeptic's book. What makes it so special is that it does not assign magic to anyone, neither to himself as a writer or to any of the officers interviewed. Collins exposes his own learning process and allows the reader to understand the nuance in the emphasis of each of his concepts as he spells out the skeptical questions that his research team posed and the deliberation they went through. Collins doesn't come off as a `guru' who has found some magic that only he and a handful of CEOs can see so much as a disciplined and curious leader of a research team struggling with difficult questions. So not only do you understand what he means as he moves from `chaos to concept', you also see arguments against his initial reasoning. And since he is dedicated only those conclusions supported by facts rather than fitting random companies into some grand theory we see exactly what he sees and why. There is none of breathless exuberance that characterizes so much of business writing.What is most refreshing and reassuring about this book's studies is that it puts us back in a sensible framework for understanding long term success without making a fetish of `leadership' or `innovation' or `excellence' or other buzzwords. This is the kind of book that demonstrates the sort of objectivity possible in business - it doesn't obfuscate or take the position that there is something mysterious out there. Rather he makes the complex comprehensible and when the answers are simple, they are presented simply. He constantly checks and compares the difference between unsustainable and sustainable profitability. All of Collins' concepts lend themselves to the sorts of metrics upon which rugged methodologies can be built. This is more than a book of management theory; it is a learning tool, which explains itself. I cannot remember the last book where the appendices were as interesting (and sometimes more interesting) than the main text.It might be corny to say so, but I think his findings are self-rewarding. Working from the premises put forth, it makes sense for smaller companies and organizations some of which might not even be businesses at all. `Good to Great' offers solid lessons among which are that it doesn't take more energy to behave smartly but it does take nerve. Collins dared to work smartly and has created a great book.
    • 4/5
      There were some companies I did not expect to see listed.
    • 4/5
      This is the best book on leadership I have read in a while. I particularly related to the emphasis placed on the humility and reserved nature of the great company leaders described in this book. Whilst admiring the clarity with which Collins describes the key elements of companies that have made the steps up from being good to great, I did feel some of the terms used to describe these ideas were grating at times - when you have read the word hedgehog numerous times you will understand what I mean!Overall, an excellent book from which I have learnt an enormous amount,
    • 5/5
      book on leadership and management in organizations. As usual the book is about common sense but it communicates the points very well. One of the best to the point books of this type that I have read. I would include it with "Flight of the Buffalo" and "The 7 Habits" as the most useful books when attempting to learn about leadership and management.
    • 5/5
      Excellent book to share with your leadership team! Easy and practice principles for managing and organizing a management team.
    • 5/5
      Essential reading for any business. This was a re-read and I think I need to do this every couple of years. There are some fundamental truths here that anyone in business needs to remind oneself about again and again.This makes my faves list because it is definitional, fundamental.

    Book preview

    Good to Great - Jim Collins

    The cover of a book reads, “Number 1 Bestseller, Three Million Copies Sold, Why some companies make the leap and others don’t: Good to Great.” The illustration on the cover shows an upward-sloping line graph. The name of the author of the book, “Jim Collins” is inscribed at the bottom of the cover. A text below it reads, “Coauthor of the bestselling Built to Last.”

    GOOD TO

    GREAT

    Why Some Companies

    Make the Leap . . .

    and Others Don’t

    JIM COLLINS

    The name of Harper Business is shown, with the logo of HarperCollins Publishers as a stylized set of flames atop waves. A text at the bottom reads, “An Imprint of HarperCollins Publishers.”

    Dedication

    This book is dedicated to the Chimps.

    I love you all, each and every one.

    Contents

    Cover

    Title Page

    Dedication

    Preface

    Chapter 1 - Good is the Enemy of Great

    Chapter 2 - Level 5 Leadership

    Chapter 3 - First Who . . . Then What

    Chapter 4 - Confront The Brutal Facts (Yet Never Lose Faith)

    Chapter 5 - The Hedgehog Concept - (Simplicity within the Three Circles)

    Chapter 6 - A Culture of Discipline

    Chapter 7 - Technology Accelerators

    Chapter 8 - The Flywheel and The Doom Loop

    Chapter 9 - From Good To Great To Built To Last

    Epilogue - Frequently Asked Questions

    Acknowledgments

    Appendix 1.A - Selection Process for Good-To-Great Companies

    Appendix 1.B - Direct Comparison Selections

    Appendix 1.C - Unsustained Comparisons

    Appendix 1.D - Overview of Research Steps

    Appendix 2.A - Inside Versus Outside CEO Analysis

    Appendix 5.A - Industry Analysis Rankings

    Appendix 8.A - Doom Loop Behavior in the Comparison Companies

    Appendix 8.B - Summary of Acquisition Analysis

    Notes

    Index

    About the Author

    Praise

    Also by Jim Collins

    Back Ad

    Copyright

    About the Publisher

    A black-and-white photo shows the members of the Good-to-Great research team assembled together for a team meeting, posing for the camera for a group photo.

    MEMBERS OF THE GOOD - TO - GREAT RESEARCH TEAM

    ASSEMBLED FOR TEAM MEETING, JANUARY 2000

    First row: Vicki Mosur Osgood, Alyson Sinclair, Stefanie A. Judd, Christine Jones

    Second row: Eric Hagen, Duane C. Duffy, Paul Weissman, Scott Jones, Weijia (Eve) Li

    Third row: Nicholas M. Osgood, Jenni Cooper, Leigh Wilbanks, Anthony J. Chirikos

    Fourth row: Brian J. Bagley, Jim Collins, Brian C. Larsen, Peter Van Genderen, Lane Hornung

    Not pictured: Scott Cederberg, Morten T. Hansen, Amber L. Young

    Photo credit: JIM COLLINS COLLECTION.

    Preface

    As I was finishing this manuscript, I went for a run up a steep, rocky trail in Eldorado Springs Canyon, just south of my home in Boulder, Colorado. I had stopped on top at one of my favorite sitting places with a view of the high country still covered in its winter coat of snow, when an odd question popped into my mind: How much would someone have to pay me not to publish Good to Great?

    It was an interesting thought experiment, given that I’d just spent the previous five years working on the research project and writing this book. Not that there isn’t some number that might entice me to bury it, but by the time I crossed the hundred-million-dollar threshold, it was time to head back down the trail. Even that much couldn’t convince me to abandon the project. I am a teacher at heart. As such, it is impossible for me to imagine not sharing what we’ve learned with students around the world. And it is in the spirit of learning and teaching that I bring forth this work.

    After many months of hiding away like a hermit in what I call monk mode, I would very much enjoy hearing from people about what works for them and what does not. I hope you will find much of value in these pages and will commit to applying what you learn to whatever you do, if not to your company, then to your social sector work, and if not there, then at least to your own life.

    —Jim Collins

    [email protected]

    www.jimcollins.com

    Boulder, Colorado

    March 27, 2001

    Chapter 1

    Good is the Enemy of Great

    That’s what makes death so hard—unsatisfied curiosity.

    —BERYL MARKHAM,

    West with the Night¹

    Good is the enemy of great.

    And that is one of the key reasons why we have so little that becomes great.

    We don’t have great schools, principally because we have good schools. We don’t have great government, principally because we have good government. Few people attain great lives, in large part because it is just so easy to settle for a good life. The vast majority of companies never become great, precisely because the vast majority become quite good—and that is their main problem.

    This point became piercingly clear to me in 1996, when I was having dinner with a group of thought leaders gathered for a discussion about organizational performance. Bill Meehan, the managing director of the San Francisco office of McKinsey & Company, leaned over and casually confided, "You know, Jim, we love Built to Last around here. You and your coauthor did a very fine job on the research and writing. Unfortunately, it’s useless."

    Curious, I asked him to explain.

    The companies you wrote about were, for the most part, always great, he said. They never had to turn themselves from good companies into great companies. They had parents like David Packard and George Merck, who shaped the character of greatness from early on. But what about the vast majority of companies that wake up partway through life and realize that they’re good, but not great?

    I now realize that Meehan was exaggerating for effect with his useless comment, but his essential observation was correct—that truly great companies, for the most part, have always been great. And the vast majority of good companies remain just that—good, but not great. Indeed, Meehan’s comment proved to be an invaluable gift, as it planted the seed of a question that became the basis of this entire book—namely, Can a good company become a great company and, if so, how? Or is the disease of just being good incurable?

    A dual line graph titled, “The Good-To-Great Study” is shown. The graph shows the comparison of cumulative stock returns ratio to General Market for “Good-To-Great Companies” and “Direct Comparison Companies.”Click for extended description

    Five years after that fateful dinner we can now say, without question, that good to great does happen, and we’ve learned much about the underlying variables that make it happen. Inspired by Bill Meehan’s challenge, my research team and I embarked on a five-year research effort, a journey to explore the inner workings of good to great.

    To quickly grasp the concept of the project, look at the chart on page 2.* In essence, we identified companies that made the leap from good results to great results and sustained those results for at least fifteen years. We compared these companies to a carefully selected control group of comparison companies that failed to make the leap, or if they did, failed to sustain it. We then compared the good-to-great companies to the comparison companies to discover the essential and distinguishing factors at work.

    The good-to-great examples that made the final cut into the study attained extraordinary results, averaging cumulative stock returns 6.9 times the general market in the fifteen years following their transition points.² To put that in perspective, General Electric (considered by many to be the best-led company in America at the end of the twentieth century) outperformed the market by 2.8 times over the fifteen years 1985 to 2000.³ Furthermore, if you invested $1 in a mutual fund of the good-to-great companies in 1965, holding each company at the general market rate until the date of transition, and simultaneously invested $1 in a general market stock fund, your $1 in the good-to-great fund taken out on January 1, 2000, would have multiplied 471 times, compared to a 56 fold increase in the market.⁴

    These are remarkable numbers, made all the more remarkable when you consider the fact that they came from companies that had previously been so utterly unremarkable. Consider just one case, Walgreens. For over forty years, Walgreens had bumped along as a very average company, more or less tracking the general market. Then in 1975, seemingly out of nowhere—bang!—Walgreens began to climb . . . and climb . . . and climb . . . and climb . . . and it just kept climbing. From December 31, 1975, to January 1, 2000, $1 invested in Walgreens beat $1 invested in technology superstar Intel by nearly two times, General Electric by nearly five times, Coca-Cola by nearly eight times, and the general stock market (including the NASDAQ stock run-up at the end of 1999) by over fifteen times.*

    Cumulative Stock Returns of $1 Invested, 1965 – 2000

    A multiple line graph titled, “Cumulative Stock Return of 1 dollar invested, 1965 to 2000” is shown. The graph shows the comparison of cumulative stock returns of “Good-To-Great Companies” and “Direct Comparison Companies” with “General Market.”

    Notes:

    $1 divided evenly across companies in each set, January 1, 1965.

    Each company held at market rate of return, until transition date.

    Cumulative value of each fund shown as of January 1, 2000.

    Dividends reinvested, adjusted for all stock splits.

    Click for extended description

    How on earth did a company with such a long history of being nothing special transform itself into an enterprise that outperformed some of the best-led organizations in the world? And why was Walgreens able to make the leap when other companies in the same industry with the same opportunities and similar resources, such as Eckerd, did not make the leap? This single case captures the essence of our quest.

    This book is not about Walgreens per se, or any of the specific companies we studied. It is about the question–Can a good company become a great company and, if so, how?—and our search for timeless, universal answers that can be applied by any organization.

    Our five-year quest yielded many insights, a number of them surprising and quite contrary to conventional wisdom, but one giant conclusion stands above the others: We believe that almost any organization can substantially improve its stature and performance, perhaps even become great, if it conscientiously applies the framework of ideas we’ve uncovered.

    This book is dedicated to teaching what we’ve learned. The remainder of this introductory chapter tells the story of our journey, outlines our research method, and previews the key findings. In chapter 2, we launch headlong into the findings themselves, beginning with one of the most provocative of the whole study: Level 5 leadership.

    Undaunted Curiosity

    People often ask, What motivates you to undertake these huge research projects? It’s a good question. The answer is, Curiosity. There is nothing I find more exciting than picking a question that I don’t know the answer to and embarking on a quest for answers. It’s deeply satisfying to climb into the boat, like Lewis and Clark, and head west, saying, We don’t know what we’ll find when we get there, but we’ll be sure to let you know when we get back.

    Here is the abbreviated story of this particular odyssey of curiosity.

    Phase 1: The Search

    With the question in hand, I began to assemble a team of researchers. (When I use we throughout this book, I am referring to the research team. In all, twenty-one people worked on the project at key points, usually in teams of four to six at a time.)

    Our first task was to find companies that showed the good-to-great pattern exemplified in the chart on page 2. We launched a six-month death march of financial analysis, looking for companies that showed the following basic pattern: fifteen-year cumulative stock returns at or below the general stock market, punctuated by a transition point, then cumulative returns at least three times the market over the next fifteen years. We picked fifteen years because it would transcend one-hit wonders and lucky breaks (you can’t just be lucky for fifteen years) and would exceed the average tenure of most chief executive officers (helping us to separate great companies from companies that just happened to have a single great leader). We picked three times the market because it exceeds the performance of most widely acknowledged great companies. For perspective, a mutual fund of the following marquis set of companies beat the market by only 2.5 times over the years 1985 to 2000: 3M, Boeing, Coca-Cola, GE, Hewlett-Packard, Intel, Johnson & Johnson, Merck, Motorola, Pepsi, Procter & Gamble, Wal-Mart, and Walt Disney. Not a bad set to beat.

    From an initial universe of companies that appeared on the Fortune 500 in the years 1965 to 1995, we systematically searched and sifted, eventually finding eleven good-to-great examples. (I’ve put a detailed description of our search in Appendix 1.A.) However, a couple of points deserve brief mention here. First, a company had to demonstrate the good-to-great pattern independent of its industry; if the whole industry showed the same pattern, we dropped the company. Second, we debated whether we should use additional selection criteria beyond cumulative stock returns, such as impact on society and employee welfare. We eventually decided to limit our selection to the good-to-great results pattern, as we could not conceive of any legitimate and consistent method for selecting on these other variables without introducing our own biases. In the last chapter, however, I address the relationship between corporate values and enduring great companies, but the focus of this particular research effort is on the very specific question of how to turn a good organization into one that produces sustained great results.

    At first glance, we were surprised by the list. Who would have thought that Fannie Mae would beat companies like GE and Coca-Cola? Or that Walgreens could beat Intel? The surprising list—a dowdier group would be hard to find—taught us a key lesson right up front. It is possible to turn good into great in the most unlikely of situations. This became the first of many surprises that led us to reevaluate our thinking about corporate greatness.

    GOOD-TO-GREAT CASES

    *Ratio of cumulative stock returns relative to the general stock market.

    Table summary

    A table titled, Good-To-Great Cases shows the list of eleven companies with the ratio of cumulative stock returns relative to the general stock market from before and after years of the transition point. The highest cumulative ratio is 18.50 times for Circuit City and the lowest ratio is 3.42 for Kimberly-Clark.

    Phase 2: Compared to What?

    Next, we took perhaps the most important step in the entire research effort: contrasting the good-to-great companies to a carefully selected set of comparison companies. The crucial question in our study is not, What did the good-to-great companies share in common? Rather, the crucial question is, What did the good-to-great companies share in common that distinguished them from the comparison companies? Think of it this way: Suppose you wanted to study what makes gold medal winners in the Olympic Games. If you only studied the gold medal winners by themselves, you’d find that they all had coaches. But if you looked at the athletes that made the Olympic team, but never won a medal, you’d find that they also had coaches! The key question is, What systematically distinguishes gold medal winners from those who never won a medal?

    We selected two sets of comparison companies. The first set consisted of direct comparisons—companies that were in the same industry as the good-to-great companies with the same opportunities and similar resources at the time of transition, but that showed no leap from good to great. (See Appendix 1.B for details of our selection process.) The second consisted of unsustained comparisons—companies that made a short-term shift from good to great but failed to maintain the trajectory—to address the question of sustainability. (See Appendix 1.C.) In all, this gave us a total study set of twenty-eight companies: eleven good-to-great companies, eleven direct comparisons, and six unsustained comparisons.

    THE ENTIRE STUDY SET

    Good-to-Great Companies

    Abbott

    Circuit City

    Fannie Mae

    Gillette

    Kimberly-Clark

    Kroger

    Nucor

    Philip Morris

    Pitney Bowes

    Walgreens

    Wells Fargo

    Direct Comparisons

    Upjohn

    Silo

    Great Western

    Warner-Lambert

    Scott Paper

    A&P

    Bethlehem Steel

    R. J. Reynolds

    Addressograph

    Eckerd

    Bank of America

    Unsustained Comparisons

    Burroughs

    Chrysler

    Harris

    Hasbro

    Rubbermaid

    Teledyne

    Phase 3: Inside the Black Box

    We then turned our attention to a deep analysis of each case. We collected all articles published on the twenty-eight companies, dating back fifty years or more. We systematically coded all the material into categories, such as strategy, technology, leadership, and so forth. Then we interviewed most of the good-to-great executives who held key positions of responsibility during the transition era. We also initiated a wide range of qualitative and quantitative analyses, looking at everything from acquisitions to executive compensation, from business strategy to corporate culture, from layoffs to leadership style, from financial ratios to management turnover. When all was said and done, the total project consumed 10.5 people years of effort. We read and systematically coded nearly 6,000 articles, generated more than 2,000 pages of interview transcripts, and created 384 million bytes of computer data. (See Appendix 1.D for a detailed list of all our analyses and activities.)

    We came to think of our research effort as akin to looking inside a black box. Each step along the way was like installing another lightbulb to shed light on the inner workings of the good-to-great process.

    A line representing “Good results” is shown passing through a box shaded in black and labeled “What’s inside the black box?” The line moves upward after passing from the box toward a text, “Great Results.”

    With data in hand, we began a series of weekly research-team debates. For each of the twenty-eight companies, members of the research team and I would systematically read all the articles, analyses, interviews, and the research coding. I would make a presentation to the team on that specific company, drawing potential conclusions and asking questions. Then we would debate, disagree, pound on tables, raise our voices, pause and reflect, debate some more, pause and think, discuss, resolve, question, and debate yet again about what it all means.

    It is important to understand that we developed all of the concepts in this book by making empirical deductions directly from the data. We did not begin this project with a theory to test or prove. We sought to build a theory from the ground up, derived directly from the evidence.

    The core of our method was a systematic process of contrasting the good-to-great examples to the comparisons, always asking, What’s different?

    We also made particular note of dogs that did not bark. In the Sherlock Holmes classic The Adventure of Silver Blaze, Holmes identified the curious incident of the dog in the night-time as the key clue. It turns out that the dog did nothing in the nighttime and that, according to Holmes, was the curious incident, which led him to the conclusion that the prime suspect must have been someone who knew the dog well.

    In our study, what we didn’t find—dogs that we might have expected to bark but didn’t—turned out to be some of the best clues to the inner workings of good to great. When we stepped inside the black box and turned on the lightbulbs, we were frequently just as astonished at what we did not see as what we did. For example:

    Larger-than-life, celebrity leaders who ride in from the outside are negatively correlated with taking a company from good to great. Ten of eleven good-to-great CEOs came from inside the company, whereas the comparison companies tried outside CEOs six times more often.

    We found no systematic pattern linking specific forms of executive compensation to the process of going from good to great. The idea that the structure of executive compensation is a key driver in corporate performance is simply not supported by the data.

    Strategy per se did not separate the good-to-great companies from the comparison companies. Both sets of companies had well-defined strategies, and there is no evidence that the good-to-great companies spent more time on long-range strategic planning than the comparison companies.

    The good-to-great companies did not focus principally on what to do to become great; they focused equally on what not to do and what to stop doing.

    Technology and technology-driven change has virtually nothing to do with igniting a transformation from good to great. Technology can accelerate a transformation, but technology cannot cause a transformation.

    Mergers and acquisitions play virtually no role in igniting a transformation from good to great; two big mediocrities joined together never make one great company.

    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.

    The good-to-great companies had no name, tag line, launch event, or program to signify their transformations. Indeed, some reported being unaware of the magnitude of the transformation at the time; only later, in retrospect, did it become clear. Yes, they produced a truly revolutionary leap in results, but not by a revolutionary process.

    The good-to-great companies were not, by and large, in great industries, and some were in terrible industries. In no case do we have a company that just happened to be sitting on the nose cone of a rocket when it took off. Greatness is not a function of circumstance. Greatness, it turns out, is largely a matter of conscious choice.

    Phase 4: Chaos to Concept

    I’ve tried to come up with a simple way to convey what was required to go from all the data, analyses, debates, and dogs that did not bark to the final findings in this book. The best answer I can give is that it was an iterative process of looping back and forth, developing ideas and testing them against the data, revising the ideas, building a framework, seeing it break under the weight of evidence, and rebuilding it yet again. That process was repeated over and over, until everything hung together in a coherent framework of concepts. We all have a strength or two in life, and I suppose mine is the ability to take a lump of unorganized information, see patterns, and extract order from the mess—to go from chaos to concept.

    That said, however, I wish to underscore again that the concepts in the final framework are not my opinions. While I cannot extract my own psychology and biases entirely from the research, each finding in the final framework met a rigorous standard before the research team would deem it significant. Every primary concept in the final framework showed up as a change variable in 100 percent of the good-to-great companies and in less than 30 percent of the comparison companies during the pivotal years. Any insight that failed this test did not make it into the book as a chapter-level concept.

    Here, then, is an overview of the framework of concepts and a preview of what’s to come in the rest of the book. (See the diagram below.) Think of the transformation as a process of buildup followed by breakthrough, broken into three broad stages: disciplined people, disciplined thought, and disciplined action. Within each of these three stages, there are two key concepts, shown in the framework and described below. Wrapping around this entire framework is a concept we came to call the flywheel, which captures the gestalt of the entire process of going from good to great.

    A circle labeled “Flywheel” shows the entire process of going from good to great.Click for extended description

    Level 5 Leadership. We were surprised, shocked really, to discover the type of leadership required for turning a good company into a great one. Compared to high-profile leaders with big personalities who make headlines and become celebrities, the good-to-great leaders seem to have come from Mars. Self-effacing, quiet, reserved, even shy—these leaders are a paradoxical blend of personal humility and professional will. They are more like Lincoln and Socrates than Patton or Caesar.

    First Who . . . Then What. We expected that good-to-great leaders would begin by setting a new vision and strategy. We found instead that they first got the right people on the bus, the wrong people off the bus, and the right people in the right seats—and then they figured out where to drive it. The old adage People are your most important asset turns out to be wrong. People are not your most important asset. The right people are.

    Confront the Brutal Facts (Yet Never Lose Faith). We learned that a former prisoner of war had more to teach us about what it takes to find a path to greatness than most books on corporate strategy. Every good-to-great company embraced what we came to call the Stockdale Paradox: You must maintain unwavering faith that you can and will prevail in the end, regardless of the difficulties, AND at the same time have the discipline to confront the most brutal facts of your current reality, whatever they might be.

    The Hedgehog Concept (Simplicity within the Three Circles). To go from good to great requires transcending the curse of competence. Just because something is your core business—just because you’ve been doing it for years or perhaps even decades—does not necessarily mean you can be the best in the world at it. And if you cannot be the best in the world at your core business, then your core business absolutely cannot form the basis of a great company. It must be replaced with a simple concept that reflects deep understanding of three intersecting circles.

    A Culture of Discipline. All companies have a culture, some companies have discipline, but few companies have a culture of discipline. When you have disciplined people, you don’t need hierarchy. When you have disciplined thought, you don’t need bureaucracy. When you have disciplined action, you don’t need excessive controls. When you combine a culture of discipline with an ethic of entrepreneurship, you get the magical alchemy of great performance.

    Technology Accelerators. Good-to-great companies think differently about the role of technology. They never use technology as the primary means of igniting a transformation. Yet, paradoxically, they are pioneers in the application of carefully selected technologies. We learned that technology by itself is never a primary, root cause of either greatness or decline.

    The Flywheel and the Doom Loop. Those who launch revolutions, dramatic change programs, and wrenching restructurings will almost certainly fail to make the leap from good to great. No matter how dramatic the end result, the good-to-great transformations never happened in one fell swoop. There was no single defining action, no grand program, no one killer innovation, no solitary lucky break, no miracle moment. Rather, the process resembled relentlessly pushing a giant heavy flywheel in one direction, turn upon turn, building momentum until a point of breakthrough, and beyond.

    From Good to Great to Built to Last. In an ironic twist, I now see Good to Great not as a sequel to Built to Last, but as more of a prequel. This book is about how to turn a good organization into one that produces sustained great results. Built to Last is about how you take a company with great results and turn it into an enduring great company of iconic stature. To make that final shift requires core values and a purpose beyond just making money combined with the key dynamic of preserve the core / stimulate progress.

    If you are already a student of Built to Last, please set aside your questions about the precise links between the two studies as you embark upon the findings in Good to Great. In the last chapter, I return to this question and link the two studies together.

    The Timeless Physics of Good to Great

    I had just finished presenting my research to a set of Internet executives gathered at a conference, when a hand shot up. Will your findings continue to apply in the new economy? Don’t we need to throw out all the old ideas and start from scratch? It’s a legitimate question, as we do live in a time of dramatic change, and it comes up so often that I’d like to dispense with it right up front, before heading into the meat of the book.

    Yes, the world is changing, and will continue to do so. But that does not mean we should stop the search for timeless principles. Think of it this way: While the practices of engineering continually evolve and change, the laws of physics remain relatively fixed. I like to think of our work as a search for timeless principles—the enduring physics of great organizations—that will remain true and relevant no matter how the world changes around us. Yes, the specific application will change (the engineering), but certain immutable laws of organized human performance (the physics) will endure.

    The truth is, there’s nothing new about being in a new economy. Those who faced the invention of electricity, the telephone, the automobile, the radio, or the transistor—did they feel it was any less of a new economy than we feel today? And in each rendition of the new economy, the best leaders have adhered to certain basic principles, with rigor and discipline.

    Some people will point out that the scale and pace of change is greater today than anytime in the past. Perhaps. Even so, some of the companies in our good-to-great study faced rates of change that rival anything in the new economy. For example, during the early 1980s, the banking industry was completely transformed in about three years, as the full weight of deregulation came crashing down. It was certainly a new economy for the banking industry! Yet Wells Fargo applied every single finding in this book to produce great results, right smack in the middle of the fast-paced change triggered by deregulation.

    As you immerse yourself in the coming chapters, keep one key point in mind. This book is not about the old economy. Nor is it about the new economy. It is not even about the companies you’re reading about, or even about business per se. It is ultimately about one thing: the timeless principles of good to great. It’s about how you take a good organization and turn it into one that produces sustained great results, using whatever definition of results best applies to your organization.

    This might come as a surprise, but I don’t primarily think of my work as about the study of business, nor do I see this as fundamentally a business book. Rather, I see my work as being about discovering what creates enduring great organizations of any type. I’m curious to understand the fundamental differences between great and good, between excellent and mediocre. I just happen to use corporations as a means of getting inside the black box. I do this because publicly traded corporations, unlike other types of organizations, have two huge advantages for research: a widely agreed upon definition of results (so we can rigorously select a study set) and a plethora of easily accessible data.

    That good is the enemy of great is not just a business problem. It is a human problem. If we have cracked the code on the question of good to great, we should have something of value to any type of organization.

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