GOOD TO GREAT
Picture a successful leader at the helm of great company. What are the qualities that define them? You might now be thinking of a larger-than-life extrovert – someone who thrives on attention, has the charisma to command a room and likes to make a big noise. And it’s certainly true that some of the world’s most famous entrepreneurs are a good fit for this description.
But what if I was to tell you that leading a company to greatness required the opposite qualities to this? That is the case made by the Stanford business professor Jim Collins in his influential best-selling book Good to Great: Why Some Companies Make the Leap and Others Don’t…
Back in 1996 Collins set out to answer what seemed like a simple question – can a good company become a great one and, if so, how? For every company instilled with greatness by its founders – think Disney, Apple, Hewlett Packard – there are many thousands more which amble along in a moderately successful way without ever scaling the heights. Is it too late for these good but unremarkable companies to become great? Collins assembled a 21-strong research team to find out.
Good to Great is the result of this five-year long research project which examined the performance of almost 1,500 companies in detail. So, what we can we learn from the results?
THE IMPORTANCE OF HUMBLE LEADERS
Today, the company Kimberly-Clark manufactures household name products like Kleenex tissues and Andrex toilet rolls which are sold in almost every country on the planet. Its annual revenues are in the region of $20 billion. But it wasn’t always like this.
Back in 1971 it was, in Collins’ words, “a stodgy old paper company whose stock had fallen 36 per cent behind the general market over the previous twenty years.”
What happened in the 20 years that followed was extraordinary. Collins calls it the one of the best examples in the 20th century of a company going from good to great. Stock returns not only beat direct rivals like Scott Paper and Procter & Gamble, they also outperformed the likes of Coca Cola and General Motors. Not bad for a stodgy old paper company.
And the leader who masterminded this remarkable transformation? You’d be forgiven for not having heard of Darwin E. Smith. He started as the company’s mild-mannered lawyer ‘a seemingly ordinary man’ and expressed some doubts about the choice of the board when they promoted him to CEO.
“Few people – even ardent students of management and corporate history – know anything about Darwin Smith. He probably would have liked it that way. A man who carried no airs of self-importance, Smith found his favourite companionship among plumbers and electricians and spent his vacations rumbling around his Wisconsin farm in the cab of a backhoe, digging holes and moving rocks. He never cultivated hero status or executive celebrity status."
According to the extensive research undertaken by Collins and his team, Smith wasn’t an outlier. His personality was typical of the type of leaders who took good companies to greatness. They label these ‘Level 5 Leaders’ – those who build enduring greatness through a paradoxical mix of personal humility and professional will:
“The good-to-great executives were all cut from the same cloth. It didn't matter whether the company was consumer or industrial, in crisis or steady state, offered services or products. It didn't matter when the transition took place or how big the company. All the good-to-great companies had Level 5 leadership at the time of transition. Furthermore, the absence of Level 5 leadership showed up as a consistent pattern in the comparison companies. Given that Level 5 leadership cuts against the grain of conventional wisdom, especially the belief that we need larger-than-life saviours with big personalities to transform companies, it is important to note that Level 5 is an empirical finding, not an ideological one.”
It’s not that these leaders were lacking in the kind of ego, ambition and self-interested characteristic of more high profile characters, but there as a key difference in how they would channel these qualities – their ambition was for the organisation, rather than themselves. That may help explain the striking finding that 10 out of 11 good-to-great CEOs were promoted from inside the company.
“Level 5 leaders want to see the company even more successful in the next generation, comfortable with the idea that most people won't even know that the roots of that success trace back to their efforts. As one Level 5 leader said, ‘I want to look out from my porch at one of the great companies in the world someday and be able to say, 'I used to work there.'’
“In contrast, the comparison leaders, concerned more with their own reputation for personal greatness, often failed to set the company up for success in the next generation. After all, what better testament to your own personal greatness than that the place falls apart after you leave?”
GETTING THE RIGHT PEOPLE ON THE BUS
If the right leader is one key ingredient for taking the leap from good to great, then getting the right people in other posts naturally has to follow.
Collins has a bold claim to make here. Where the influential speaker and author Simon Sinek preaches to Start With Why (covered in a previous blog), Collins seems to disagree. For him, it’s all about of starting with who.
The good-to-great leaders understood three simple truths. First, if you begin with "who," rather than "what," you can more easily adapt to a changing world. If people join the bus primarily because of where it is going, what happens if you get ten miles down the road and you need to change direction? You've got a problem. But if people are on the bus because of who else is on the bus, then it's much easier to change direction.
Second, if you have the right people on the bus, the problem of how to motivate and manage people largely goes away. The right people don't need to be tightly managed or fired up; they will be self-motivated by the inner drive to produce the best results and to be part of creating something great.
Third, if you have the wrong people, it doesn't matter whether you discover the right direction; you still won't have a great company. Great vision without great people is irrelevant.
Collins points to comparison companies – those who didn’t achieve or sustain greatness – following an approach he dubs the ‘genius with a thousand helpers’ model: an inspiring leader sets a vision and enlists highly capable helpers to deliver on it. But it all falls apart for the company when the genius departs.
It’s hard to disagree with the argument Collins is making here, particularly his emphasis on hiring people with the right characteristics and innate capabilities, rather than recruiting solely based solely on their specific knowledge, background or skills.
But I wonder if he’s setting up a false dichotomy. Sure, it’s important to have the right people on the bus, but without a good driver and a route plan, the bus is going nowhere.
I recently watched the brilliant General Magic documentary – the story of a company which invented the smartphone and developed the technologies which would go on to change the world. General Magic had a bus full of the future entrepreneurs and innovators who created the technologies we use today. But despite that, the company was, to use the words of the documentary, ‘an epic failure’. It was the influential Silicon Valley company no one has ever heard of. Why?
THE HEDGEHOG CONCEPT
If Collins had looked into General Magic I suspect he may have concluded that their failure was in part down to them not following one of his other golden rules for greatness – the hedgehog concept.
Regular readers of this blog may recall that this isn’t the first time I’ve invoked the prickly mammals in the spirit of smart thinking. As a recap, Isiah Berlin famously divided the world into two types of people – hedgehogs and foxes. Foxes pursue many things at once and perceive the world in all its complexity. Hedgehogs, on the other hand, take a much more narrow view and simplify the world into one big ideas.
There are many great advantages to being a fox, something that the author David Epstein argues very powerfully, but Collins advocates the hedgehog approach for companies looking to achieve greatness. Instead of spreading themselves too thinly by taking on too much – as General Magic did – hedgehog companies focus on the essentials and ignore the rest.
They do this by developing what Collins terms a ‘hedgehog concept’. This involves developing a deep understanding of three overlapping questions – what they are deeply passionate about, what they can the best in the world at and what drives their economic engine. He writes:
“To go from good to great requires transcending the curse of competence. It requires the discipline to say, ‘Just because we are good at it - just because we're making money and generating growth - doesn't necessarily mean we can become the best at it.; The good-to-great companies understood that doing what you are good at will only make you good; focusing solely on what you can potentially do better than any other organization is the only path to greatness.”
The book cites a powerful quote from the 33rd President of the United State, Harry S. Truman, who once said: “You can accomplish anything in life, provided that you do not mind who gets the credit.”
Next time I ponder on the qualities that might define a successful leader, I suspect that humility and hedgehogs will be among the first things that come to mind.