This is a quick review of the concepts in Jim Collins' book Good to Great. In particular, we look at the hedgehog, the flywheel, and leadership as defined by companies that went from good to great.

1. Good to Great
A leader, a hedgehog and a flywheel
Book Review
MAKE IT HAPPEN
BAKER
Ann Arbor, MI STRATEGY GROUP
February 20, 2003

2. Good to Great
Book Summary
A leader, a hedgehog and a flywheel
Our Discussion Today
Introduction – a summary of the book and the process of analysis
1
2 Key Ideas – a look at three ideas we find intriguing
BAKER
STRATEGY GROUP
Page 1
February 20, 2003

3. Good to Great
Book Summary
1] Introduction A leader, a hedgehog and a flywheel
Main Premise
The main premise of Good to Great is that any company can become a “great” company
by systematically implementing key principles outlined in the book
“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.”
- Jim Collins, Good to Great
BAKER
STRATEGY GROUP
Page 2
February 20, 2003

4. Good to Great
Book Summary
1] Introduction A leader, a hedgehog and a flywheel
Framework
Collins’ “framework of ideas” for steering a company from good to great involves six key
learnings wrapped in a continual process he calls the “flywheel”
We will focus on three:
- Level 5 Leadership
- Hedgehog Concept
- Flywheel
BAKER
STRATEGY GROUP
Page 3
February 20, 2003

5. Good to Great
Book Summary
1] Introduction A leader, a hedgehog and a flywheel
Why Care
Being familiar with the basic concepts at best allows you to incorporate concepts into
program discussions and at worst make you more informed about a popular book
Could be a good discussion point with a client
Reference to the book may be made in a meeting
Why should
I care?
It’s fun to see what business books out there are popular
The concepts may have implications for your strategy
BAKER
STRATEGY GROUP
Page 4
February 20, 2003

6. Good to Great
Book Summary
1] Introduction A leader, a hedgehog and a flywheel
How Good-to-Great Companies were Selected
The good-to-great companies were selected through a careful evaluation process that
began with 1,435 companies taken from Fortune 500 lists since it began in 1965
Screening Process for Selecting Good-to-Great Companies
Cut1
1,435 companies
Selected from the Fortune 500, 1965 - 1995
Main Test
Cut 2
126 companies
Selected into full CRSP data
pattern analysis 11 Elimination
Criteria
Cut 3
19 companies
Selected into industry analysis
Industry
Comparisons
Cut 4
11 companies
Selected into
good-to-great
set
BAKER
STRATEGY GROUP
Page 5
February 20, 2003

7. Good to Great
Book Summary
1] Introduction A leader, a hedgehog and a flywheel
Cut Criteria
The good-to-great companies were selected through a careful evaluation process that
began with 1,435 companies taken from Fortune 500 lists since it began in 1965
Main Test 11 Elimination Criteria
Cut 2 Cut 3
Compound annual return 1.Continual upward trend
is 1.3 times that of Fortune
2.Flat gradual rise
Industrial and Service
listings 3.Insufficient “good” period
4.Transition was from “terrible”
5.Transition was after 1985
6.Unsustained transition
7.Volatile returns patterns
8.Incomplete research data
9.Evidence of already being great
10.Acquired or merged
11.Short of 3 times the market
BAKER
STRATEGY GROUP
Page 6
February 20, 2003

8. Good to Great
Book Summary
1] Introduction A leader, a hedgehog and a flywheel
Good-to-Great Companies
The 11 good-to-great companies had to have 15 years of “good” results, followed by 15
years of “great” results, which translates into a return at lease 3 times the market
Good to Great Cases
NYSE Results from Transition point to 15 T Year to
Company
Ticker Years beyond Transition Point T year + 15
Abbott 3.98 times the market 1974 -1989
ABT
Circuit City 18.50 times the market 1982 -1997
CC
Fannie Mae 7.56 times the market 1984 -1999
FNM
Gillette 7.39 times the market 1980 -1995
G
Kimberly-Clark 3.42 times the market 1972 -1987
KMB
Kroger 4.17 times the market 1973 -1988
KR
Nucor 5.16 times the market 1975 -1990
NUE
Philip Morris 7.06 times the market 1964 -1979
Pitney Bowes 7.16 times the market 1973 -1988
PBI
Walgreens 7.34 times the market 1975 -1990
WAG
Wells Fargo 3.99 times the market 1983 -1998
WAG
BAKER
STRATEGY GROUP
Page 7
February 20, 2003

9. Good to Great
Book Summary
1] Introduction A leader, a hedgehog and a flywheel
Great Companies vs. Good Companies
Each of the good-to-great companies showed a clear transition point, after which they
showed steady growth that outpaced the market and their industry
BAKER
STRATEGY GROUP
Page 8
February 20, 2003

10. Good to Great
Book Summary
1] Introduction A leader, a hedgehog and a flywheel
Gillette Example
Gillette, for example, had at least 15 years before 1980 of “good” performance, with
“great” performance in the 80’s and early 90’s after the Transition Point in 1980
BAKER
STRATEGY GROUP
Page 9
February 20, 2003

11. Good to Great
Book Summary
1] Introduction A leader, a hedgehog and a flywheel
Gillette Example
Looking at Gillette since 1995, however, it is not easy to conclude that they are a “great”
company today, since they have underperformed the market these past 7 years
BAKER
STRATEGY GROUP
Page 10
February 20, 2003

12. Good to Great
Book Summary
1] Introduction A leader, a hedgehog and a flywheel
Dogs that Didn’t Bite
There were a number of things that Collins and his team expected to find, but it turned
out that the data proved their instincts wrong
• Larger-than-life, celebrity leaders who ride in from the outside are
negatively correlated with taking a company from good to great.
• The structure of executive compensation is not a key driver in
corporate performance
• Strategy per se did not separate the good-to-great companies from
the comparison companies.
• Good-to-great companies paid attention to what not to do and what
to stop doing
• Technology can accelerate a transformation, but it cannot cause a
transformation
• M&A plays virtually no role in igniting a transformation from good to
great
• Good-to-great companies paid scant attend to managing change,
motivating people, or creating alignment.
• Good-to-great companies had no name, tag line, launch event, or
program to signify their transformations.
• Good-to-great companies were not, by and large, in great industries,
and some were in terrible industries.
BAKER
STRATEGY GROUP
Page 11
February 20, 2003

13. Good to Great
Book Summary
12] Key Ideas A leader, a hedgehog and a flywheel
Level 5 Leadership
Everything start with a qualified, Level 5 leader; one who’s ambition is first and foremost
for the institution, not himself or herself
Leader
The
Leader
The
Hedgehog
The
Flywheel
BAKER
STRATEGY GROUP
Page 12
February 20, 2003

14. Good to Great
Book Summary
12] Key Ideas A leader, a hedgehog and a flywheel
Yin and Yang
Level 5 leaders demonstrate two remarkable qualities: a humble and generally selfless
manner, and a steely resolute fixation on quality results.
Leader
The
Leader
The
Hedgehog
The
Flywheel
BAKER
STRATEGY GROUP
Page 13
February 20, 2003

15. Good to Great
Book Summary
12] Key Ideas A leader, a hedgehog and a flywheel
Fox vs. Hedgehog
The Hedgehog Concept, drawn from the Isaiah Berlin essay, is that great companies tend
to think of their strategy and corporate vision in clear and simple terms
Fox Foxes pursue many ends at the same time and
see all the world in its complexity
Hedgehog
The • Scattered
Leader
• Diffused
• Moving on many levels
The
• Never integrating their thinking into an
Hedgehog
overall concept or unifying vision
The
Flywheel
Hedgehog Hedgehogs simply a complex world into a
single organizing idea, a basic principle or
concept that unifies and guides everything
• Simplifies a concept
• Reduces all challenges to
simple ideas
BAKER
STRATEGY GROUP
Page 14
February 20, 2003

16. Good to Great
Book Summary
12] Key Ideas A leader, a hedgehog and a flywheel
Hedgehog Concept
Level 5 leaders used the Hedgehog Concept to create an organization that is clear in its
purpose and focused on delivering results
Hedgehog
“Those who built the good-to-great companies were, to one degree or another,
The
hedgehogs. They used their hedgehog nature to drive toward what we came to
Leader
call a Hedgehog Concept for their companies. Those who led the comparison
The
Hedgehog
companies tended to be foxes, never gaining the clarifying advantage of a
The
Hedgehog Concept, being instead scattered, diffused, and inconsistent.
Flywheel
- Jim Collins, Good to Great
BAKER
STRATEGY GROUP
Page 15
February 20, 2003

17. Good to Great
Book Summary
12] Key Ideas A leader, a hedgehog and a flywheel
Three Elements of the Hedgehog Concept
The three main questions in the Hedgehog Concept involve tapping your passion,
determining if you can be the best, and understanding your economic engine.
Notes
The Hedgehog Concept
Good-to-great
1
companies focused on
Hedgehog
1
those activities that
The
What are You Deeply ignited their passion.
Leader
Passionate About
2
The This is beyond core
Hedgehog
competence. Just
because you have a
The
competence does not
Flywheel
mean that you can be
the best
3
2
3 All good-to-great
What Drives Your companies have piercing
What You can Be
Economic Engine insight into the single
the Best in the
denominator – profit per
World At
x – that had the greatest
impact on their
economies.
BAKER
STRATEGY GROUP
Page 16
February 20, 2003

18. Good to Great
Book Summary
12] Key Ideas A leader, a hedgehog and a flywheel
Flywheel
The Flywheel concept emphasizes the fact hate the transformation of good-to-great
companies was not a sudden event, but rather a steady, ongoing process
Flywheel
“No matter how dramatic the end result, the good-to-great transformations never
The happened in one fell swoop. The was no single defining action, no grand
Leader
program, no one killer innovation, no solitary lucky break, no wrenching
The
revolution. Good to great comes about by a cumulative process – step by step,
Hedgehog
action by action, decision by decision, turn by turn of the flywheel – that adds up
The
Flywheel
to sustained and spectacular results.”
- Jim Collins, Good to Great
BAKER
STRATEGY GROUP
Page 17
February 20, 2003

19. Good to Great
Book Summary
A leader, a hedgehog and a flywheel
Takeaways
The Flywheel concept emphasizes the process, but, as we know, companies still need to
know the “what” in order to effectively direct the companies resources
Implications for Implications for
Your Company Your Clients
• Encourage Level 5
• Could combine Level 5
leadership in clients on
The leadership learnings
projects, especially as it
Leader with internal staff
pertains to focusing on
feedback
how to improve, rather
than who to blame
• Could apply something • Be clear about the
similar to the Hedgehog economic engine when
The Concept of simplicity determining Customer
Hedgehog when thinking of how to Behaviors in the model
compete in the • Measure aspects of what
marketplace they could be best at
• Continued efforts to • Encourage year-to-year,
build the your business ongoing dedication to
The step-by-step high-Impact areas to see
Flywheel “breakthrough” results
over time
BAKER
STRATEGY GROUP
Page 18
February 20, 2003

20. Good to Great
Book Summary
A leader, a hedgehog and a flywheel
Final Thought
The Flywheel concept emphasizes the process, but, as we know, companies still need to
know the “what” in order to effectively direct the companies resources
“After completing the research, I am convinced that many organizations can
make the journey from good to great if they apply the lessons in this book. The
problem is not the statistical odds; the problem is that people are squandering
their time and resources on the wrong things.”
- Jim Collins, Good to Great
BAKER
STRATEGY GROUP
Page 19
February 20, 2003

21. Helping Organizations Excel through Effective Customer Strategy
MAKE IT HAPPEN
Baker Strategy Group | 2232 S. Main St. #173 | Ann Arbor MI 48103 | +1 888 BAKER-13 | info@bakerstrategy.com| www.bakerstrategy.com