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Concepts taken from the book Summarized by Vanessa Tan (INSEAD MBA July 2009), with some additional insights
Good is the enemy of Great <ul><li>This is why many ‘good’ companies don’t feel the need to try harder, to become ‘great’*. </li></ul><ul><li>Likewise, few people attain ‘great’ lives, because it’s so easy to settle for a ‘good’ life. </li></ul><ul><li>The ‘Good to Great’ companies studied, all had some form of catalyst that put them on a much higher projectile. </li></ul><ul><li>The purpose of this book is to identify and elaborate on each element that has made good companies great. </li></ul><ul><li>*Note: Greatness doesn’t depend on company size </li></ul>
Methodology: How were ‘Great’ companies chosen? <ul><li>11 companies were chosen as ‘Great’ as they exceeded the market by over 3x in a 15-year period. </li></ul>Company Results versus market Period Abbott 3.98 1974-1989 Circuit City 18.50 1982-1997 Fannie Mae 7.56 1984-1999 Gillette 7.39 1980-1995 Kimberly-Clark 3.42 1972-1987 Kroger 4.17 1973-1988 Nucor 5.16 1975-1990 Philip Morris 7.06 1964-1979 Pitney Bowes 7.16 1973-1988 Walgreens 7.34 1975-1990 Wells Fargo 3.99 1983-1998
Summary of findings <ul><li>Celebrity CEOs are negatively correlated with making a good company great. </li></ul><ul><li>Executive compensation structures did not necessarily improve performance. </li></ul><ul><li>Strategy did not separate good companies from great companies; they all had well-defined strategies. </li></ul><ul><li>Good-to-great companies didn’t just focus on what to do to become great, but also what not to do, and what to stop doing. </li></ul><ul><li>M&A had no role in making a good company great </li></ul><ul><li>Good-to-great companies didn’t focus on managing change, motivating people or creating alignment, as under right conditions, these problems melted away. </li></ul><ul><li>Good-to-great companies had no tagline or campaign to signify their transformations. Some transformations were unnoticeable over time. </li></ul><ul><li>Good-to-great companies weren’t necessarily in great industries. Greatness isn’t a function of circumstance but a matter of conscious choice. </li></ul>
Steps to becoming great Buildup... Breakthrough! Disciplined People Disciplined Thought Disciplined Action
Find and keep the right people <ul><li>“ People” are not your most important asset. The “right people” are. </li></ul><ul><li>Don’t wait to make a people change. Act now. Good to great companies don’t churn more, they churn better. </li></ul><ul><li>Compensation’s purpose is not to “motivate” the right behaviours from the wrong people, but to get and kep the right people in the first place. </li></ul>Disciplined People
Two sides of Level 5 Leadership <ul><li>Professional Will </li></ul><ul><li>Personal Humility </li></ul><ul><li>Creates superb results, a clear catalyst in the transition from good to great. </li></ul><ul><li>Demonstrates unwavering resolve to produce the best results, no matter how difficult. </li></ul><ul><li>Sets the standard of building an enduring great company </li></ul><ul><li>Takes the blame for poor results, not blaming other people or external factors </li></ul><ul><li>Demonstrates compelling modesty, shunning public adulation; never boastful </li></ul><ul><li>Acts with calm determination; relies principally on inspired standards, not charisma, to motivate. </li></ul><ul><li>Channels ambition into the company, not oneself; sets up successors for even greater success in the next generation. </li></ul><ul><li>Gives credit to others for the success of the company </li></ul>Disciplined People
Provide real Leadership <ul><li>In the study, companies with strong, charismatic leaders tend to become the force of the company, overwhelming employees who worried about what the CEO would think, instead of doing what was best for the company. </li></ul><ul><li>Leadership is about vision, but it is also equally about creating a climate where the truth is heard and the brutal facts confronted. </li></ul><ul><li>There’s a difference between “having your say” and the opportunity to be heard. Good to Great leaders provide the latter. </li></ul>Disciplined People
Better to build a strong team (Level 5 Leadership) than to have one genius with a thousand helpers (Level 4) <ul><li>Examples of companies that did well under a ‘genius’ CEO, then floundered when he left </li></ul><ul><ul><li>Eckerd Corporation. CEO Jack Eckerd’s genius was picking the right stores to buy, whereas Walgreen’s CEO Cork Walgreen had a genius for picking the right people to hire. </li></ul></ul><ul><ul><li>Eckerd did not pick a successor, whereas Walgreen shortlisted many good candidates, and set up his successor for even greater success. </li></ul></ul>Disciplined People
Confront the brutal facts <ul><li>Embrace the Stockdale Paradox: 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 may be. </li></ul>Disciplined Thought
The Hedgehog Concept: 3 circles Big, Hairy, Audacious Goal (BHAG): Your company should be here Disciplined Thought Relook your company’s denominators to gain understanding of your economic model. E.g. shift from profit per store to profit per customer Gain an understanding of what your company can be the best at. Relook your core business if it’s something you can only be ‘good’ at, not ‘great’. Only do things you are passionate about. You will be at your best when you have a deep and genuine feeling for what you do.
Understand what you can & cannot be the best at <ul><li>Put aside egos </li></ul><ul><li>Put aside corporate traditions & legacies </li></ul><ul><li>Focus on the few things (or single thing) that you can do better than anyone else </li></ul><ul><li>Don’t just focus on milking existing cash cows </li></ul><ul><li>This Hedgehog Concept requires a ‘severe standard of excellence’ </li></ul><ul><li>Consider forming a Council – a workgroup of the right people who debate, over time, about vital issues and decisions facing the organization. </li></ul>Disciplined Thought
Create a culture of discipline The Good-to-Great Matrix of Creative Discipline High Culture of Discipline Low Low High Ethic of Entrepreneurship Disciplined Action
How to be rigorous <ul><li>When in doubt, don’t hire. Keep looking. </li></ul><ul><li>When you know you need to make a people change, act. </li></ul><ul><li>Put your best people on your biggest opportunities, not your biggest problems. </li></ul>Disciplined Action
Technology Accelerators <ul><li>Good-to-great companies used technology to improve some aspect of their business. </li></ul><ul><li>May not be the first to jump onto the technology bandwagon, but prevail in the most sensible use of it. </li></ul><ul><ul><li>Does the Technology fit with your Hedgehog Concept? If no, don’t use it. </li></ul></ul><ul><li>Note however that technology is an accelerator , not a creator, of momentum. </li></ul><ul><li>Good-to-great companies weren’t obsessed with technology as a key factor – just a means to an end. </li></ul>Disciplined Action
Positive & vicious cycles <ul><li>The book refers to ‘flywheel’ and ‘doom loop’, but I prefer the more common terms ‘positive cycle’ and ‘vicious cycle’ or ‘death spiral’. </li></ul><ul><li>Positive cycles perpetuate when the company applies the Hedgehog Concept, results become visible, people are energized, & momentum is built up. The cycle repeats. </li></ul><ul><li>Vicious cycles perpetuate when the company reacts without understanding, directions are changed, no momentum is built up, leading to disappointing results. </li></ul><ul><li>In either case, it takes time to see any type of results. </li></ul><ul><li>Warning: Bad leaders can disrupt a positive cycle by not following the Hedgehog Concept. </li></ul><ul><li>Look out for the signs: Great companies are proactive, brutally honest and disciplined, while doomed companies are reactive, inconsistent and in denial. </li></ul>
Similarities & contrasts with other management books & theories <ul><li>‘ Good to Great’ pays little attention to the strategy process itself, since it finds that all companies have some form of strategy. (Kaplan, Porter et al wouldn’t figure in this book) </li></ul><ul><li>However, I saw similarities between the Hedgehog Concept’s circle on being the best in something, and Blue Ocean Strategy. Both approaches require some re-invention & innovation. </li></ul><ul><li>Emphasis is placed on Level 5 leadership, which is consistent with many Leadership books even if different names are used to describe it </li></ul><ul><li>The book rated companies as ‘Great’ based on stock performance, when others may prefer to factor in other, more qualitative details (e.g. taking a Balanced Scorecard approach) </li></ul><ul><li>‘ Good to Great’ is consistent with predecessor ‘Built to Last’. Companies that move from Good to Great may eventually be Built to Last. </li></ul>
Oversights, loopholes & areas for improvement <ul><li>The authors only looked at publicly traded corporations in the US , so as to compare apples with apples . </li></ul><ul><li>No high-tech companies were featured as most had not been around for 15 years, which is the time span of the study. Intel, which is old enough, has always been ‘Great’, so ironically, it could not be a case study. </li></ul><ul><li>Thus, readers must translate the learning points to their own environment, e.g. public sector or nonprofit in an Asian country, in a very different/new industry. Most of the time this shouldn’t be a problem, but there are exceptions: </li></ul><ul><ul><li>e.g. Firing bad employees is harder in certain cultures or organisations, e.g. Japan, Government, academic institutions. </li></ul></ul><ul><ul><li>The author notes that this can be addressed partly, e.g. by relegating such employees to the back room </li></ul></ul><ul><ul><li>See follow-up book, Good to Great and the Social Sectors </li></ul></ul><ul><li>Personally and professionally, I object to a tobacco company being viewed as one of the 11 ‘Great’ companies based on market performance, because its activities are harmful to society, regardless of any CSR efforts and legal damages paid. </li></ul><ul><li>However, I understand such views may be subjective and moralistic, and recognize that the authors have duly stuck to their quantitative methodology which has helped to identify tangible qualities we can learn from, regardless of the industry each company is in. </li></ul>
Resources <ul><li>Refer to the author’s website, http://www.jimcollins.com/ </li></ul>