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1 2010/1/4
Good to GreatGood to GreatWhy Some Companies Why Some Companies
Make the LeapMake the Leap……
And others donAnd others don’’tt
Jim Collins
2 2010/1/4
Good Is the Enemy of GreatGood Is the Enemy of Great
Are we building great or
are we settling for good?
3 2010/1/4
Ratio of Cumulative Stock Returns to General MarketRatio of Cumulative Stock Returns to General Market
Built to LastCompanies
18
16
14
12
10
8
6
4
2ComparisonCompanies0
4 2010/1/4
Ratio Of Cumulative Stock Returns Ratio Of Cumulative Stock Returns to General Marketto General Market
Good to GreatCompanies
8
7
6
5
4
3
2
1
ComparisonCompanies0
T-15 T+15Transition point
5 2010/1/4
Great results
What’s Inside the Black Box
Good results
6 2010/1/4
From Good to Great
DISPLINED PEOPLE DISPLINED THOUGHT DISPLINED ACTION
LEVEL 5 LEADERSHIP
FIRST WHO…THEN WHAT
CONFRONT THE BRUTAL FACTS
HEDGEHOG CONCEPT
CULTURE OF DISCIPLINE
TECHNOLOGY ACCELETATORS
BUILDUP...BREAKTHROUGH !...
FLYWHEEL
7 2010/1/4
Level 5 LeadershipLevel 5 Leadership
Setting up successors for success“I used to work there”: Level 5 leaders want to see the company even more successful in the next generationcomfortable with the idea that most people won’t even know that the roots of that success trace back to their efforts.Compare with comparison companies,
• Executives who set their successors up for failure or chose weak successor, or both.
• “Biggest dog” syndrome
8 2010/1/4
From Good to GreatFrom Good to Great
The “egg & chicken” story
Fly wheel vs doom loop
Not an overnight dramatic revolution!!
9 2010/1/4
Level 5 LeadershipLevel 5 Leadership
Highly Capable Individual
Contributing Team Member
Competent Manager
Level 5 Level 5 Executive
Effective LeaderLevel 4
Level 3
Level 2
Level 1
10 2010/1/4
Level 5 Leadership
HIGHLY CAPABLE INDIVIDUALMakes productive contributions through talent, knowledge, skills and good work habits
CONTRIBUTING TEAM MEMBERContributes individual capabilities to the achievement of group objectives and works effectively with others in a group setting
COMPETENT MANAGEROrganized people and resources toward the effective and efficient pursuit of predetermined objectives
EFFECTIVE LEADERCatalyzes commitment to and vigorous pursuit of a clear and compelling vision, stimulating higher performance standards
LEVEL 5 EXECUTIVEBuilds enduring greatness through a paradoxical blend of personal humility and professional will
Not what we expected:Level 5 leaders are incredibly ambitious- but their ambition is first and foremost for the institution, not themselves
Humility + Will = Level 5Research explicit instructions: downplay the role of top executives to avoid the simplistic “credit the leader” or “blame the leader thinking
Level 1
Level 2
Level 5
Level 4
Level 3
LEVEL 5 HIERARCHY
11 2010/1/4
The Difference Between Level 5 and Level 4The Difference Between Level 5 and Level 4
“Humility + Will”A compelling modesty
• Credit others, external factors, and good luck for their companies’ success
• Blame themselves for poor results
A unwavering resolve• Act quietly, calmly, and determinedly• Rely on inspired standards, not inspiring charisma
12 2010/1/4
The 2 Sides of Level 5 leadership The 2 Sides of Level 5 leadership
Professional Will Personal Humility
Creates superb results, a clear catalyst in the transition from good to great
Demonstrates a compelling modesty, shunning public evaluation
Demonstrates an unwavering resolve to do whatever must be done to produce the best long term results
Acts with quiet, calm determination, relies principally on inspired standards to motivate
The standard of building an enduring company, will settle for nothing less
Channels ambition into the company, not the self, sets up successors for even greater success
Looks in the mirror, not out the window, to apportion responsibility for poor results.
Looks in the mirror, not out the window, to apportion credit for the success of the company
13 2010/1/4
Rigorous not Ruthless Rigorous not Ruthless
Be rigorous about top management decisions
Apply rigor first at the top, focused on those who hold the largest burden of responsibility
Not burden good people with people who are not achieving
RuthlessRigorous
Hacking and cutting
Let people languish in an uncertainty for a prolonged period
Chronic layoffs or restructuring
14 2010/1/4
Great life for Great Leaders Great life for Great Leaders
First who, Great Companies, and Great LifeFirst who, Great Companies, and Great Life
Colman Mocker, CEO of Gilettee - He was so good at assembling the right people around him, and putting the right people in the right slots, that he just did’t need to be there all hours of the day and nite.
This was a man who spent nearly all his waking hours with people who loved him, who loved what they were doing, and who loved one another , at work, at home, in his charitable work.
15 2010/1/4
The Difference Between level 5 and Level 4The Difference Between level 5 and Level 4
Show horse vs. plow horse
The window and the mirrorLevel 5 leaders look out the window to apportion credit, while look in the mirror to apportion responsibility
16 2010/1/4
First WhoFirst Who……Then WhatThen What
In a good-to-great transformation, people are not your most important asset. The right people are.
3 practical discipline
When in doubt, don’t hire-keep lookingWhen in doubt, don’t hire-keep looking
When you know you need to make a people change, actWhen you know you need to make a people change, act
Put your best people on your biggest opportunities, not your biggest problem
Put your best people on your biggest opportunities, not your biggest problem
17 2010/1/4
A Culture of Discipline A Culture of Discipline
DISCIPLINE people who engage in DISCIPLINE thought, who then take DISCIPLINE actionDuality: on the one hand, it required people who adhere to a consistent system, yet, on the other hand, it gives people freedom and responsibility
18 2010/1/4
First Who, then WhatFirst Who, then What
The first question:
WHO should be on the bus?
WHO should be off the bus?
WHO should be on what seat?
And then, Where/What to drive it
19 2010/1/4
3 truths: …Not a “genius with a thousand helpers”
LEVEL 5 + MANAGEMENT TEAM
LEVEL 5 LEADER
FIRST WHO
THEN WHAT
A “GENIUS WITH A 1000 HELPERS”
LEVEL 4 LEADER
FIRST WHAT
THEN WHO
Begin with “who,” rather than “what.” You are a bus driver. Bus is your company. First thing to decide: Who is going with you?
It will be easy to motivate/manage people when having the right people
If you have the wrong people, it doesn't’t matter whether you discover the right direction.
31 2
20 2010/1/4
Confront the Brutal FactsConfront the Brutal Facts
Yet Never Lose Faith
Facts are Better Than
Dreams
21 2010/1/4
Confront the Brutal FactsConfront the Brutal Facts
Leadership is about vision
But Leadership is equally about creating a
climate where the truth is heard and the
brutal facts confronted
= Opportunity to be heard
Have Your Say
22 2010/1/4
Case Study of Darwin SmithCase Study of Darwin Smith
CEO of Kimberly-Clark from 1971-1991
Shy, awkward, shunning attention; also shows iron will and fierce resolve
Not defeated by the cancer; keep working for his demanding schedules while flying weekly for therapy
Made the most dramatic decision in the company’s history: Sell the mills
Turned Kimberly-Clark into the leading paper-based consumer products company in the world
23 2010/1/4
Confront the Brutal FactsConfront the Brutal Facts
Charisma?Your strength of personality can sow the seeds of problems, when people filter the brutal facts from you. You can overcome the liabilities of having charisma, but it does require conscious attention.
Four practices to create a climate where the truth is heard
1. Lead with questions, not answers2. Engage in dialogue and debate, not coercion3. Conduct autopsies, without blame4. Build “red flag” mechanisms
24 2010/1/4
4 Practices to Create a Climate4 Practices to Create a Climatewhere the Truth is heardwhere the Truth is heard
Spent much of the time just trying to understand Good use of informal meeting “Can you tell me about that ? ”What’s on your mind ?“What should we worry about
Lead with Questions, not answers
1Intense dialogue – loud debates, heated discussions and healthy conflictSearch for the best answers Iron out the issues, until came up to something
Engage in dialogue and debate, not coercion
2
Doesn't hold back embarrassing truthBring up debacle on their own and discussed it openly Never need to assign blame but need only to search for understanding and learning
Conduct autopsies, without blame3
The key is turning information into information that cannot be ignored“Short Pay” practice from Bruce Woolpert – customers have the full discretionary power
Build red flag mechanism 4
25 2010/1/4
The Stockdale Paradox The Stockdale Paradox
Retain faith that you will prevail
in the end, regardless of the
difficulties
Confront the most brutal facts of your current reality,what ever they might be
AND at the same
time
26 2010/1/4
Are You a Hedgehog or a Fox?Are You a Hedgehog or a Fox?
The fox knows many things, but the hedgehog knows one big thing
Simple, dowdy Cunning, sleek, complex
27 2010/1/4
The Hedgehog Concept The Hedgehog Concept
Pursues many ends at the same time
See the world in all its complexity
“Scattered” and “confused”
Did not integrate their thinking into one overall concept
Understand that the essence of profound insight is simplicity
Translate the complex world into a simple, crystalline concept that guided all their concept
Fox Hedgehog
28 2010/1/4
The Hedgehog ConceptThe Hedgehog Concept
Produce sustain great superior economic return
Gain profound insights into their economics
An intensity and passion on what you do
Not getting passionate about what we do, but we should do only those things that we can passionate about
Goes far beyond core competence. Just because you process a core competency does not necessarily mean you can be best in the world in it
The hedgehog concept is not a goal, strategy, or intention, it is an understanding
It took 4 years in average for the good to great companies to get a hedgehog concept
The hedgehog concept is not a goal, strategy, or intention, it is an understanding
It took 4 years in average for the good to great companies to get a hedgehog concept
29 2010/1/4
The Hedgehog Concept The Hedgehog Concept
The Council
Ask Questions, guided by the 3 circles
Dialogue by Debate, guided by the 3 circles
Autopsies and Analysis, guided by the 3 circles
Executive Decisions guided by the 3 circles
Getting the Hedgehog Concept, An Iterative Process
30 2010/1/4
Characteristics of the Council Characteristics of the Council
Decision
Making
Members
-ship
Function
1. As a device to gain understanding about important issues facing the organization
2. Assembled and used by the leading executive, consists of five to twelve people
3. Each council member has the ability to argue and debate in search of understanding, not from egoistic need to win a point
4. Each council member retains the respect of every other council member with out exception
5. Council members come from a range of perspectives
6. Include key members of the management team, but is not limited to members of management team
7. The council is a standing body, not an ad hoc committee
8. The council meets periodically
9. The council does not seek consensus. The responsibility remains with the leading executive
10. The council is an informal body, not listed in the organization chart
31 2010/1/4
Rinsing Your Cottage CheeseRinsing Your Cottage Cheese
DISPLINED People
DISPLINED Thought
BREAKTHOUGH!
BUILDUP...
DISPLINED Action
32 2010/1/4
Disciplined People Disciplined People
DISPLINED People
DISPLINED Thought
DISPLINED Action
BREAKTHOUGH!
BUILDUP...
What went wrong –Build bureaucratic rules to manage the small percentage of wrong people on the bus, which in turn drives away the right people on the bus, which then increases the percentage of wrong people on the bus, which increase the need for more bureaucracy to compensate for incompetence and lack of discipline, which then further drives the right people away
33 2010/1/4
The Good to Great Matrix of Creative DisciplineThe Good to Great Matrix of Creative Discipline
High
Hierarchical Organization
Great Organization
Culture of Discipline
Bureaucratic Organization
Start up Organization
Low
Low Ethic of Entrepreneurship
High
34 2010/1/4
A Culture of DisciplineA Culture of Discipline
Freedom and responsibility, within a frameworkExample, air pilot
Self-disciplined people who are willing to “rinse their cottage cheese”
Example, Dave Scott, world class athlete
A culture, not a tyrantDiscipline does not die after a distinguishing CEO, eg. Lee Iaocca, Chrysler
Fanatical adherence to the Hedgehog conceptStart a stop doing list – the discipline to do the right thing and equally important, to stop doing the wrong thing
Stop Doing list is more
important the “To do List
35 2010/1/4
NucorNucor’’s 3 Circles s 3 Circles –– 1970 to 19951970 to 1995
Economic denominator of profit per ton of finished steel
Eliminate class distinction
Create an egalitarian meritocracy that aligns management, labor, and financial interest
Could become the best in the world at harnessing culture and technology to produce low cost steel
It takes discipline to say “No, thank you” to big opportunities. The fact that something is a “once-in-a-life opportunity” is irrelevant if it does not fit the 3 circles
It takes discipline to say “No, thank you” to big opportunities. The fact that something is a “once-in-a-life opportunity” is irrelevant if it does not fit the 3 circles
36 2010/1/4
The Flywheel VS the Doom LoopThe Flywheel VS the Doom Loop
New Direction, Program, Leader,
Event, Fad, or Acquisition
Disappointing Results
No buildup;No accumulated
Momentum
Reaction, Without
understudying
Flywheel BuildsMomentum
People Line Up,energized by Results
Steps Forward,Consistent With
Hedgehog Concept
Accumulation ofVisible Results
The Flywheel Effect The Doom Effect
37 2010/1/4
The Flywheel The Flywheel
Not dramatic or revolutionary event
Organic and cumulative
Step by step, action by action, decision by decision, turn by turn of flywheel --- that adds up to sustained and spectacular results
Flywheel BuildsMomentum
People Line Up,energized by Results
Steps Forward,Consistent With
Hedgehog Concept
Accumulation ofVisible Results
The Flywheel Effect
38 2010/1/4
From Good to Great From Good to Great to Build to Lastto Build to Last
Established Company or Start-up
Good toGreatConcepts
Sustained GreatResults
Built to LastConcepts
Enduring GreatCompany
+ +
39 2010/1/4
From Good to Great to Build to LastFrom Good to Great to Build to Last
PRESERVE• Core Value• Core Purpose
CHANGE• Cultural and Operating
Practices• Specific Goals and
Strategies
Four ideas from Build to Last
1. Clock Building
2. Genius of AND
3. Core Ideology
4. Preserve the Core/Stimulate Progress
40 2010/1/4
Clock Building, Not Time TellingClock Building, Not Time Telling
Level 5 leaders build a company that can tick along without them, rather than feeding their egos by becoming indepensible
Practice “first who” is clock building, practice “first what” is time telling
Creating a climate where truth is heard
Use the council mechanism
Building an enduring culture of discipline, not by operating sheer force of personality
The flywheel effect creates the sustained building of momentum, and does not depend on the presence of a charismatic visionary to motivate people
Relationship to
concepts in “Built to Last”
41 2010/1/4
Genius of Genius of ANDAND
Personal humility Professional will
Confront the brutal facts Retain unwavering faith
Evolutionary, incremental Revolutionary, dramatic results
Freedom Responsibility
Get the right people on the bus
Deep understanding
Shun technology fads
The wrong people off the bus
Incredible simplicity
Pioneer the application of technology
Relationship to
concepts in “Built to Last”
42 2010/1/4
Core IdeologyCore Ideology
Level 5 leaders are ambitious for the company and what it standsfor
Practice “first who” means selecting people more on their fit with the core values and purpose than on their skills and knowledge
Confront the brutal facts clarifies the values an organization truly hold as core values
The “what you passionate” about circle overlaps nicely with core values and purpose
A culture of discipline ejects those who do not share the valuesand standards of an organization
The doom loop makes it almost impossible to instill core values and purpose, as people chronically wonder “who are we ? What do we stand for ?”
Relationship to
concepts in “Built to Last”
43 2010/1/4
Preserve the Core/Stimulate ProgressPreserve the Core/Stimulate Progress
Level 5 leaders are rentless in stimulating progress toward tangible results
Practicing “first who” means a bias for promoting from within, which reinforces the core values
Brutal facts clarify what must be done to stimulate progress
Good BHAGs flow from understanding, bad BHAGS flow from bravado.
When you have a culture of discipline, you can give people more freedom to experiment and their own best path to results
The smooth consistency of the flywheel and the cumulative building of momentum to a point of breakthrough create the perfect conditions for instilling core values while stimulating change and progress
Relationship to
concepts in “Built to Last”
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