Jim Collins: Good to Great

The framework suggested by Collins to help an organization move from 'good' to 'great' consists of three stages:

• Stage one: Disciplined people
• Stage two: Disciplined thought
• Stage three: Disciplined action

Each stage consists of two fundamental principles, which are discussed in more detail below.

Stage One: Disciplined People

The first stage in the journey from good to great involves getting the right kind of people into the organization and then providing the right kind of leadership.

First who, then what

The research conducted by Collins and his team found that great organizations ensured that they had the right people working for them, and removed the wrong people, even before determining exactly what they wanted to achieve.

Non-business organizations often have an advantage when tempting the right people to join them, in that they can often tap into the idealistic passions of people who seek meaning beyond money in a job.

Level five leadership

All the organizations studied had what Collins describes as 'level five leaders'. The term refers to an individual who is very humble on a personal level, but possesses a great deal of drive and desire to succeed. For a level five leader, success is defined by creating something great that will outlast their time at the helm. These are people with an unwavering will and commitment to do what is necessary to drive their organization to the top.

Organizations in the social sector often have more diffuse, less clear executive power. This means that true leadership is a more natural fit, since these organizations have always had to ensure that people follow when they have the freedom not to.

Stage Two: Disciplined Thought

Once the right leaders and the right people are in place, organizations should then consider what they want to achieve.

Confront the brutal facts

The great companies in the Good to Great study all made a consistent and thorough effort to confront reality, analyzing the facts relevant to their market.

In a large organization, it is crucial to create a climate where honesty is valued and honored. If employees do not provide the leadership of the organization with accurate feedback, those at the top may not realize any problems exist until too late. Some tips to create this kind of climate include:

• Ask more questions and dispense fewer 'answers'.
• Encourage healthy debate. Debate has to be real, not a show put on to make people feel included. It should also not just be argument for argument's sake – a conclusion should be reached.
• When things go wrong, investigate to avoid repeating the mistake, instead of assigning blame. If people are too worried about protecting themselves, it becomes difficult to honestly analyze and learn from failures.
• Create mechanisms that enable people to communicate problems instantly and without repercussions, in a way that cannot be ignored.

Amidst these 'brutal facts' that must be faced, organizations must also have belief that their final goal can be achieved. By maintaining a vision, and keeping in touch with reality, it won’t be necessary to motivate people – if the right people are in place, they’ll be motivated of their own accord.

In non-business environments, Collins identifies a culture of 'niceness' that inhibits candor about the brutal facts. These organizations have to ensure that systemic constraints, such as lack of funds or general socio-economic trends, do not erode faith in the ability to see things through to the end.

The Hedgehog Concept

The 'hedgehog concept' refers to the tale of a hedgehog and a fox, where the fox knows many things, but the hedgehog knows one big thing. The good to great organizations were, by and large, built by 'hedgehogs'. By this, Collins means that they were able to focus on the one big important thing that made their organizations great. Key to an organization finding their 'hedgehog concept' is the consideration of three questions:

1. What are you passionate about?
2. What is your key economic driver?
3. What can you be the best at?

The economic driver is the ratio that most accurately indicates how successful the organization is, which can be represented by profit per X, (where X could be customer, website user, unit sold, employee, etc.).

In non-business organizations, where profit is not the end goal, the question that should be considered is: 'How can you measure your resource capability (the funds and people available) and your brand image (how you are perceived by the general public, donors and service/product recipients)?'

Stage Three: Disciplined Action

Once an organization is clear about its goal, it then needs to take considered action to achieve it.

Culture of discipline

Great organizations have both an entrepreneurial spirit and a sense of discipline. They are both necessary – without the drive to try new things and some degree of independence, an organization becomes a rigid, stifling hierarchy. Without some sense of discipline, things begin to break down as the organization grows. The best organizations enable both individual action as well as a culture of disciplined behavior.

This begins again with the right people. Creating rules to force the wrong people to behave correctly will not work. Instead, people need to have an innate sense of self-discipline that doesn’t come from above.

One helpful approach to discipline is to have a 'stop doing' list. These are the activities that aren’t central to the organization's purpose.

Technology accelerators

Technology is not a differentiator in and of itself, but rather something that enhances great organizations. They use it to further increase their leverage, in a conscious, directed way, rather than rushing to embrace it for the sake of its newness. Where there is already good momentum, judicious use of technology can act as an accelerator.

Technology is an enabler of change, not the cause of it, and the 'people factors' must be in place before the application of technology will do any good. Technology as a reaction to the latest fashion, or to the competition, was not what was found in great organizations.

The Flywheel

A flywheel is a heavy wheel that takes a lot of energy to set in motion – to do so usually requires constant, steady work, rather than a quick burst of energy. Collins found that great organizations' transformations were like this as well. There was no magic recipe or 'eureka’ moment when everything changed. Rather, with everything in place, hard work slowly but steadily got the great organizations going faster and faster. Once in motion, all momentum tends to keep the organization moving in the right direction.

When Things Aren’t So Great

In 2009, Collins produced a follow-up book, How the Mighty Fall And Why Some Companies Never Give In. [4] The research for the book stretched back four years, so pre-empted the stock market crash of 2008. However, given its subject matter its publication in the midst of the global financial meltdown was timely to say the least. Indeed, Fannie Mae, one of the original Good to Great companies, was one of the companies to report huge losses during the stock market crash. [5]

In How the Mighty Fall, Collins questions why great companies fail, if the likelihood of failure can be detected by these organizations and if, and up to what point, they are able to do anything about it.

Collins’s research leads him to conclude that there are five stages of organizational decline: [6]

Stage 1: Hubris Born of Success

The first stage of decline occurs when individuals in the organization become arrogant on the basis of previous success. Continued success is seen as a right, rather than something that must be continually worked towards. As Collins puts it, the organization moves from a position of understanding and insight, ‘We’re successful because we understand why we do these specific things’ to an attitude that ‘We’re so great, we can do anything.’ [7]

Stage 2: Undisciplined Pursuit of More

Organizations that have moved into the second stage of decline become driven by the relentless pursuit of more, whether that is generating more profits quickly, rapid expansion, or seeking greater recognition for the organization. None of these aspirations is a bad thing in itself, but when undertaken with a lack of discipline, organizations may make poor decisions and find themselves out of their depth.

Organizations that undertake a phase of rapid expansion on the back of a period of success can be a classic case in point. Often they over-stretch themselves both in terms of finance and expertise, and have to quickly scale back their operations to prevent putting the entire organization at risk.

Stage 3: Denial of Risk and Peril

By the third stage of organizational decline, signs that all is not well in the organization are becoming apparent, e.g. poor performance in certain areas of the business. The tendency is to amplify any positive results and downplay poor figures. Senior leaders may also place increasing blame on external factors, such as an increase in competitors in the market, rather than take responsibility for what is causing the decline. Disproportionate risk-taking is often apparent at this stage. By taking such risks, and denying the potential consequences these might create, Collins states, organizations are ‘headed straight for Stage 4.’

Stage 4: Grasping for Salvation

By stage 4, the risk-taking has caught up with the organization, and its impact on the health of the organization is now obvious to the outside world. What happens next depends on leadership. If senior leaders are able to take stock and reflect on the attributes and disciplines that brought the organization to greatness in the first place, then it may have a chance.

A more common reaction, however, is what Collins terms ‘grasping for salvation’ – desperately looking around for the miracle cure, be it a bold new strategy, a major shift in organizational culture, or bringing in a charismatic new leader to really shake things up.

While any of these results may deliver in the short term, without some serious navel-gazing about what has really led to the organization’s decline, the results are unlikely to last.

Stage 5: Capitulation to Irrelevance or Death

Collins states that the longer an organization grasps at straws, the more likely it is to hit terminal decline, as leaders give up on the possibility of re-capturing greatness for the organization. ‘In some cases, their leaders just sell out; in other cases the institution atrophies into utter insignificance; and in most extreme cases, the enterprise simply dies outright.’ [8]

Collins is at pains to point out that not every organization experiencing decline will go through every stage, some stages may overlap, and the length spent in each stage will also vary enormously. For those organizations he studied, a full, five-stage decline took 30 years for a company like Zenith Corporation, while Bear Stearns and Lehman Brothers seemed to move through the stages with ‘terrifying speed.

’While How the Mighty Fall may not be, on the face of it, the most uplifting business book, it is not without hope. Collins sets out the five stages as warning signs against complacency so that organizations can spot the signs and symptoms of impending decline and take steps to avoid them. His book also gives examples of organizations such as Xerox, IBM and Nordstrom, which have managed to bring themselves back from the brink.

Conclusion

Those organizations that are able to move from Good to Great have, according to Jim Collins, discovered the importance of discipline. They focus on bringing in the right kind of people, with the right leadership, who are focused on what the organization is best at and what it can achieve. Finally, great organizations take carefully considered actions to help them reach their ambitious goals. In order to remain great, such organizations must never lose sight of the three stages of discipline: disciplined people; disciplined thought and disciplined action.

For those organizations that have discovered greatness and then lost it again, the key to recovery is to ‘return to sound management practices and rigorous strategic thinking.’ In other words to go back to basics, and revisit the disciplines laid out in Good to Great. As Collins puts it, ‘As long as you never get entirely knocked out of the game, there remains always hope.’ [9]

Main Source: Jim Collins, Good to Great (Random House Business Books, 2001)

Secondary Source: Jim Collins, How the Mighty Fall and Why Some Companies Never Give In (Random House Business Books, 2009)