I often wondered what makes a great company so great and what are the differences between companies that are seemingly very similar but.. one does not make it and another flourishes? Jim Collins offered me an answer.
There were eleven publicly traded companies that went from good to great. Jim Collins and his team researched these companies for over 10 years. These good to great companies performed at the market average or below it and went to at least three times the market average. The team compared them to companies of similar size, industry and access to resources that stayed on the average or below average level.
3 concepts that good to great companies master
The hedgehog
A hedgehog is haunted by a fox. He has a simple yet well working strategy he uses - he rolls into a ball full of spikes and the fox cannot catch him. Even if this fox tries a different strategy to catch him, he always uses the same one that protects him. According to Jim, good to great companies think like hedgehogs. They have a simple yet well working strategy and clear vision.
There are three cooperating circles. One that consists of knowing what we are good at and how to become the best at it. Another one answers how we can generate more profit per x, x being for example a profit per customer or profit per employee. And the last circle is passion. Every good to great company needs to be passionate about what they sell. These three circles are what Jim calls a hedgehog concept. It is important to stay focused in these three circles and align the business according to them.
The bus
This concept refers to the people in our companies. The companies that stayed average had great leaders but management teams that took orders and did not challenge their leaders. Good to great companies hire people with an entrepreneurial mindset who do not need to be managed. They look for strong character, similar values and leadership potential. What is also important is what people should stay and what people should leave the bus. Good to great companies think after a few first months about if they would hire this person again and if the person left, would they be disappointed or relieved. And where do people sit on the bus? CEOs of good to great companies spend a lot of time putting people to the right places where they use their potential the best.
Level 5 leader
Every good leader goes through several levels. At first they become a skilled worker. This part is focused on self leadership. Afterwards they become a good team player and then an organized manager. There is also a level four - a visionary and a level five - a leader with humility and resolve. Level 5 leader is Abraham Lincoln kind of leader who knows how to put his ego aside and knows when to admit a mistake. But also - when a level five leader knows he is taking a good action, his resolve is absolute. All good to great leaders are level five leaders. These leaders do not care about popularity but about doing what is best for the company.
How to determine if your company has a potential of being great?
Jim Collins offers a basic framework to follow if you want your company to become great. I love how thorough he and his team were in their research and that they really did uncover several “rules” that differentiate great companies from the good ones.
