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Collins’s good-to-great research project did not begin with a theory to test or prove; rather, it sought to build a theory from the ground up by making empirical deductions directly from the data. In a nutshell, the project began by identifying companies that made the leap from good results—as defined by stock returns—to great results and sustained those results for at least 15 years. Next, a carefully selected control group of comparison companies that failed to make the leap or, if they did, failed to sustain it, was identified. Then the good-to-great companies and the comparison companies were compared to discover the essential and distinguishing factors at work.
The good-to-great companies were identified by systematically analyzing the nearly 1,500 companies that had appeared on the FORTUNE 500 in the years 1965 to 1995. Months of searching and sifting yielded just 11 companies that met the established standards. It is important to note that these 11 companies are not a representative sample, but instead are the entire universe of companies that met all the criteria for inclusion in the study. Another key point is that the companies had to demonstrate the good-to-great pattern independent of their industries; if the whole industry showed the same pattern, the company was dropped.
Two sets of comparison companies were selected. The first set consisted of “direct comparisons”—companies that were in the same industry as the good-to-great companies, with the same opportunities and similar resources at the time of transition, but that showed no leap from good to great. The second set consisted of “unsustained comparisons”—companies that made a short-term shift from good to great but failed to maintain the trajectory. A complete list of the entire study set is in Table 1.
Finally, through a systematic analysis of virtually all materials published by or about the companies, detailed financial analyses, and dozens of executive interviews, the good-to-great examples were contrasted with the comparisons, always asking, What is different?
Collins’s analyses led to a framework of concepts that shows the transformation from good to great as a process of extensive buildup followed by breakthrough, broken into three broad stages: disciplined people, disciplined thought, and disciplined action. Wrapping around the entire framework is a concept called the flywheel, which captures the gestalt of the entire process of going from good to great. Several key concepts are summarized briefly in the following sections.
A Level 5 leader is an individual who blends extreme personal humility with intense professional will. Executives who possess this paradoxical combination of traits are catalysts for the statistically rare event of transforming a good company into a great one. “Level 5” refers to the highest level in a hierarchy of executive capabilities. Leaders at the other four levels—highly capable individual, contributing team member, competent manager, and effective leader—can produce high degrees of success but not enough to elevate companies from mediocrity to sustained excellence.
Level 5 leaders are a study in duality: modest and willful, shy and fearless. Throughout their interviews, Level 5 leaders frequently invoked “luck” as an important factor in their success; on the other hand, leaders of more than two-thirds of the comparison companies had gargantuan egos that contributed to the demise or continued mediocrity of their companies. Indeed, larger-than-life celebrity leaders who ride in from the outside are negatively correlated with taking a company from good to great. Ten of 11 good-to-great chief executive officers (CEOs) came from inside the company, whereas the comparison companies tried outside CEOs six times more often.
Level 5 leadership is not the only requirement for transforming a good company into a great one—other factors are discussed below—but it is essential. Good-to-great transformations just don’t happen without Level 5 leaders at the helm. It may be possible, though, given the complexity of higher education, that a Level 5 provost, or perhaps a Level 5 dean, can overcome the lack of a Level 5 president.
Good-to-great leaders think first about who, then about what: they get the right people on the bus, the wrong people off the bus, the right people in the right seats, and then think about where to drive it. The key here is not just in assembling the right team, rather, it’s that the “who” questions come before the “what” decisions—before vision, strategy, tactics, and so forth. It’s important to note that the good-to-great leaders were rigorous, but not ruthless, in people decisions. They did not rely on layoffs or restructuring as a primary strategy for improving performance.
Colleges’ and universities’ fates are inextricably tied to people—their faculty and students as well as their administration and staff. As such, the “who first” concept may be an even more important variable in higher education than in the corporate sector. And yet in academic institutions it can be very difficult to get the wrong people off the bus. A university may not be able to fire tenured professors, but it can hire the right people for every opening and gradually create an environment where the wrong people feel increasingly uncomfortable and eventually retire or choose to go elsewhere. The same basic idea applies, but it takes more time to accomplish.
An ancient Greek parable distinguishes between foxes, which know many small things, and hedgehogs, which know one big thing. It turns out that all good-to-great leaders are hedgehogs. They know how to simplify a complex world into a single, organizing idea—the kind of basic principle that unifies, organizes, and guides all decisions. That’s not to say that hedgehogs are simplistic. Like great thinkers, who take complexities and boil them down into simple yet profound ideas (e.g., Adam Smith and the invisible hand, Charles Darwin and evolution), leaders of good-to-great companies develop a hedgehog concept that is simple but reflects penetrating insight and deep understanding.
It can take years to develop a hedgehog concept that works. You’ll know you’re getting closer to it when you align three intersecting circles that represent three pivotal questions: (1) What can we be best in the world at? (And equally important, what can we not be the best at?) (2) What are our core people deeply passionate about? and (3) What is the economic denominator that best drives our economic engine? (See Figure 1.)
In the corporate sector, an economic denominator might be profit per employee, which was Wells Fargo’s focus, or profit per customer visit, which underlaid Walgreens’s decision making. But these purely financial measures are just one part of a hedgehog concept. Indeed, one of the key findings in Built to Last (1994), which Collins coauthored with Jerry Porras, is that true built-to-last companies (those with great financial results that become enduring great companies of iconic stature) are more like social-sector organizations than their comparison companies with regard to the complexity of variables they use to define success.
Collins has begun to apply the good-to-great methodology to the social sector in an effort to unravel how our good institutions can become great. The matched pairs being studied are public K–12 education systems, cities, and orchestras. Clearly, cumulative stock returns relative to the market are of no use in assessing performance of these institutions, nor are they relevant to higher education.
At this early stage, four basic output variables for great institutions have been identified. One is performance by some measures other than economic. Graduation rates are a performance measure and, while their use may be debatable, test scores also offer quantitative measurements. The second output variable is impact—to what extent can an institution marshal evidence that it has had a unique impact on the world it touches? That is, if the institution didn’t exist, how would the world it touches be different? The third variable is resilience—an institution hasn’t proven excellence until it goes through a difficult time and emerges stronger than before. That is better evidence of strength than avoiding hard times altogether. The final variable is longevity, defined as evidencing high performance, unique impact, and resilience over a long period of time. In considering outputs, the key is to not allow that which is easily quantifiable to become the performance criteria.
Once institutions have developed their hedgehog concept, their core values are readily identifiable. Core values don’t change over time; they remain fixed and provide a sense of purpose that goes beyond just making money. Core values are the ideological framework on which everything is built. They are not open for negotiation. Academic freedom is a core value in higher education; the practice that flows from that core value is tenure. Institutions must not confuse their values and their practices: one is fixed, the other is open to change to allow for progress. Institutions steeped in deeply held traditions can change and not lose their souls if they understand the differences between values and practices.
Finally, a quick note about technology. When used correctly, technology becomes an accelerator of momentum, not a creator of it. None of the good-to-great companies began their transitions to greatness by pioneering technology, for the simple reason that you cannot make good use of technology until you know which technologies are relevant. Relevant technologies are only those that link directly to the three intersecting circles of the hedgehog concept. Yet once the good-to-great companies grasped how technology fit with their three circles—and after they had begun their rise—all became pioneers in the application of technology.
The key point about technology is that, by itself, it is never a primary cause of either greatness or decline: fully 80 percent of good-to-great executives interviewed didn’t even mention technology as one of the top five factors in their companies’ transformations.
Building sustained great results is a cumulative process. It is never an event, never a single, momentary revolution. Although media coverage of the good-to-great companies makes it seem as if they achieved their success suddenly (when the press began to notice them), the fact is that an enormous amount of work had been going on all along. This disconnect is captured in what Collins’s research team began to call the flywheel effect: imagine a huge, heavy flywheel—a massive metal disk mounted on an axle. The flywheel is your company or organization and you need to get it moving as fast as possible. Right now it’s at a standstill. You make a tremendous effort to move it an inch or two. Days of hard work later, you’ve managed one complete turn. You keep pushing, and the flywheel moves a bit faster. It takes a lot of work, but at last the flywheel makes a second rotation. You keep pushing, it turns again and again. It starts to move faster and at some point—you can’t say exactly when—you break through. The momentum of the heavy wheel kicks in to your advantage. It spins faster and faster. You’re not pushing any harder, but the flywheel is accelerating and momentum is building.
That is what it feels like when you’re inside a company making the transition from good to great—a cumulative process. One of Collins’s most striking findings is the absence of any magic moment of transformation. The real path to greatness, it turns out, requires simplicity and diligence. It requires clarity, not instant illumination. It demands that each of us focus on what is vital—and eliminate what is extraneous.
Collins is convinced that these good-to-great findings apply broadly and not just to CEOs, but to all of us and whatever work we’re engaged in—including leading colleges and universities toward becoming key building blocks of a great society.
Jim Collins is founder and director of a management laboratory in Boulder, Colorado, where he conducts research and teaches executives from the corporate and social sectors. Jim is co-author of Built to Last (1994) with Jerry Porras, a Business Week bestseller for more than six years, and author of Good to Great: Why Some Companies Make the Leap…And Others Don’t (2001), a New York Times bestseller.