Why is that a few companies develop from an organisation with good results as measured on the stock market to a great one? Jim Collins* and his team selected 11 companies from more than 1400 that had been listed in the Fortune 500 from1965 to 1995. Each of the selected companies had mediocre results for 15 years and then went through a transition point. From that point they out performed the market by at least 3 to 1 and sustained that performance for at least 15 years. Each of these was compared with companies in the same industry and about the same size.
Using hundreds of interviews, he identified the key factors that enable a company to move from mediocre institutions to great institutions. The comparison companies lacked these factors and failed to become great. Perhaps the most important component of the transition from good-to-great is what he calls "Level 5 Leadership".
Level 1 is a Highly Capable Individual who "makes productive contributions through talent, knowledge, skills and good work habits."
Level 2 is a Contributing Team Member who "contributes individual capabilities to the achievement of group objectives and works effectively with others in a group setting."
Level 3 is the Competent Manager who "organizes people and resources toward the effective and efficient pursuit of predetermined objectives."
Level 4 is an Effective Leader who "catalyzes commitment to and vigorous pursuit of a clear and compelling vision, stimulating higher performance standards."
Level 5 is the Executive who "builds enduring greatness through a paradoxical blend of personal humility and professional will." Every one of the good-to-great companies has level 5 leaders in the critical transition phase. None of the comparison companies did. These leaders are described as being timid and ferocious, shy and fearless and modest with a fierce, unwavering commitment to high standards.
The Jack Welch’s, the "Larger-than-life” celebrity leaders, who ride in from the outside are negatively correlated with taking a company from good-to-great.
"Darwin Smith, CEO at paper-product maker Kimberly-Clark from 1971 to 199, epitomizes Level 5 leadership. Shy, awkward, shunning attention, he also showed iron will, determinedly redefining the firm's core business despite Wall Street's scepticism."
Personal Humility**
Good-to-great leaders are self-effacing, quiet, reserved, and even shy - more like Lincoln and Socrates than Patton or Caesar.
Inspired Standards to Motivate
Level 5 leaders rely on instilling inspired standards and not inspiring charisma to motivate. They build a culture of discipline. It is not a tyrannical disciplinarian one but one that enables freedom and responsibility. Self-disciplined people are hired who are willing to go to lengths to fulfil their responsibilities. They consistently adhere to what Collins calls the Hedgehog Concept, the intersection of three circles:
1. Brutally and realistically determining what the company can be the best in the world at and pursuing it in light of these next two.
2. Deciding the most effective way of generating sustained cash flow and profitability. Then determining the single most important indicator. In the case of Walgreens it was profit per customer visit and not the traditional profit per store.
3. The good-to-great company and its employees only do the things they are deeply passion about. This passion is not stimulated or imposed but discovered.
Channels Ambition to the Company
Level 5 leaders channel their ego needs away from themselves and toward building a great company or organisation. They often will sacrifice their own gain for the gain of the company.
Often the superhero CEO either eliminates any potential successors from his management team or chooses weak successors.
Assumes Responsibility for poor results and gives credit to others
When things do not go well Level 5 Leaders take responsibility for the failures and never blame other people, external factors, or bad luck.
When CEO Joe Cullman reviewed the decision by his company Philip Morris to buy 7UP in 1978 and sell it 8 years later at a loss, he admitted that it was his mistake and it could have been avoided if he had listened better to the people who challenged the idea at the time.
When they do go well they attribute success of their companies to external factors, their team or luck.
Professional Will
Unwavering Resolve to Produce Long-Term Result
Good-to-great companies set on a path to improve long-term results that go unnoticed by the outside for years. They then suddenly appear well on their way to becoming great. The ability to improve requires that the truth be told.
"… But leadership is equally about creating a climate where the truth is heard and the brutal facts confronted. There's a huge difference between the opportunity to 'have your say' and the opportunity to be heard. The good-to-great leaders understood the distinction, creating a culture wherein people had a tremendous opportunity to be heard and, ultimately, for the truth to be heard."
Sets Standards for Building an Enduring, Great Company
All of the good-to-great leaders created standards and doggedly kept to those standards for the years of their tenure.
The transition leader of Abbot Laboratories was George Cain, an 18 year veteran when appointed CEO and a member of the founding family. To deal with a crippling nepotism, he systematically rebuilt the board and the executive team. If a member of the family was not the best executive in the industry in the area of his responsibility, he was replaced.
These leaders deliver what they promise. There is no hype, no spin, no excuses; just understated, realistic expectations. The expectations may be challenging but they are met.
* Collins, Jim, "Good-to-Great: Why Some Companies Make the Leap... and Others Don't", Random House, London, 2001
** Collins, Jim, "Level 5 Leadership: The Triumph of Humility and Fierce Resolve" Harvard Business Review, Jan. 2001
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