This month’s book review is ‘Good to Great’ the seminal business book written by management expert Jim Collins.
It was first published in 2001, and the book explores why some companies transition from being good to truly great and sustain that greatness over time, while others remain mediocre despite similar opportunities.
Collins and his research team spent 5 years analysing 1,435 companies to identify 11 that made the leap to greatness as defined by sustained stock market performance at least three times the market average over 15 years. The findings are presented through concepts, supported by detailed company case studies.
Jim Collins is a business researcher, author, consultant, and former Stanford Graduate School of Business faculty member. He is known for his data-driven approach to understanding what makes organisations thrive. In addition to Good to Great, he has authored several other influential books, including Built to Last, How the Mighty Fall, and Great by Choice.
Whilst the book itself is over 20 years old and the performance of the companies themselves may have changed since then; all the concepts are still very relevant today and were ground-breaking at the time.
The key concepts are:
Level 5 Leadership
At the heart of every ‘great’ company is a Level 5 Leader who is someone who combines deep personal humility with intense professional will.
He tells the story of Darwin Smith of Kimberly-Clark who is described as shy and unassuming. He took over at the company in the 1970s. He made the bold move of selling the company’s paper mills to focus on consumer paper products like Kleenex and Huggies. His decisions were controversial, but under his leadership, the company’s stock outperformed companies like GE. Smith epitomised Level 5 Leadership being focused, humble, as well as results-driven.
Collins actually found that bringing in a larger-than-life character from the outside to head up the organisation in virtually every case did not work. An internal candidate was much more successful in their leadership of the business.
First Who, Then What
Collins stresses the importance of getting the right people on the bus, and the wrong people off, before deciding on strategy. Talent is critical, but character and alignment with the company’s values matter more.
One of the stories was of Wells Fargo during the deregulation of the banking industry. Wells Fargo focused on assembling the right team rather than crafting a detailed strategy right away. This enabled the bank to adapt effectively as the landscape changed.
Confront the Brutal Facts (Yet Never Lose Faith)
Great companies create a culture where the truth can be heard. Collins calls this the Stockdale Paradox, after Admiral Jim Stockdale, a Vietnam POW who survived by balancing optimism with a hard-nosed acceptance of reality. Stockdale’s story inspired a mindset: maintain unwavering faith that you can and will prevail, regardless of the difficulties and at the same time, confront the most brutal facts of your current reality.
The Hedgehog Concept
Great companies simplify a complex world into a single organising idea: what they can be the best in the world at, what they are passionate about, and what drives their economic engine.
The story of Walgreens was used where the CEO Cork Walgreen focused the company on the concept of convenience through high-return locations. Walgreens made the difficult decision to divest from other businesses and realign toward its hedgehog concept. As a result, it delivered phenomenal shareholder returns.
Culture of Discipline
Great companies blend a culture of discipline with an ethic of entrepreneurship. They don’t need excessive bureaucracy because self-disciplined people follow through with consistent actions.
Nucor Steel used a decentralised, lean management culture which empowered employees at all levels. Managers were given freedom but also held accountable. Nucor maintained tight operational discipline, enabling it to outperform much larger competitors.
Technology Accelerators
Technology does not cause greatness but can accelerate momentum. Great companies use technology as a tool, not as a crutch.
While many traditional grocers failed to adapt, Kroger embraced new technology and store formats early. Its strategic use of innovation supported, rather than dictated, its transformation into a leading retailer.
The Flywheel and the Doom Loop
Greatness is not a dramatic, overnight transformation but a slow buildup – a flywheel gaining momentum. Companies that fail often chase silver bullets (the Doom Loop) instead of building steady progress.
Use the flywheel by methodically applying discipline, building results, and gaining momentum. In contrast, companies in the Doom Loop like some tech firms of the dot-com era jumped from one strategy to another with no consistent progress.
Good to Great has become one of the most widely cited business books out there. This was a revisit for me as I have not read it for a long time and I noticed it in our Snowball business book library and decided it would be a good read for my holiday.
Despite the passage of the time and the fact some of these names are no longer relevant, I feel (as does Collins) that the principles still hold value and in some cases the reason certain companies are no longer great ones is that they faltered due to abandoning those very principles. I think you can effectively ignore the actual names of the companies and just take on board the principles and the learnings and apply them to pretty much any business. All in all, a great read.
