Book Summary: Good to Great by Jim Collins

In Good to Great, the author and his research team present the findings of their five-year study. Public companies that had achieved sustained success after years of mediocre performance were identified and the factors that made them different from their lacklustre competitors were pinpointed.

Several key concepts regarding leadership, culture and strategic management have been distilled from these factors.

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Good to Great Book Summary

Lesson 1: Finding a simple “Hedgehog concept” offers a clear direction

Picture a fox trying to catch a hedgehog for food. The fox comes up with new ideas every day, but the hedgehog has a simple strategy: it rolls up into a ball with its spikes out, protecting itself from harm. The hedgehog succeeds in avoiding capture because it sticks to this strategy.

To create their own successful strategy, good-to-great companies ask themselves three questions:

  • What are we the best in the world at doing?
  • What are we passionate about?
  • What economic indicator should we pay the most attention to?

After considering these questions and debating for four years, a good-to-great company will have a clear “Hedgehog Concept” to guide their decision-making. This focus leads to success, as seen with Walgreens, a drugstore chain that decided to be the most convenient and affordably-priced option. Their commitment to this strategy helped them outperform the stock market by seven times.

On the other hand, Eckerd Pharmacy, a competitor to Walgreens, did not have a defined Hedgehog Concept and ended up heading in multiple, misguided directions. As a result, the company eventually ceased to exist as an independent entity.

Lesson 2: Small and incremental steps can lead you to success

Looking back, it seems that good-to-great companies underwent a significant transformation. At the time, however, they might not have even realized it was happening. Their transformation didn’t have a catchy slogan or a specific launch event or change program.

The “Hedgehog Concept,” their simple strategy, was actually the result of many small, incremental improvements. These small improvements motivated people to work harder, eventually building up enough momentum for a breakthrough to occur. Adhering to the Hedgehog Concept helped create a virtuous cycle of motivation and progress.

Take Nucor, a company whose stock outperformed the overall market by five times. In 1965, they realized they could produce steel more efficiently and cheaply than anyone else by using mini-mills. They started building mini-mills and gained customers, so they built more. CEO Ken Iverson saw that they could eventually become the most profitable steel company in the US if they just kept moving in the same direction. It took over two decades to achieve this goal.

In contrast, other companies didn’t consistently work towards building momentum in a single direction. Instead, they made drastic changes and rushed into acquisitions in an attempt to change their fortunes. These approaches often produced disappointing results, leading to discouragement and the pursuit of another change, rather than allowing the “flywheel” of progress to build up speed.

Lesson 3: Technology should be viewed as a tool toward achieving a goal, not as an end in itself

Good-to-great companies used new technology to accelerate their existing progress, rather than to determine their direction. They saw technology as a means to an end, rather than an end in itself.

On the other hand, companies that compare products may view new technologies as a threat and try to adopt them quickly without a clear strategy, fearing being left behind.

A good-to-great company, however, will carefully consider whether a specific technology will help them make progress. If it does, they will become pioneers in using it. If not, they may ignore it or adopt it at the same pace as their industry.

An example of this approach is Walgreens, a major drugstore chain. When the online drugstore company Drugstore.com was launched, Walgreens’ stock value dropped 40% due to the perception that they were slow to adopt online business.

Rather than rushing to adopt the new technology, they thought about how an online presence could further their original strategy of making the drugstore experience more convenient and increasing profits per customer.

As a result, Walgreens.com launched a year later, offering online prescriptions and other services. In the same time period, Walgreens’ stock price almost doubled and Drugstore.com lost nearly all of its value within a year.

Lesson 4: Successful transformations from good to great are driven by Level 5 leaders

During their journey from being good to great, all companies had level 5 leaders.

Level 5 leaders are not only skilled as individuals, team members, managers, and leaders, but they are also extremely ambitious for the success of their company. However, they are also humble. They are driven to see the company continue performing well even after they are gone, and they have a fanatical focus on results.

Level 5 leaders are modest and unassuming, rather than egotistical. They may take credit for the company’s successes and downplay their own role, but they are also willing to accept blame for the company’s shortcomings.

For example, Darwin Smith led Kimberly-Clark to become a leading paper consumer goods company, but he didn’t seek a hero or celebrity image. He dressed simply, spent his holidays working on his farm in Wisconsin, and enjoyed spending time with plumbers and electricians.

In contrast, the CEOs of two out of three comparison companies had enormous egos that hindered the long-term success of the company. They had no succession plan in place. For instance, under the leadership of Stanley Gault, the famously tyrannical and successful CEO of Rubbermaid, the company went from being Fortune Magazine’s most admired company to being acquired by a competitor within five years.

Lesson 5: Greatness is built on the right people in the right places

In every successful transformation from being good to great, the right people are brought into the company and the wrong people are removed, even before a clear path forward is defined.

For example, when Dick Cooley became CEO of Wells Fargo, he knew that the banking industry was about to undergo major changes with deregulation. He believed that by hiring the best and brightest people, they would find a way to succeed together. He was right, and the company experienced spectacular growth. Warren Buffett even called Wells Fargo’s executives “the best management team in business.”

The best companies prioritize finding people with the right character traits over specific skills, because they believe the right people can always be trained and educated.

They also focus on creating a culture where hard workers thrive and lazy ones leave by paying attention to who they hire, rather than how much they pay. Some top managers left right away, while others stayed for many years.

Good-to-great companies rarely hire the wrong person, but they hire as many of the right people as they can find, even if they don’t have specific job roles in mind for them. If they do end up with the wrong person, they take action immediately, either moving them to a more suitable position or removing them. Putting off addressing the wrong person can only lead to frustration for the rest of the organization.

Lesson 6: Keeping faith in the face of the unpleasant facts is the key to success

Good-to-great companies are able to balance being realistic about their challenges with maintaining hope for the future, a phenomenon known as the “Stockdale Paradox,” named after a US admiral who was captured during the Vietnam War.

While held in the “Hanoi Hilton” prison, Admiral Stockdale was tortured and didn’t know if he would ever see his family again. But he never lost faith that he would somehow find a way to get home, even in such dire circumstances. Other prisoners, however, believed they would be home by Christmas and were devastated when it didn’t happen. Stockdale later attributed his survival to his ability to face the harsh realities of his situation while still remaining optimistic.

Good-to-great companies also confront the difficult truths of their circumstances, but hold onto the belief that they will ultimately succeed. They don’t shy away from challenges or changes in the market, and instead face them head-on with a positive attitude.

For example, when Procter & Gamble entered the paper goods market, Scott Paper, the market leader, believed it could never compete with a giant like P&G and tried to diversify into areas where it didn’t compete with P&G. Kimberly-Clark, on the other hand, welcomed the chance to compete and even acknowledged P&G in an executive meeting. In the end, Kimberly-Clark ended up acquiring Scott Paper and dominating P&G in six out of eight product categories two decades later.

Lesson 7: Leaders must create an environment where brutal facts can be discussed openly

Sometimes, a strong, charismatic leader can be a hindrance when others want to hide unpleasant truths from them. It’s important for leaders to act as Socratic moderators, asking questions to uncover honest opinions rather than providing preconceived answers. To make the best decisions, leaders should encourage debate in meetings.

For example, Pitney Bowes went from being a manufacturer of postage meters on the verge of losing its monopoly to a successful provider of document handling solutions. However, rather than focusing on their successes, Pitney Bowes management spent a lot of their time in meetings discussing “scary squiggly things” hiding under rocks.

When mistakes are made, it’s important to examine them carefully to understand what went wrong, but it’s not productive to assign blame, as it can discourage people from speaking up. Instead, managers should pay attention to harsh facts when red flag mechanisms raise alerts about critical business signals.

Comparison companies didn’t have more or better information, they just faced it and dealt with it more honestly.

About The Author

Collins has also taught at Stanford University Graduate School of Business, BusinessWeek and Harvard Business Review. He is an author, lecturer and consultant. One of his previous books, Built to Last, was a best seller.

Good to Great was inspired by an acquaintance who pointed out that his previous book examined only how great companies stay great, not how they can become great in the first place.

Buy The Book: Good To Great

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