How And Why Some Good Companies Became Great Companies
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GOOD
TO GREAT
How and Why some good Companies became great Companies
RATIO OF CUMULATIVE STOCK RETURNS TO GENERAL MARKET
The Good – To – Great Study
GOOD CO
DIRE 1= MARKET BASE LINE TRANSITION POINT
Fundamental Law No. 1 : Good is the ENEMY of great.
Fundamental Law No. 2 : Any Organisation or any individual can substantially improve their stature and performance , and even become great , if one consciously moves in that direction.
Three Stages in the Journey from Good to Great Stage - 1
:
Disciplined People.
Stage - 2
:
Disciplined Thought.
Stage - 3
:
Disciplined Action.
LEVEL 5 FIRST WHO… LEADERSHIPTHEN WHAT
CONFRONT THE HEDGEHOG BRUTAL FACTS CONCEPT
CULTURE OF TECHNOLOGY DISCIPLINE ACCELERATORS
DISCIPLINED PEOPLE DISCIPLINED THOUGHT DISCIPLINED ACTION
Two Concepts in each stages of this journey DISCIPLINED PEOPLE
LEVEL 5 LEADERSHIP
A
FIRST WHO…THEN WHAT
B
CONFRONT THE BRUTAL FACTS
C
HEDGEHOG CONCEPT
D
CULTURE OF DISCIPLINE
E
TECHNOLOGY ACCELERATORS
F
DISCIPLINED THOUGHT
DISCIPLINED ACTION
Two WRAP-UP concepts of the entire framework :
• 1. The Flywheel and the Doom Loop. G • 2. “Built to Last ” Concepts : – For an enduring great Company.
This captures the GESTALT of process of going from good
H
the entire to great.
CONCEPT - A LEVEL 5 LEADERSHIP
You can accomplish anything in life , provided that you do not mind who gets the credit.
Level 5 Hierarchy LEVEL 5
LEVEL 5 EXECUTIVE
LEVEL 4
EFFECTIVE LEADER
LEVEL 3
COMPETENT MANAGER
LEVEL 2
CONTRIBUTING TEAM MEMBER
LEVEL 1
HIGHLY CAPABLE INDIVIDUAL
Two Sides of Level 5 Leadership A . PROFESSIONAL WILL • Creates
superb results , a clear transition from good to great.
catalyst in
the
• Demonstrates an unwavering resolve to do whatever must be done to produce the results , no matter how difficult.
best
long
term
• Sets the standard of building an enduring great company; will settle for nothing less .
• Looks in the mirror , not out the window , to apportion responsibility for poor results , never blaming other people , external factors or bad luck.
Two Sides of Level 5 Leadership B. PERSONAL HUMILITY • Demonstrates a compelling
modesty , shunning public adulation ; never boastful.
• Acts
with quiet , calm determination ; relies principally on inspired standards , not inspiring charisma to motivate.
• Channels ambition into the company , not the self; sets up successors for even greater success in next generation.
• Looks out the window , not in the mirror , to
apportion credit for the success of the company – to other people , external factors , and good luck.
Some Characteristics of Level 5 Leaders :
• They • • •
embody a paradoxical mix of personal humility and professional will. They are ambitious , to be sure , but ambitious first and foremost for the Company and not for themselves. They set up their successors for even greater success. They display a compelling modesty , are self-effacing and understated.
Some Characteristics of Level 5 Leaders : • Are
financially driven , infected with incurable need to produce sustained RESULTS. They are resolved to do whatever it takes to make the Company great , no matter how big or hard the decisions.
• They display a workmanlike
diligence --more plow horse than show horse.
• They
attribute success to factors other than themselves and take full personal responsibility for failures.
Other Related Facts :
• Many people have the potential to evolve into Level 5.
• Generally the good – to – great CEO’s come from within the Company.
CONCEPT B : GETTING THE RIGHT PEOPLE.
Concept - B First Who……. Then What
• The “Who” questions are : • Do we have the right people? • Are the right people compensated properly? • Is the right team in place? • The “What” questions are : • Vision of the Company • Strategy • Organisation Structure • Tactics etc.
LEVEL 5 + A “GENIUS WITH A MANAGEMENT TEAM THOUSAND HELPERS” ( Good-to-Great Companies ) ( Comparison Companies) Level 5 leader FIRST WHO Get the right people On the bus. Build a superior Executive team.
THEN WHAT Once you have the right people in place , figure out the best path to greatness.
Level 4 leader
FIRST WHAT Set a vision for where To drive the bus. Develop a roadmap for driving the bus.
THEN WHO Enlist a crew of highly capable “helpers” to make the vision happen.
Principle : “ People come before Strategy ” Old Adage : People are the most important asset of a Company. Right ?
wrong !
The RIGHT people are the most important asset
How do we identify the Right people ? On the basis of fundamental/ inherent attributes rather than learnable / teachable qualities.
Desirable Attributes :
• • • • •
Character Work ethics Intelligence Dedication to fulfilling commitments. Values
Learnable Attributes :
• • • •
Educational Background Practical Skills Specialised Knowledge. Work Experience.
IMPLEMENTING PEOPLE DECISIONS Discipline 1 : Rigorous , Not Ruthless To be ruthless : Hacking without
and any
cutting and wantonly firing people thoughtful consideration.
To be rigorous : Consistently applying the same exacting standards at all times – difficult or good times – and for all levels , especially in upper management.
Some Points : • A HIGH degree of rigor is needed in PEOPLE •
DECISIONS in order to good to great. On Compensation :
take a
Company from
– There is no evidence of a systematic pattern linking executive compensation to the process of going from good to great. Compensation is not a KEY LEVER in this respect. – The purpose of a compensation system should not be to get the right behavior from the wrong people. It is to get the right people on the bus and to keep them there.
Some Points : • Two types of “ Team Models” – Leader with the right team of equals. – Genius with a thousand helpers.
The latter model works only as long as the leader is in position.
• When in doubt , do not hire – keep looking. • Those who built great companies understand that the ultimate throttle on growth for any company is or technology , or competition , or products. It is above all others : the ability to get and keep right people.
not markets , the one thing enough of the
Some Points : • A Company should limit its growth based on its ability to attract enough of the right people.
• When you know you need to make a people change , ACT. • Put your best people on your biggest opportunities , not your biggest problems.
• Good – to – great management teams consist of people who debate vigorously in search of the best answers , yet who unify behind decisions , regardless of self-interests.
THANK YOU FOR PATIENT HEARING
DISCIPLINED THOUGHT
CONCEPT- C : Confront the Brutal Facts . “ There is no worse mistake in public leadership than to hold out false hopes soon to be swept away . ” - Winston
S. Churchill
KROGER , A & P AND THE MARKET Cumulative value of $ 1 Invested 1959-1973
0 KROGER , A & P AND THE MARKET Cumulative value of $ 1 Invested 1973-1998
G E N E R M A R K $3
KOGER $198.47
0
0
0
GENERALM RS.
Some Fundamental Rules : • Facts are better than dreams.
– In driving towards a vision, facts must always be kept in view . – Let a Company ‘s Strategies and Tactics be modulated by facts rather than by our visions.
• Charisma may cause filtration of facts, unless conscious efforts are made. • Create a climate where the truth is heard.
– Create a culture wherein people have a tremomdous opportunity to be heard and ultimately for the truth to be heard. – Lead with Questions , not Answers.
The managers must have humility to grasp the fact that they may not know enough to have all the answers and then to ask the questions that will lead to the best possible insights.
Some Fundamental Rules : Engage in dialogue and debate, not coercion. •
The Good-to-Greate Companies did not use discussion as a SHAM process to let people “have their say” so that they could “buy in” to a predetermined decision. The process should be like a scientific debate, with people engaged in a search for the best answers.
Conduct autopsies without blame .
autopsies without blame . • Conduct When you do this ,you go a logway towards a climate where the truth is heard. – You should keep searching only for understanding and hearing.
Some Fundamental Rules : • Build “red flag” mechanisms.
The Good-to-Great Companies did not have more or better information than the companies .They had the approach/tendency to turn information into facts that cannot be ignored. The “red flag” is a practical and useful tool in this regard.
• Unwavering faith amid the brutal facts. After confronting the brutal facts, the Good-to-Great companies became stronger and more resilient, not weaker and more dispirited.
Some Fundamental Rules : There is a sense of exhilaration that come in facing HEAD-ON the hard truths and saying," We will never give up. we will never capitulate. It may take a long time, but we will find a way to prevail” Three categories of People who suffered serious adversity and survived. 1.Those who were permanently dispirited by the event. 2. Those who got their life back to normal. 3. Those who used the experience as a defining event that made them stronger.
The stockdate paradox Retain faith that you will prevail in the end, regardless of the difficulties
AND at the same time
Confronts the most brutal facts of your current reality, whatever they might be.
The contrast between the REALIST and the OPTIMIST. Confront the Brutal Facts Yet never lose faith.
KEY POINTS:
1. All the good-to great companies began the process of finding a path to greatness by confronting the brutal reality.
2. When you start with an honest and diligent
effort to determine the truth of your situation the right decisions after become self-evident.
KEY POINTS:
3. It is impossible to make good decisions without infusing the entire process with an honest confrontation of the brutal facts. 4. A primary tasks in every company/dept. create a culture wherein people have a tremendous opportunity to be heard and ultimately, for the truth to be heard.
KEY POINTS:
5. Ignoring the brutal facts of reality will result in demotivating people.
6. Leadership begins with getting people to confront the brutal facts and to act on this implications.
DISCIPLINED THOUGHT
CONCEPT- D : THE HEDGEHOG CONCEPT . Or Simplicity within the Three circles of Business Model.
Are you a Hedgehog or Fox ?
Foxes are crafty, cunning creatures that know many thing yet lack consistenc
MAJOR DIFFERENCE
TWO TYPES OF PEOPLE
Hedgehogs know only one Big thing.
FOXES: a) Pursue many goals at the same time. b) See the world in all its complexity. c) Move on many levels.
HEDGEHOGS: a) Simplify a complex world into one simple organizing idea. b) Create a basic principle or concept that unifies and guides the business. c) See what is essential in a big picture and ignore the rest.
“The essence of profound insight is SIMPLICITY”
Three Circles of the Hedgehog Concept: 1. The key is to UNDERSTAND what your
organisation CAN be the best in world at and equally important what it cannot be the best at – not what it “wants” to be the best at.
2. The Hedgehog Concept is NOT is goal, or strategy or even an intention.
- IT IS AN UNDERSTANDING. Corollary: If you cannot be best in the world at your core business, then your core business cannot form the basis of your HC.
Drivers of Economic Engine: Search for one single denominator (preferably) that has the single greatest impact on company Performances. This could be on of these: – Profit per tonne – Profit per employee – Cash flow per customer etc.
We should identify this for TRL.
Additional Points:
a) It took four years on an average for the
good-to-great companies to get a Hedgehog Concept. b) You do not need to be in a great identity to produce mistained great results. No matter how bad the industry, every good-to-great company figured out how to produce truly superior economic returns.
TO GREAT
How and Why some good Companies became great Companies
RATIO OF CUMULATIVE STOCK RETURNS TO GENERAL MARKET
The Good – To – Great Study
GOOD CO
DIRE 1= MARKET BASE LINE TRANSITION POINT
Fundamental Law No. 1 : Good is the ENEMY of great.
Fundamental Law No. 2 : Any Organisation or any individual can substantially improve their stature and performance , and even become great , if one consciously moves in that direction.
Three Stages in the Journey from Good to Great Stage - 1
:
Disciplined People.
Stage - 2
:
Disciplined Thought.
Stage - 3
:
Disciplined Action.
LEVEL 5 FIRST WHO… LEADERSHIPTHEN WHAT
CONFRONT THE HEDGEHOG BRUTAL FACTS CONCEPT
CULTURE OF TECHNOLOGY DISCIPLINE ACCELERATORS
DISCIPLINED PEOPLE DISCIPLINED THOUGHT DISCIPLINED ACTION
Two Concepts in each stages of this journey DISCIPLINED PEOPLE
LEVEL 5 LEADERSHIP
A
FIRST WHO…THEN WHAT
B
CONFRONT THE BRUTAL FACTS
C
HEDGEHOG CONCEPT
D
CULTURE OF DISCIPLINE
E
TECHNOLOGY ACCELERATORS
F
DISCIPLINED THOUGHT
DISCIPLINED ACTION
Two WRAP-UP concepts of the entire framework :
• 1. The Flywheel and the Doom Loop. G • 2. “Built to Last ” Concepts : – For an enduring great Company.
This captures the GESTALT of process of going from good
H
the entire to great.
CONCEPT - A LEVEL 5 LEADERSHIP
You can accomplish anything in life , provided that you do not mind who gets the credit.
Level 5 Hierarchy LEVEL 5
LEVEL 5 EXECUTIVE
LEVEL 4
EFFECTIVE LEADER
LEVEL 3
COMPETENT MANAGER
LEVEL 2
CONTRIBUTING TEAM MEMBER
LEVEL 1
HIGHLY CAPABLE INDIVIDUAL
Two Sides of Level 5 Leadership A . PROFESSIONAL WILL • Creates
superb results , a clear transition from good to great.
catalyst in
the
• Demonstrates an unwavering resolve to do whatever must be done to produce the results , no matter how difficult.
best
long
term
• Sets the standard of building an enduring great company; will settle for nothing less .
• Looks in the mirror , not out the window , to apportion responsibility for poor results , never blaming other people , external factors or bad luck.
Two Sides of Level 5 Leadership B. PERSONAL HUMILITY • Demonstrates a compelling
modesty , shunning public adulation ; never boastful.
• Acts
with quiet , calm determination ; relies principally on inspired standards , not inspiring charisma to motivate.
• Channels ambition into the company , not the self; sets up successors for even greater success in next generation.
• Looks out the window , not in the mirror , to
apportion credit for the success of the company – to other people , external factors , and good luck.
Some Characteristics of Level 5 Leaders :
• They • • •
embody a paradoxical mix of personal humility and professional will. They are ambitious , to be sure , but ambitious first and foremost for the Company and not for themselves. They set up their successors for even greater success. They display a compelling modesty , are self-effacing and understated.
Some Characteristics of Level 5 Leaders : • Are
financially driven , infected with incurable need to produce sustained RESULTS. They are resolved to do whatever it takes to make the Company great , no matter how big or hard the decisions.
• They display a workmanlike
diligence --more plow horse than show horse.
• They
attribute success to factors other than themselves and take full personal responsibility for failures.
Other Related Facts :
• Many people have the potential to evolve into Level 5.
• Generally the good – to – great CEO’s come from within the Company.
CONCEPT B : GETTING THE RIGHT PEOPLE.
Concept - B First Who……. Then What
• The “Who” questions are : • Do we have the right people? • Are the right people compensated properly? • Is the right team in place? • The “What” questions are : • Vision of the Company • Strategy • Organisation Structure • Tactics etc.
LEVEL 5 + A “GENIUS WITH A MANAGEMENT TEAM THOUSAND HELPERS” ( Good-to-Great Companies ) ( Comparison Companies) Level 5 leader FIRST WHO Get the right people On the bus. Build a superior Executive team.
THEN WHAT Once you have the right people in place , figure out the best path to greatness.
Level 4 leader
FIRST WHAT Set a vision for where To drive the bus. Develop a roadmap for driving the bus.
THEN WHO Enlist a crew of highly capable “helpers” to make the vision happen.
Principle : “ People come before Strategy ” Old Adage : People are the most important asset of a Company. Right ?
wrong !
The RIGHT people are the most important asset
How do we identify the Right people ? On the basis of fundamental/ inherent attributes rather than learnable / teachable qualities.
Desirable Attributes :
• • • • •
Character Work ethics Intelligence Dedication to fulfilling commitments. Values
Learnable Attributes :
• • • •
Educational Background Practical Skills Specialised Knowledge. Work Experience.
IMPLEMENTING PEOPLE DECISIONS Discipline 1 : Rigorous , Not Ruthless To be ruthless : Hacking without
and any
cutting and wantonly firing people thoughtful consideration.
To be rigorous : Consistently applying the same exacting standards at all times – difficult or good times – and for all levels , especially in upper management.
Some Points : • A HIGH degree of rigor is needed in PEOPLE •
DECISIONS in order to good to great. On Compensation :
take a
Company from
– There is no evidence of a systematic pattern linking executive compensation to the process of going from good to great. Compensation is not a KEY LEVER in this respect. – The purpose of a compensation system should not be to get the right behavior from the wrong people. It is to get the right people on the bus and to keep them there.
Some Points : • Two types of “ Team Models” – Leader with the right team of equals. – Genius with a thousand helpers.
The latter model works only as long as the leader is in position.
• When in doubt , do not hire – keep looking. • Those who built great companies understand that the ultimate throttle on growth for any company is or technology , or competition , or products. It is above all others : the ability to get and keep right people.
not markets , the one thing enough of the
Some Points : • A Company should limit its growth based on its ability to attract enough of the right people.
• When you know you need to make a people change , ACT. • Put your best people on your biggest opportunities , not your biggest problems.
• Good – to – great management teams consist of people who debate vigorously in search of the best answers , yet who unify behind decisions , regardless of self-interests.
THANK YOU FOR PATIENT HEARING
DISCIPLINED THOUGHT
CONCEPT- C : Confront the Brutal Facts . “ There is no worse mistake in public leadership than to hold out false hopes soon to be swept away . ” - Winston
S. Churchill
KROGER , A & P AND THE MARKET Cumulative value of $ 1 Invested 1959-1973
0 KROGER , A & P AND THE MARKET Cumulative value of $ 1 Invested 1973-1998
G E N E R M A R K $3
KOGER $198.47
0
0
0
GENERALM RS.
Some Fundamental Rules : • Facts are better than dreams.
– In driving towards a vision, facts must always be kept in view . – Let a Company ‘s Strategies and Tactics be modulated by facts rather than by our visions.
• Charisma may cause filtration of facts, unless conscious efforts are made. • Create a climate where the truth is heard.
– Create a culture wherein people have a tremomdous opportunity to be heard and ultimately for the truth to be heard. – Lead with Questions , not Answers.
The managers must have humility to grasp the fact that they may not know enough to have all the answers and then to ask the questions that will lead to the best possible insights.
Some Fundamental Rules : Engage in dialogue and debate, not coercion. •
The Good-to-Greate Companies did not use discussion as a SHAM process to let people “have their say” so that they could “buy in” to a predetermined decision. The process should be like a scientific debate, with people engaged in a search for the best answers.
Conduct autopsies without blame .
autopsies without blame . • Conduct When you do this ,you go a logway towards a climate where the truth is heard. – You should keep searching only for understanding and hearing.
Some Fundamental Rules : • Build “red flag” mechanisms.
The Good-to-Great Companies did not have more or better information than the companies .They had the approach/tendency to turn information into facts that cannot be ignored. The “red flag” is a practical and useful tool in this regard.
• Unwavering faith amid the brutal facts. After confronting the brutal facts, the Good-to-Great companies became stronger and more resilient, not weaker and more dispirited.
Some Fundamental Rules : There is a sense of exhilaration that come in facing HEAD-ON the hard truths and saying," We will never give up. we will never capitulate. It may take a long time, but we will find a way to prevail” Three categories of People who suffered serious adversity and survived. 1.Those who were permanently dispirited by the event. 2. Those who got their life back to normal. 3. Those who used the experience as a defining event that made them stronger.
The stockdate paradox Retain faith that you will prevail in the end, regardless of the difficulties
AND at the same time
Confronts the most brutal facts of your current reality, whatever they might be.
The contrast between the REALIST and the OPTIMIST. Confront the Brutal Facts Yet never lose faith.
KEY POINTS:
1. All the good-to great companies began the process of finding a path to greatness by confronting the brutal reality.
2. When you start with an honest and diligent
effort to determine the truth of your situation the right decisions after become self-evident.
KEY POINTS:
3. It is impossible to make good decisions without infusing the entire process with an honest confrontation of the brutal facts. 4. A primary tasks in every company/dept. create a culture wherein people have a tremendous opportunity to be heard and ultimately, for the truth to be heard.
KEY POINTS:
5. Ignoring the brutal facts of reality will result in demotivating people.
6. Leadership begins with getting people to confront the brutal facts and to act on this implications.
DISCIPLINED THOUGHT
CONCEPT- D : THE HEDGEHOG CONCEPT . Or Simplicity within the Three circles of Business Model.
Are you a Hedgehog or Fox ?
Foxes are crafty, cunning creatures that know many thing yet lack consistenc
MAJOR DIFFERENCE
TWO TYPES OF PEOPLE
Hedgehogs know only one Big thing.
FOXES: a) Pursue many goals at the same time. b) See the world in all its complexity. c) Move on many levels.
HEDGEHOGS: a) Simplify a complex world into one simple organizing idea. b) Create a basic principle or concept that unifies and guides the business. c) See what is essential in a big picture and ignore the rest.
“The essence of profound insight is SIMPLICITY”
Three Circles of the Hedgehog Concept: 1. The key is to UNDERSTAND what your
organisation CAN be the best in world at and equally important what it cannot be the best at – not what it “wants” to be the best at.
2. The Hedgehog Concept is NOT is goal, or strategy or even an intention.
- IT IS AN UNDERSTANDING. Corollary: If you cannot be best in the world at your core business, then your core business cannot form the basis of your HC.
Drivers of Economic Engine: Search for one single denominator (preferably) that has the single greatest impact on company Performances. This could be on of these: – Profit per tonne – Profit per employee – Cash flow per customer etc.
We should identify this for TRL.
Additional Points:
a) It took four years on an average for the
good-to-great companies to get a Hedgehog Concept. b) You do not need to be in a great identity to produce mistained great results. No matter how bad the industry, every good-to-great company figured out how to produce truly superior economic returns.
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