This and Collins’s previous book, Built to Last, are two standard business books that everybody refers to. I’ve been meaning to read them for a while, but never got around to it. But, at the mega-library trip last Saturday, I saw it, I picked it up, and I read it yesterday on my BART ride to and from work.
It’s a quick read, but it’s got some great insights, where, by great insights, I mean Collins says things that fit my own biases. Collins and his research team found eleven companies that had been good companies, and then something happened that turned them into great companies. They chose their companies with a strict criteria of fifteen years of average stock market performance, and then fifteen years where they outperform the general stock market by three times every year. They took those eleven companies, and found eleven comparison companies, which were in the same industry, faced the same competitive pressures, and had similar performance pre-leap. And then they went to work trying to dissect what factors differentiated the companies that made the leap from the ones that didn’t.
The answers they came up with are unsurprising: leadership, people, focus, discipline, technology. But the characteristics they found for each of these answers were not what they expected. They found that while leadership was essential for a company making the leap, it was not the leaders they expected. The showy charismatic CEO that was hired to save the company almost always failed. The quiet bookish CEO that was promoted from within, that his own board doubted that he had the qualifications, that consistently turned away praise for himself? He was the CEO that led the company to greater performance.
As far as people, Collins observed that it’s essential to get the right people in place.
[The CEO] understood that the purpose of bureaucracy is to compensate for incompetence and lack of discipline – a problem that largely goes away if you have the right people in the first place. Most companies build their bureaucratic rules to manage the small percentage of wrong people on the bus, which in turn drives away the right people on the bus, which then increases the percentage of wrong people on the bus, which increases the need for more bureaucracy to compensate for incompetence and lack of discipline, which then further drives the right people away, and so forth. [He] also understood an alternative exists: Avoid bureaucracy and hierarchy and instead create a culture of discipline.” (p. 121)
Sounds a lot like Clay Shirky’s observation about process. And the solution sounds a lot like the kind of place where I’d like to work.
Another thing I liked was his discussion of company incentives. He basically says that all the incentives in the world will not work if it’s not a good place to be, and if you don’t have the right people. “Expending energy trying to motivate people is largely a waste of time… If you have the right people on the bus, they will be self-motivated. The real question then becomes: How do you manage in such a way as not to de-motivate people?” (p. 74)
I also really liked the discussion of focus. Collins emphasizes how essential it is for a company to have an organizing principle, one that is simple to comprehend, that makes it easy to decide whether a new venture is part of the company’s focus or not. To decide on such a principle, Collins posits finding the intersection between three characteristics: What you are deeply passionate about, what you can be the best in the world at, and what drives your economic engine. Find something that satisfies all three of these criteria, and you have the essence of a great company (as an aside, since I had just finished What should I do with my life?, the congruence between these criteria and what Bronson recommends is striking).
All in all, I liked the book. It’s a short, quick read, but it’s got a lot of good observations about what makes a great company. Nothing too mind-blowing for me, except that a lot of my strong biases about management have some justification. I’m not crazy! Well, not on this subject, at least.
5 thoughts on “Good to Great, by Jim Collins”