Good to Great; a masterpiece by Mr. Jim C. Collins. This book is a guide to show all of you how to lead an ordinary company to become a great company. The author and his team of 21 others spent more than 5 years to research the secrets of leadership in many successful large companies and compiled this book as a formula. This book will explain the secrets of leading a business from small to large.
Most books research and interview the history and experiences of many successful companies and compile them into a book to guide the next generation, such as finding target customers, innovating, and determining market strategies. The question is, can those successful examples really be applied in this era? Can those activities and strategies really make a company truly successful? The answer is not necessarily. For example, if you want to know how an Olympic athlete won, you will study him, note his training activities and the techniques his coach taught him, and you will compile a number of factors that made him successful. But the problem is, this kind of study has no comparison and cannot be taken as a rule.
Therefore, the author's team clearly defined what a 'good' company is and what conditions a company must meet to be called a 'great' company. The companies selected for study are those with at least 30 years of operating history. The first 15 years, it must be a stable company with profits or stock value lower than or equal to the average stock value compared to companies in the same industry. And in the last 15 years, its value must be at least three times the market value.
This long-term study is to avoid many coincidental events that might occur. And not many companies can increase their value threefold within 15 years. You should know that many famous international companies like Coca-Cola, General Electric, Intel, Walmart, etc., saw their value increase by only 2.5 times in 15 years.
Based on all these standards, the author's team spent over 30 years studying 1,435 companies. Through careful selection according to the above standards, they finally selected only 11 companies to be the model companies. It should be noted that among those successful companies, there are many technology companies that achieved great success in a short time. But they were not selected by the author's team for study, because the success of these companies had many coincidental factors that you cannot replicate.
In addition, the author's team also chose another 11 companies with similar products, services, and revenues as the first 11. But they were ordinary companies and did not achieve the same great success as the model companies. The goal of studying these two groups of companies is to find out what special characteristics the model companies have that the ordinary companies don't. So, the author's team began to study and analyze those companies in detail, regarding strategy, company culture, finance, and human resources. The entire study took 5 years and summarized some key secrets which were written into this book. Below, we will talk about three things: people, strategy, and goals.
First point, we talk about people. On this point, the author raises a type of person they call a Level 5 Leader. The 'engine' is an important factor in leading an institution to become a top institution, a model company. Hearing this point, you probably understand that a company with a top leader is quite normal. Everyone understands that. But what the author wants to tell you is how a top leader is different from an ordinary leader. What kind of people are they? How can one become a top leader?
The Level 5 Leaders of the 11 model companies studied are all ordinary people, not charismatic, and generally, people have never seen or even heard their names. The CEOs of those companies rarely appear in the media. Speaking of top leaders, this book mentions the CEO of Kimberly-Clark, which is a giant American company that produces baby diapers and sanitary napkins, Mr. Darwin Smith. He was chosen by the board of directors to be the CEO when the company was facing problems and about to go bankrupt. Before that, he was just a lawyer in this company. The board of directors chose Darwin Smith to be CEO not because of his leadership abilities, but because he was a lawyer and probably understood how to shut down the company legally.
The unbelievable thing is, after Darwin Smith had been CEO for 2 months, it was discovered that he had severe cancer with only one year left to live. Later, a miracle happened. Darwin Smith sat in the CEO's chair for over 20 years and also beat this terrible disease. During these 20 years, what did Darwin Smith do to turn Kimberly-Clark, which was about to close its doors, into a top global company and even stand as a one-on-one competitor with the giant in the baby diaper and sanitary product industry, which was number one, P&G?
Darwin Smith decided to announce the closure of all paper mills, abandoning the production business he was used to, and became a company selling consumer goods instead. At that time, the board of directors of this company understood that Darwin Smith competing with a giant like P&G was no different from throwing an egg against a rock. But Darwin Smith did not care about those words. He understood that only by setting high goals for oneself and choosing a top competitor as a partner to compete against can one become a top company.
On Darwin Smith's person, we can see two things. First, he is a humble person. Second, he is a leader with a sharp goal. He never boasted about himself. When he succeeded, he said it was because of everyone or because of luck. And when he failed, he took the blame himself. A top leader never blames others, nor do they look at wealth, power, or personal fame.
A contrasting example to this type of top leader is the CEO of Scott Paper, Mr. Al Dunlap. His company produced toilet paper that you all use today. The special characteristic of Al Dunlap is that he is a braggart. In the media, he boasted about himself all the time and even said that he would break records and make his company the leading company in the history of American business. During the more than two years that Dunlap was CEO of Scott Paper, he did only three things. First, attract human talent. Second, cut operating expenses. Third, inflate the company's value to sell it.
In the end, it was just as he intended. Scott Paper was sold to Kimberly-Clark for $9 billion, and Dunlap himself sold his shares for a net of $100 million. Considering the over 600 days he was CEO of Scott Paper, he received a net of $165,000 per day into his bank account. This type of leader, Dunlap, cannot become a top leader because they only see personal benefits and fame.
What the author wants to show you is that some companies are willing to spend a lot of money to hire talented leaders from outside to lead the company. But usually, this doesn't yield good results. A growing model company should choose leaders from within its own institution. Like the 11 model companies studied, 10 of them chose their CEOs from within the company, not from outside. This means that top leaders are people who work within the company itself, just waiting for the right opportunity.
The difference between an ordinary company and a model company is that the top leaders in model companies have sharp goals, are committed to building a team, and think of the common good. As for ordinary companies, they often have one strong boss and a group of obedient subordinates, and the company is just a stage for that one boss to show off their abilities. This type of leader cannot become a top leader, and this type of company cannot become a model company either. As a result, this type of company may grow fast, but it is also prone to serious problems when the leader encounters issues, leaves the company, or has no successor.
But top leaders are the type of people who do not use personal power, position, or ownership rights. They believe that to lead an institution to success, you need a good team with the ability to work. The question is, how do you choose a good and suitable team? Many leaders mistakenly believe that to choose a good team, you must set clear goals, then announce and select people who are suitable and share the same vision to work together. Thinking like this is not wrong, but the book states that a top leader must choose the people first, then determine the goals later.
If we compare a company to a bus, what a top leader should do is not determine the destination and then shout for passengers to get on. Instead, they should invite people onto the bus first, then discuss where to drive it. A good top leader is humble and determined in their goals. Paired with a suitable team, this is the factor that makes an institution successful.
Above, we talked about the people factor. For the next point, we will raise the strategy factor. In this book, a key term is raised: the Hedgehog Strategy. The hedgehog is just an example. This term originates from ancient Greece, comparing the attack strategies of two different types of animals: the hedgehog and the fox. The fox is cunning and has many attack methods. But the hedgehog knows only one trick. No matter what it encounters, it just curls up into a ball and shoots the quills on its body at the enemy.
The author's team studied the differences between ordinary and model companies and found that ordinary companies use a fox strategy. They do many things, but each thing is not done well. As a result, it can cause the company to fail. But model companies use the hedgehog strategy. They do only one thing, and they do it the best. Doing only one thing sounds easy, but doing it is very difficult.
To achieve one goal, you must carefully consider three things. First, what can we be the best in the world at? Second, what are we deeply passionate about? Third, what drives our economic engine? These three points are like three intersecting circles. The intersection of these three points is what you should really be doing.
This book mentions Walgreens, the largest pharmacy chain in the United States. In the past, this company was a family business, and they did two things: operating pharmacies and food franchises. But after the top leader, Charles Walgreen, took over the company, he realized that opening food franchises would not be successful. This doesn't mean the food industry has no future, but he understood that this company shouldn't do it because it had no strength in it at all. He knew the company couldn't be number one in the industry if it did two things at the same time.
Charles Walgreen found what he wanted to do and what he could do better than anyone else, which was to open pharmacies. Therefore, he decided to sell off over 500 food franchises to get money to expand the pharmacy branches. As of now, this chain has over 8,250 stores across the United States, ranking number one in its industry.
As for the third point, how to get good results? For that, Charles Walgreen focused on only one KPI: profit per customer visit. Most pharmacies focus on profit per store. How are these two points different? You probably understand that to get more customers, the branches shouldn't be opened too close to each other, because it might reduce the number of customers. But Charles Walgreen used a different strategy. Similar to the strategy of expanding 7-Eleven branches, Walgreens pharmacies are opened close to each other. On average, there are four stores per kilometer. The distance between each store is only a few hundred meters. The hedgehog strategy that Walgreens used ensures convenience and rapid growth in its industry.
In summary, to achieve rapid growth and become a model company, you must use the hedgehog strategy. Do only one thing that you are good at, and do it the best. The two factors that make a model company successful are a top leader combined with a good strategy.
You're probably wondering, you've mentioned people and strategy, isn't technology important? In the 11 companies that the author's team studied, such as Walgreens or the razor blade company Gillette, they did not use any large-scale technology strategies. The author stated that, in fact, technology is just a tool that helps accelerate growth, but if you don't have a good engine, a suitable team, and the right strategy, you will not succeed.
Below, we will look at another factor that is an indispensable contributor to a company's rapid growth and becoming a leading model company, which is the Flywheel Effect. Imagine if someone asked you to spin a giant wheel with a 30-meter radius and a weight of 30 tons. You would use all your strength and physical power to push that wheel forward. It's not an easy thing to do. But you continue to do it. The wheel moves forward, little by little. Others looking from the outside don't see that the wheel is moving. But when the wheel completes its first rotation, second rotation, third rotation, tenth rotation, one-hundredth rotation, inertia becomes a factor that pushes the wheel forward on its own. You almost don't have to use any force to push it anymore. This is what is called the Flywheel Effect, which the author mentioned.
In an institution, for it to grow, there is no single law or specific strategy that can determine success. But if you have the right direction and try your best, you will definitely get results. A clear example is Amazon.com. Since this company was founded in 1997, it lost money for more than 20 years. It wasn't until 2015 that the company started to make a profit. Its stock value began to rise gradually. By 2018, Amazon had become the second most valuable company after Apple Inc., and Jeff Bezos, the founder of Amazon.com, also became the richest billionaire in the world. Amazon is the best example for explaining this Flywheel Effect.
Companies that fail are companies that don't try to push the wheel forward in a specific direction. They like to change strategies often, going up and down, while the wheel has not yet gained the momentum to push itself forward.
The important essence in this book is just that. Below, we will summarize again. The research team of the author, Jim C. Collins, used an excellent and unique methodology to research the important leadership secrets for an institution to achieve success.
The first secret is people. A top leader must be a person who is humble and has a sharp goal, and who looks at the common good. When facing problems, they look at themselves. When achieving success, they give credit to others or to luck.
The second point is to use the Hedgehog Strategy. The hedgehog knows only one trick, which is to protect itself and attack the enemy in all situations. A model company should focus on only one thing and do it the best.
Another point is that when a team achieves success, it must rely on the Flywheel Effect. To make a large wheel spin, you must keep pushing it forward in a specific direction with all your might. There is no formula or strategy that can be used to achieve success in every situation.
This book teaches us how to be a person and how to persevere in business. Like the phrase "a top leader is a humble person who values the greater good," continue to do what you believe is right and strive to do it better than anyone else. As for strategy, it will certainly vary depending on the business of each individual. It's time for you to do further study and research.