The author and his research team embarked on a five-year study to identify the factors behind the transition from a good company to a great one.
“Good is the enemy of great. And that is one of the key reasons why we have so little that becomes great. We don't have great schools, principally because we have good schools. We don't have great government, principally because we have good government. Few people attain great lives, in large part because it is just so easy to settle for a good life.”
The great companies were chosen by their sustained success, with average stock returns 6.9 times the general market over 15 years. They were each compared against another company in their sectors with similar resources but average or below average returns.
Great companies have Level 5 leaders during critical transitions.
Level 5 is the highest level in the hierarchy of executive capabilities.
They embody a mix of humility and strong will, and prioritize the company's success over personal ambition.
They foster their successors' success, while many egocentric lower-level leaders often set up their successors for failure.
They exhibit a relentless drive for sustained results and credit success outwardly but accept blame internally.
They often attribute their success to luck, not personal greatness.
They are often internally promoted employees. Outside flashy celebrity leaders commonly fail.
Great companies assemble the right team first, everything else comes later.
“First who… then what.”
Prioritize getting the right people before determining the direction.
Don't hire if there's any doubt.
“Letting the wrong people hang around is unfair to all the right people, as they inevitably find themselves compensating for the inadequacies of the wrong people. Worse, it can drive away the best people.”
Great companies don't rely on layoffs/restructuring as much as other companies.
Assign your best people the biggest opportunities, not the biggest problems.
Compensation is not linked to success.
The right team has more to do with personality traits than knowledge and skills.
Great companies face the facts, no matter how brutal.
Great companies face similar challenges as others, but they approach them differently by directly confronting their realities.
Foster a culture of open communication. Lead with questions, not demands.
Conduct blame-free autopsies and establish effective warning systems.
Maintain absolute faith while confronting harsh realities (Stockdale Paradox).
The team should be self-motivated. A leader's job is to not de-motivate them by ignoring facts.
“The moment a leader allows himself to become the primary reality people worry about, rather than reality being the primary reality, you have a recipe for mediocrity, or worse. This is one of the key reasons why less charismatic leaders often produce better long-term results than their more charismatic counterparts.”
Great companies follow the Hedgehog Concept.
The name comes from the Greek parable: “The fox knows many things, but the hedgehog knows one big thing.”
The one big thing is derived from the intersection of three circles: Circle one: What are you passionate about? Circle two: What are you the best in the world at? Circle three: What drives your economic engine?
The Hedgehog Concept is not a strategy, it's an understanding.
Finding your one big thing is an iterative process. On average, it took four years for great companies to develop their Hedgehog Concept.
Great companies are disciplined.
Sustained success relies on cultivating a culture of discipline aligned with the Hedgehog Concept, fostering a system where bureaucracy isn't necessary.
“The purpose of bureaucracy is to compensate for incompetence and lack of discipline.”
Reject opportunities outside the three circles. Organizations adhering closely to their circles actually find more growth opportunities.
“‘Stop doing' lists are more important than ‘to do' lists.”
Great companies approach new technologies thoughtfully.
Prioritize technology that aligns with your Hedgehog Concept. Be a pioneer in carefully selected applications. Avoid irrelevant trends.
Technology is an accelerator of momentum, not a creator.
80% of interviewed executives did not mention technology as a top five factor for success.
Evidence does not support the idea that outdated technology causes decline or mediocrity. It is never the primary cause.
“Mediocrity results first and foremost from management failure, not technological failure.”
“Crawl, walk, run.”
Great companies operate like a flywheel.
Sustainable success follows a predictable pattern of slow buildup of hard work, and then breakthrough, like pushing a giant flywheel.
Successful transformations seem abrupt externally, but they unfold organically and gradually internally.
Achieving alignment and motivation primarily stems from results and momentum, not the other way around.
Lesser companies try to skip the buildup and jump to breakthrough, then lurch back and forth when disappointed, creating a doom loop.