Every good to great company had level 5 leadership during the pivotal transition years.
Level 5 refers to a five-level hierarchy of executive capabilities, with level 5 at the top.
Level 5 leaders embody a paradoxical mix of personal humility and professional will. They are ambitious, but ambitious first and foremost for the company, not themselves.
Level 5 leaders set up their successors for even greater success in the next generation, while egocentric level 4 leaders often set up their successors for failure.
Level 5 leaders display a compelling modesty, are self-effacing and understated. In contrast, two thirds of the comparison companies had leaders with gargantuan personal egos that contributed to the demise or continued mediocrity of the company.
Level 5 leaders are fanatically driven, infected with an incurable need to produce sustained results. They’re resolved to do whatever it takes to make the company great, no matter how big or hard the decisions.
Level 5 leaders display a woman-like diligence – more plow horse than show horse.
Level 5 leaders look out the window to attribute success to factors other than themselves. When things to poorly, however, they look in the mirror and blame themselves, taking full responsibility. The comparison CEOs often did just the opposite – they looked in the mirror to take credit for success, but out the window to assign blame for disappointing results.
One of the most damaging trends in recent history is the tendency (especially by BODs) to select dazzling, celebrity leaders and to de-select potential level 5 leaders.
Potential level 5 leaders exist all around us, if we just know what to look for, and that many people have the potential to evolve into level 5.
10 of 11 good to great CEOs came from inside the company, whereas comparison companies tried outside CEOs 6 times more often.
Level 5 leaders attribute much of their success to good luck, rather than personal greatness.
First Who … Then What
The good-to-great leaders began the transformation by first getting the right people on the bus (and the wrong people off the bus) and then figured out where to drive it.
Key point is “who” questions come before “what” decisions – before vision, before strategy, before organization structure, before tactics. First who, then what – as a rigorous discipline, consistently applied.
Comparison companies frequently followed the “genius with a thousand helpers” model – a genius leader who sets a vision and then enlists a crew of highly capable “helpers” to make the vision happen. This model fails when the genius departs.
The good-to-great leaders were rigorous, not ruthless, in people decisions. They did not rely on layoffs and restructuring as a primary strategy for improving performance. The comparison companies used layoffs to a much greater extent.
To be rigorous in people decisions, don’t hire when in doubt – keep looking.
To be rigorous in people decisions, when I know I need to make a people change, act. First be sure I don’t simply have someone in the wrong seat.
To be rigorous in people decisions, put my best people on my biggest opportunities, not my 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 parochial interests.
There’s no systematic pattern linking executive compensation to the shift from good to great. The purpose of compensation is not to “motivate” the right behaviors from the wrong people, but to get and keep the right people in the first place.
The old adage “People are my best important asset” is wrong. People are not my most important asset. The right people are.
Whether someone is the “right person” has more to do with character traits and innate capabilities than with specific knowledge, background, or skills.
Confront the brutal facts (yet never lose faith)
All good-to-great companies began the process of finding a path to greatness by confronting the brutal facts of their current reality.
When I start with an honest and diligent effort to determine the truth of my situation, the right decisions often become self-evident. It’s impossible to make good decisions without infusing the entire process with an honest confrontation of the brutal facts.
A primary task in taking a company form good to great is to create a culture people have a tremendous opportunity to be heard and, ultimately, for the truth to be heard.
Creating a climate where the truth is heard involves 4 basic practices.
Lead with questions, not answers.
Engage in dialogue and debate, not coercion.
Conduct autopsies, without blame.
Build red flag mechanisms that turn information into information that cannot be ignored.
The good-to-great companies faced just as much adversity as the comparison companies but responded to that adversity differently. They hit the realities of their situation head-on. As a result, they emerged from adversity even stronger.
A key psychology for leading from good to great is the Stockdale Paradox: Retain absolute faith that I can and will prevail in the end, regardless of the difficulties. AND at the same time confront the most brutal facts of my current reality, whatever they might be.
Charisma can be as much a liability as an asset, as the strength of my leadership personality can deter people from bringing me the brutal facts.
Leadership does not begin just with vision. It begins with getting people to confront the brutal facts and to act on the implications.
Spending time and energy trying to “motivate” people is a waste of effort. The real question is not “how do we motivate our people?” If I have the right people, they’ll be self-motivated. The key is to not de-motivate them. One of the primary ways to de-motivate people is to ignore the brutal facts of reality.
Hedgehog Concept (Simplicity within the three circles)
To go from good to great requires a deep understanding of three intersecting circles translated into a simple, crystalline concept (the Hedgehog concept).
The key is to understand what my organization can be the best in the world at, and equally important what it cannot be the best at – not what it ‘wants’ to be the best at. The Hedgehog concept is not a goal, strategy or intention; it’s an understanding.
If I cannot be the best in the world at my core business, then my core business cannot form the basis of Hedgehog concept.
The ‘best in the world’ understanding is a much more severe standard than a core competence. I might have a competence but not necessarily have the capacity to be truly the best in the world at that competence. Conversely, there may be activities at which I could become the best in the world, but that which I have no current competence.
To get insight into the drives of my economic engine, search for one denominator that has the greatest impact. (e.g. profit per customer, profit per employee, profit per seat, profit per mile…)
Good-to-great companies set goals and strategies based on understanding Hedgehog concept: comparison companies set their goals and strategies based on bravado.
Getting the Hedgehog concept is an iterative process. The council can be a useful device.
The good-to-great companies are more like hedgehogs – simple, dowdy creatures that know “one big thing” and stick to it. The comparison companies are more like foxes – crafty, cunning creatures that know many things yet lack consistency.
It took 4 years on average for good-to-great companies to get a Hedgehog concept.
Strategy per se did not separate the good-to-great companies from comparison companies. Both sets had strategies and there is no evidence that the good-to-great companies spent more time on strategic planning than the comparison companies.
I absolutely do not need to be in a great industry to produce sustained great results. No matter how bad the industry, every good-to-great company figured out how to produce truly superior economic returns.
A Culture of Discipline
Sustained great results depend upon building a culture full of self-disciplined people how take disciplined action, fanatically consistent with 3 circles.
Bureaucratic cultures arise to compensate for incompetence and lack of discipline, which arise from having the wrong people on the bus in the first place. If I get the right people on the bus, and the wrong people off, I don’t need stultifying bureaucracy.
A culture of discipline involves a duality. On one hand, it requires people who adhere to a consistent system; yet, on the other hand, it gives people freedom and responsibility within the framework of that system.
A culture of discipline is not just about action. It’s about getting disciplined people who engage in disciplined thought and who then take disciplined action.
Good-to-great companies appear boring from the outside but upon closer inspection, they’re full of people who display extreme diligence and a stunning intensity.
Don’t confuse a culture of discipline with a tyrant who disciplines – they’re very different concepts, one highly functional, the other highly dysfunctional. Savior CEOs who personally discipline through sheer force of personality usually fail to produce sustained results.
Single most important form of discipline for sustained results is fanatical adherence to the Hedgehog concept and the willingness to shun opportunities that fall outside the 3 circles.
The more organization has the discipline to stay within its 3 circles, with almost religious consistency, the more it will have opportunities for growth.
The fact that something is a once-in-a-lifetime opportunity is irrelevant, unless it fits within 3 circles. A great company will have many once-in-a-lifetime opportunities.
Stop-doing lists are more important than to-do lists.
Good-to-great organizations think differently about technology and technological change than mediocre ones.
Good-to-great organizations avoid technology fads and bandwagons, yet they become pioneers in the application of carefully selected technologies.
Key questions about technology is “Does the technology fit directly with my Hedgehog concept?” If yes, then I need to become a pioneer in the application of that tech. If no, the I can settle for parity or ignore it entirely.
Good-to-great companies used tech as an accelerator of momentum, not a creator of it. None of good-to-great companies began their transformations with pioneering tech, yet they all became pioneers in the application of tech once they grasped how it fit with their 3 circles and after they hit breakthrough.
I could have taken the exact same leading-edge tech pioneer at the good-to-great companies and handed them to their comparisons for free, and the comparisons still would have failed to produce anywhere near the same results.
How a company reacts to tech change is a good indicator of its inner drive for greatness versus mediocrity. Great companies respond with thoughtfulness and creativity, drive by a compulsion to turn unrealized potential into results; mediocre companies react and lurch about, motivated by fear of being left behind.
“Crawl, walk, run” can be a very effective approach, even during times of rapid and radical tech change.
The Flywheel and the Doom Loop
Good-to-great transformations often look like dramatic, revolutionary events to those observing from the outside, but they feel like long, organic, cumulative processes to people on the inside. The confusion of end outcomes with process skews our perception of what really works over the long haul.
No matter how dramatic the end result, good-to-great transformations never happened in one fell swoop. There’s no single defining action, no grand program, no one killer innovation, no solitary lucky break, no miracle moment.
Sustainable transformations follow a predictable pattern of buildup and breakthrough. Like pushing on a giant, heavy flywheel, it takes a lot of effort to get the thing moving, but with persistent pushing in consistent direction over a long period of time, the flywheel builds momentum, eventually hitting a point of breakthrough.
The comparison companies followed a different pattern, the doom loop. Rather than accumulating momentum, they tried to skip buildup and jump immediately to breakthrough. Then, with disappointing results, they’d lurch back and forth, failing to maintain a consistent direction.
The comparison companies frequently tried to create a breakthrough with large, misguided acquisitions. Good-to-great companies, in contrast, principally used large acquisitions after breakthrough, to accelerate momentum in an already fast-spinning flywheel.