Classic Business Management – from ‘Good to Great’

I recently re-read the classic business management book ‘Good to Great’ by Jim Collins (2001). In it, Collins looked for businesses that had 15 years of “cumulative stock returns at or below the general stock market, punctuated by a transition point, then cumulative stock returns at three times the market over the next fifteen years” (p.6).

Collins then compared these companies to other companies in the same industry, with the same opportunities and resources that did not make the same leap to greatness. The great companies were also compared to companies that made a jump to greatness, but found that success short lived. One of the most interesting discussions was about what distinguished the leaders at the companies that went from good to great.

Collins writes, “Larger-than-life, celebrity leaders who ride in from the outside are negatively correlated with taking a company from good to great. Ten of the eleven good-to-great CEOs came from inside the company whereas the comparison companies tried outside CEOs six times more often…we found no systemic patterns linking specific forms of executive compensation to the process…the Good-to-Great companies paid scant attention to managing change, motivating people or creating alignment. Under the right conditions, the problems melt away.” (p.10-11).

Collins’ findings offer some very important lessons that are useful for understanding what makes a great leader.

One of Collins most important distinctions is the difference between a Level 4 and 5 leader. “Level 5 refers to a five-level hierarchy of executive capabilities, with Level 5 at the top” (p. 39). Collins found that Level 5 leaders “embody a paradoxical mix of personal humility and professional will. They are ambitious, to be sure, 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, whereas egocentric Level 4 leaders often set up their successor for failure… Level 5 leaders look out the window to attribute success to factors other than themselves, when things go 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.” (p. 39).

According to Collins, Level 5 Leaders were passionate and able to stay away from mangled bureaucracies by hiring disciplined and passionate people. They built cultures of responsibility and most surprisingly cared about their product to the point that it sometimes hurt their bottom line. Great companies stuck to their plans for the future and consistently stayed with it, while comparison companies lacked the discipline and consistency of the Good-to-Great companies.

While it would seem that these are obvious characteristics of a great leader, it is amazing how difficult it is to achieve. The good news is that if we are aware of our actions and understand what makes a good company, great we can tailor our own approach from being a good to great leader.