The Savvy Entrepreneur
How to take your company from mediocrity to greatness: An Interview with Jim Collins Author of Good to Great Why Some Companies Make the Leap While Others Don't
NJSBJ: First of all, could you explain the criteria you used to distinguish between good and great companies?
Collins: The real key was we were not just looking for great companies; we were looking for companies that made the transition from being good companies to becoming truly great companies. That is a key distinction. We looked at cumulative stock returns of these individual companies as compared to the performance of the overall market over a period of years.
NJSBJ: So to make the list of great companies, a company not only had to have attained a superior level of performance, they had to maintain that performance over a sustained period of time?
Collins: Exactly, once a company made the leap to great performance it had to out perform the stock market by three times over a 15-year period. If a company achieved a superior level of performance but were unable to sustain it, like RubbermaidÒ , it didn’t make the list.
NJSBJ: In your book, you noted that a company’s desire to be good could impede its ability to become great. Can you elaborate?
Collins: All companies are trying to improve their performance, but executives that have taken their companies to really great heights view good as the enemy of great. They are not satisfied with simply having a successful company, in the end they want to build an extraordinary company, the type of company that consistently delivers superior results. They are also the type of people for whom leaving unrealized potential on the table is a secular sin.
NJSBJ: Is it a matter of successful companies not wanting to rock the boat?
Collins: Well, I believe good companies want to change, it’s just a matter of are they simply looking to be successful or are they looking to achieve the highest possible level of performance regardless of the pain or discomfort involved.
NJSBJ: What about leadership? You cited that it takes a different kind of leader to build a great company. How are they different?
Collins: The leaders that allowed their companies to make the leap from good to great are extraordinary people. For example the late Darwin Smith, who led Kimberly-Clark from 1971 to 1991, was diagnosed with nose and throat cancer early in his tenure as CEO. Instead of letting the news slow him down he adhered to a demanding schedule in leading the company to a new level of performance while commuting weekly from Wisconsin to Houston to receive radiation therapy. Smith put the company’s well being before his own convenience. His story epitomizes the drive and dedication to achieving extraordinary company growth exhibited by the leaders of good to great companies. We also found that CEOs of companies that have made the leap from good to great are not high profile individuals. In fact, they are the opposite of the celebrity CEO. Darwin Smith, David Maxwell and Coleman Mickler are not household names, yet they are among the greatest CEOs of the last century. While they were ambitious, to be sure, their ambition was to grow their companies to greatness, not themselves.
NJSBJ: Leaders of great companies make building a great management team a top priority. Do they do anything different?
Collins: Building a great management team is a top priority of the leaders of great companies. Think about a bus. Most people think the leader gets on the bus, announces the company’s destination and simply uses the management team to get them there. The leaders of the companies that have made the leap to greatness have a different approach. Their approach is to say; I don’t really know where we should be going. But the first thing I’m going to do is get the right people on the bus, get the wrong people off of the bus and make sure everyone is in the right seat. Then, together we can decide on the best direction to drive the bus. So their first priority is to build a strong team and then decide where to take the company.
NJSBJ: You could say that because CEOs of great companies don’t let their egos get in the way they are able to assemble strong management teams.
Collins: That is exactly right! These leaders are able to put their egos aside and concentrate on building a management team that will help push the company to breakthrough results. In fact, many of the good to great CEOs studied for the book gave most of the credit to their management teams. They were remarkable executives, but they never tried to take all of the credit for the company’s success.
NJSBJ: What are the three hedgehog circles and why are they so important to any company that aspires to become great?
Collins: The basic premise is that to make the leap you must ask three questions that we refer to as hedgehog circles. These interlocking circles establish the base from which a company makes its leap to greatness. The first question is, what are we really passionate about? What do we love to do? What do we value deeply and feel a sense of purpose for? It doesn’t have to be anything grandiose. It can be something as simple as running a grocery store. Now that may not be exciting to me or to you, but the people at Kroger found it very exciting.
Second, what can we do better than any other company in the world? That’s a key question. It’s not just what can we do to make money, it’s what can we do better than any other company in the world? For example, I live in Bolder Colorado. Let’s say there is a wonderful coffee shop in town. They will never be a better coffee chain than Starbuck’sÔ . Starbuck’s is the best at that. But they can become the absolute best in the world at serving the South Bolder market.
Third, how can we best make money? You have to have a passion for what you’re doing. You want to become the best in the world at what you’re doing. But you must also be able to make money at what you’re doing.
NJSBJ: Why do so many successful start-ups fail to make the leap to greatness?
Collins: Actually, there are several reasons. First, in many cases the founder/leader is what we call a genius with a thousand helpers. They have a great idea. They have great charisma and leadership ability. The founder is the vision, passion and driving force behind the company. The problem is if the company is going to make the leap from being a successful start-up to becoming a really great company, the founder will have to shift from being a time teller to a clock builder. Many company founders never make that shift. They are great time tellers, they can see an opportunity in the market and act on it quickly, but they are not necessarily good at building a clock so the company can tell the time independent of them. As a result, the company becomes too dependent on the founder/leader for its survival.
Also because they are in total charge, they don’t usually make the transition to building a great management team and answering the three circles, which ultimately impedes the company’s ability to become a great organization independent of the founder.
NJSBJ: What role does technology play in building great companies?
Collins: It depends. We didn’t uncover any evidence a company can become great primarily because of technology, however, technology has been instrumental in helping many businesses achieve better results. For example, you will never build a great company simply by doing something on the Internet. We’ve seen evidence that companies that have tried to do that have by and large not become great companies.
The key question becomes, how can we harness the power of the Internet (or any other technology) to accelerate the company’s progress, tied back to our three circles? So the question is not, should we be on the Internet, but will being on the Internet help us do what we’re passionate about? Will it help us become the best in the world at what we do? Will it enable us to increase profitability? If it doesn’t tie in with those three circles you don’t need it.
NJSBJ: Can a smaller business with say, 50 to 100 employees, make the transition from good to great?
Collins: Absolutely! You don’t have to run a large company to make the leap from good to extraordinary results. Mid-size and small companies can also make the transition.
NJSBJ: In general, what should their first step be?
Collins: We have found it’s a three-step process. First, you have to get disciplined people onboard; second, you have to engage in disciplined thought; and third, you must take disciplined action. Going through the process is very important, particularly for smaller businesses. Smaller businesses are usually caught up in the action of the day, but the transition doesn’t just happen while you’re busy doing something else. You have to lay the foundation and plan the transition.
As I said before, you want to get the right people onboard. Once you have disciplined people you can turn to disciplined thought. What are the brutal facts about our company? What are the three circles of our hedgehog concept? What issues do we need to recognize and address? What will be our biggest challenge in making the transition?
Once you have the right people onboard and you know where you want to take the company then, you can turn to disciplined action. Now that we know what we want to do and what needs to be done, how do we go about doing it?
I find that smaller businesses are always concerned with ‘The What’. They only concern themselves with "What do I do?" But for any business endeavoring to become great the first question is not ‘what’ – the right first question is always ‘who’.
Jim Collins is also co-author of the business best seller ‘Built To Last.’ You can find ‘Good To Great’ at bookstores everywhere. You can also visit his web site at www.goodtogreat.com
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Ó2001 The New Jersey Small Business Journal