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good to great chapter 5 summary
It’s about companies who were good for a long time and then somehow became great for a long time. Good-to-great companies foster cultures of discipline—in which every person gauges his or her actions according to the three circles and the company’s Hedgehog Concept. The reason the good-to-great companies were able to excel regardless of industry was their sharp insight into the fundamental economics of what aspect of their business would drive profits. In addition to direct comparisons with statically good companies, Collins and his team compared the good-to-great companies with companies that showed great results but couldn’t sustain them over the fifteen-year window (“Unsustained Comparisons”). It’s easier to change direction because people are present because of who they get to work with rather than what they are working on. A company with the wrong people can never become great. Only one—Pitney Bowes—reacted with hedgehog thinking (but not without some hiccups). Collins’s criteria for a good-to-great company was as follows: A fifteen-year stock return at or below the general market return; followed by. discovered that good-to-great companies’ guiding concepts were driven by research and understanding along three axes. Good-to-great companies engage with groundbreaking technologies in a very specific way: Rather than bet the house on the technology itself, they think deeply about how the technology can serve the company’s Hedgehog Concept. To find those companies 1,435 companies were examined over a 40 year period. McMullen was raised on a farm in Kentucky, was the first in his family to go to college, and began his career at Kroger as a part-time stock clerk. They also conducted interviews with the executives who presided over the various companies at the transition point. That is to say, a core ideology can be anything you want, as long as you believe in it and refer back to it as you embark on the adaptations demanded by the facts of reality. They start with a great idea or a flash of brilliance. It doesn’t get bogged down by all the complexity. Their 100% market capture produced profit margins in excess of 80%. That is, its demise was hastened by a technological deficit, not caused by it. From 1973 to 1998, Kroger generated returns 10x the general market and 80x that of A&P. It doesn’t define us and it’s not who we are and what we are about, but without it we simply can’t survive very long. The results speak for themselves, earning the grace of Wall Street investors. Avoid the temptation to recruit external talent. But while not ambitious for themselves, they are ambitious for the company - they never back down from taking responsibility or making a difficult decision. These are people who are able to use their skills and knowledge to help their team succeed. The strategy paid off when the major change—banking deregulation—came. This gives you a better chance of making the right “what” decision. To help develop their Hedgehog Concept many companies use a Business Council. All the good-to-great companies had Level 5 leadership at the time of transition. Even as the company lost over $1.5 billion over three years, executives refused to sell the corporate jet. This is very different from setting your goals from the desire to grow, for example. The key is to be stoic yet hopeful, realistic without turning cynical. Even if it takes many years. One the one hand people accept the brutal facts. Instead, you start by getting the right people into the organization and the wrong people out. We are then achieving some visible results. The company’s technological innovation, though certainly important, would have been wasted without the culture Iverson incubated. Great companies pay attention to what’s really important and ignore everything else. It made sporadic deals to acquire stores in discrete areas, and even tried getting into the home-video industry by purchasing American Home Video Corporation (a move that resulted in a $31 million loss). We are taking consistent action in alignment with our Hedgehog Concept. Each time they switch idea momentum is lost. Avoid at all costs the “genius with a thousand helpers” model; management teams should be composed of independent and critical thinkers, not “yes people.”. supports HTML5 video. Leaders will be fact led rather than personality led. Rather than panic, Walgreens took stock. Shortly after his departure, the vacuum of talent in the management ranks became clear: Eckerd’s fortunes took a turn for the worse, and they were eventually acquired by J.C. Penney. Then another step. The ones who, for example, believed they’d be out by Christmas. Second, third, or fourth followers often win over the first mover. Intro to The Hedgehog Concept “The Hedgehog and the Fox” by Isaiah Berlin. In the process of analyzing and coding the various facets of the good-to-great companies and their comparisons, Collins and his team were clued into key concepts by a number of surprising differences. But Collins et al. You wouldn’t be able to answer! What this means for a contemporary, moderately informed reader is that some of Collins’s case studies may seem odd, given that they failed to sustain greatness. These are people who contribute using their skills, know-how and good work habits. By 2000, 23 years after MacDonald’s retirement, Burroughs’s returns had fallen 93% below the market. The quality of all other people in the team is equally as important. The timeline of Bethlehem Steel’s decline bears Iverson out. Few people lead great lives. Rigorous adherence to a Hedgehog Concept saves companies from panic acquisitions or misguided projects. Good to Great Summary Chapter 5: Hedgehog Thinking (Shortform note: The following chapter inaugurates the “Breakthrough” phase of a good-to-great company’s timeline, when a good company takes its first definitive step toward becoming great. Thanks for exploring this SuperSummary Plot Summary of “Good to Great” by Jim Collins. Michael Ostrowsky. For example, Walt Disney represents both the adaptability needed to survive and thrive in a forever-changing marketplace and the power of a core ideology. Getting the right people takes precedence over strategy, over vision, over almost everything. Chapter 2 Summary – Level 5 Leadership – Key Points Every good-to-great company had Level 5 leadership during pivotal transition years. “It is very important to grasp that Level 5 leadership is not just about humility and modesty. Good-to-great companies recruit and secure top talent before embarking on any transformative changes. Rather, they were the result of steady, dogged work that, to observers inside the company and out, seemed perfectly ordinary—even boring. What does first who, then what mean? They are ambitious, to be Comparison companies are in parentheses, followed by the companies’ industries. Flywheels vs. Doom Loops: Abbott Laboratories, To mitigate the pressures of the stock market, Abbott would offer middle-of-the-road growth projections to Wall Street, then set internal goals for much higher growth. Once the strategy is in place and chugging along, however, don’t be afraid to step on the gas. You may just already have a Level 5 Leader working for you. A key concept here is to realize that no single push makes a difference. A culture of discipline is one in which hedgehog thinking—the use of the three circles and adherence to the Hedgehog Concept—is dogma. For example, among the companies Collins lauds are: Was fined $185 million by the U.S. Consumer Financial Protection Bureau in 2016 for the creation of millions of fraudulent accounts, Paid a $1 billion penalty in 2018 to federal regulators as part of a settlement for abuses in its auto- and home-loan programs, Paid a $2.09 billion civil penalty in 2018 as part of a settlement for abuses in its home-loan program that contributed to the 2008 financial crisis. You must let go of the wrong people. It’s the same in our lives. Good-to-great executives, however, cultivated atmospheres where heated dissent and debate had real implications for company strategy. While Wells Fargo’s sector as a whole trailed the general stock market by 59%, Wells Fargo boasted returns 3x the market. 1-Sentence-Summary: Good To Great examines what it takes for ordinary companies to become great and outperform their competitors by analyzing 28 companies over 30 years, who managed to make the transition or fell prey to their bad habits. How to achieve it: Collins admits that Level 5 characteristics are likely a product of both nature and nurture and so are difficult to create out of whole cloth; he also doesn’t have hard data to back up any suggestions he might make. But research suggests technology is usually not the root cause of rise or decline - it’s merely an accelerant on what the company is already doing. Collins suggests four guiding principles: Good-to-great leaders tend to conduct meetings socratically, pumping their team for information and insight and asking tough questions to unearth assumptions. Within a year, Walgreens’s stock price had doubled—and drugstore.com had foundered, needing to lay off 10% of its workforce to conserve cash and shedding nearly all of its initial value.
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