by Jim Collins
Start with 1,435 good
companies. Examine their performance over 40 years. Find the 11
companies that became great. Now here's how you can do it too.
Lessons on eggs, flywheels, hedgehogs, buses, and other essentials
of business that can help you transform your company.
I want to give you a lobotomy about change. I want you to forget
everything you’ve ever learned about what it takes to create
great results. I want you to realize that nearly all operating
prescriptions for creating large-scale corporate change are nothing
but myths.
The Myth of the Change Program: This approach comes with the launch event, the tag line, and the cascading activities.
The Myth of the Burning Platform: This one says that change
starts only when there’s a crisis that persuades “unmotivated”
employees to accept the need for change.
The Myth of Stock Options: Stock options, high salaries, and bonuses are incentives that grease the wheels of change.
The Myth of Fear-Driven Change: The fear of being left behind,
the fear of watching others win, the fear of presiding over monumental
failure—all are drivers of change, we’re told.
The Myth of Acquisitions: You can buy your way to growth, so it figures that you can buy your way to greatness.
The Myth of Technology-Driven Change: The breakthrough that you’re looking
for can be achieved by using technology to leapfrog the competition.
The Myth of Revolution: Big change has to be wrenching, extreme, painful—one
big, discontinuous, shattering break.
Wrong. Wrong. Wrong. Wrong. Wrong. Wrong. Totally wrong.
Here are the facts of life about these and other change myths.
Companies that make the change from good to great have no name
for their transformation—and absolutely no program. They
neither rant nor rave about a crisis—and they don't manufacture
one where none exists. They don't “motivate” people—their
people are self-motivated. There’s no evidence of a connection
between money and change mastery. And fear doesn't drive change—but
it does perpetuate mediocrity. Nor can acquisitions provide a
stimulus for greatness: Two mediocrities never make one great
company. Technology is certainly important—but it comes into
play only after change has already begun. And as for the final
myth, dramatic results do not come from dramatic process—not
if you want them to last, anyway. A serious revolution, one that
feels like a revolution to those going through it, is highly unlikely
to bring about a sustainable leap from being good to being great.
These myths became clear as my research team and I completed
a five-year project to determine what it takes to change a good
company into a great one. We systematically scoured a list of
1,435 established companies to find every extraordinary case that
made a leap from no-better-than-average results to great results.
How great? After the leap, a company had to generate cumulative
stock returns that exceeded the general stock market by at least
three times over 15 years—and it had to be a leap independent
of its industry. In fact, the 11 good-to-great companies that
we found averaged returns 6.9 times greater than the market’s—more
than twice the performance rate of General Electric under the
legendary Jack Welch.
The surprising good-to-great list included such unheralded companies
as Abbott Laboratories (3.98 times the market), Fannie Mae (7.56
times the market), Kimberly-Clark Corp.(3.42 times the market),
Nucor Corp. (5.16 times the market), and Wells Fargo (3.99 times
the market). One such surprise, the Kroger Co.—a grocery
chain—bumped along as a totally average performer for 80
years and then somehow broke free of its mediocrity to beat the
stock market by 4.16 times over the next 15 years. And it didn't
stop there. From 1973 to 1998, Kroger outperformed the market
by 10 times.
In each of these dramatic, remarkable, good-to-great corporate
transformations, we found the same thing: There was no miracle
moment. Instead, a down-to-earth, pragmatic, committed-to-excellence
process—a framework—kept each company, its leaders,
and its people on track for the long haul. In each case, it was
the triumph of the Flywheel Effect over the Doom Loop, the victory
of steadfast discipline over the quick fix. And the real kicker:
The comparison companies in our study—firms with virtually
identical opportunities during the pivotal years—did buy
into the change myths described above—and failed to make
the leap from good to great.
change doesn't happen
Picture an egg. Day after day, it sits
there. No one pays attention to it. No one notices it. Certainly
no one takes a picture of it or puts it on the cover of a celebrity-focused
business magazine. Then one day, the shell cracks and out jumps
a chicken.
All of a sudden, the major magazines and newspapers jump on
the story: “Stunning Turnaround at Egg!” and “The
Chick Who Led the Breakthrough at Egg!” From the outside,
the story always reads like an overnight sensation—as if
the egg had suddenly and radically altered itself into a chicken.
Now picture the egg from the chicken's point of view.
While the outside world was ignoring this seemingly dormant
egg, the chicken within was evolving, growing, developing—changing.
From the chicken’s point of view, the moment of breakthrough,
of cracking the egg, was simply one more step in a long chain
of steps that had led to that moment. Granted, it was a big step—but
it was hardly the radical transformation that it looked like from
the outside.
It’s a silly analogy, but then our conventional way of
looking at change is no less silly. Everyone looks for the “miracle
moment” when “change happens.” But ask the good-to-great
executives when change happened. They cannot pinpoint a single
key event that exemplified their successful transition.
Take Walgreens. For more than 40 years, Walgreens was no more
than an average company, tracking the general market. Then in
1975 (out of the blue!) Walgreens began to climb. And climb. And
climb. It just kept climbing. From December 31, 1975, to January
1, 2000, $1 invested in Walgreens beat $1 invested in Intel by
nearly two times, General Electric by nearly five times, and Coca-Cola
by nearly eight times. It beat the general stock market by more
than 15 times.
I asked a key Walgreens executive to pinpoint when the good-to-great
transformation happened. His answer: “Sometime between 1971
and 1980.” (Well, that certainly narrows it down!)
Walgreens’s experience is the norm for good-to-great performers.
Leaders at Abbott said, “It wasn't a blinding flash or sudden
revelation from above.” From Kimberly-Clark: “These
things don't happen overnight. They grow.” From Wells Fargo:
“It wasn't a single switch that was thrown at one time.”
We keep looking for change in the wrong places, asking the wrong
questions, and making the wrong assumptions. There’s even
a tendency to blame Wall Street for the “instant results”
approach to change. But the companies that made the jump from
good to great did so using Wall Street's own tough metric of success:
a sustained leap in their stock-market performance. Wall Street
turns out to be just another myth—an excuse for not doing
what really works. The data doesn’t lie.
change does happen
Now picture a huge, heavy flywheel. It’s a massive, metal
disk mounted horizontally on an axle. It's about 100 feet in diameter,
10 feet thick, and it weighs about 25 tons. That flywheel is your
company. Your job is to get that flywheel to move as fast as possible,
because momentum—mass times velocity—is what will generate
superior economic results over time.
Right now, the flywheel is at a standstill. To get it moving,
you make a tremendous effort. You push with all your might, and
finally you get the flywheel to inch forward. After two or three
days of sustained effort, you get the flywheel to complete one
entire turn. You keep pushing, and the flywheel begins to move
a bit faster. It takes a lot of work, but at last the flywheel
makes a second rotation. You keep pushing steadily. It makes three
turns, four turns, five, six. With each turn, it moves faster,
and then—at some point, you can’'t say exactly when—you
break through. The momentum of the heavy wheel kicks in your favor.
It spins faster and faster, with its own weight propelling it.
You aren't pushing any harder, but the flywheel is accelerating,
its momentum building, its speed increasing.
This is the Flywheel Effect. It's what it feels like when you’re
inside a company that makes the transition from good to great.
Take Kroger, for example. How do you get a company with more than
50,000 people to embrace a new strategy that will eventually change
every aspect of every grocery store? You don’t. At least
not with one big change program.
Instead, you put your shoulder to the flywheel. That’s
what Jim Herring, the leader who initiated the transformation
of Kroger, told us. He stayed away from change programs and motivational
stunts. He and his team began turning the flywheel gradually,
consistently—building tangible evidence that their plans
made sense and would deliver results.
“We presented what we were doing in such a way that people
saw our accomplishments,”Herring says. “We tried to
bring our plans to successful conclusions step by step, so that
the mass of people would gain confidence from the successes, not
just the words.”
Think about it for one minute. Why do most overhyped change
programs ultimately fail? Because they lack accountability, they
fail to achieve credibility, and they have no authenticity. It’s
the opposite of the Flywheel E it's the Doom Loop.
Companies that fall into the Doom Loop genuinely want to effect
change—but they lack the quiet discipline that produces the
Flywheel Effect. Instead, they launch change programs with huge
fanfare, hoping to “enlist the troops.” They start down
one path, only to change direction. After years of lurching back
and forth, these companies discover that they’ve failed to
build any sustained momentum. Instead of turning the flywheel,
they've fallen into a Doom Loop: Disappointing results lead to
reaction without understanding, which leads to a new direction—a
new leader, a new program—which leads to no momentum, which
leads to disappointing results. It’s a steady, downward spiral.
Those who have experienced a Doom Loop know how it drains the
spirit right out of a company.
Consider the Warner-Lambert Co.—the company that we compared
directly with Gillette—in the early 1980s. In 1979, Warner-Lambert
told Business Week that it aimed to be a leading consumer-products
company. One year later, it did an abrupt about-face and turned
its sights on healthcare. In 1981, the company reversed course
again and returned to diversification and consumer goods. Then
in 1987, Warner-Lambert made another U-turn, away from consumer
goods, and announced that it wanted to compete with Merck. Then
in the early 1990s, the company responded to government announcements
of pending healthcare reform and reembraced diversification and
consumer brands.
Between 1979 and 1998, Warner-Lambert underwent three major
restructurings—one per CEO. Each new CEO arrived with his
each CEO halted the momentum of his predecessor.
With each turn of the Doom Loop, the company spiraled further
downward, until it was swallowed by Pfizer in 2000.
In contrast, why does the Flywheel Effect work? Because more
than anything else, real people in real companies want to be part
of a winning team. They want to contribute to producing real results.
They want to feel the excitement and the satisfaction of being
part of something that just flat-out works. When people begin
to feel the magic of momentum—when they begin to see tangible
results and can feel the flywheel start to build speed—that’s
when they line up, throw their shoulders to the wheel, and push.
And that’s how change really happens.
Disciplined
people: “Who” before “what”
You are a bus driver. The bus, your company, is at a standstill,
and it’s your job to get it going. You have to decide where
you're going, how you're going to get there, and who's going with
Most people assume that great bus drivers (read: business leaders)
immediately start the journey by announcing to the people on the
bus where they're going—by setting a new direction or by
articulating a fresh corporate vision.
In fact, leaders of companies that go from good to great start
not with “where” but with “who.” They start
by getting the right people on the bus, the wrong people off the
bus, and the right people in the right seats. And they stick with
that discipline—first the people, then the direction—no
matter how dire the circumstances. Take David Maxwell’s bus
ride. When he became CEO of Fannie Mae in 1981, the company was
losing $1 million every business day, with $56 billion worth of
mortgage loans underwater. The board desperately wanted to know
what Maxwell was going to do to rescue the company.
Maxwell responded to the “what” question the same
way that all good-to-great leaders do: He told them, That’s
the wrong first question. To decide where to drive the bus before
you have the right people on the bus, and the wrong people off
the bus, is absolutely the wrong approach.
Maxwell told his management team that there would only be seats
on the bus for A-level people who were willing to put out A-plus
effort. He interviewed every member of the team. He told them
all the same thing: It was going to be a tough ride, a very demanding
trip. If they didn’t want to go, just say so. Now’s
the time to get off the bus, he said. No questions asked, no recriminations.
In all, 14 of 26 executives got off the bus. They were replaced
by some of the best, smartest, and hardest-working executives
in the world of finance.
With the right people on the bus, in the right seats, Maxwell
then turned his full attention to the “what” question.
He and his team took Fannie Mae from losing $1 million a day at
the start of his tenure to earning $4 million a day at the end.
Even after Maxwell left in 1991, his great team continued to drive
the flywheel—turn upon turn—and Fannie Mae generated
cumulative stock returns nearly eight times better than the general
market from 1984 to 1999.
When it comes to getting started, good-to-great leaders understand
three simple truths. First, if you begin with “who,”
you can more easily adapt to a fast-changing world. If people
get on your bus because of where they think it’s going, you'll
be in trouble when you get 10 miles down the road and discover
that you need to change direction because the world has changed.
But if people board the bus principally because of all the other
great people on the bus, you’ll be much faster and smarter
in responding to changing conditions. Second, if you have the
right people on your bus, you don’t need to worry about motivating
them. The right people are self-motivated: Nothing beats being
part of a team that is expected to produce great results. And
third, if you have the wrong people on the bus, nothing else matters.
You may be headed in the right direction, but you still won’t
achieve greatness. Great vision with mediocre people still produces
mediocre results.
Disciplined
thought: Fox or hedgehog?
Picture two animals: a fox and a hedgehog. Which are you? An ancient
Greek parable distinguishes between foxes, which know many small
things, and hedgehogs, which know one big thing. All good-to-great
leaders, it turns out, are hedgehogs. They know how to simplify
a complex world into a single, organizing idea—the kind of
basic principle that unifies, organizes, and guides all decisions.
That’s not to say hedgehogs are simplistic. Like great thinkers,
who take complexities and boil them down into simple, yet profound,
ideas (Adam Smith and the invisible hand, Darwin and evolution),
leaders of good-to-great companies develop a Hedgehog Concept
that is simple but that reflects penetrating insight and deep
understanding.
What does it take to come up with a Hedgehog Concept for your
company? Start by confronting the brutal facts. One good-to-great
CEO began by asking, “Why have we sucked for 100 years?”
That's brutal—and it's precisely the type of disciplined
question necessary to ignite a transformation. The management
climate during a leap from good to great is like a searing scientific
debate—with smart, tough-minded people examining hard facts
and debating what those facts mean. The point isn’t to win
the debate, but rather to come up with the best answers—and,
ultimately, to lock onto a Hedgehog Concept that works.
You’ll know that you’re getting closer to your Hedgehog
Concept when you align three intersecting circles that represent
three pivotal questions: What can we be the best in the world
at? (And equally important—what can we not be the best at?)
What is the economic denominator that best drives our economic
engine (profit or cash flow per “x”)? And what are our
core people deeply passionate about? Answer those three questions
honestly, facing the brutal facts without blinking, and you’ll
begin to see your Hedgehog Concept emerge.
For example, before Wells Fargo understood its Hedgehog Concept,
its leaders had tried to make it a global bank: It operated like
a mini-Citicorp—and a mediocre one at that.
Then the Wells Fargo team asked itself, “What can we potentially
do better than any other company?” The brutal fact was that
Wells Fargo would never be the best global bank in the world—and
so the leadership team pulled the plug on the vast majority of
the bank’s international operations. When the team asked
the question about the bank’s economic engine, Wells Fargo’s
leaders confronted a second brutal fact: In a deregulated world,
commercial banking would be a commodity. The essential economic
driver would no longer be profit per loan, but profit per employee.
The bank switched its operations to become a pioneering leader
in electronic banking and to open utilitarian branches run by
small crews of superb people. Profit per employee skyrocketed.
Finally, when it came to passion, members of the Wells Fargo team
all agreed: The mindless waste and self-awarded perks of traditional
banking culture were revolting. They proudly saw themselves as
stoic Spartans in an industry that had been dominated by the wasteful,
elitist culture of banking. The Wells Fargo team eventually translated
the three circles into a simple, crystalline Hedgehog Concept:
Run a bank like a business, with a focus on the western United
States, and consistently increase profit per employee. “Run
it like a business” and “run it like you own it”
simplicity and focus made all the difference.
With fanatical adherence to that simple idea, Wells Fargo made
the leap from good results to superior results.
In the journey from good to great, defining your Hedgehog Concept
is an essential element. But insight and understanding don’t
happen overnight—or after one off-site. On average, it took
four years for the good-to-great companies to crystallize their
Hedgehog Concepts. It was an inherently iterative process—consisting
of piercing questions, vigorous debate, resolute action, and autopsies
without blame—a cycle repeated over and over by the right
people, infused with the brutal facts, and guided by the three
circles. This is the chicken inside the egg.
Disciplined action:
The “stop doing” list
Take a look at your desk. If you’re like most hard-charging
leaders, you’ve got a well-articulated to-do list. Now take
another look: Where’s your stop-doing list? We've all been
told that leaders make things happen—and that's true: Pushing
that flywheel takes a lot of concerted effort. But it’s also
true that good-to-great leaders distinguish themselves by their
unyielding discipline to stop doing anything and everything that
doesn't fit tightly within their Hedgehog Concept.
When Darwin Smith and his management team crystallized the Hedgehog
Concept for Kimberly-Clark, they faced a dilemma. On one hand,
they understood that the best path to greatness lay in the consumer
business, where the company had demonstrated a best-in-the-world
capability in its building of the Kleenex brand. On the other
hand, the vast majority of Kimberly-Clark’s revenue lay in
traditional coated-paper mills, turning out paper for magazines
and writing pads—which had been the core business of the
company for 100 years. Even the company's namesake town—Kimberly,
Wisconsin—was built around a Kimberly-Clark paper mill.
Yet the brutal truth remained: The consumer business was the
one arena that best met the three-circle test. If Kimberly-Clark
remained principally a paper-mill business, it would retain a
secure position as a good company. But its only shot at becoming
a great company was to become the best paper-based consumer company—if
it could take on such companies as Procter & Gamble and Scott
Paper Co. and beat them. That meant it would have to “stop
doing” paper mills.
So, in what one director called “the gutsiest decision
I've ever seen a CEO make,” Darwin Smith sold the mills.
He even sold the mill in Kimberly, Wisconsin. Then he threw all
the money into a war chest for an epic battle with Procter & Gamble
and Scott Paper. Wall Street analysts derided the move, and the
business press called it stupid. But Smith did not waver.
Twenty-five years later, Kimberly-Clark emerged from the fray as the number-one paper-based consumer-products company in the world, beating P&G in six of eight categories and owning its former archrival Scott Paper outright. For the shareholder, Kimberly-Clark under Darwin Smith beat the market by four times, easily outperforming such great companies as Coca-Cola, General Electric, Hewlett-Packard, and 3M.
In deciding what not to do, Smith gave the flywheel a gigantic
push—but it was only one push. After selling the mills, Kimberly-Clark’s
full transformation required thousands of additional pushes, big
and small, accumulated one after another. It took years to gain
enough momentum for the press to herald Kimberly-Clark’s
shift from good to great. One magazine wrote, “When ... Kimberly-Clark
decided to go head to head against P&G ... this magazine predicted
disaster. What a dumb idea. As it turns out, it wasn't a dumb
idea. It was a smart idea.” The amount of time between the
two articles: 21 years.
Our study of what it takes to turn good into great required five
years—and 10.5 person-years—and amounted to our own
flywheel effort. Looking back on our research, what’s most
striking to me about our findings is the absence of a magic moment
in any of the good-to-great companies—or in our own journey
to understanding. The real path to greatness, it turns out, requires
simplicity and diligence. It requires clarity, not instant illumination.
It demands each of us to focus on what is vital—and to eliminate
all of the extraneous distractions.
After five years of research, I’m absolutely convinced
that if we just focus our attention on the right things—and
stop doing the senseless things that consume so much time and
energy—we can create a powerful Flywheel Effect without increasing
the number of hours we work.
I’m also convinced that the good-to-great findings apply
broadly—not just to CEOs but also to you and me in whatever
work we’re engaged in, including the work of our own lives.
For many people, the first question that occurs is, “But
how do I persuade my CEO to get it?” My answer: Don't worry
about that. Focus instead on results—on subverting mediocrity
by creating a Flywheel Effect within your own span of responsibility.
So long as we can choose the people we want to put on our own
minibus, each of us can create a pocket of greatness. Each of
us can take our own area of work and influence and can concentrate
on moving it from good to great. It doesn’t really matter
whether all the CEOs get it. It only matters that you and I do.
Now, it’s time to get to work.
Jim Collins
wrote the essay
in the March 2000 issue of Fast Company.
His new book, Good to Great: Why Some Companies Make the Leap
... And Others Don't, will be available in October.
Can a good company become a great company? How? It took Jim Collins
and his team of researchers five years to come up with the answers:
11 companies made the leap from good to great and then sustained
those results for at least 15 years. How great was great? The
good-to-great companies averaged cumulative stock returns 6.9
times the general market in the 15 years after their transition
points. The actual screening-and-selection process was a rigorous
one. The criteria were:
1. The company had to show a pattern of good performance, punctuated
by a transition point, after which it shifted to great performance.
“Great performance” was defined as a cumulative total
stock return of at least three times the general market for the
period from the transition point through 15 years.
2. The transition from good to great had to be company specific, not an industrywide event.
3. The company had to be an established and ongoing enterprise—not a
startup. It had to have been in business for at least 25 years
prior to its transition, and it had to have been publicly traded
with stock-return data available for at least 10 years prior to
its transition.
4. The transition point had to occur before 1985 to give the team enough data to assess the sustainability of the transition.
5. Whatever the year of transition, the company had to be a significant, ongoing, stand-alone company.
6. At the time of its selection, the company still had to show an upward trend.
The study began with a field of 1,435 companies and emerged with a list of 11 good-to-great companies: Abbott Laboratories, Circuit City, Fannie Mae, Gillette Co., Kimberly-Clark Corp., the Kroger Co., Nucor Corp., Philip Morris Cos. Inc., Pitney Bowes Inc., Walgreens, and Wells Fargo.
The next step in the study was to isolate what it took to make
the change. At this point, each of the 11 good-to-great companies
was paired with a comparison company—a company with similar
attributes that could have made the transition, but didn’t.
Then the research began. Collins and his team reviewed books,
articles, case studies, and annual reports c
examined financial analyses for each company, totaling 980 combined
conducted 84 interviews with senior managers and
board memb scrutinized the personal and professional
records of 56 CEOs; analyzed compensation pla
and reviewed layoffs, corporate ownership, “media hype,”
and the role of technology for the companies. The findings are
contained in Good to Great: Why Some Companies Make the Leap
... And Others Don't (HarperBusiness, 2001).
The CEOs who took their companies from good
to great were largely anonymous. Is that an accident?
Jim Collins: There is a direct relationship between the
absence of celebrity and the presence of good-to-great results.
Why? First, when you have a celebrity, the company turns into
“the one genius with 1,000 helpers.” It creates a sense
that the whole thing is really about the CEO. At a deeper level,
we found that for leaders to make something great, their ambition
has to be for the greatness of the work and the company, rather
than for themselves. That doesn’t mean that they don’t
have an ego. It means that at each decision point—at each
of the critical junctures when Choice A would favor their ego
and Choice B would favor the company and the work—time and
again the good-to-great leaders pick Choice B. Celebrity CEOs,
at those same decision points, are more likely to favor self and
ego over company and work.
FC: Like the anonymous CEOs, most of the good-to-great companies are unheralded. What does that tell us?
JC: The truth is, few people are working on the most
glamorous things in the world. Most of them are doing real work—which
means that most of the time they’re doing a heck of a lot
of drudgery with only a few moments of excitement. The real work
of the economy gets done by people who make cars, who sell real
estate, and who run grocery stores or banks. One of the great
findings of this study is that you can be in a great company and
be doing it in steel, in drug stores, or in grocery stores. No
one has the right to whine about their company, their industry,
or the kind of business that they're in—ever again.
FC: Let’s say that I’m not running a company.
How do the good-to-great lessons apply to me?
JC: The basic message is this: Build your own flywheel. You can do it. You can start to build momentum in something for which you've got responsibility. You can build a great department. You can build a great church community. You can take every one of these ideas and apply them to your own work or your own life.
FC: What does your research suggest about the best way to respond to the current economic slowdown?
JC: If I were running a company today, I would have one
priority above all others: to acquire as many of the best people
as I could. I’d put off everything else to fill my bus. Because
things are going to come back. My flywheel is going to start to
turn. And the single biggest constraint on the success of my organization
is the ability to get and to hang on to enough of the right people.
Jim Collins