GOOD TO GREAT
By: Jim Collins
CHAPTER 1: GOOD IS THE ENEMY OF GREAT
GOOD IS THE ENEMY OF GREAT
 “The vast majority of companies never become great,
precisely because the vast majority become quite
good-and that is their main problem.” (p. 1)
 So, what does it take for a company to go from a
good company to a great company?
A Little Research Background
 Collins and his 21 man research team conducted a
study to find what companies went from good to
great and how exactly they did just that.
 It took them about 5 years
 Why did Collins take on this study?
CURIOSITY
A Little More Research Background
 Total project (The Black Box):
 Consumed 10.5 people years of effort
 Read and systematically coded nearly 6,000 articles (below)
 Generated more than 2,000 pages of interview transcripts
 Created 384 million bytes of computer data
 “Coding Document” Examples
 Coding Category 1-Organizing Arrangements
 Coding Category 2-Social Factors
 Coding Category 3-Business Strategy

TOTAL OF 11 CODING CATEGORIES FROM THE FOUNDING
OF THE COMPANY TO PRESENT DAY.
Think of it as…
 “If you invested $1 in a mutual fund of the
good-to-great companies in 1965, holding each
company at the general market rate until the
date of transition, and simultaneously invested
$1 in a general market stock fund, your $1 in
the good-to-great fund taken out on January 1,
2000, would have multiplied 471 times,
compared to a 56 fold increase in the market.”
(p. 3)
Remarkable Numbers
 From previously unremarkable companies
 Walgreens
 In 1975 Walgreens began to climb and climb and climb
 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 eight times
 the general stock market (including NASDAQ) by over fifteen
times.
PHASE 1: THE SEARCH
 Find companies that showed good-to-great
pattern:
 15
year cumulative stock returns (at or below the
general stock market)
 Punctuated by a transition point
 Then cumulative returns at least 3 times the
market over the next 15 years.
PHASE 1 Continued
 To be a good-to-great company, the company must:
Demonstrate the good-to-great pattern
independent of its industry
2. Average cumulative stock returns 6.9 times the
general market in the fifteen years following their
transition point (the point where the company
actually goes from good-to-great).
1.

General Electric outperformed the market by 2.8 times from
1985 to 2000.
Surprising Results
 The list is not what the research team expected:
 Fannie Mae beat GE and Coca-Cola?
 Walgreens beat Intel?
 This is when they realized:
“It is possible to turn good into great in the most
unlikely of situations. This became the first of
many surprises that led us to reevaluate our
thinking about corporate greatness.” (p. 6)
PHASE 2: COMPARED TO WHAT?
 Contrasted the good-to-great companies to a selected
set of “comparison companies”
 “What did the good-to-great companies share in
common that distinguished them from the
comparison companies?” (p. 7)

The Olympic Games example
PHASE 2 Continued
 Two sets of comparison companies:
Direct Comparison-companies that were in the
same industry with the same opportunities and
resources, but showed no leap from good to great.
2. Unsustained Comparison-companies that made a
short term shift but failed to maintain the
trajectory (sustainability)
1.
 Total: 28 companies
 Good-to-Great: 11 companies
 Direct Comparison: 11 companies
 Unsustained Comparison: 6 companies
The Entire Study Set
Good-to-Great Companies
Abbott
Circuit City
Fannie Mae
Gillette
Kimberly-Clark
Kroger
Nucor
Philip Morris
Pitney Bowes
Walgreens
Wells Fargo
Direct Companies
Upjohn
Silo
Great Western
Warner-Lambert
Scott Paper
A&P
Bethlehem Steel
R. J. Reynolds
Addressograph
Eckerd
Bank of America
Unsustained Comparisons
Burroughs
Chrysler
Harris
Hasbro
Rubbermaid
Teledyne
PHASE 3: INSIDE THE BLACK BOX
 Placed material into categories, such as strategy,
technology, leadership, and so forth.
 “We came to think of our research effort as akin to
looking inside a black box. Each step along the way
was like installing another light bulb to shed light on
the inner workings of the good-to-great process.”
(p.9)
GREAT
RESULTS
GOOD RESULTS
What’s inside
The
BLACK BOX?
PHASE 3 Continued
 “The dogs that did not bark” example
 Jim was just as astonished at what he did not see as
what he did see:
Celebrity leaders
1.

Big front men are actually negatively correlated with taking a
company from good to great. Comparison companies tried
outside CEO’s six times more often.
PHASE 3 Continued
Executive Compensation
2.

No systematic pattern linking specific forms of executive
compensation to process of going from good to great.
Strategy
3.

No intense planning or strategies to go from good to great
What to do
4.

Focus on what to do AND what not to do
Technology
5.

Can accelerate transformation but NOT cause one
PHASE 3 Continued
6. Mergers and Acquisitions

Two mediocre companies cannot form a great one
7. Employees

“Under the right conditions, the problem on commitment,
alignment, motivation, and change largely melt away” (p. 11)
8. Transformation

No name, tag line, or launch event to signify their transformation
9. Industry

“Greatness is not a function of circumstance.” Industry has no
bearing on a company going from good to great (p. 11)
PHASE 4: CHAOS TO CONCEPT
 This section is a constant “…looping back and forth, developing
ideas and testing them against the data, revising the ideas, building
a framework, seeing it break under the weight of evidence, and
rebuilding it yet again.” (p. 11)
A process of buildup followed
by breakthrough into 3 stages:
1. Disciplined People
2. Disciplined Thought
3. Disciplined Action
= The FLYWHEEL
(Captures the process of going
from good to great.)
THE FLYWHEEL: Disciplined People
 Level 5 Leadership
 “The good-to-great leaders seem to have come from Mars”
 Self-effacing, quiet, reserved, shy-a paradoxical blend of
personal humility and professional will (p.12)
 First Who…Then What
 First, get the right people on the bus
 Then, get the wrong people off the bus
 Then, the right people in the right seats
 Finally, figure out where to drive it
*THE RIGHT PEOPLE ARE YOUR MOST IMPORTANT ASSET
THE FLYWHEEL: Disciplined Thought
 Confront the Brutal Facts (Yet Never Lose Faith)
 Stockdale Paradox: You must maintain unwavering faith that
you can and will prevail in the end, regardless of the
difficulties, AND at the same time have the discipline to
confront the most brutal facts of you current reality, whatever
they might be (p. 13)
 The Hedgehog Concept
 “If you cannot be the best in the world at your core business,
then your core business absolutely cannot form the basis of a
great company” (p.13)
THE FLYWHEEL: Disciplined Action
 A Culture of Discipline
 A combination of a culture of discipline and an ethic of
entrepreneurship you get GREAT PERFORMANCE



When there is disciplined people, you don’t need hierarchy
Disciplined thought, you don’t need bureaucracy
Disciplined action, you don’t need excessive controls
 Technology Accelerators
 The good-to-great companies never used technology as their
primary means of igniting a transformation
 “Technology by itself is never a primary, root cause of either
greatness or decline” (p. 14)
THE FLYWHEEL Continued
 The Flywheel and the Doom Loop
 Good-to-great transformations do not happen in one fell
swoop (no single defining action, no grand program)
 “Rather, the process resembled pushing a giant heavy flywheel
in one direction, turn upon turn, building momentum until a
point of breakthrough, and beyond.” (p. 14)
 From Good to Great to Built to Last
 A prequel, not sequel
Good to
Great
Concepts
Sustained
Great
Results
Built to
Last
Concepts
Enduring
Great
Company
The Timeless “Physics” of Good to Great
 Someone asked, “Will your findings continue to
apply in the new economy? Don’t we need to throw
out all of the old ideas and start from scratch?”
 Collins says, “Think of it this way: While the
practices of engineering continually evolve and
change, the laws of physics remain relatively fixed. I
like to think of our work as a search for timeless
principles-the enduring physics of great
organizations-that will remain true and relevant no
matter how the world changes around us” (p. 15)
A Conflicting View
 From the article “From Good to Great…”
 “Our analysis of Collins’ Good to Great study
methodology suggests that it suffered from three
major problems:”
1) Data mining with respect to the selection of the
starting month of the company transformation
period

Some companies might not have been considered great had
their performance results started just a couple months earlier.
The 15 month time period may have been skewed.
A Conflicting View Continued
2) The failure to test for the sustainability of greatness
over subsequent time periods

The authors found only one company that managed to show
superior stock market performace
3) The failure to use modern portfolio theory that
accounts for the costs of risk and then whether the
performance differences are statistically significant

Found that five of the 11 companies actually “did not produce
statistically significant positive abnormal performance and
would not be considered great if performance were based on
the modern portfolio theory.
TAKEAWAYS: For your knowledge
 The book is not about an old or new economy. The
point of the book is to be able to apply the ways of
becoming a good-to-great company to an everchanging world and its economy.
 There is no one answer. Changing from good-to-
great takes a lot of little changes that apply to your
specific organization and melting them together to
form a great company.
TAKEAWAYS Continued
 You need to know the difference between what
makes a company a “good” company versus a “great”
company. From there, you can transcend the
“GOOD IS THE ENEMY OF GREAT” theory and
actually move from a good-to-great company.
Conclusion
“We believe that almost any organization
can substantially improve its statue and
performance, perhaps even become
great, if it conscientiously applies the
framework of ideas we’ve uncovered.”
-Jim Collins (p. 5)