Forget everything you think you know about corporate change. The journey from being a good company to a truly great one isn’t about trendy programs, dramatic revolutions, or silver-bullet solutions. It’s a far more profound and organic process, debunking common myths and focusing on timeless principles.
Debunking the Myths of Corporate Transformation
For decades, businesses have chased after fleeting concepts of change, often falling prey to popular but ultimately ineffective strategies. Let’s dismantle these myths that hinder genuine progress:
- The Myth of the Change Program: The grand launch, the catchy slogan, the cascading initiatives – these are often mistaken for real change.
- The Myth of the Burning Platform: Crisis as a catalyst? While urgency can be a motivator, lasting change isn’t solely born from desperation.
- The Myth of Stock Options: Financial incentives alone – stock options, bonuses – are not the engine of transformation.
- The Myth of Fear-Driven Change: Fear might drive short-term action, but it’s a poor foundation for sustainable greatness.
- The Myth of Acquisitions: Buying growth doesn’t equate to buying greatness. Merging mediocrity doesn’t create excellence.
- The Myth of Technology-Driven Change: Technology is an enabler, not the initiator of profound change.
- The Myth of Revolution: Radical, painful overhauls rarely lead to lasting greatness. Sustainable leaps are evolutionary, not revolutionary.
These myths are not just misconceptions; they are fundamentally wrong. Companies that achieve greatness don’t rely on these fleeting tactics. They don’t have transformation programs, don’t manufacture crises, and don’t depend on extrinsic motivators. Their people are inherently driven. Money isn’t the key, and fear breeds mediocrity, not greatness. Acquisitions and technology are secondary to the core principles of transformation. And true, lasting change is an evolution, not a revolution.
Our five-year research project, analyzing 1,435 established companies, sought to uncover the true drivers of good-to-great transformations. We identified 11 companies that made this leap, achieving sustained stock market returns at least three times the market average over 15 years, independent of their industry. These companies weren’t just good; they became exceptional, outperforming the market by an average of 6.9 times – even surpassing the legendary General Electric under Jack Welch in performance rate.
The list of good-to-great companies, including Abbott Laboratories, Fannie Mae, Kimberly-Clark, Nucor Corp., Kroger, and Wells Fargo, might surprise you with their relative anonymity. Take Kroger, the grocery chain, for example. After 80 years of average performance, Kroger broke free from mediocrity and outperformed the stock market by 4.16 times over the next 15 years, and then by 10 times from 1973 to 1998.
These transformations weren’t sudden miracles. They were the result of a grounded, pragmatic, and excellence-driven process. It was the triumph of the Flywheel Effect over the Doom Loop, discipline over quick fixes. Contrastingly, comparison companies, with similar opportunities, often fell for the change myths and failed to make the leap.
The Egg and the Chicken: Understanding the Nature of Change
Imagine an egg. It sits unnoticed, seemingly unchanged. Then, one day, it cracks, and a chicken emerges. The world marvels at this “overnight sensation,” the “radical transformation.”
But from the chicken’s perspective, it wasn’t sudden. It was a continuous process of growth and development within the egg. Cracking the shell was just one step in a long evolution.
This analogy highlights our flawed perception of change. We seek “miracle moments,” but good-to-great transformations don’t happen that way. Executives at Walgreens, another good-to-great company, couldn’t pinpoint a specific moment of transformation, placing it vaguely within a nine-year period. Similar responses came from leaders at Abbott, Kimberly-Clark, and Wells Fargo – change is gradual, not sudden.
We often misinterpret change, blaming external factors like Wall Street’s demand for instant results. Yet, good-to-great companies achieved their success using Wall Street’s own metrics – sustained stock market performance. The data reveals the truth: greatness is built, not conjured.
The Flywheel Effect: Building Momentum for Greatness
Envision a massive flywheel – a heavy metal disk, 100 feet in diameter, 10 feet thick, weighing 25 tons. This flywheel represents your company. Your goal is to accelerate it, because momentum – mass times velocity – drives long-term success.
Initially, the flywheel is stationary. It takes immense effort to budge it even an inch. Days of relentless pushing might yield just one rotation. But with sustained effort, it begins to turn faster. Two rotations, then three, then more. Eventually, momentum takes over. The flywheel spins faster and faster, propelled by its own weight. You’re not pushing harder, but the speed increases exponentially.
This is the Flywheel Effect – the feeling of being within a company transforming from good to great. Kroger’s transformation exemplifies this. How do you shift a 50,000+ employee company? Not with a single program. You apply pressure to the flywheel. Jim Herring, who led Kroger’s transformation, avoided change programs and motivational stunts. He and his team methodically turned the flywheel, demonstrating tangible progress.
Herring explained, “We presented what we were doing so people saw our accomplishments. Step by step, we built confidence through success, not just words.”
Contrast this with the Doom Loop. Overhyped change programs often fail due to lack of accountability, credibility, and authenticity. They are the antithesis of the Flywheel Effect. Doom Loop companies, despite wanting change, lack the discipline to build momentum. They launch initiatives with fanfare, only to change direction repeatedly. This constant shifting leads to disappointing results, reactive changes, new programs, no momentum, and a downward spiral.
Warner-Lambert, compared to Gillette, illustrates the Doom Loop. Between 1979 and 1998, Warner-Lambert underwent three major restructurings, each CEO reversing the course of their predecessor. This created a downward spiral, culminating in its acquisition by Pfizer.
The Flywheel Effect works because people want to be part of a winning team. They want to contribute to real results and feel the satisfaction of progress. As momentum builds and tangible results emerge, people rally, adding their energy to the flywheel. This organic buy-in is how real change happens.
Disciplined People: “Who” Before “What”
Imagine yourself as a bus driver. Your bus (company) is stationary. Your task: get it moving. Where do you start? Many assume you begin by announcing the destination, setting a new direction.
But good-to-great leaders start with “who,” not “what.” They prioritize getting the right people on the bus, the wrong people off, and the right people in the right seats. This discipline of “people first, direction second” is unwavering, even in dire situations.
David Maxwell, when he became CEO of Fannie Mae in 1981, faced a company losing $1 million daily. The board pressed him for his rescue plan. Maxwell’s response: “The ‘what’ is the wrong first question. We need the right people first.”
He told his team only A-level individuals giving A+ effort would remain. He interviewed each executive, emphasizing the demanding journey ahead and offering an easy exit for those unwilling. Fourteen out of 26 executives left. They were replaced by top-tier talent.
With the right team in place, Maxwell then focused on “what.” Fannie Mae transformed from losing $1 million daily to earning $4 million daily. His team continued to drive the flywheel, generating market-beating returns long after his departure.
Good-to-great leaders understand three truths:
- Adaptability: Starting with “who” allows for quicker adaptation in a changing world. People are more important than a fixed direction.
- Self-Motivation: The right people are inherently motivated when surrounded by other high-performers striving for greatness.
- People are Paramount: With the wrong people, even the best vision fails. Mediocre people produce mediocre results, regardless of strategy.
Disciplined Thought: The Hedgehog Concept
Consider the fox and the hedgehog. The fox knows many things, the hedgehog one big thing. Good-to-great leaders are hedgehogs. They simplify complexity into a single, unifying idea – a Hedgehog Concept. This isn’t simplistic thinking, but profound insight distilled into a core principle guiding all decisions.
Developing your Hedgehog Concept starts with confronting brutal facts. One CEO began by asking, “Why have we been mediocre for 100 years?” This brutal honesty is crucial for transformation. The environment for developing a Hedgehog Concept is like intense scientific debate – smart, tough individuals rigorously examining facts to find the best answers and converge on a working concept.
Your Hedgehog Concept emerges from the intersection of three circles:
- What can you be the best in the world at? (And equally crucial, what can you not be best at?)
- What drives your economic engine? (Profit per X – what is your key denominator?)
- What are you deeply passionate about?
Answering these honestly, facing brutal facts, reveals your Hedgehog Concept. Wells Fargo’s transformation illustrates this. Initially, they tried to be a global bank, a mediocre mini-Citicorp. Then, they asked: “What can we be best at?” The brutal truth: not global banking. They exited most international operations.
Next, “What drives our economic engine?” Brutal fact: commercial banking was becoming a commodity. Profit per loan was out; profit per employee was in. They shifted to electronic banking and lean branches with top talent, skyrocketing profit per employee. Finally, passion: they were disgusted by the wasteful culture of traditional banking. They saw themselves as Spartan, efficient, and focused.
Wells Fargo’s Hedgehog Concept: Run a bank like a business, focused on the Western US, consistently increasing profit per employee. “Run it like a business” and “run it like you own it” became their mantras. This simple, focused concept drove their leap to greatness.
Defining your Hedgehog Concept is essential but takes time. Good-to-great companies averaged four years to crystallize theirs – an iterative process of questions, debate, action, and blameless post-mortems, guided by the three circles and brutal facts. This is the “chicken inside the egg” of disciplined thought.
Disciplined Action: The “Stop Doing” List
You likely have a to-do list. But where’s your “stop-doing” list? Good-to-great leaders are disciplined not just in what they do, but even more so in what they stop doing. They relentlessly eliminate anything not aligned with their Hedgehog Concept.
When Kimberly-Clark’s leaders defined their Hedgehog Concept – becoming the best paper-based consumer company – they faced a dilemma. Their core business was paper mills, but their best-in-world capability was in consumer brands like Kleenex. Staying in paper mills meant remaining a good company. Greatness required taking on giants like Procter & Gamble and Scott Paper in the consumer market. This meant “stop doing” paper mills.
Darwin Smith, the CEO, made what a director called “the gutsiest decision ever”: selling the mills, even the one in Kimberly, Wisconsin. He invested everything into the consumer business, facing Wall Street criticism and media ridicule.
Twenty-five years later, Kimberly-Clark was the number-one paper-based consumer products company, outperforming P&G in most categories and owning Scott Paper. Under Smith, Kimberly-Clark beat the market fourfold, outperforming Coca-Cola, GE, HP, and 3M.
Smith’s “stop doing” decision was a massive push on the flywheel, but just one of thousands of pushes. It took years for Kimberly-Clark’s transformation to be recognized. One magazine initially predicted disaster, then 21 years later, admitted it was a “smart idea.”
Now It Begins: Your Good to Great Journey
Our research was our own flywheel effort. The most striking finding: no magic moment in any good-to-great company’s journey, or in our own understanding. Greatness is about simplicity and diligence, clarity not instant insight. It demands focus on the vital and elimination of distractions.
Focusing on the right things and stopping wasteful activities can create a powerful Flywheel Effect without working harder. These principles apply beyond CEOs, to individuals in any role. Don’t worry about persuading your CEO. Focus on creating a pocket of greatness within your own responsibility. Build your own minibus, get the right people, and drive your area from good to great. Whether CEOs get it or not is secondary. What matters is that you do. Now, it’s time to get to work.
Sidebar: Separating Good from Great: The Rigorous Selection Process
Can a good company become great? How do you identify them? Jim Collins and his team spent five years answering this, identifying 11 companies that made the leap and sustained it for at least 15 years, achieving average stock returns 6.9 times the market.
The selection criteria were rigorous:
- Sustained Great Performance: Stock returns at least three times the market for 15 years post-transition.
- Company-Specific Transition: Not industry-wide performance.
- Established Companies: In business at least 25 years pre-transition, publicly traded for at least 10 years pre-transition.
- Transition Before 1985: To assess long-term sustainability.
- Significant Stand-Alone Companies: Not subsidiaries or short-lived ventures.
- Upward Trend at Selection: Still demonstrating positive momentum.
From 1,435 companies, 11 emerged: Abbott Laboratories, Circuit City, Fannie Mae, Gillette Co., Kimberly-Clark Corp., Kroger Co., Nucor Corp., Philip Morris Cos. Inc., Pitney Bowes Inc., Walgreens, and Wells Fargo.
Each was paired with a comparison company. The research involved analyzing vast amounts of data – books, articles, reports, financial analyses (980 years of data), 84 interviews, CEO records, compensation plans, and more. The findings are detailed in Good to Great: Why Some Companies Make the Leap…And Others Don’t.
Sidebar: Great Answers to Good Questions: Insights from Jim Collins
Fast Company: Good-to-great CEOs were largely anonymous. Coincidence?
Jim Collins: No. There’s a direct link between lack of celebrity and great results. Celebrity CEOs create a “one genius and 1,000 helpers” dynamic, focusing on the CEO, not the company. Good-to-great leaders prioritize the company’s greatness over personal ambition. At critical junctures, they choose the company over ego. Celebrity CEOs often do the opposite.
FC: Good-to-great companies are also unheralded. Why?
JC: Most people do real, unglamorous work – making cars, selling real estate, running grocery stores or banks. A key finding is that greatness is achievable in any industry. No one can complain about their industry or business type anymore.
FC: How do these lessons apply to individuals, not just companies?
JC: Build your own flywheel. You can create momentum in your area of responsibility – your department, your community. These principles are universally applicable.
FC: Best response to an economic slowdown?
JC: Acquire and retain the best people. Prioritize building your team above all else. Things will recover, your flywheel will turn, and the biggest constraint will be having the right people on your bus.
