I want to give you a lobotomy about change. I want you to forget everything youve 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 theres 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 failureall are drivers of change, were 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 youre looking for can be achieved by using technology to leapfrog the competition.
The Myth of Revolution: Big change has to be wrenching, extreme, painfulone 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 transformationand absolutely no program. They neither rant nor rave about a crisisand they don't manufacture one where none exists. They don't motivate peopletheir people are self-motivated. Theres no evidence of a connection between money and change mastery. And fear doesn't drive changebut it does perpetuate mediocrity. Nor can acquisitions provide a stimulus for greatness: Two mediocrities never make one great company. Technology is certainly importantbut it comes into play only after change has already begun. And as for the final myth, dramatic results do not come from dramatic processnot 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 yearsand 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 marketsmore 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 chainbumped 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
processa frameworkkept 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 studyfirms with virtually
identical opportunities during the pivotal yearsdid buy
into the change myths described aboveand failed to make
the leap from good to great.
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 sensationas 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, developingchanging. From the chickens 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 stepbut it was hardly the radical transformation that it looked like from the outside.
Its 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!)
Walgreenss 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. Theres 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 mythan excuse for not doing
what really works. The data doesnt lie.
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 thenat some point, you can't say exactly whenyou 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 youre 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 dont. At least not with one big change program.
Instead, you put your shoulder to the flywheel. Thats 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, consistentlybuilding 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. Its the opposite of the Flywheel Effect; it's the Doom Loop.
Companies that fall into the Doom Loop genuinely want to effect changebut 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 theyve 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 directiona new leader, a new programwhich leads to no momentum, which leads to disappointing results. Its 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 Gillettein 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 restructuringsone per CEO. Each new CEO arrived with his own program; 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 momentumwhen they begin to see tangible results and can feel the flywheel start to build speedthats when they line up, throw their shoulders to the wheel, and push.
And thats how change really happens.
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 goingby 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 disciplinefirst the people, then the directionno matter how dire the circumstances. Take David Maxwells 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, Thats 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 didnt want to go, fine; just say so. Nows 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 flywheelturn upon turnand 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 its 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, youll be much faster and smarter
in responding to changing conditions. Second, if you have the
right people on your bus, you dont 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 wont
achieve greatness. Great vision with mediocre people still produces
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 brutaland 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 debatewith smart, tough-minded people examining hard facts and debating what those facts mean. The point isnt to win the debate, but rather to come up with the best answersand, ultimately, to lock onto a Hedgehog Concept that works.
Youll know that youre 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 importantwhat 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 youll 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-Citicorpand 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 worldand so the leadership team pulled the plug on the vast majority of the banks international operations. When the team asked the question about the banks economic engine, Wells Fargos 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 became mantras; 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 dont
happen overnightor 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 processconsisting
of piercing questions, vigorous debate, resolute action, and autopsies
without blamea 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.
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-Clarks revenue lay in traditional coated-paper mills, turning out paper for magazines and writing padswhich had been the core business of the company for 100 years. Even the company's namesake townKimberly, Wisconsinwas 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 companyif 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
pushbut it was only one push. After selling the mills, Kimberly-Clarks
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-Clarks
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.
After five years of research, Im absolutely convinced that if we just focus our attention on the right thingsand stop doing the senseless things that consume so much time and energywe can create a powerful Flywheel Effect without increasing the number of hours we work.
Im also convinced that the good-to-great findings apply broadlynot just to CEOs but also to you and me in whatever work were 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 resultson 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 doesnt really matter whether all the CEOs get it. It only matters that you and I do. Now, its time to get to work.
wrote the essay Built
to Flip 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.
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 enterprisenot 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 companya company with similar attributes that could have made the transition, but didnt.
Then the research began. Collins and his team reviewed books,
articles, case studies, and annual reports covering each company;
examined financial analyses for each company, totaling 980 combined
years of data; conducted 84 interviews with senior managers and
board members of the companies; scrutinized the personal and professional
records of 56 CEOs; analyzed compensation plans for the companies;
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).
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 doesnt mean that they dont have an ego. It means that at each decision pointat each of the critical junctures when Choice A would favor their ego and Choice B would favor the company and the worktime 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 workwhich means that most of the time theyre 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 inever again.
FC: Lets say that Im 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. Id 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.