What makes great companies tick? The Map.
To first grasp the Map, as we begin to unfold it, is to realize that there are both inputs and there are outputs. It's very important to grasp the difference between the two of these. Think of it as the inputs are the path. They're the journey. They're how you get there. The outputs define what a great company is. What the “there” is of being a truly great company. As we unfold this map, you will see how these are different from each other.
The inputs are what we'll spend most of our time on. With the map unfolding, as you begin to pull it apart, you begin to see that there are stages. It's a staged sequence across the map: stage one, stage two, stage three, and stage four.
Stage one, all about disciplined people.
Stage two, disciplined thought.
Stage three, disciplined action.
Stage four, building greatness to last.
Stage one, disciplined people. This is where you go first because it all begins with people. It all begins with having the right leaders and the right people to really lay the foundations for building a great company. It's what comes first and that is why stage one is all about disciplined people.
The first key idea in stage one is about the kinds of leaders. And one of the things we learned in our research is the idea that it's not just about having leaders, it's about having Level 5 leaders. Those leaders who, those of you who have read Good to Great know, are those folks who have this indomitable will but really blended with a personal humility. They are ambitious. They are driven. But they are driven for a cause that is larger than they are, and they lead in a spirit of service to that cause. They lead in a spirit of service to what that company is all about.
This is what Level 5 leadership is. And every good to great transition that we studied, began with the emergence of Level 5 leadership.
But what do these Level 5 leaders do? The first thing they do is they really address the question of, who are the right people on the bus? The key idea here is first who, then what. As you think about it, think what we really need to have is the idea that we set a vision, we set a strategy, and then we drive the bus there—we get people motivated to go there. But actually what we found in our research is the first step, first above everything else, is first get the right people on the bus and make sure you have the right people in the key seats and then you figure out where to drive the bus.
That brings us to stage two, disciplined thought. So, you've got Level 5 leadership and you've got first who, the right people on the bus. Disciplined thought has three elements to it. And the first element is to embrace the Genius of the AND, rather than succumb to the tyranny of the OR. The Genius of the AND means basically look, what we want to do is never be imprisoned by false dichotomies. Those are undisciplined thought.
You want to be able to say, we look for purpose and profit.
We want to look for long-term and short-term.
We want to look for execution and innovation.
And you know, when you go back to the Level 5 leader that we talked about earlier, it's a Genius of the AND, right?
Humility and will.
Get the right people on the bus and really take care of our people, right?
All that notion of the Genius of the AND then sets up for the next principle and the principles that follow. You want to embrace the Genius of the AND, and not succumb to the tyranny of the OR. The next big “and” that shows up is around the principle of confront the brutal facts.
So you've got the bus, it's going down the road, and boom, you hit brutal facts. And what we found is there's an underlying idea, a Genius of the AND in this called the Stockdale Paradox. The idea that you want both to confront the brutal facts and retain unwavering faith that you can and you will prevail in the end.
It's named after Admiral Jim Stockdale. Those of you who have read Good to Great know the story of how Admiral Jim Stockdale felt that it was those who falsely believed that they would be out by Christmas, who suffered the most. You have to confront the brutal facts, we will not be out by Christmas, and never, ever waiver in the unwavering belief and commitment that we will prevail in the end.
Facts and faith—Genius of the AND—Stockdale Paradox.
With these principles in mind, we then move to the third principle, within disciplined thought.
This is when a company really begins to get traction and it's the principle of the Hedgehog Concept. The principle of the Hedgehog Concept has to do with, what kinds of decisions should we begin making? Now, I've got my fun little hedgehog here who's juggling these three circles, but that really gets to the idea of what the hedgehog is all about. As what we found is that those level five leaders when they get the right people, they're confronting the brutal facts, well, then they begin to make a series of decisions that might start to build momentum. And they make those decisions focused on just a few big things. The notion that the fox knows many things and the hedgehog knows one big thing.
But what is the big thing?
The big thing is captured in this notion of these three circles: the Hedgehog Concept. Passion, what are you deeply truly passionate about? Best at, the bottom left circle. What can you be the best in the world at? And economics, the bottom right circle. What drives your economic engine?
When you have piercing clarity about what you're passionate about, what you can be the best in the world at, and what drives your economic engine, you have your Hedgehog Concept. And what happens here at the end of stage two, disciplined people who engage in disciplined thought, is you begin to make a series of disciplined decisions, doing more of what fits the three circles, less of what does not fit the three circles, and you begin to build momentum. And then that leads us right into stage three when you begin to get lift off: stage three, disciplined action.
Now in stage three, as I mentioned a moment ago, what happens is they begin to make those series of decisions that are consistent with the hedgehog. Doing things you're passionate about. Doing things you can be the best in the world at. Doing things that fit with your economic engine and you begin to execute on them and get momentum.
That brings us to the principle of the flywheel. Because what we found is that building a great company never happens in a single moment, a single a-ha, a single breakthrough, a single decision, rather it's like pushing a giant heavy flywheel and after a lot of effort, you get that flywheel starting to turn.
It eventually begins to build more and more momentum and you keep pushing and eventually that flywheel just begins to compound upon itself, reaching a point of breakthrough, getting tremendous momentum. And that's when you begin to feel that the company is really ticking—when that flywheel really hits breakthrough momentum. You reach that when disciplined thought meets disciplined action: the Flywheel effect.
But then how do you really get that flywheel to hit breakthrough momentum?
That brings us to the next concept which is this notion of having fanatic discipline of the 20 Mile March. In order to make a flywheel go, you have to execute brilliantly with fanatic discipline. I mean fanatic, fanatic discipline, on every component of the flywheel so that they reinforce each other and drive the flywheel around again.
And the idea here, is that it's like walking across the United States. Every day you get up and you do your 20 miles, and you do it with incredible discipline over and over again. And if you 20-mile march on every component of the flywheel, then that begins to drive the flywheel around and make it go faster and faster cause you're executing brilliantly. This is what disciplined action is all about; it's how you get the flywheel to that level of breakthrough momentum.
But then there arises an interesting question. Okay, so we've got the right people, we've got our Level 5 leaders, we've got our disciplined thought, we're making disciplined decisions, we're building flywheel momentum, we're executing really well, but it's a world that changes. It's a world that evolves and we're creative as well. How do we then adapt to the world as well as create in the world, to build ever momentum over time and do it in a disciplined way?
Well, that brings us to this principle of fire bullets, then fire cannonballs. So, think about it—that flywheel's going, it's going round and round. You're building momentum, you're executing, and along the way, you begin to fire some bullets. Those bullets tell you which ideas will work and then you fire a cannonball when you have a calibrated line of sight. And what you find is that the companies that get in trouble are the ones which never fire enough bullets, or they fire uncalibrated cannonballs. What you really want to do is to be able to say we want to take that flywheel into new areas.
So, you might be doing Macintosh computers as Apple did, and then you begin firing some bullets and you find that actually this little iPod thing, works really well; that bullet actually hit. So now we're going to take a bunch of gunpowder, put it in a cannonball, fire it on a calibrated line of sight and renew and extend the flywheel of Apple into iPods. And then we're going to renew and extend into iPhones and iPads and so forth. And you see how you get renewal of an existing flywheel. You're not in a cycle of “pivot – new flywheel”, “pivot – new flywheel”. You renew and extend a part of flywheel. Fire bullets, then fire cannonballs.
Now these first stages, stage one, stage two, stage three, all have the word discipline in them. They all have the word discipline in them because that is the essence, disciplined people who engage in disciplined thought who take disciplined action. And if you do this, if you do this really well, you are likely to reach a point where you're going to really have liftoff and get truly great results. That's what will produce a very successful business, a very successful company, the first three stages.
But a successful business, a successful company, is not at a high enough standard. The question is then how do you go from there to a great company and an enduring great company?
That's where you have to make the step now to stage four. Stage four is all about building greatness to last. And in this stage, the first step is: don't die. And the principle here is to practice productive paranoia. We know of all kinds of companies that have disappeared, very successful companies. They fell into the five stages of decline. They were rising and then they fell. They were rising and then they fell. They were rising and then they fell, and they disappeared.
Of all the companies that were on the original Fortune 500 list, less than 15 percent are there today. They fell into the five stages of decline. They didn't have enough productive paranoia.
One of the first steps in being enduring is to have a huge amount of productive paranoia, building buffers, worrying about contingencies, thinking ahead about where you could be disrupted into oblivion; constant productive paranoia.
What if, what if, what if, what if, what if?
That will keep you alive. So, you take your successful business, you're able to make it endure but you want to be able to even extend that further. And that brings us to something that a lot of companies don't get, which is the next principle: do less time telling and to do more clock building.
A lot of successful companies get started by remarkable people, but they're time tellers, right? And part the reason it works really well is they're almost like a genius with a thousand helpers. And they're like this great time teller that can come out and can look up at the sun and the moon and the stars and the sky at any time and they can say, “this is what time it is, it's 12:01 AM on August 23rd, 2013, precisely” and everybody's like “whoa we revere the time teller”.
But wouldn't that person be even more remarkable if instead of telling the time, he or she built a clock that could tell the time and that could do it over and over again over a very long period of time, whether they are there and beyond any given idea, any given time telling that they had done before?
What you find is to really build an enduring great company, those level five leaders need to really focus on building a clock versus just telling time. Making the shift from being a time teller to being a clock builder.
If you've done everything up to this point in The Map, through the first 10 principles (there are 12 altogether), you are probably going to have an enduring great company. I mean, you're going to be in a pretty remarkable place if you do all this.
But there's an even higher standard. And this higher standard is: you know there are a few companies that reach this sort of iconic and visionary status, a stature where they change the world that they touch, that they are admired, they are iconic.
They're the kinds of companies that have a shaping influence on everybody else in the world around them.
They are truly visionary companies. They're not just a company with a visionary leader; they are visionary companies.
And this higher standard requires a very deep powerful idea called preserve the core and stimulate progress. And all the way back in Built to Last, this is what Jerry Porras and I found.
A truly enduring great visionary company has an underlying dynamic. And inside that is this notion of something that is truly core. They're founded, not just on business strategies or tactics or market opportunities, but upon core values. And a deep, deep, deep sense of purpose that goes far beyond making money. They never saw it as just making money. They understood that money is like blood, food, oxygen, and water: absolutely essential for life, but it's not the point of life.
They understood that when you drive the flywheel around and you do something great in the world, that then generates fuel because you're doing a great job in your flywheel. But you don't generate fuel to siphon it off to earnings per share or siphon it off in some ways that a bunch of people just make a bunch of money. No, you use that fuel to go back to the top of the flywheel and build even more momentum.
Preserving the core means to say, we have values we want to live to, and an aspirational reason for being, why we're here that is far beyond just making money for the world. We want to make money. Remember the economic engine of the hedgehog. We don't do any of this if we don't have a powerful flywheel, but that's not really the deep existential reason for our existence.
What we hold true to that core, there's the other side, while we preserve that core, we also stimulate progress. We stimulate change and improvement and innovation and renewal to go hand in hand, preserve the core values, change the practices.
One of the best ways to stimulate progress is to set a BHAG, a Big Hairy Audacious Goal. These are like giant mountains that you set out to climb. And basically, the idea being this goal is so huge, it's going to take us years to accomplish. We're going to commit to it like climbing to the top of some gigantic unclimbed mountain and it will make us better. It will stimulate progress. It will keep us going. That is the role of the BHAG, the Big Hairy Audacious Goal.
Now these principles, these first eleven principles across these stages, they’ll take you a really long way but there's one final thing that's essential. And it's this multiplier that amplifies everything else in the framework.
Let's stop and think about the question of what role does luck play in all of this?
You know, we puzzled on this question and with my colleague, Morten Hansen, we studied this question. And what we found rigorously, quantitatively, is there's no evidence that our big successful winners were luckier than our comparisons. They didn't get more good luck, less bad luck, better timing of luck, bigger spikes of luck. What they got though, was a better return on luck. With whatever surprises and unexpected things that hit them, good or bad, good luck or bad luck, what separated them from their comparisons was the return they got on that luck.
It's not that return on luck is just in one of the stages. It actually cuts across all the stages such that as you're getting your luck events and you make the most out of those luck events when they happen, it becomes a huge multiplier across the entire map. Amplifying everything so that you have this 10X multiplier across the entire sequence of principles.
These are the inputs that lead to an enduring great company. This is the map of how to get there.
You've got your stage one disciplined people with Level 5 leaders who get the right people on the bus who then engage in stage two disciplined thought, embracing the Genius of the AND rejecting the tyranny of the OR, confronting the brutal facts and live the Stockdale Paradox, clarifying a Hedgehog Concept, making decisions in a disciplined way, building momentum, creating flywheel momentum, achieving the Flywheel effect, reaching breakthrough with fanatic 20 Mile March discipline, then renewing and extending that flywheel with firing bullets then firing cannonballs. Staying alive over a long period of time with prodigious productive paranoia. In stage four building to last, doing more clock building, doing less time telling, and finally embedding deeply the principle of preserve the core and stimulate progress, BHAG after BHAG after BHAG, and with every unexpected big luck event that happens, good luck or bad luck, making more of it than anyone else would, getting a huge return on that luck, multiplying everything.
That's the essential map. That's what we learned in 30 years of research. That is the essence of everything that came from Built to Last with Jerry Porras and Good to Great with my research team, How the Mighty Fall, and Great by Choice with my colleague Morten Hansen.
That's the journey. What's the destination?
What is a great company?
How would you know if you have one?
And that is where we now finally turn to the question of the outputs.
So, these are the inputs, what are the outputs?
The outputs are threefold. The first is the superior results. You win at your game. You deliver superior financial returns, return on invested capital or delivering on your social mission if you're a social sector organization. If you're a sports team and you don't win, you're not a great sports team. You might be the nicest people in the world with the most wonderful values and purpose, that's great. But if you don't win, if you don't win championships, you're not a great team. You've got to deliver superior results.
The second definition of an output of a great company is distinctive impact. Meaning that you do something so distinctive or even do something that other people do but do it with such exquisite excellence that if your company were to disappear, it would leave an unfillable hole. It couldn't be filled easily by anyone else in the world.
I want to be really clear here. This isn't about being big. Big does not equal great, and great does not equal big.
Think about it. You can have, say, a really marvelous restaurant in a town. One of those places where everybody wants to eat. It might be a very simple hole-in-the-wall place that everybody loves, or it might be an exquisite five-star restaurant, it doesn't really matter.
But suppose the town lost that restaurant. It would lose something irreplaceable. See, distinctive impact isn't about being big; it's about being distinctive. About making an impact on the community you touch, however big or small that is.
Then finally the last piece is lasting endurance. Being able to do this not just for months or even just for years, but really being able to do it for decades and even generations. When you have those three, superior results, distinctive impact, and lasting endurance, then you actually have an enduring great company.
So there you have it. There you have an entire map of thirty years of principles that are all laid out in one place to follow. I wish you well in the journey.
Follow the map.
Copyright © 2022 Jim Collins, All rights reserved.