Review of Good to Great: Jim Collins' four key concepts

¶ … Level 5 Leadership: Which is harder to cultivate within yourself: humility or will?

Level 5 leadership involves what Collins (2001) calls the "paradoxical blend of humility and will," (p. 13). As a result, Level 5 leaders are "a study in duality," as they exhibit other binaries, such as being both humble and fearless; both modest and willful (Collins, 2001). The complexity of human character makes it possible to hold two seemingly disparate qualities in check at any one time, knowing exactly when, how, and why to turn on one binary (like humility) versus the other. Collins expands upon the concept of Level 5 leadership in the opening sections of From Good to Great because Level 5 leadership is central to effectively motivating others and promoting the values of an organization.

Both humility and will are difficult qualities to perfect. All leaders possess both humility and will to a greater or lesser degree. Even the most arrogant-seeming leaders have points at which they are willing to surrender their egos and let others shine. If they did not have the trait of humility anywhere, then their leadership would be less effective and certainly not at Level 5. Other leaders might appear more driven and ambitious than they actually are; will is a long-term proposition. Starting a project and not seeing it through, or buckling under pressure, are signs of inefficient will that must be balanced by determination and perseverance.

Therefore, some leaders find it more difficult than others to cultivate one or the other: will vs. humility. Of the two central qualities of Level 5 leadership, it would seem that humility would be harder to develop or cultivate. This may be especially true of "young, nonwhite or female" leaders, who are have "to constantly prove their competence to followers," ("Humility Key to Effective Leadership," 2011). Oddly enough, it may be that female leaders find it easier to cultivate humility but more difficult to attract followers who appreciate humility as a leadership trait. Collins's work seems to suggest that Level 5 leaders often do go unrecognized because their innate sense of humility does not correspond with the stereotype of the authoritarian, arrogant leader who takes all the credit and none of the personal responsibility.

Leaders also have the potential to abuse their position of power: a phenomenon that arises out of underdeveloped humility. Ultimately, leaders live constantly with the threat of failure and loss of pride. Humility exposes vulnerability, which can be misconstrued as weakness. Ironically, it takes a high degree of will to overcome the self-doubt and defeatism that comes with the territory of leadership Having the will to succeed means moving through failure, and countering obstacles with greater and greater exhibitions of strength and purpose. In addition to humility and will, a Level 5 leader will demonstrate unwavering resolve and determination, as well as "inspired standards," (Collins, 2001, p. 31). The inspired standards, resolve, and determination of a Level 5 leader tie into the need for perfected will and perfected humility.

Level 5 leaders are just ambitious enough to focus firmly on the goals of the organization and do whatever it takes to achieve those goals. However, the Level 5 leader's ambition is not for personal gain: herein lies the power of humility. Humility becomes the foundation upon which Level 5 leaders build their capabilities and their staff. It is harder to achieve a position of leadership before first developing the humility that is required when working with teams. The will that it takes to address crisis, challenge, and change is therefore much harder to develop over the long run. Humility will come with the territory, as all crises shed light upon the weaknesses inherent in the organization or in the leadership itself.

Humility is a core trait of leadership that has been proven effective in research. "leader humility is associated with more learning-oriented teams, more engaged employees and lower voluntary employee turnover," ("Humility Key to Effective Leadership," 2011). Therefore, it is crucial to understand how to hone humility to its greatest effect. Honing humility requires will: the will to learn and grow; the will to achieve organizational goals as a team rather than as an individual who must be in the spotlight. Even the most charismatic leaders, like Richard Branson, on some level understand what humility is and how to cultivate it. Humility is difficult to cultivate because it requires a skillful balance between having a strong personality and ego, on the one hand, and having the ability to learn, grow, and accept responsibility for mistakes. The reason why humility is more difficult to cultivate in leaders is because of what Collins (2001) calls the "great irony…that the animus and personal ambition that often drive people to positions of power stand at odds with the humility required for Level 5 leadership, (p. 36).

Both will and humility are difficult to cultivate, especially in tandem. And yet at the same time, it takes great personal will to cultivate humility -- and a great sense of humility to have the will to power through difficult situations and difficult people. There is a reason why Collins (2001) focuses so intently on these two seemingly contradictory traits as opposed to other character trait binaries. Effective leadership demands the personal maturity to recognize the difference between strength of character and arrogance.

2.0 Who First? If compensation is not the primary driver for the right people on the bus, then what are the primary elements in getting and keeping the right people on the bus? What role does compensation play?

Using an extended metaphor of a bus, Collins (2001) states that it is more important to "first get the right people on the bus (and the wrong people off the bus) before you figure out where to drive it," (p. 44). Getting the right people on the bus allows the leader, and the entire organization, to "more easily adapt to a changing world," (Collins, 2001, p. 42). After getting the right people on the bus, the organization needs strategic means of keeping them there. Research shows that compensation is not the best methods of manager retention. Collins (2001) states there is "no systematic pattern linking specific forms of executive compensation to the process of going from good to great," (p. 10). Corporate performance is not linked to compensation because compensation is an extrinsic reward, based on the assumption that great people are motivated extrinsically. The opposite may be true. Collins's (2001) assessment of the role of compensation is not necessarily substantiated by the literature. For example, Van Herpen, Praag & Cools (2005) found that there is a direct and significant relationship between compensation systems in the organization, and work satisfaction, motivation, and turnover intent. Sears (2009) also found that incentive pay has a high impact on employee retention. It is likely that there were serious flaws in Collins (2001) study designs that show no differences in compensation strategy impacts on employee motivation and retention.

At the same time, Collins (2001) does point out that there are other significant variables in employee retention that are jut as important if not more important than compensation. One issue that Collins (2001) talks about falls into place with the "who first" philosophy. Just as it is more important to get the right people on the bus first before determining where the bus is going, it is also important to pay the right people first. "It's not how you compensate your executives, it's which executives you have to compensate in the first place," (Collins, 2001, p. 50). Using a more effective compensation strategy starts with getting the right people on board, and then realizing that those right people are motivated by a lot more than money. "The right people will do the right things and deliver the best results they're capable of, regardless of the incentive system," (Collins, 2001, p. 50). Compensation is also crucial not in modeling specific behaviors (such as getting more sales) but in retaining the right people so that they are loyal to the company.

Character attributes are therefore one of the key components of knowing who to keep on the bus. Liberal layoffs can be disastrous for organizations that do not recognize valuable employees. Companies that take on and let go of valuable employees are not good to great companies. The organizations that recognize who the right people are, and know how to motivate and retain them, are organizations that go from good to great and stay great. Compensation can and should be a core component of keeping the right people happy, which is why it is important to listen to employees and take into account concerns related to the organization's compensation strategies. If, as Sears (2009) found, incentive pay and commissions help to motivate employees, then the leader of the organization might need to take that into account. However, the leader would do much better to get on board the employees that do not need incentive pay in order to feel like they are valuable members of the team.

Good to great companies develop sound incentive strategies that work for the specific organization or scenario, and stick to those strategies. Compensation strategies cease to become relevant when the right people are already on the bus, and the driver is headed in the right direction. Intrinsic motivation needs to come to the fore and replace extrinsic motivation. However, the internal characteristics of the people on the bus will also impact whether or not they are naturally intrinsically motivated. Executives who have worked with the company for a long time may be ideal members of the team, because they have proven loyalty to the organization and already demonstrate a high degree of caring for the company. External, high profile executives on board temporarily for a high payout are motivated by the extrinsic rewards of their temporary position. They might help the company achieve some short-term goals such as crisis management, but a good-to-great company does not allow these types of people to ride inside the bus and take up seats that should be reserved for valuable employees who are loyal and motivated by means other than compensation. As Collins (2001) points out, the celebrity executives ride outside the bus, as would a passenger who just wants to ride the streetcar for a few blocks.

Finally, it is important to qualify what types of compensation are available for employees. The right types of compensation depend on the people on board, and what might be needed to motivate them. Compensation is not just money, either. The attraction of ancillary benefits such as flexible working conditions, the promise of promotion, the opportunity to telecommute, or the provision of greater responsibility can outweigh monetary compensation. Increased access to information, more empowerment, and a better working environment are all means by which managers can develop a bus load of talented and motivated managers.

3.0 Hedgehog Concept: Which is more important for an organization, the goal to be the best at something, or realistic understanding of what you can (and cannot) be the best at?

Using the adage "know thyself," an organization can become cognizant of what it can and cannot do. The same is true for individual leaders. The hedgehog concept derives from the analogy of the creature: which has perfected its self-defense mechanisms against predators like the fox. The fox might be cunning and deceitful, clever and artful in its approach. The hedgehog is none of those things, but it has honed its defense mechanisms to a degree the fox has yet to understand. Because the hedgehog is very good at one thing, and knows it, it can successfully outsmart the fox. The fox is only somewhat good at many things.

Hedgehogs, according to Collins (2001), "simplify a complex world into a single organizing idea, a basic principle or concept that unifies and guides everything," (p. 91). The hedgehog might oversimplify occasionally, and promote "simplistic" notions of what is true, but the hedgehog also knows how to filter out what is unnecessary, and keeps things simple (Collins, 2001, p. 91). In short, the hedgehog is efficient. The organization must develop a realistic understanding of what it is good at, and capable of given market contingencies and other situational and environmental variables. Distilling the goal of the organization into one cohesive concept ensures success.

Collins (2001) uses the example of Walgreens, which built its business model on the hedgehog approach. The Walgreens Corporation took a simple concept "and implemented it with fanatical consistency," (p. 92). Simple issues like store locations became a key to the success of the organization, rather than the use of complex algorithms that determined operations. The company took the potentially complex issue of store placement, and transformed it into a working formula of success: doing things like clustering stores in urban locations so that customers would not have to walk too far to find a Walgreens; and by closing stores in less desirable or convenient locations only to open up right down the street on a corner spot (Collins, 2001). Making Walgreens stores more visible was a marketing and business strategy that was simple yet powerfully effective, just like the hedgehog's defense strategies.

Companies that do not understand the hedgehog concept run the risk of a "hodgepodge" development style in which there is no coherent vision. The company might have the goal to be the best at something but totally lacks the means by which to achieve that goal, because their approach is too complicated. Complicated strategies confuse members of the organization, as well as suppliers and clients. It is far better to have a realistic understanding of company strengths and weaknesses, and an understanding of situational variables and environmental constraints. Other examples of realistic understanding of internal and external variables include multinational corporations. The cultural variables might be simple, and yet the organization wants to overcomplicate matters by performing sophisticated marketing analyses prior to implementing a strategy. Instead, just understanding how people in Beijing or Prague like to do their shopping could lead to a simple hedgehog approach for doing business in China or the Czech Republic.

There is little need for the "management faddists, brilliant visionaries, ranting futurists, fearmongers, motivational gurus, and all the rest," (Collins, 2011, p. 93). Such people only have the potential to complicate matters, creating foxholes when there should be easy, convenient hedgehog dens. Hedgehogs might not seem like the most interesting organizations (or organisms). Sacrificing flash for substance, the company can go from good to great. All style and no substance can equal failure.

As Collins (2001) shows, implementing a hedgehog approach can lead to significant breakthroughs in the company that advances it from goodness to greatness. The company now knows what it is good at, and what its strengths are. It has the right people on board, all going in the same direction and motivated intrinsically by enthusiasm and caring. The organization also knows its weaknesses. Using the metaphor of the bus, a bus can only go 60 miles per hour. This means the bus should probably not drive in the left lane on the freeway where the Maseradis are. Understanding both strengths and weaknesses means simplifying the core vision into one that actually works, rather than one that theoretically works, or that works for someone else. The hedgehog organization also develops a core, simple mission. Rather than being scattered, the hedgehog company is focused. Clients look to the hedgehog company as being an industry leader; a go-to solution for specific issues. Restaurants, for example, that have Thai, Mexican, Chinese, and Italian food rarely execute any of those well. The restaurant could be big, flashy, and fun, but ultimately it will fold because the patrons will not come back for the food. One small restaurant that perfects five dishes will get all the publicity and word of mouth, and will ultimately succeed. It knows what it does, and it does what it does well. There are no distractions; the company focuses on its core goals and does everything it can to fulfill those goals. When the goal is simple and straightforward, it is far easier to achieve.

4.0 Technology Accelerators: Why is there so much hype and fear about new technologies, and what can you do to view new technologies with objective equanimity?

The hedgehog concept can and should be applied to technology and information systems. Technology is only effective when it is judiciously developed and applied to suit the goals of the organization. When those goals are firmly in place, the organization can make the best decisions related to what kind of information systems and other technologies to use to fulfill the core goals. There is no use investing tens of thousands of dollars on technology that sounds great and does cool things, if those systems have no bearing on what the company actually does or needs to do. Technology is an "accelerator" for a business (Collins, 2001). One mistake that some organizations make is assuming that technology creates momentum. It does not; the organization must have its own momentum and technology accelerates that.

There is both hype and fear about new technologies. Hype is generated because of trends and fads. One way hype is created is via social media and viral marketing. Companies might develop an idea that their organization is falling behind because they have not yet incorporated certain types of technology into their operational model. Yet those technologies might have no bearing on the productivity of the company. Moreover, technology developers will try to sell organizations on their systems because that is what the technology company is good at. The good to great organization does not necessarily buy the hype. A good to great company develops the knowledge and ability to discern between necessary and unnecessary technology. Even if competitors are using a specific technology that seems attractive, the good to great organization will evaluate its needs before making a significant investment in technological tools. Hype is often justified, which is why the good to great organization does use technology accelerators whenever it needs to.