Good to Great: Why Some Companies Make the Leap…and Others Don’t

Good to Great: Why Some Companies Make the Leap…and Others Don’t

 

In his renowned book, Good to Great: Why Some Companies Make the Leap…and Other Don’t, influential management consultant Jim Collins undertakes the difficult task of identifying the specific factors that separate merely good companies from the truly great ones. Collins’s opening chapter begins by outlining the metrics by which the subjective term “great” is operationally defined. Next, he identifies several companies that fit the criteria to help explain the transition factors that enable the leap from “good to great” in compelling detail. With no shortage of content to choose from, we have selected the following five points from the book to be the most important.

  • The Hedgehog Concept – Collins spends a chapter outlining this seemingly paradoxical principle that oftentimes is a simple yet overlooked approach that leads businesses to greatness. He elaborates by pointing to an ancient Greek metaphor of a fox and a hedgehog. The fox is a cunning, clever hunter who possesses a dynamic skill set, yet despite his impressive traits, is unable to catch the hedgehog, whose sole means of defense is his very simple, yet incredibly effective skill of rolling up into a ball.  Collins contends that the businesses that intrinsically do one thing better than anyone else, as opposed to doing many things well but nothing exceptional, are the ones able to make the leap from Good to Great.
  • Level 5 Leadership–Great leadership is a precursor of great success. While this seems blindingly obvious, Collins spends a chapter looking into the common characteristics of top-level management at the companies he has deemed “great.” He found that all of these leaders are at the top of a five level hierarchy that ranges from merely supervision to strategic executive decision-making. He also noted several commonalities among the Level 5 personality type; such as they are often intensely determined, yet profoundly humble. They are not driven as much by personal ego or individual financial gain as they are by long term stability and growth of the company. Collins also points out that the popular trend of bringing in a “celebrity CEO” to turn around a failing or stagnating company actually has a detrimental long term affect on the company.
  • First Who, Then What–Collins begins the third chapter of his book by explaining his hypothesis on “great” company strategy. He assumed when he began his research that companies would set a new goal and vision and thusly aligned personnel behind that new strategy. What he found was quite the opposite. Collins uses a bus analogy to convey this point- he says you must have the right people on the bus (and the wrong ones off it) before you figure out where to drive it. By focusing first on who, rather than what, companies leave themselves in a much better position to adapt to changing environments. If people get on the bus because of where is it going, what happens miles down the road if the bus needs to change course? If people board the bus because of who else is on it instead of its destination, changing directions will be much easier. Collins also argues that if you have the right people on the bus from the beginning, the problem of motivation dissipates. He concludes his analogy by saying that even if a bus with the wrong passengers does end up in the right direction, it still won’t be a great company: “great vision without great people is irrelevant.”  We need to go from good to great.
  • Confront the Brutal Facts–One of the key factors in making the leap from good to great is a company’s ability to identify and properly analyze information from within the company and the greater industry. The proficiency with which a company can keep up with changing market conditions and consumer preferences is directly correlated to its growth and success. Collins uses the extended example of A&P and Kroger in the American retail grocery industry to show how these are make-or-break factors for a company. Kroger recognized the changing consumer demands for a more modern grocery experience in the post WWII era, and took steps to meet these demands even though it meant a total overhaul of the company’s business model. A&P meanwhile, remained stagnant and became obsolete. Collins created a four step practice to ensure the recognition of emerging trends and consumer preferences, 1) Lead with questions, not answers 2) Engage in dialogue and debate, not coercion 3) Conduct autopsies, without blame 4) Build red flag mechanisms that turn information into information that cannot be ignored.
  • Technology Accelerators–Technology plays a crucial role in many other areas of contemporary business. The final important point made by Jim Collins in Good to Great is to not rely too heavily upon technology to solve core business problems. Collins contends that the use of technology is by no means a “cure all” for modern business, but rather a peripheral tool that, when used properly, can help facilitate key business functions. Collins goes on to refer to technology as an “enabler” of change, not the cause of it. Lastly, he advocates that businesses should only invest substantial resources into enhancing technological capacity if they are fundamentally necessary to their “hedgehog concepts.”

Though all of these points are relevant attributes of high performing companies, the overarching problem with this book is whether or not these factors can actually transform a business. The reader can’t help but get the impression that Jim Collins in his attempts to be analytical oftentimes is trying to fit a square peg in a round hole. What we disagree with most about Good to Great are the oversimplification of Collin’s assessments and the conservative picture that he paints of long-standing unilateral large corporations as the sole model for business culture.

If anyone were to pick up this book as a “how to” approach to better their company, they’d be sorely disappointed. The prototype that Collins considers for the “great” company is so contrived with obvious practices, that if you don’t already have great people, great leaders, a clear competitive advantage or a flawless mission statement then the “great” status is out of reach. But even when treating this book objectively, as a crude analysis of successful companies over the last 35 years, the ambiguous language that defines the key corporate personality traits is reminiscent of reading a horoscope where broad sweeping assertions can apply to anyone. A “Level-5” leader is determined but humble; the right people are rightly talented and should thusly be placed in the right positions. The hedgehog is passionate and steady, the flywheel, sturdy and progressive. Not only is this book wrought with platitudes, it also is plagued by confusing paradoxes. In chapter 4, Confronting the Brutal Facts means debating without coercion, troubleshooting without blame, and questions without answers. Chapter 6, A Culture of Discipline is no better, where individuals are entrepreneurial within their group, or personally empowered without ego. Collins consistently throws around terms to give impact to statements that have no one interpretation and even more so, little to no direction on tangible means for improvement.

The other complaint we had with this book is that it was written in a vacuum and has little relevance to a new generation where companies can transition from good to great overnight. Jim Collins seriously contributes to his lack of current affairs with a management technique that’s stuck in the 1980’s. In this author’s mind, corporations even without the right people or right management could still be at least “good” – an antiquated notion in 2011, even though this book was written in 2001. The 21st century “living company” has to constantly adapt to changing market demands where extended periods of growth and sustainability just don’t fit into the business model. The fact that two of the chosen companies for this book’s analysis, Fannie Mae and Circuit City don’t exist anymore proves, to borrow one of Collin’s ridiculous analogies, that eventually the fox finds a way to eat hedgehog.

For a business professional, specifically a marketer, Good to Great does contain a couple important take-away messages implicit in developing a long lasting brand. It should come as little surprise that present-day consumers can be transient in their immediate purchasing tendencies and respond heavily to trends. However, it would appear as though great companies develop long-standing relationships with their customers and create loyalty regardless of fads. In fabricating this relationship, businesses recognize that customers are not usually drawn to an item that doesn’t resonate with their lifestyle and therefore they will undergo a tireless process to understand and develop the customer’s needs. It’s this type of long-term engagement that’s talked about in Collin’s previous book, Built to Last (and chapter 9), which makes it seem impossible for a corporation to become marketing geniuses overnight. Establishing brand loyalty with customers requires a lot of initial research and assessment that might also include some failures and back-to-the-drawing board moments.

In order to establish this forward momentum flywheel, Collins is keen to suggest that business requires the right strategy of putting the pieces into to play before starting the game. Too often in business the requisite time and effort is not invested in the first place, when simply the notion of a good idea is suppose to guide the team. As business leaders of the future, I think Collins is urging us to surround ourselves with good company; after all, nobody wants to take a long bus ride sitting next to somebody they can’t stand, no matter how competent they may be. The totality of why some people are good leaders and why some companies surpass others is still largely a mystery to business researchers. In fact, if one were to diligently watch the news, it would appear as if we are actually relatively bad at business and still learning. Collins is speaking in generalities because he has to – the management world is obtuse at times and difficult to fully understand. In the end, the main contributions of this book are friendly reminders that everyone can appreciate; be good at what you’re good at, stay focused, work hard, and try to remain in good spirits. Work isn’t a life sentence; if you find that you don’t like it anymore, just hop off the bus.

What is Recognition and Why Do We Need It?

what is recognition

What is Recognition and Why Do We Need It?

 

I’d like to start with a brief definition of recognition.  Recognition Professional International (RPI) is a non-profit organization dedicated to the understanding and promotion of effective employee recognition.  RPI defines recognition as, “an after-the-fact display of appreciation or acknowledgement of an individual’s or team’s desired behavior, effort or business result that supports the organization’s goals and values.”  So, in other words, recognition is acknowledging others for their contributions.

 

Maslow’s Hierarchy of Needs

Now that you have a good definition of recognition, I’d like to introduce you to 1 of the theories behind it – Abraham Maslow’s Hierarchy of Needs Theory.

Maslow suggested that people are motivated to fulfill their needs in a specific order, beginning with the most basic.  Each level of needs must be satisfied before a person’s motivation shifts to the next level.  As people move up the pyramid, their needs become more and more complex.  The first 4 levels are known as “deficiency needs.” This means that when people haven’t satisfied their needs, they feel uneasy.  The top level is “growth needs,” meaning that when people reach that level, they are motivated by their own personal growth.

Maslow Hierarchy of Needs Theory

Looking at the base of the pyramid, the 1st level is physiological needs, meaning that they’re essential to our survival.  It includes bodily functions and things like food and water.  If these needs aren’t met, you can die.  If they are met, you move on to the 2nd level – safety.

Since the 1st level of needs has been met, you are no longer motivated by them.  Your new motivation is to maintain your personal safety, the safety of your family, your home, etc.  Not satisfying these needs cause a great deal of stress.  Before I move on to the 3rd level of needs, I want to share an example situation with you.

You’re country is being ruled by a dictator.  You haven’t eaten in days and you just ran out of water.  The only place that still has food and water is the military base outside of your neighborhood.  Do you try to sneak in to get it?  Maybe you do, maybe you don’t, but as the hours go by your motivation to sneak in continues to increase.  According to Maslow, at some point, you will sacrifice your need of safety in order to prevent yourself from starving to death.

The 3rd level is social needs.  This includes things like the desire for love and belonging, which are often met through friendships, family, and intimacy.  Lack of fulfillment can result in loneliness, depression or social anxiety.

The 4th level is the reason that I’m covering this theory.  Reaching this level triggers the desire to be accepted and valued by others.  People need social recognition, personal achievement, and respect by others, whether it be in their personal or professional lives.  Lack of fulfillment can result in low self-esteem or an inferiority complex.

The final level is the desire to fulfill one’s full potential by becoming everything that one is capable of becoming.  People who reach this level are self-aware, concerned with their own personal growth and are less concerned with the opinions of others.

 

What Managers Think Employees Want

what managers think

This is what most managers think employees wants.  While you look at this, I want you to remember Maslow’s hierarchy.  You’ll notice that each one of the items falls fits into 1 of the levels of the pyramid.  Good wages for example was the number 1 response – That fits in the 2nd level of the pyramid because it contributes to your safety.  Unfortunately, it costs you money to satisfy this employee need.

 

What Employees Say They Want

what employees say they want for recognition

What employees say they want is a little bit different.  Look at the top 3 items.  Employees want to be appreciated for the work they do, they want to feel “in” on things, and they want sympathetic help on personal problems.  Those items are all related to recognition, and best of all, they’re free!

 

Herzberg’s Motivation-Hygiene Theory

The 2nd major theory behind recognition is Frederick Herzberg’s Motivation-Hygiene Theory.  In the mid-1950s, Herzberg conducted studies on employee satisfaction to try to better understand employee attitudes and motivation, and he created this diagram.

herzberg recognition

Motivation factors lead to job satisfaction and higher levels of motivation.  These factors are mainly intrinsic.  This includes things like achievement and recognition.

Hygiene factors help to prevent job dissatisfaction.  These factors are mainly extrinsic.  This includes things like salary and working conditions.

If we apply this theory to the workplace, managers have to maximize the motivation factors, while keeping the hygiene factors in check.  3 ways to maximize the motivation factors are:

  • Job Extension – Combining the work of several jobs
  • Job Rotation – Rotate workers between a select number of jobs over time
  • Job Enrichment – Diversify the work and add more responsibility

 

Scotiabank

So, why should you use recognition? Well, I’ve found some interesting stats on the effects of recognition in the workplace that I’d like to share with you.

In a recent poll by the Gallup Organization, 80% of surveyed employees stated that praise and recognition motivate them to do a better job at work.  Scotiabank is an example of this.

Scotiabank is a leading Canadian financial organization.  Originally, it had employed an incentive program that was made up of many small paper-based programs offered inconsistently by both region and business function.  The program only rewarded improvements in particular business measures that had been faltering, like sales.  On top of that, the program only rewarded managers; the rest of the employees, who really are the face of the bank were completely ignored by the program.  In the late 90s, Scotiabank placed a strong focus on personalizing and improving their customer service by shifting the focus of the incentive program to recognition instead of rewards.  Then, management revamped the program by bringing it online, integrating it across all job levels and business functions and recognizing and rewarding relationship-building behaviors.  Soon after its inception, Scotiabank noticed a high correlation between high levels of participation in the recognition program and both customer satisfaction and financial performance.  While the program cannot be proven as the only contributor to these positive effects, it still shows a clear connection between the use of recognition and the positive effects it had.

 

Avis

The next quote is from SHRM.  “79% of those who quit their jobs cite lack of appreciation as the main reason.”

Avis Budget Group is an example of this.  Avis is a popular vehicle rental company.  One of their main concerns was high employee turnover.  Every year, the company would run an employee survey to see what they could improve upon.  Every single time, the results indicated that there was a lack of recognition of good employee performance, so management finally decided to do something about it.  They designed a recognition program that was based on peer-nomination and connected to the values of the company.  During the first three years of the program, Avis averaged only 200 nominations out of more than 32,000 employees.  But in the 4th year of the program, after taking it online to make the application process easier, Avis accepted over 3,600 nominations.  Management credits the recognition program with improving employee engagement and reducing company-wide voluntary turnover by 3.8%, saving millions of dollars.  The key to the program is that all of the recognition efforts are based on Avis’ core values, which reinforces them among the employees.

 

US Marine Corps

The next quote is from a workplace motivation IQ study done in 2007.  “The biggest statistical driver of workplace satisfaction for workers between the ages of 21-30 is whether their boss recognizes and praises their accomplishments.” The perfect example of this is the U.S. Marine Corps.

The US Marine Corps is my favorite example of recognition in action because it shows the power of positive reinforcement as a driver of culture. U.S. Marine training might be strenuous and even abusive, but that initiation process is not the culture.  The stress of Marine boot camp serves as much to identify Marines as to train them.  Once established as a Marine, an individual experiences a profound recognition on a daily basis – reinforced by the mottos, the uniform, the unit cohesion, and the intense group loyalty.  Marines display recognition for their service and sacrifice on their uniforms in the form of medals, ribbons, and rank insignia.  All these inspire pride and internal reward.  Marine culture is intensely about recognition.  Watch two retired Marines talking – twenty years after their service ended, they’ll still call each other ‘Marine.’”

 

Delta Airlines

The last quote I have is from SHRM.  “Of the 601 employees surveyed, 44% stated that management’s recognition of employee job performance was a very important aspect of job satisfaction.”

The importance of recognition can be shown through Delta Airlines.  Over the years, they’ve had many different formal and informal recognition and reward programs with varying degrees of success.  However, until the creation of My Delta Rewards, none of them were aligned with Delta’s business strategy.  My Delta Rewards recognizes employees in 4 areas of performance – cost savings, customer service, operational excellence, and revenue growth.  The program includes length of service awards, personalized retirement awards, on-the-spot recognition for extraordinary efforts, and a Chairman’s Club, which recognizes the top 102 employees for determination and dedication.  Delta measures the program’s ROI through focus groups, surveys, and feedback.  So far, the program boasts a 564% ROI, resulting from improved employee performance.

 

Gallup Studies

In addition to the examples I provided, there is a lot of research supporting the use of recognition as well.  For over 30 years, Gallup Research has been designing and using surveys to measure levels of employee engagement and to determine the key factors that lead to increased employee engagement and its effect on business value.  Over these 30 years, Gallup has established 12 metrics that highly correlate to positive employee engagement.  One of them is frequent recognition.

The survey items are statements or questions that employees can respond to on a scale from “strongly agree” to “strongly disagree”.  One particular phrase that can be found in the survey is, “In the last seven days, I have received recognition or praise for doing good work.”

The survey data highlighted recognition and praise as the two key drivers of employee engagement and showed that the most effective recognition programs used formal and informal recognition frequently enough to make it part of the organizational culture.

In addition to its own research, Gallup performed statistical analysis on a variety of independent studies and found 54% of workers are “not engaged”; 17% of those workers are “actively disengaged.”  Gallup estimates that this costs the US economy $300 billion per year.

 

Gallup Studies Continued

Their research also showed that organizations with higher levels of engagement outperformed those with lower levels engagement by the percentages shown below:

  • Productivity – 50% increase
  • Employee Turnover –13% decrease
  • Profit – 44% increase
  • Customer Satisfaction – 50% increase

 

Towers Perrin Global Workforce Study

This chart is the result of a global study done by Towers Perrin.  They surveyed 90,000 workers to determine their levels of engagement and its effect on the financial performance of their companies.  Companies with high employee engagement enjoyed a 19% increase in operating income and a 28% increase in earn­ings per share.  In comparison, companies with low employee engagement saw a decrease in operating income and an 11% drop in earn­ings per share.

 

Corporate Leadership Council Survey

In 2004, CLC conducted a survey of more than 50,000 staff, managers, and executives from 59 organizations in 10 different industries and spread across 27 countries.  The survey was created to determine the “key levers” that had the greatest impact on increasing employee engagement.  Out of 300 levers, the survey ranked those related to recognition at the top for the purpose of increasing employee effort and maintaining a better than average retention rate.

We hope you enjoyed our post tonight!  Stay tuned for more from us.  If you want to reach out, feel free to contact us here.