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Book Review Good To Great Companies – Chapter 4 Summary

22 October 2009 No Comment

good2greatThis chapter in the sense of its title “Confront The Brutal Facts”, is the approach of two things when developing a good-to-great company, the first one being, if you do not change with the times and try to fight the change, your end up losing.  The second one being is that if you accept the brutal reality and do know the change and go with it, then you will be giving the status of being good to great.  Examples that are giving that followed this process were Great Atlantic and Pacific Tea Company (#1), Kroger (#2) with the superstore, and Pitney Bowes (#2) & Addressograph (#1) with office automation.  In the first case, A&P were top of the line and Kroger was still trying to get there, however, by the 70’s Kroger caught up because they accepted the reality of the Superstore and A&P did not and so Kroger came out on top and A&P is hanging on a thread.

With the other two companies, both were evenly match, but in Addressograph’s case they had a CEO who only cared about being in good standing with the business world and with the help of bad decisions put them in bankruptcy and getting himself fired from that position.  Other words he believes only in his reality and not the world reality that was in front of him.  Although in Pitney’s case, when it came to praising their great performance it was brief, but when it came to what could hurt them in the future they spent quality time figuring everything out.  An interesting quote comes from this chapter, “The moment a leader allows himself or herself to become the primary reality people worry about, rather than reality being the primary reality, you have a recipe for mediocrity, or worse.”  That is why Winston Churchill was a great leader during World War II, because he faces the brutal reality of the war and all the information that was fed to him.  He had created a statistical department that told him the reality of the war as Nazi Germany swept Europe.

In the next section of this chapter, Collins talks about creating a climate of truth and in that climate, he suggests four basic practices for creating that climate.  The first one is “Lead with questions, not answers.”  With this practice, Collins talks about how good-to-great companies ask questions to help improve and succeed in business or rather get an understanding of what is going on with the business as a whole. That way those business leaders will have a clearer objective instead of having that objective being cloudy if you try to run the business with an answer.  The next practice is “Engage in dialogue and debate, not coercion.” Meaning, instead of forcing out the answers with your management team and employees talk things out to help develop new or better ideas.  Of course, for this to happen you have to have the right people and the right leadership.  One of the examples given was Nucor, they were on the verge of complete failure until Ken Iverson became CEO.  He became a level 5 leader who got the right people on his bus and because he lead with questions it help make Nucor a nuclear energy base business into one of the largest steel companies in the world.  He did this with meetings that go to the point that they were so violent that people would almost jump over the table.  However, because of that chaos, the right questions were ask and the right ideas came out of them and thus made Nucor a comeback king in the business world.

The next practice is about analysis of failures or rather “Conduct autopsies, without blame.”  With this practice in mind, it is about finding out what went wrong and admitting to it.  Which most businesses seldom do when that failure is bad enough to hurt them for quite a long time.  I great example I can think of is Windows ME, that operating system was a complete failure and Microsoft knew and yet in just a few short years, it would produce Windows XP one of most popular operating systems of all time.  Of course, now, they did it again with Vista becoming the new ME and Windows 7 becoming the new XP.  The final practice is what I think really that hits home about this chapter is “Build “red flag” mechanisms.”  The idea of this practice is that good-to-great companies need to build red flags in order to know that they are about be threaten by sometime or know when something is about to go wrong.  However, with some of the examples giving such as Bank of America and deregulation of their banking system and Bethlehem Steel and the mini-mills taking their market shares, they knew everything that needed to be known, however, they did little to change the outcome until reality punch them in the face and so found themselves in a crisis.  You want to use red flags as a way to deal with the now instead dealing with the problem after it happens.  Although Collins sums up by saying that if you’re a level 5 leader, red flags are not necessary, however if you’re not a level 5 leader then red flags should be used.  Though I find that statement hard to believe as you might want still have red flags set up even as a level five leader.  However, I would assume that being a level 5 leader would require to master such a tool before you can reach that echelon of leadership.

Of course, what made this chapter strong as I got towards the end is the fact that Collins would take about how good-to-great companies would go into survival mode the moment the threat is great enough and find the faith, will and determination to survive.  That is what Kimberly & Clark Did when Procter & Gamble become #1, K&C use P&G success as a way to motivate them to becoming a greater success than ever.  However, Scott Paper lost the will to survive after P&G became #1, thought they stayed at #2, they decided it was the best route to go.  To finish this chapter, Collins and his team came up with the Stockdale Paradox.  The way this paradox is set up, the good-to-great company has to face great adversity and not only face it but accept that brutal reality.  Then once they reach that step in the process they have to produce an unwavering faith and commitment to prevail and come out from the ashes they were buried in.  Of course, this paradox follows the same line as Admiral Jim Stockdale who was a POW for 8 years in Vietnam who was able to survive and come home because of that faith and determination to survive.

To sum up this paradox, Collins would say, “you must retain faith that you will prevail in the end and you must also confront the most brutal facts of your current reality.”  In a way, that is how good-to-great companies become such, because they face worse case scenarios and dealt with it and soon found a way to success. Because they regain that focus that had let down that dark spiral and so Collins would end this chapter by saying that if a good-to-great business work both sides of the paradox and kept it the perfect balance then there is nothing that should keep them from getting into that downward spiral again.

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