Building Blocks for a Top Company
For more than 20 years, together with an extensive team of researchers, Jim Collins has been trying to determine why certain companies stand out above similar companies and moreover why they seem to be more resilient against various forms of adversity.
Their findings are presented in a series of five books, from which the following summary conclusions have been selected:
- The Hedgehog Concept
Top companies outshine others by their ability to identify that at which they can be the best (their talent), that which drives them the most (passion) and in addition, by attaching to this a crystal clear revenue model (economic engine).
They have only managed to obtain this insight by scrutinizing and fearlessly facing the hard facts. In order to do this, a company must have an environment in which people are truly listened to, where there is room for dialogue and debate and where they look for causes not culprits. Of course these deep insights don’t come out of thin air. The simplification of this complex world is necessary but takes time and in many cases, the use of a think tank is indispensable.
An additional requirement is that regardless of any appearance of insolubility of the problems, there is a firm expectation on everyone’s part, that the company ultimately will be successful. (the Stockdale Paradox)
- People are the key
Of course this begins at the top of the company. The true leaders attach modesty to willpower and humility to fearlessness.
Their huge ambition isn’t focused on their own gain, but on the fortunes of the company. That means among other things that nepotism isn’t in their vocabulary; so they will always choose for the best people in the right places.
Where this last point is concerned they are stanch. Preferably no colleague to an unsuitable one, even if that does mean all sorts of organizational inconvenience. It’s a senseless drain of energy to spend time on motivating and training unqualified employees. This is because the right people motivate themselves!
The best leaders won’t ever implement certain strategic changes until they have the right people in place, even if it takes years. With employees who don’t have the proper mindset, the battle cannot be won.
- Company Discipline
“Success in business arises from a mix of creativity, power of imagination, jumping into the deep end and visionary dedication.”
A beautiful citation, however, it’s missing the concept of discipline while long-term success in business is next to impossible without persistent discipline. The superior leader manages to combine elements like creativity and discipline in the right way and to embed this into the company culture.
How does one develop a well balanced company discipline?
- Once the (potential) capacity of the business is verified by applying the Hedgehog Concept, steadily more deliberate decisions will be taken which are intended to set the wheels in motion, purposefully creating controlled momentum.
- To ensure that the momentum doesn’t get out of hand, measures are taken to contain growth within certain limits.
Dave Packard’s law: “A great company is not feasible if the growth of the company is constantly greater than the increase in the number of right people to implement that growth. This prevents a situation where the rest of the company's growth cannot keep up or even where liquidity problems could arise. A tightly planned growth according to the "20 mile march" principle also prevents hasty decisions in turbulent times or during sudden "outside opportunities".
- New concepts are first tested using pilot balloons, only after which the zeppelin is launched.
- Leaders like Bill Gates and Steve Jobs all suffer from "productive paranoia"; that is to say they are always aware of the many things that can go wrong, without letting themselves become paralyzed by those fears but still taking the proper precautions. This includes maintaining perhaps inconveniently high cash reserves for unexpected events or bad luck.
- The way in which a top company reacts to challenges and setbacks shows how disciplined they are. Decisions are never made hastily or in a panic, but always in a deliberate and well thought out manner. This also goes for major technological innovations.
- The Luck Factor
Research has revealed that the most successful companies are no more or less affected by good luck or dogged by bad than comparably good companies. Where the distinction is made, is in the way in which they handle these shifts in fortune. Top leaders simply take for granted that a phase of thoroughly bad luck is unavoidable thereby preparing themselves for it.
- What’s the relevance of this story for mere mortals?
Just as amateur athletes and upcoming talent look to and try to imitate the pros in order to improve themselves, so can the novice and even the established entrepreneur learn a lot from the top business leaders.
The application of ideas such as the hedgehog concept - almost maniacal preparation, iron-willed business discipline and productive paranoia are to some extent within everyone's reach. It seems to go hand in hand, that when the implementation consumes such an incredible amount of time and energy, a private life is hardly possible.
This is partly true, but don’t forget that a badly running business consumes energy and athriving business on the other hand creates energy!