Jim Collins, author of the best-selling business books Good to Great and Built to Last, has studied many successful companies and is widely recognized in the business world for his management principles. Many of the companies highlighted by Collins have successful track records, yet other companies in his studies have lagged far behind their peers.
In light of the current economic headwinds, we embarked on an historical evolutionary look back at the principles espoused by Collins and offer what we feel are some of the timeless core concepts. In reviewing Collins’ books and his more recent commentaries, we believe he offers three core prescriptions: organizationally focused leadership; a disciplined, cult-like culture; and hiring the right people.
When considering these concepts, it is important to note that organizations are complex systems with interconnected components. Each is reciprocally related and each affects, and is affected by, the other. For example, leaders can shape the culture by working to instill certain values, but how leaders think and behave can be influenced by the dominant culture. The success or failure of any business is not rooted in any one factor, but rather the aggregation of its structure, processes and people.
Organizationally Focused Leadership
Charisma, flamboyance, charm and other such traits are NOT a requirement for effective leadership. Effective leaders build organizations, not personal empires. Leaders desire power; however, great leadership is more often rooted in a socialized power orientation, whereby the leaders use their power to benefit the organization as a whole. As we move further toward a knowledge-based economy, this distinction becomes increasingly important.
Collins notes that leaders should exhibit humility and, more specifically, should be willing to say “I don’t know.” Now that sounds a bit counterintuitive; however, today’s business environment is characterized by competition based on knowledge resources and shorter product/service life cycles. This means that intellectual capital is often the key to a sustainable competitive advantage. Intellectual capital is produced when employees exchange what they know and, more importantly, when individual knowledge sources are integrated, resulting in new knowledge. Great leaders not only encourage debate and embrace diverse ideas, great leaders proactively cultivate a culture that values open debate. Leaders should not only confront “brutal facts,” they should purposely seek them out.
The final decision-making responsibilities do fall on the leader. It is the humble leader that recognizes complex issues are better addressed by having divergent perspectives. More information – especially when confronting complicated or intricate issues – often produces better decision making.
Take, for instance, Steve Jobs, founder and CEO of Apple Inc. He was ejected from Apple in the 1980s. After his absence, Apple began a downward spiral until Jobs returned in 1997 to regain control of the organization. He then hired forward thinkers and designers and brought Apple’s focus back to making software, ultimately changing the culture. Jobs instilled his values and vision into the organization, which allowed it to continue moving forward despite his absence due to medical reasons. This is just one notable example of how leadership can have a significant impact on shaping the organizational culture, even to the point where the company can survive and sustain itself in the presence of new leadership.
Disciplined,
Cult-Like Culture
Culture is a murky concept. It permeates an organization, but it cannot be readily seen, touched or easily described. It has been portrayed as an iceberg; only a small part is observable, yet what lies beneath is an embodied force capable of immense power.
Organizational culture, in a nutshell, is the system of shared values, beliefs and understandings among employees. Great companies have a strong culture and, secondly, the culture is functional in that it fosters productive behaviors. Whether “customer-service focused,” “earnings-per-share driven” or “innovation centered,” the culture guides how employees think, what they do and what outcomes are attended to.
In a strong culture, the company’s mission, values and goals are widely accepted. Collins illustrates the benefit of a strong culture in his “Hedgehog Concept.“ The hedgehog is a disciplined creature that understands what it does well (digging) and focuses its efforts on doing it well. In business vernacular, a disciplined culture implies that employees understand the purpose of the company and what the firm does well (i.e., its distinctive competency), and all strategies, actions, plans and individual behavior are aligned with this understanding.
Walmart exemplifies the disciplined culture. A focus on controlling costs is prevalent in its framework. For instance, top executives at Walmart fly coach and share hotel rooms when they travel – all in an effort to keep costs low. Controlling costs is a shared belief, and this mentality is pervasive at the Walmart headquarters, where they strive to find new ways to keep costs down and pass those savings onto their customers.
A cult-like culture extends beyond a disciplined culture. In a cult-like culture, employees not only buy into the organizational mission and vision, employees define their own personal identity in terms of their organizational membership. That is, employees see themselves as part of “something bigger” and have an emotional attachment to the company and its purpose.
Founders, the first leaders of a company, are a key factor in establishing culture. Employees look to and model the actions of management, especially the founders. In particular, employees are able to discern espoused versus enacted values. Thus, the actions of leaders carry more weight in shaping the culture than any words.
Take Herb Kelleher, the founder and former CEO of Southwest Airlines. Stories of Herb cleaning planes and loading bags are legendary, and though he is now retired, the current employees understand that doing whatever is necessary to turnaround planes on time is a shared expectation. Ultimately, a disciplined, cult-like culture reduces monitoring and costs as employees require less direction and supervision. Creating this type of culture requires finding the right people who embrace the values of the organization.
Hiring The Right People
All organizations have people; however, great organizations have “the right people.” Collins calls this “putting the right people on the bus and getting the wrong people off the bus.”
Who are the right people? Collins illustrates this principle with a story about two mountain climbers who remain the only persons to summit a mountain via a particularly challenging route. When one mountaineer was asked “how?” the reply was that the single most important decision was made before stepping foot on the mountain: picking the right climbing partner. Nobody knew the challenges that would unfold; however, the inevitable trials were overcome by having a capable partner.
Uncertainty is a given in today’s economy, and knowledge is increasingly the basis of competition. This means organizations need to critically think about “who” before thinking about “what.” Humble leaders are not afraid to surround themselves with capable, competent individuals that confidently voice their ideas. The humble leader asks more questions than issuing orders. Open, honest debate usually leads to better decisions. When capable and competent people are “on the bus,” the inevitable contingencies can be confronted and effectively addressed.
It is also critical that organizations seek to hire people who will embrace the culture of the organization. Achieving a fit between the person and organization increases the likelihood that employees socially integrate into the organization and develop productive relationships with coworkers. Hence, knowledge exchange is more likely to occur.
The importance of having the right people, a disciplined culture and organizationally focused leadership are seen in the downfall of Circuit City. Philip Schoonover took over as CEO in 2006 as part of a wholesale management turnover; shortly thereafter, in 2007, the company fired over 3,000 of its top-performing employees in an effort to cut expenses. Schoonover reportedly earned a multimillion dollar bonus that year. In an industry where customer service is a key success factor, customer service at Circuit City plummeted. To borrow from Collins, the bus was now mostly full of the wrong people, people without a disciplined focus on customer service. Moreover, did Circuit City have the right people to be able to debate this decision to lay off the top performers? It is doubtful, as this decision cut to the core of the company. It also seems unlikely that the company culture encouraged a thorough debate of this decision. Circuit City, which at one point was the top company in their market, ultimately was liquidated.
No Guarantee
We are quick to point out that there is no recipe guaranteeing success. Tom Peters, author the best-seller In Search of Excellence, notes rather emphatically that business books are about generalizations, and if someone buys it “hook, line and sinker,” then he is a fool. Does this mean our exercise is fruitless? We think not. Rather, these core concepts serve as cornerstones for the foundation of any business. Any particular business is unique, just as people are. Hence, strategies and operating plans should be designed in accordance with the idiosyncratic attributes of each particular business. Building an organization upon these core principles will increase the chances of success, not guarantee it. As such, these core principles are not terminal goals – no organization should seek to “check ‘em off” as complete. Rather, these principles should be treated as more organic, requiring constant nurturing, development and tweaks.
While these principles seem straightforward, execution is a challenge. Outputs such as products and services can be easily duplicated or imitated, but the intangible nature of these principles is difficult to replicate. Implementation and execution of a business plan are similar to rafting – the plan sets the general direction. Each paddle stroke is a decision; ideally, everyone is paddling in the same direction toward the same goal. Conditions can change unexpectedly, and there are unseen contingencies that can surface; however, competent, capable and disciplined rafters will stay focused and persist in the face of adversity. They know what they are trying to achieve. Consensus decisions are not required, but once the leader has made a decision, cooperative effort is. The leader is the guide, steering the raft, yet fully aware that a successful journey requires cooperative effort from all members.
Frank Butler, Ph.D., is an Assistant Professor of Management at the University of Tennessee at Chattanooga, where he teaches strategic management and international management. He received his Ph.D. from Florida State University. His research focuses on mergers and acquisitions, top management teams
and boards of directors.
Randy Evans, Ph.D., is an Assistant Professor of Management at the University of Tennessee at Chattanooga. He received his Ph.D. from the University of Mississippi. His teaching and research center on the importance of human capital, with a focus on employee performance and adaptability, as well as corporate citizenship.