Good to great

I just finished reading 'Good to Great' by Jim Collins and I learned quite a bit. It was pretty interesting to discover the results of their research on what made some companies thrive and others stagger. The following is what I learned when I completed the book:

Great companies have Level 5 leaders. I know that this has been studied by numerous people since the book was published, so I won't belabor the point. Concisely, level 5 leaders come from within the organization and use that understanding to drive forward growth. They focus on establishing a great team and a culture of discipline that allows the people in the organization the ability to thrive. They focus success outward and channel failure inward.

 Great companies focus on their people. They hire the best people they can find and give them the flexibility within their culture to be great. Good people are self motivated and driven for success and the challenge for the leader is not to motivate them, but not to de-motivate them.

Great companies face the truth. When companies look to determine the potential for growth it has to be done in a truthful manner that really takes into consideration the total environment. Great companies understand themselves, their product and the business landscape and they do not enter the field if they cannot be successful.

Great companies focus on developing a hedgehog concept. This concept is the simple truth about what their business is: what do they do better than everyone, that they are passionate about and that fits their economic ratio? The energy is focused into this concept with extreme discipline to achieve success.

The economic denominator is the ratio by which great companies determine their success. It varies depending on the company, but can be profit per customer, profit per customer visit, profit per purchase, etc. Each decision is graded on how well it fits this ratio.

Great companies are not made overnight, rather it is the accumulation of their drive and discipline over time that leads to continued success. Great companies focus on the process: get great leadership, get great people, face the truth, and create a culture that leads to consistency over time to produce outstanding results.

From a management standpoint, we can learn that in order to have a great product we need a great team with a common vision for shared success and the discipline to do what needs to happen to make it a reality. If the vision is line with the abilities of the people, the available resources and the discipline to maintain the course then greatness is indeed possible. This is true of large national and international organizations, small local businesses and athletic teams. If the pieces have been thoroughly understood and placed together then they will achieve greatness within their realm.

From an investment standpoint, if you are able to identify those unique companies that have been able to curate their hedgehog concept and be consistent over time you will find an opportunity to beat the market by far. These companies produce returns that are far superior to the general market and their competitors, so including them in your portfolio will increase your holdings.