The Hedgehog and the Flywheel

An interview with James Collins

NOTE TO MEMBERS: After Jim Collins’ presentation on the 24^th, he suggested doing something different that, in lieu of a summary, could add significant value. He suggested a post-session Q&A, in which we posed the questions.  

In this interview, conducted Wednesday, November 1, our own Jim Ericson represented the Masters Forum (MF). Books referred to are Built to Last (BTL) and Good to Great (GTG). Let us know if you like this approach, and would like to see it again when the speaker is agreeable.

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MF: You are warming up on your rock climbing wall as we speak.

COLLINS: That’s right. As we speak.

MF:  Hanging from your finger tips in various contorted positions

COLLINS: That’s exactly what I’m doing.

MF:  This is a great opportunity to do an interview.

COLLINS:  Ha, well you see … this notion of a balanced life, I don’t think I’m ever going to be able to have that ... but I can have what I call an integrated life. And an integrated life is one where you’re able to fit the different pieces of your life together in seamless fashion.

And I think that being able to have an interview with my friends in Minneapolis while I’m warming up my forearms and fingers for a climbing training session on my climbing wall qualifies as an integrated life.

MF: Fabulous. I love that.

COLLINS:  You’ve probably never had that with one of your speakers.

MF: We never have. This is a first.

So let me start with the question that says, “Why do you do these huge multi-year projects?”

COLLINS:  Well, let me address that in two ways. First, why don’t you? There are a heckuva lot of easier ways to have bestsellers. In fact in BTL, I was hoping the book would do well, but, you know, when you’re doing that kind of project you can’t be timely and trendy. Because whatever timeliness and trendiness has happened six years before is gone by the time you get there. So it’s never been a trend-driven thing or a “what’s hot?”-driven thing. In fact it’s been just the opposite. And the ultimate driving force is curiosity and contribution. And the curiosity part really ties into this notion of what we jokingly call “the chimp.” Be like Curious George, start with a question and look under the yellow hat to find what’s there. To truly understand, to see, and go “Ooh, that’s really interesting.” And then second, to make a lasting contribution.

Ironically, I will probably never build a great company or an enduring great company or maybe a company at all. And so there’s a question of what am I trying to do to do anything that might be lasting? The answer I have is, you know, there a lot of things you can try to build to last. And what we try to do in our work is to come up with ideas that will last. Ideas that will stand the test of time. And that means that they need to be connected to truths in some way. Not truths with a big T, but truths with a small t. Meaning that essentially, whatever you find will be as true 10 years from now, 20 years from now 30 or 50 years from now as it is today and as it was 50 years ago. 

And if you can put your finger on those truths, then you’ve made a contribution. If you can help other people understand those truths--and in my mind, the only way I know to do that is with large scale, multi-year research projects, where you start with a question and then very rigorously and comprehensively answer that question. Like what makes enduring great companies? Or what separates companies that go from good to great from those that don’t. These are not questions you can answer in six months.

MF: No that’s sure true. Your last book was BTL and you spent a lot of time working on that.That was a great question. The new question you asked, how do you go from good to great...that’s your new research. What’s the link between the ideas in BTL and the findings in the new book?

COLLINS: I have two answers to that. The first is that instead of writing a sequel, which is what most people do, this is in fact a prequel. Although we didn’t know that when we began the process. When we began the research on what was going to be GTG we were trying to answer the question, “could a good company become a great company?” And if so, how? But upon reflection and after having now uncovered a lot of the findings in the research, what’s really become clear to me is that the steps in good to great are the things that you do before you really get to the steps in BTL. And so GTG is about going from good to great and BTL is about going from great to enduring great—it’s about how to take something great and make it built to last as great. And in a way, BTL is the last stage, the last step in the process of going from good to great. Now that’s not something that was planned. It’s only in retrospect that I can see that it’s in fact a prequel. The connection is that really you want to do the first stuff, the GTG stuff, and THEN do the BTL. Now additionally, there are some direct links on a couple of the key concepts.

For example, you may recall in BTL we had the idea of being a clock builder rather than a time teller. So you can build a clock that can tick independent of your presence or great charismatic skills-- like William McKnight at 3M. He was a great clock builder, but he wasn’t a particularly good time teller--to be able to say, “This is what time it is and I know where the market is going and here’s the answer.” If you now think about the GTG research, what we have is this notion of Level 5 leadership, which is the blend of personal humility with professional will and the combination of the two. 

What’s quite interesting about this is that to be true clock builder, in fact, requires ultimately being Level 5. Because if you want to be the time teller that tells everybody what time it is, and what we should do, and the great heroic visionary, and out front pointing the way -- that’s not very Level 5.The Level 5s are very comfortable saying, “Hey, I can build something that doesn’t depend on me and ultimately when I step away I’ll leave it in even better hands than I have it in just in myself.” That’s a clock-building orientation –fits perfectly with Level 5. So some of the findings come from very direct mapping, some of the other findings are really just predecessors to what was ultimately BTL.

MF: Can Level 5 be learned?

COLLINS:  By most, but not all. I like to think of it as that we have a seed within, or MOST of us have a seed within to become Level 5. That the potential to become Level 5 exists in you and me and the people we work with and that it is then a process or a journey to nurture that seed … in a culture by and large that doesn’t reinforce it. And to gradually evolve towards Level 5.I’d believe that…I don’t know what the percentage is, but I’d think that over half the people that you and I deal with in life have that seed and then can nurture it. 

On the other hand…I think there are some people who simply do not have the seed. Never in a million years could they subjugate their own egoistic needs to something larger than themselves. It would always be fundamentally about them, rather than about the work or the company or what they’re trying to build or the greatness of the work. And some people, and we could list them…I mean you know and I know some very high profile CEOs... just pick up the last two year’s covers of any major business publication and right away you’re going to see some people who you just know, never in a million years, NEVER could be Level 5. I don’t think Larry Ellison has a good shot at becoming Level 5.

MF: Okay, interesting

COLLINS: In fact there is a question. For those who have the seed, how do you begin? Just a quick comment on that. The way you begin…there’s really two things. First, by learning it. Learning ... basically recognizing the link between Level 5 and incredible performance and therefore having confidence to reject the signals that society sends us that you must be an egocentric level 4 to succeed. Second, begin by practicing the other findings that we found in GTG, because there’s a relationship between the two.

Level 5 is what you need to BE, but the other findings in GTG are what you need to DO. Remember that great Pascale and Tony Athos lecture? You had them come back and they talked about the relationship between being and doing. That’s exactly the same idea here. The later concept of what you do, the Level 5 is what you become and there’s a relationship between the two.

MF: Great, so how do you spot a Level 5? Say on the way up,

COLLINS:  I get asked this question a lot…especially by investors. And, the way you spot a Level 5, say inside an organization that you might want to promote...  You look for some arena where there are fantastic results coming from that arena…however you define results…could be financial, sports results, teacher that just has incredible test scores coming from the classroom…whatever the definition of results are. But there’s no obvious person that’s taking credit for those results. And when you see the combination of sustained and outstanding results coming from somebody who doesn’t draw attention to themselves but really draws attention to the results and the work and lets those speak, that’s where you're going to find a Level 5.

It’s interesting...I’m married to a Level 5. I don’t know if I’ll ever succeed at being a Level 5, but I know I married one and maybe that’s the next best thing. My wife has brought home 3 state championships in 3 years: boys 800 meter team, girls state cross country team and just this last Saturday the boys state cross country championship team. What’s interesting is she has done everything that we’re writing about in GTG. She has taken a good program and turned it into a great program. The results are remarkable. An article came out in the paper yesterday that talked about her And her reaction to it was, “God, I’m so embarrassed. It shouldn’t be about me. I don’t want it about me. I don’t want it focused on me. It should be about the kids. It should be about what THEY did.” 

That’s when you know you have a Level 5—you know, it’s obviously got a lot to do with her; because they’ve done it for years and they’re starting to do it for years in a row now with girls teams, guys teams, short teams, fast teams, long teams. It doesn’t matter—they’re starting to get these results. But when people sort of focus the lens on her she does everything she can to deflect it. Now you know you have a Level 5.

MF: Is there a way, Jim, that Level 5 plays out in your personal life, in your personal relationships? You can talk about building a great organization and being a Level 5 to build a great organization. What about Level 5 and building a great life?

COLLINS: Ummm, that’s a really good question and I’ve wrestled with it a lot because I am not going to be a leader or a manager and so I’m somebody who tries to… imperfectly… certainly imperfectly… would try to apply what I teach. Yeah, what does it mean to be Level 5 in your life? And what are the impacts of that? I think ultimately being Level 5 outside of the leadership arena means two things: number one, it means that whatever work you’re involved in—and we are always involved in work in some kind, even if we’re not building things in an organization -- that our ambition ultimately becomes for the work. 

And look at, for example, a great composer. As he went along, Beethoven certainly had great ego about the kind of work he could produce. But you know he took a lot of hits because he wrote stuff that was pretty challenging and far out there for the time. He was therefore not as popular at the time. But he was writing for the music. And he was writing—he says, “I’m writing the music that will be appreciated 100 years after I’m dead. And my ambition is for the work.” And that says Beethoven was a Level 5.

In your own life…say for an example in the arena of marriage. With Joanne and I, we’ve been married for 20 years. We have a BHAG ["Big Hairy Audacious Goal]" to celebrate 75 years of happy marriage. And the thing that Joanne has always understood, and I think that I have over time, as I’ve grown up, learned, is that you have to be ambitious for the marriage--not for what you get out of the marriage. And the principal thing that you’re investing in is the unit, is the marriage, and is the relationship. That the relationship is bigger than you, bigger than either of you independently-- by a factor of 10. And that is how you become Level 5, say, with your marriage. It’s not about you.

MF: It’s about the marriage. Okay. Another question…you studied 1435 companies. Only 11 made the shift from good to great. Why only 11?

COLLINS: This is a question that I’ve puzzled greatly over, because it’s a very shocking number when you think about it. And…2 answers, maybe 3 in this case.But one, clearly being good makes it hard to become great. And most things are good, because you can just go along for a while just letting things be good. But, umm, that doesn’t address the fact that ½ of our companies were not in crisis when they shifted. So clearly it’s not just an issue of whether you’re doing and whether you’re in crisis or not. 

I think ultimately it comes down to a couple of really more deep issues. First is that we keep putting non-Level 5s into areas of responsibility. Here’s a classic example—I remember 4 or 5 years ago when everybody was like, “well, the thing AT&T needs to do is get a charismatic, hard-driving, outside leader to come in and lead this place.” What does the board do? They went and got a Level 4. How successful has that Level 4 been? It’s not his fault. He was the wrong person for the job! They needed a Level 5.

The irony is there was, I believe, a potential Darwin Smith Level 5 right on their hands, right in front of them, in the corporate counsel at AT&T. A guy named Ziegler. Had they picked him I think we’d be seeing a different outcome, number one, or we may well. But second, because our culture says we need this figure, this mythic hero to fix things--and they almost never really sustainably work, that we just keep putting the wrong people in the job. And if a Level 5 is required to do it, why would we keep putting the wrong people in the job—they’re never going to get it done?

Second, there’s a multiplicative effect. And the multiplicative effect means that you have to do every finding that we found in the GTG research to go from good to great. It’s not just the Level 5; it’s Level 5 plus the right people on the bus and the wrong people off, plus the Stockdale paradox, plus the Hedgehog concept, plus the flywheel effect, plus the technology accelerators, plus the culture of discipline ultimately connecting into the BTL idea. You miss any of them and you don’t make it. And now if you just start taking the multiplicative---what are the probabilities of a Level 5(well under one) times the probability of having the right people on the bus times the probability of the Stockdale paradox times the probability of having the right hedgehog concept times the probability of not going into the doom loop but really moving the flywheel times the probability of getting the right technology accelerators times the probability of getting the culture of discipline AND NOW multiply the probabilities and you come out with about 11 of 1435.

MF:  Wow

COLLINS: But then again, in all fairness, we set a very stiff standard. We didn’t write...you know, the title of the book is not going to be Good to Better. It’s not about that. It’s about good to great, and so if we have that standard, we should expect that it’s really hard to do. Now if you don’t do all of it, you will be better, but better is not good enough.

MF:  Interesting. You didn’t have time to address the role of technology. How do good great companies think different about technology than their mediocre comparisons?

COLLINS:  Well... hmm…they build rock climbing walls in their basement!

The basic answer would be …let me see if I can give you a really good example and then you’ll get the point. About a year and a half ago, everybody had written off Walgreen as Wal-toast—it was going to get killed by drugstore.com. You may remember all of that. And drugstore.com comes out at a price of $69 a share. Today it’s rated at two and a half; Walgreen stock fell 45% roughly in response to that. In the intervening year, since October of last year, Walgreen’s stock has gone up 80% and drugstore.com as declined 94%. What happened?  Well obviously you had the burst of the dot.com bubble. But more important…what REALLY has been happening is this: Walgreen looked at the internet and said “HOW does the internet potentially fit with our hedgehog concept?” That’s the critical question…it’s not “should we be on the internet?” It’s not, “should we do a big web initiative?” Everybody’s yelling Internet, Internet, web, web, they sky is falling! And the Walgreen people were fascinating—their response was, “No, we’re a crawl, walk, run company and when it comes to the Internet, we’re first gonna crawl. We’ll learn and understand, then we’re gonna walk. And then if it really connects in with our hedgehog concept and we understand how, we WILL RUN. 

Well. it took them about 2 years to go from crawl to walk and then they figured out and said yes, our hedgehog concept is convenience and increasing profit per customer visit. We can really harness the Internet to that idea, in fact we can become incredible pioneers in that. And if you go to walgreens.com today it’s as well designed of an internet website and whole system, linked in fact to their inventory system and everything, as amazon.com. They’re as good as Amazon at the web thing now. The point of that is, if you look at Walgreen’s history, they’ve always been pioneers in the application of technology. They’re the only drugstore chain that I know to have their own satellite. But they only do this to the extent that it links with their hedgehog concept. 

So the bottom line point is this: Any new technology comes along, you never rush onto it, you never jump onto it, you never go and say “We gotta get into this because this is the next BIG THING.” That’s the wrong way to respond; that’s a doom loop rather than flywheel. The way you want to respond is to ask a question: Is this technology directly relevant to our hedgehog concept? If the answer is YES, then we want to become pioneers, not in the technology, but in the application of that technology specifically linked to our hedgehog concept. On the other hand, if the answer is NO, then either A, we totally ignore the technology. We just don’t have it, we don’t need it, or b, if you need it, just like we all need phone systems, you just go parity. I don’t have to have the world’s best phone system, but I might need to have the world’s best number crunching system. Walgreen doesn’t need the world’s best manufacturing technology, but Gillette does. 

And so what you do, is as we look thru them, each of the GTG companies, after breakthrough—after they really got breakthrough-- harnessed technology to accelerate that breakthrough. But they were very careful in what they selected, and they only selected technologies relevant to their hedgehog concept and it varied. Sometimes it was information technology, but sometimes, in Gillette’s case for example, it was manufacturing technology. There’s no reason for Gillette to be world class on the web, but there’s every reason for Gillette to be world class in producing billions of high powered razor blades at low cost. So that’s basically the answer. The next time we have a technological disruption and everybody runs around and says, “Oh God, gotta do this, this is the next BIG THING, blah, blah, blah,.”You’ll immediately be able to tell the great companies from the good ones, because the great ones are going to stop and crawl and walk and run and they’re going to say, “we’re going to understand how this fits with our hedgehog concept, and if it doesn’t, screw it.”

MF: Interesting... I wonder if that goes for the great investors as well?

COLLINS:  I think so, yeah. There’s one other thing about it though too… None of the companies became pioneers in the application of technology before they had their hedgehog concept. And that may sound obvious, but when these technologies disruptions come along, and what you find are people trying to circumvent the build up process, the build up breakthrough process… by just glomming onto an exciting new technology. And it never produces a shift from good to great. You harness the technology to accelerate your flywheel AFTER you’ve reached breakthrough and after you have your hedgehog. Not before.

MF: Great. Another question. Does everyone have a hedgehog concept?

COLLINS: Yes, I believe so and this is one of the things that’s so beautiful about the study that we were fortunate enough to complete. You know, the whole beauty of studying mediocrity that became excellent results is that nobody can point to them and say, “yeah, but they were always great. They always had something at which they were the best.” You know, a number of these companies have never been the best at anything. I mean they were mediocre. And yet what they did was by asking the question, “what can we be the best at? Let’s discover what we can be the best at,” and then pursuing that. “Let’s discover what we can link into our passions and then discover how that can connect into our economics.” They all found the hedgehog concept. 

And so, I mean if Fannie Mae can do it, if Kroger in grocery stores can do it, if Walgreen in drugstores can do it, then if a steel company can do it…I mean… the thing about Nucor is that it didn’t even make an ounce of steel when it started its transition. Didn’t make an ounce of steel! Today it’s one of the best steel companies in the world. It discovered its hedgehog concept as it went along. And it was about…I can’t even think of a company that was as bad and yet still alive as Nucor in 1965. I’ve never come across one that is as mediocre as Nucor was in 1965. And yet somehow they found a hedgehog concept. So my answer is, YES, everyone can find a hedgehog concept. If these companies can do it, anyone can do it. And anybody who says they can’t is simply whining.

It might take some time. And it doesn’t happen over night—there has to be true understanding. And then at a personal level, yes, I think that that’s the whole point of self-actualization. In our research, the definition of self-actualization is discovering your hedgehog concept and then pursuing it with excellence. That’s what it means to self-actualize. And that’s what Maslow meant—he just didn’t have the hedgehog concept to describe it. But that’s essentially what he was saying—it’s not just hanging around, it’s discovering what you were born to do and doing it with excellence. So, and I agree with Maslow, that the challenge in life is to discover that…and we ALL have it to discover. I can’t prove that.

MF: How many of us, out of 10 or out of a 100, discover it over a lifetime? I know that’s asking for a guess…

COLLINS:  Certainly less than half.

MF: I would think so too… I think it would be way less than half

COLLINS: Yeah, and I think the reason is that we start with the wrong circle…we start with the economic circle…How do we make our economics work? Rather than going the other way. The whole secret to discovering your hedgehog concept is to start first with passion, then with very rigorous and honest, brutal assessment of your genetic strengths—what you’re genetically encoded to do, born to do. Then third, then linking it into the economics. Now you have to have all three to have your hedgehog concept. 

But, most people, most people I know who went to college with me…you know they graduated and started with their economic circle rather than with their passion circle. And then they never addressed the question, you know they got paid for doing something they were good, and maybe very good at, and they could get paid very well for doing something that they’re not genetically encoded to do, and so therefore they actually never pursue what they’re genetically encoded to do. It’s the doom loop of life.

MF: The doom loop of life. I wonder if our school systems have figured that out when they’re talking to our kids about career counseling and guidance counseling or whatever.

COLLINS: If I had a personal wish for the new ideas in this new book it would be that every parent, every counselor, every teacher, every professor, every sports coach that deals with young people would understand the three circle concept. And would encourage all the young people they come in contact with to begin early searching for their own understanding of what those three circles are.

MF: Wow. I think you’re right on. Having some kids at that age myself. One last question, Jim…How do you apply what you’ve learned from the new work to yourself? How has it affected your own life?

COLLINS:  Well you know, it’s interesting…It’s affected it hugely, just at BTL did, but this project even more so. I’ve used virtually every idea…I mean there’s the idea of really crystallizing my own hedgehog concept... it was there, but it wasn’t really crystalline. And removing things that are inconsistent with it, and continuing to say no to things that aren’t consistent with it. Right there, that’s been very helpful. The idea of always starting with confronting the brutal facts of reality, not just hope as we learned in the Stockdale paradox. There’s been very helpful times and very difficult times. When we started the research project... even... there’s always the possible brutal facts of reality that you might not find anything after 5 years of research and you had to have faith that you would. But confront the facts when you hadn’t yet. I think ultimately the way it has most affected me is in the arena of WHO…that whole idea of “First who.”  

A personal example...  this morning, as I mentioned, I’m warming up on my system board before going to go rock climbing at the rock gym. You know, what I’m REALLY doing this morning is I’m going to go climbing WITH my favorite climbing partner. And when I first started rock climbing and even later in life climbing...the primary question I’ve wrestled with as a climber was, “what am I going to climb? What are my climbing goals? How hard to I want to climb?” And I still think about those, but the REAL thing that I think about is “WHO do I want to go climbing with?” And that may sound really... umm...  trivial. It’s not. It’s not at all. To just sort of shift everything to the question is not what am I going to climb this weekend but WHO am I going to climb with. Who of my best friends I want to be out on a great day with, and we will do some really hard climbs. We’re all climbing better than we ever have ... . we’re all climbing better than we ever have because we’re climbing with the right whos.

So, that single idea of always first who, then what, has had a huge influence on me and I hope to continue to be able to make progress on it.

MF: That’s great, and the other thing ...  your teaching philosophy...  and we’ve talked about this... is the notion that it’s really hard to change organizations but you can change individuals…speak to a little bit about the notion of how people need to be able to think about this stuff in their own lives before they can really think about it in their business.

COLLINS:  I think that’s really true. And, I met someone yesterday who knew Darwin Smith, and I said, “Oh, I wish I would have met him. I only studied him. Tell me what did you learn from him?”  He said, “The thing I learned from Darwin is his main lesson was to be a great manager, you must first be a great person.”

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Look for Jim's article "The Level 5 Executive," in the January issue of Harvard Business Review.