How to successfully lead a company through a transition

There was much to learn from Jim Collins's 2001 book Good to Great, which studied companies that had made the transition from mediocre to superlative through what was revealed to be a series of common steps. But one finding that has been starkly overlooked by leaders is that the good-to-great companies never had a big transformation program in which they unveiled and installed their new, successful formula.

"There was no single defining action, no grand program, no one killer innovation, no solitary lucky break, no wrenching revolution," he wrote.

Yet, companies still install new leaders who are expected in 90 days to come up with a grand program of transformation – even when the company is operating well. And existing leaders feel that pressure, too. It seems these days leadership requires proclaiming a new strategy and an accompanying program to implement it every two or three years. Leaders who don't oblige are considered failing at their job.

But Mr. Collins studied leaders and companies who tried that. And it was those constant programs, often erratic and unrelated to previous efforts, that were the cause of failure. He termed it "the Doom Loop," in which efforts don't work out, a new program is therefore concocted, and it doesn't work, and so on. The failure comes in part because no single effort was sustained.

So if you're a leader, seeking a new strategy and a program of change, think twice.

If that seems astonishing, at first Mr. Collins couldn't believe it either. His methodology is to compare companies over time – a historical matched pairs experiment. He had found 11 companies that had 15-year cumulative stock returns at or below the general stock market, punctuated by a transition point, then cumulative returns of at least three times the market over the next 15 years. So he expected something magical had happened at that transition point. And he primed his researchers to ask executives at those companies how they got the commitment and alignment behind their change effort.

But one day, he recalls in an interview, a frustrated researcher threw his binder with the collected information on the table and told Mr. Collins it was a stupid question: "That's not what happened. They don't understand the question."

Mr. Collins had discovered what he now calls "the flywheel effect." Flywheels are mechanical devices that efficiently store rotational energy. They can be difficult to get moving, but once they do if you keep pushing they feed in part upon their own energy. The companies in a disciplined way had discovered things that worked for them and kept pushing hard on their flywheel to be successful. "It's the compounding consistency that builds tremendous results," he says.

Their transition came not through a brilliant vision or a flamboyant transformation strategy devised at a management retreat. It came out of the best of their current activities, pursued doggedly.

The study had included comparators for each company – another organization with a similar background and in a similar environment that failed to make the change. They were doing what your company probably does today. "They kept trying new programs, new visions, and new strategies and never got the compounding effect from doing something basically good and keeping it up," he says.

Of course, the good-to-great companies had set the foundation for their flywheel by some other counterintuitive approaches that his book delineated. For example, their leaders were the antithesis of the charismatic saviours we would expect. By contrast, they were humble but determined. Instead of immediately setting out strategy, they focused first on getting the right people on the metaphoric bus, kicking off people who didn't fit, and putting people in the right slots. They faced the brutal reality of their situation and sketched out what the book called "the Hedgehog Concept," which involves determining what drives your economic engine, what you can be the best in the world at, and what you are passionate about.

Much of that is missed by leaders today as well. But arguably the biggest mistake leaders make is pronouncing dramatic new visions and strategies – too often unconnected if not contradictory to previous initiatives – rather than understanding and building on their flywheel. We'll look at how to build your flywheel next week.

Cannonballs

• In the last six months, meditation – mindfulness – in the workplace seems to have moved from a fringe topic to a commonly raised necessity by thought leaders given its ability to encourage focus, resilience and productivity. Another, more subterranean issue, in recent years, has been decision fatigue: How over a day we get tired from all the decisions we make. Obviously that links to mindfulness. So when will you put the topic on the agenda for your organization?
• Your smartphone makes you quick, not smart, says entrepreneur Seth Godin.
• When a decision is made is much more important than what decision is made, argues Dave Girouard, CEO of personal finance company Upstart. So make sure decisions are made on a realistic time frame, habitually considering at the outset how much time and effort the decision is worth, who needs to have input, and when you want an answer.