Q&A with Jim Collins ...

When a leader wants to build a great company, what are the most important decisions he or she should be focusing on initially?
The most important decisions are people decisions. The corporate leaders we studied who ignited transitions from good to great practiced the discipline of “First Who”: first get the right people on the bus, the wrong people off the bus, and the right people into the right seats, and then figure out where to drive the bus. To be clear, the First Who principle is not the only requirement for building a great company – it is one of eight concepts we have discovered in our research – but it is the first principle in sequence. Until you have 90 to 100 percent of your key seats filled with the right people, there is no more important priority.

How did you come to this conclusion?
We employ a rigorous matched-pair research method, comparing companies that became great with a control group of companies that did not, and we make empirical deductions directly from the data.

In Good to Great, we studied companies that made a leap from good performance to exceptional performance sustained for at least fifteen years, in direct contrast to companies that failed to make a similar leap in performance, and we asked a simple question: what principles explain the difference? For instance, when we studied Wells Fargo Bank in contrast to its comparison company during the era of deregulation, we found that Dick Cooley at Wells Fargo practiced the principle of First Who, and the comparison leaders did not. Instead of first developing a strategy for how to handle the turbulence of deregulation, he created the best, most adaptable team in the industry. Dick Cooley understood that, in a volatile world, the ultimate hedge against uncertainty is to have the right people who can adapt to whatever the world might throw at you – like having the right climbing partners with you on the side of a big, dangerous and unpredictable mountain.

How do top leaders of these great companies go about deciding who are “the right people to be on the bus”?
“Let’s take the time to make rigorous A+ selections right up front. If we get it right, we’ll do everything we can to try to keep them on board for a long time. If we make a mistake, then we’ll confront that fact, so that we can get on with our work and they can get on with their lives.” Early assessment mechanisms turn out to be as important as hiring mechanisms. There is no perfect interviewing technique, no ideal hiring method; even the best executives make hiring mistakes. You can only know for certain about a person by working with that person.

What commonalities characterize the right people?
The right people meet at least three basic criteria:

First, the right people share the core values of an organization. People often ask, “How do we get people to share our core values?” The answer is: you don’t. The key is to find people who already have a predisposition to your core values and to create a culture that so rigorously reinforces those values that the viruses self-eject. A company can teach skills, but not character. Nucor Steel, for instance, hired people from farming towns, rather than steel towns, with the idea that: “We can teach people how to make steel, but we cannot teach them to have a farmer work ethic.”

Second, the right people don’t need to be tightly managed, nor do they require that you “motivate” them. The comparison companies in our research – those that failed to become great – placed greater emphasis on using incentives to “motivate” otherwise unmotivated or undisciplined people. The great companies, in contrast, focused on getting and hanging on to the right people in the first place – those who are productively neurotic, those who are self-motivated and self-disciplined, those who wake up every day compulsively driven to do the best they can because it is simply part of their DNA. A truly great company has a culture of discipline – disciplined people who engage in disciplined thought and who take disciplined action. The key is to hire self-disciplined people who don’t need to be managed, and then manage the system, not the people.

Third, the right people understand that they do not have “jobs”; they have responsibilities. Think of it this way: if an air traffic controller said, “I did my tasks correctly today” but the airplanes crashed, would that be good enough? The right people focus less on the task list and more on the outcome for which they are responsible (e.g. getting the airplanes up and down safely). There is simply no place in a great company for people in key seats who cannot deliver on their commitments.

How do they go about deciding who should get off the bus, and how do they implement those difficult decisions?
They are rigorous, not ruthless. To be ruthless means hacking and cutting, especially in difficult times, or wantonly firing people without any thoughtful consideration. To be rigorous means consistently applying exacting standards at all times and at all levels, especially in upper management. To be rigorous, not ruthless, means that the best people need not worry about their positions and can concentrate fully on their work.

The good-to-great leaders would not rush to judgment. Often, they invested substantial effort in determining whether they had someone in the wrong seat before concluding that they had the wrong person on the bus entirely. They had a knack for putting people into the right seats, where they can best contribute. When Colman Mockler became CEO of Gillette, he spent more than 50 percent of his time during his first two years jiggering around with the management team, changing or moving 38 of the top 50 people. Said Mockler, “Every minute devoted to putting the proper person in the proper slot is worth weeks of time later.”

Do leaders of these great companies just focus on a few key people decisions at the very top, or do they bring in exceptional talent consistently at all senior levels?
The chief executive first built the right executive team, with the right people in the key seats. Then each person in a key seat would repeat the process for his or her minibus – getting the right people into key seats. Then each person in a key seat on the minibus would be responsible for getting the right people into the key seats in his or her area, and so forth – from bus to minibus, from minibus to minivan, and so forth, to the outer reaches of responsibility.

How important are executive compensation and incentive decisions for building a great company?
To our surprise, executive compensation appears to play no significant role in determining which companies become great. After 112 analyses looking for a strong link between executive compensation and corporate results, our research found no pattern. We learned that making a company great has very little to do with how you compensate executives and everything to do with which executives you have to compensate in the first place.

If you have the right people, they will do everything in their power to make the company great. The purpose of compensation is not to “motivate” the right behaviors from the wrong people, but to attract and retain the right people in the first place. This is not to say that we should entirely ignore the compensation question. Certainly, many corporate boards have failed in their responsibility to shareholders by granting compensation packages that have huge upside and little downside. Still, the most important decision a board makes is not how it pays, but whom it pays.

What is the single most important mistake you have observed in top leaders’ decisions?
Looking for the dramatic big decision that will catapult a company to greatness in one fell swoop; greatness just doesn’t happen that way. When you study the long course of great companies, looking at their development over years, we see that no single decision – no matter how big – accounts for more than a small fraction of the company’s total momentum. Greatness gets built by a series of good decisions, executed supremely well, added one upon another over a long period of time. Certainly, some decisions are bigger than others – Amgen’s decision to invest in the bioengineered drug EPO, Southwest Airlines’ decision to use only 737 aircraft, Intel’s decision to launch the microprocessor, IBM’s bet on the 360, and so forth – but even these decisions account for a small fraction of the total outcome. In the long arc of a great company, no single decision makes for even ten percent of the ultimate greatness of the institution.

Do your findings apply throughout different economic conditions? Which decisions become more crucial, or different, when times get tough?
The power of our research is the matched-pair method: we look at companies that became great in contrast to companies that failed to become great in the same environments. We can find pockets of greatness in nearly every difficult environment – whether it be the airline industry, deregulated banking, steel manufacturing, biotechnology, healthcare, or even in non-profits. Every company has its unique set of difficult constraints, yet some make a leap while others facing the same environmental challenges do not. This is perhaps the single most important point in all of Good to Great. Greatness is not a function of circumstance. Greatness, it turns out, is largely a matter of conscious choice, and discipline.

What has been your own most difficult professional decision, and how did you go about it?
The decision to become a self-employed professor. I loved teaching entrepreneurship and small business at Stanford Graduate School of Business in the early 1990s, but I found that I did not fit entirely into the mold of a traditional academic, and I did not want to go down the traditional academic path. With the guidance of great mentors who helped me think through my options, I came to see that I could choose to invert the phrase “professor of entrepreneurship” and, instead, become an entrepreneurial professor. That’s when I moved back to Boulder, Colorado, set up a research laboratory in my old first grade classroom, and became a self-employed professor. I explicitly did not set up a consulting business or a training company. Rather, I organized my calendar exactly as I did when on faculty at Stanford: 50 percent of my time in research, writing, and idea development; 30 percent of my time in various forms of teaching; 20 percent of my time in administrative stuff that just needs to get done. I was lucky that the decision worked out, and to this day I remain passionately engaged in my intellectual work.