Level 5 Leaders - Characteristics and Operating Style

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Jim Collins, level 5 leaders, Kimberly-Clark, Darwin E. Smith, Sam Walton, Wal-Mart, Iacocca, Chrysler, George Cain

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Hedgehog Concept

A core business which an organization has been doing for years may be even decades will not always make it the best in that business. And if an organization is not the best in the world in its core business then it cannot be a great company. Thus, level 5 leaders identify where their company can be the best in the world. They also identify where they can not be.

They divest businesses where they cannot be, and enter those where they can be. (Refer Exhibit 9.4.)

Exhibit: 9.4
What is Abbott best at?

In 1940s and 1950s companies like Merck were concentrating on building great research teams. By 1964, George Cain the CEO of Abbott realized that Abbott can never overcome the lead of companies like Merck in R&D and be the best in the world. Though Abbott was there in the pharmaceutical industry for a long time, he was sure, that it would never be the leader in R&D.

Then he explored where the company can be the best in the world? By 1967, he arrived at the solution: Abbott can be the best in the world in manufacturing products that minimize the cost of effective health care. Abbott had experience in hospital nutritional products (patients who undergo surgery can gain strength quickly by taking these products) and diagnostic devices. A proper diagnosis can reduce health care costs. The company went on to become the best in the world in these two categories.

Adapted from "Good to Great" by Jim Collins, Harper Business, 2001.

Level 5 leaders also identify suitable economic indicators to measure their performance. They are masters at ensuring continuous and healthy cash flows, and profitability. They employ a single denominator: profit per X. X here is the indicator. It can be an employee, a branch, etc.

Level 5 leaders also identify what their employees are passionate about. For example, executives at Philip Morris are passionate about their company. Former CEO of Philip Morris George Weissman equates working at Philip Morris to a love affair of life time. Most of the executives are passionate consumers of their products.

Level 5 leaders also identify what their employees are passionate about. For example, executives at Philip Morris are passionate about their company. Former CEO of Philip Morris George Weissman equates working at Philip Morris to a love affair of life time. Most of the executives are passionate consumers of their products. They equate themselves with the lone and fiercely independent cowboys depicted in Marlboro billboards. Even the board members are passionate about their company. A board member said to Jim Collins, "I really love being on the board of Philip Morris. It's like being part of something really special."

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