Good to Great Ch. 6 A Culture of Discipline

1. Good to GreatCh. 6 A Culture of Discipline Roger May Lauren Heldreth Jade Black Kody Roach Taylor Hutcherson

2. Response to Success • Few start-ups become great • Growing too fast • Fixing the problems breaks the company

3. Response to Success Cont. • Segmentation • Bureaucracy • Right people

4. Results • Need for bureaucracy • Discipline • Goals • Rinsing the Cottage Cheese

5. Freedom (and Responsibility) within a Framework • Airline pilot example • Methodical vs the Freedom to make decisions • Good-to-great companies build a consistent system with clear constraints, but also give people freedom and responsibility within the framework of the system • Hire self-disciplined people who do not need to be managed, then manage the system

6. Create a Culture of Discipline • Disciplined People: Don’t put the wrong people into the right behaviors; Get the RIGHT people first • Disciplined Thought: Confront the brutal facts of reality, while maintaining faith that you can and will become great • Disciplined Action: Most important; must do this last • Disciplined Action without Disciplined People is impossible to sustain, and Disciplined Action without Disciplined Thought just leads to disaster

7. Rinsing Your Cottage Cheese • Analogy saying that people who accomplish their goals do things that other people don’t • Origins: Tri-athlete (Dave Scott) who went to the extra measure to maintain a low-fat, high-carbohydrate diet (rinse his cottage cheese), in order to wash away the added fat, even though he was burning over 5,000 calories a day in training • He won the Hawaii Ironman 6 times

8. Good vs. Great • Wells Fargo • During bank deregulation, CEO knew Wells Fargo would emerge stronger, not weaker • Rinsed the executives cottage cheese by: • Freezing exec salaries for 2 yrs • Shutting down exec dining room and elevator • Sold corporate jets • Did not invest in anything in a ‘fancy binder’ • Bank of America • Did not have the discipline to rinse their own cottage cheese • Preserved all exec perks • Lost $1.8 billion over 3 years THEN made the necessary changes in response to the bank deregulation (hired a lot of ex-Wells execs)

9. Everyone would like to be the best, so why aren’t they? • Most organizations lack the discipline to figure out what they can be the best (too much ego) • Lack the will to do whatever it takes to turn their potential into reality • They lack the discipline to rinse their cottage cheese

10. A culture, not a Tyrant • Good-to-great companies became more disciplined than the direct comparison companies • But the unsustained companies showed themselves to be just as disciplined as the good-to-great companies • Huge difference between the two sets of companies in their approach to discipline

11. Culture vs. Tyrant • Good-to-great companies had Level 5 Leaders who build enduring culture of discipline • Unsustained comparisons level 4 leaders who personally disciplined the organization through sheer force • EX: Ray MacDonald: Burroughs • EX: Stanley Gault: Rubbermaid • Found in every unsustained comparison • Rise under a tyrannical disciplinarian, followed by an equally spectacular decline when they stepped away

12. Fanatical Adherence to the Hedgehog Concepts

13. The Rise of Apple • Apple founded in 1976. • They created the home computer market. • Apple created first GUI in early 80’s. • However, computer only came with 2 programs. • Company also would not accept outside programmers and wouldn’t license it’s programs to others. • Other computer manufacturers had to use other programs.

14. The Fall of Apple • By 1990’s Windows and PCs dominated the market. • Let external companies make Mac Clones starting in early 90’s. • During mid-90’s Apple had purchased two of their operating systems from outside companies. • By end of 90’s market share dwindled to 5%. • As early as late 80’s Apple was straying from a focus on the three hedgehog circles and by mid 90’s had completely strayed.

15. The Rise Again of Apple • In ‘97 Steve Jobs returned. • Company restructured and refocused with an emphasis on high quality, aesthetics, usability, and great customer relations. • Started working with outside software developers. • Struck $150 million software development deal with Microsoft. • Opened Apple stores with “Apple Geniuses” to provide free help. • Stopped allowing inferior Mac Clones. • Released IMac and then Mac OS X. • Released Ipod, then Itunes, and IPhone. • Relaxed constraints on software development for Apple products.

16. Strict Adherence to the Hedgehog Concepts • To be great a company; • Has to have the discipline to understand its three circles. • Has to have the discipline to stay within the three circles. • The more a company has the discipline to stay within its three circles, the more it will have attractive opportunities for growth. • It takes discipline to turn down big opportunities that do not fit within the three circles. • It also takes discipline to adhere to keep a large company passionate and focused on your product, your customers, and the external world.

17. Passion- eliminating class distinctions by creating an egalitarian meritocracy Nucor executives received fewer benefits than frontline workers Economic Denominator- focus on profit per ton of finished steel Becoming the Best- harness culture and technology in order to produce low-cost steel Nucor’s Three Circles

18. Downfall of a Bethlehem Steel • Focused on social status and hierarchy • executive rank determined shower priority at their private club • Purpose and motivation of their activities was to perpetuate a class system • Posted a loss 12 times between 1966 and 1999

19. Nucor’s Rise • Posted 34 consecutive years of profit between 1966 and 1999 • Began at less than 1/3 the size of Bethlehem, but concluded larger • 5 year profit per employee exceeded Bethlehem by 10 times • Nucor enjoyed good relations with employees due to company culture • They did not struggle with adversarial labor relations and union battles • Aligning worker interests with management interests worked

20. The “Stop Doing List” • As important or maybe more so than the “to do list” • Budgeting is a discipline to decide which areas to fully fund and which to cut • Making huge investments after the three circles are understood • Great companies rarely hedge their bets once the three circles are understood • The most effective investment strategy is a highly undiversified portfolio when you are right