Good To Great: Chapter 6 A Culture Of Discipline

1. Good To Great: Chapter 6A Culture Of Discipline Zane Barnes Nolan Bosworth Johnnie Davis Clay Jones Kimberly Smith Anna Sterling Shaina Weaver

2. A Culture of Discipline • Few start-ups become great companies partly because they respond to growth and success in the wrong way • They become to trip over their own success • Too many new people • New customers • New orders • New products • Lack of planning, accounting, systems, and hiring constraints create friction

3. A Culture of Discipline • Entrepreneurial success is fueled by: • Creativity • Imagination • Bold moves into uncharted waters • Visionary zeal • Although these things are important, if a company is not prepared for the results, it can create problems

4. A Culture of Discipline • When companies grow and become a “big” company: • Sometimes the entrepreneurial spirit is killed • Employees are not as driven because of new rules, paper work, meetings, etc. • The “cancer of mediocrity” begins

5. How to Avoid Mediocrity • Have the right people in the first place • Avoid bureaucracy and hierarchy • Have a culture of discipline with an ethic of entrepreneurship • Set goals for the year and record them: you can change your plans, but never what you measure yourself against • Be rigorous at not just the beginning of the year, but also the end, adhering to exactly what you said was going to happen • Results: a magical alchemy of superior performance and sustained results

6. The Good-to-Great Matrix of Creative Discipline High Culture of Discipline Low Low Ethic of High Entrepreneurship

7. Main Points to Remember • The main idea: Build a culture full of people who take disciplined action within the 3 circles, fanatically consistent with the Hedgehog concept • Build a culture around freedom and responsibility • Have self-disciplined people willing to fulfill their responsibilities • Don’t be a tyrannical disciplinarian • Adhere to the Hedgehog Concept, and create a “stop doing list”

8. Freedom (And Responsibility Within A Framework) Example: Pro Football Player • Freedom • Choose to be the greatest or mediocre. • Can treat his body with respect or can do drugs and stay out all night. • Can create good or bad publicity for your team and earn or lose fans respect. • Framework • Contracts • Practice schedules/curfew’s • Game day routines

9. Steps in creating a culture of discipline • Disciplined people • Self disciplined people • Get the right people on the bus • Disciplined thought • Confront the brutal facts of reality • Absolute faith that you will create a path to greatness • Disciplined Action • Use steps 1-3 within a framework designed around the Hedgehog Concept you get a Great company.

10. How To Go From Good To Great Using Discipline “First get disciplined people who engage in very rigorous thinking, who then take disciplined action within the framework of a consistent system designed around the Hedgehog Concept.”

11. Rinsing Your Cottage Cheese • Disciplined, Rigorous, Dogged, Determined, Diligent, Precise, Systematic, Methodical, Workmanlike, Demanding, Consistent, Focused, Accountable, and Responsible. • These are all words used to describe good-to-great companies. People within these companies become somewhat extreme on the fulfillment of their responsibilities.

12. Rinsing Your Cottage Cheese • The analogy comes from a disciplined world-class athlete named Dave Scott, who won the Hawaii Ironman Triathlon six times! • “Much of the question of “good to great” lies in the discipline to do whatever it takes to become the best within carefully selected arenas and then to seek continual improvement from there.” –Jim Collins

13. Rinsing Your Cottage Cheese • Example: Edward Jones

14. A Culture, Not A Tyrant • On one hand, the good-to-great companies became more disciplined than the direct comparison companies • On the other hand, the unsustained comparisons showed themselves to be just as disciplined as the good-to-great companies. • It was clear that the unsustained comparison CEOs brought tremendous discipline to their companies, and that is why they got such great initial results. • Discipline doesn’t pass as a distinguishing factor.

15. Despite surface appearances, there were huge differences between the two sets of companies in their approach to discipline. • Good-to-great companies had Level 5 leaders who built an enduring culture of discipline, the unsustained comparisons had Level 4 leaders who personally disciplined the organization through sheer force.

16. Burroughs Corporation Example • Ray MacDonald took over Burroughs Corporation in 1964. He got things done through sheer pressure which came to be known as “The MacDonald Vise.” • He produced remarkable results during his time at Burroughs and for every dollar invested in 1964 taken out at the end of 1977 produced returns 6.6 times better than the general market. • Although while he was there he produced great results, after retiring the company had no culture of discipline to continue and Burroughs returns began falling 93% below the market from the end of the MacDonald era until the year 2000.

17. Chrysler Example • Lee Iacocca became president of Chrysler in 1979. He produced wonderful results & Chrysler became one of the most celebrated turnarounds in industrial history.  • During 1st half of tenure he produced remarkable results, taking the company from near bankruptcy to almost 3 times the general market.  • About midway through his tenure he seemed to lose focus & the company began to decline once again.   • During the 2nd half of his tenure, the company fell 31% behind the market and faced another potential bankruptcy.

18. In every unsustained comparison there were the following patterns… -a rise under a tyrannical disciplinarian, followed by an equally spectacular decline when the disciplinarian stepped away, leaving behind no enduring culture of discipline or -the disciplinarian become undisciplined and strayed outside of the 3 circles

19. Discipline is essential for great results, but disciplined action without disciplined understanding of the 3 circles cannot produce sustained great results.

20. Adherence to the Hedgehog Concept • Those companies that break through the threshold from good to great all stay true to their hedgehog concepts. • Pitney Bowes – started out in the 1920s as a postage meter machine manufacturer and by the 50s had a monopoly on the metered mail market. • In 1955 PB was ordered by the government to license its patents to competitors, thus ending the monopoly. • Panic ensued over the next 25 years as PB tried to diversify in an effort to supplement its sliding market share in the mail meter market. • PB formed a series of miserable mergers with companies that had no place in PB’s 3 circles.

21. Adherence to the Hedgehog Concept • Fred Allen becomes CEO in late 1973 after PBs first money losing year. • Allen established a hedgehog concept based on his belief that PB “could be the best at servicing the back rooms of businesses” (G2G pg. 134). PB’s other 2 circles became building profit per customer via high-end copiers and fax machines, and an unwavering passion for innovating back room business machines. • As a testament to how well the new strategy worked, “by the late 1980s, Pitney consistently derived over half its revenues from products introduced in the previous three years” (G2G pg. 134). • According to CNN Money, PB has recaptured nearly all of the market share it lost “controlling an 80 percent share of the domestic postal-meter market”.

22. Nucor Hedgehog Concept • Built around harnessing culture and technology • Idea of aligning workers interests with management and shareholders interests • Nucor: “Live like no one else so you can live like no one else”

23. Nucor Hedgehog Concept • Executives do not receive perks • Pay for schooling of workers children • Everyone suffers together • Did away with social standings

24. Nucor’s Three Circles 1970-1995

25. Bethlehem Steel • Huge corporate offices • Corporate aircrafts • Private golf course

26. Comparison • Over a 34 year period: • Nucor posted positive earnings 34 consecutive years. • Bethlehem lost money 12 times.

27. Stop Making a “To Do” List and Start Making a “Stop Doing” List • Companies waste too much time getting caught up in what they have to do that they forget about what they shouldn’t do. • Budgeting is NOT about managing costs, or determining how much money each activity costs. It IS about deciding which activities support your Hedgehog concept and providing them with funding, while not funding the activities that don’t fit. • Ex: Kimberly-Clark

28. Student Examples

29. When It’s Right, It’s Right… • What makes an effective investment strategy? • Being Right- Knowing your Hedgehog Concept. • Highly undiversified- only investing in those things that fit within your 3 circles; throw out the rest. • How do you know you’re right? • “If you have Level 5 leaders who get the right people on the bus, if you confront the brutal facts of reality, if you create a climate where the truth is heard, if you have a Council and work within the three circles, if you frame all decisions in the context of a crystalline Hedgehog Concept, if you act from understanding, not bravado”. • But can you stop doing the wrong things??

30. Chapter Summary • Finding great people to build a disciplined culture, consistent with the 3 circles, is vital for great ongoing results. • You don’t need a bureaucratic culture if you have the right people in the first place. • A culture of discipline involves both people who can follow a consistent system and freedom and responsibility within that system. • Disciplined people and disciplined thought lead to disciplined action. • The good-to-great companies look boring on the outside, but if you look close enough they are diligent and intense (“rinsing their cottage cheese”).

31. A tyrant who disciplines is very dysfunctional, but a culture of discipline is highly functional and leads to sustained results. • Adherence to the Hedgehog Concept and willingness to throw out opportunities that are not in the 3 circles are most important for sustained results. • More discipline to stay within the 3 circles= a greater chance for growth. • “Once-in-a-lifetime opportunities” are irrelevant if they don’t fit in with the 3 circles. • Spend more time figuring out which projects need funding and which do not, rather than how much each one gets. • Finally, “Stop doing” lists are more important that “to do” lists.