Good to Great Chapter 6 – A Culture of Discipline

1. Good to Great Chapter 6 – A Culture of Discipline Larin Sanders Brian Davis Ivan Salazar

2. How most companies respond to growth and Success • Trip over their own success • Hire professionals • The bus

3. 1. self disciplined people • 2. Disciplined thought • 3. Disciplined action

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

5. A culture of discipline • Build a culture full of people who take disciplined action within the three circles, fanatically consistent with the Hedgehog Concept 1. Build a culture around the idea of freedom and responsibility, within a framework 2. Fill that culture with self disciplined people who are willing to go to extreme lengths to fulfill their responsibilities. They will “rinse their cottage cheese.” 3. Don’t confuse a culture of discipline with a tyrannical disciplinarian. 4. Adhere with great consistency to the Hedgehog Concept, exercising an almost religious focus on the intersection of the three circles. Equally important, create a “stop doing list” and systematically unplug anything extraneous.

6. Freedom and responsibility within a framework • A consistent system with clear constraints, containing freedom within a framework • Managed the system not the people • Ex: pilot

7. Abbott • Created a culture of discipline • Freedom within a framework • “Planning is priceless but plans are useless” • Adhered to the Hedgehog Concept

8. A Culture of Discipline Rinsing Your Cottage Cheese • “One more small step” • …do whatever it takes to become the best within carefully selected arenas and then seek continual improvement from there.

9. A Culture of Discipline Rinsing Your Cottage Cheese • Wells Fargo vs. Bank of America • Why rinse our cottage cheese when life is so good?

10. A Culture of Discipline A Culture, Not a Tyrant • Good-to-Great companies have Level 5 leaders who built an enduring culture of discipline • Unsustained comparisons have Level 4 leaders who personally disciplined the organization through sheer force

11. A Culture of Discipline A Culture, Not a Tyrant • Ray MacDonald era, 1964-2000 • Stanley Gaultformer president of Rubbermaid • Lee Iacoca, president of Chrysler in 1979 • Discipline is essential for great results, but disciplined action without disciplined understanding of the 3 circles cannot produce sustained great results.

12. Fanatical Adherence to the Hedgehog Concept Pitney Bowes example… For nearly forty years, Pitney Bowes operated inside a protective monopoly. After the protective cocoon was stripped , within six years they had 16 competitors. Which through Pitney Bowes into a reactionary diversification frenzy By 1973 they lost money for the first time in its history

13. Fanatical Adherence to the Hedgehog Concept Pitney Bowes example….. Fortunately a level five leader (Fred Allen) wanted to ask the tough questions that led to a deeper understanding of Pitney’s role in the World. Instead of viewing itself as a “postage meter” company, they found that they could be the best in the World at servicing the back rooms of businesses within the broader concept of messaging.

14. Fanatical Adherence to the Hedgehog Concept Pitney Bowes example….. Allen and his successor (George Harvey) instituted a model of disciplined diversification. They began a systematic process of investment in new technologies and products After falling 77% behind the market from the consent decree to the dark days of 1973, they rose over 11 times the market by 1999.

15. Fanatical Adherence to the Hedgehog Concept The key point is that every step of diversification and innovation stayed within the three circles Pitney Bowes is an example of what can happen when a company regains discipline to stay within the three circles. In all these comparison companies they either (1) lacked the discipline to understand their three circles or (2) lacked discipline to stay within their three circles.

16. Fanatical Adherence to the Hedgehog Concept R.J. Reynolds example….. Had a simple and clear concept to be the best tobacco company in the U.S. Spent nearly 1/3 of total corporate assets to buy a Sea land and Aminoil “Look, these guys are the World’s best at making and selling tobacco products, but what do they know about ships or oil”

17. Fanatical Adherence to the Hedgehog Concept Philip Morris didn’t have a perfect diversification record (7up) but was a stark contrast to Reynolds by sticking with their hedgehog concept. They didn’t abandon but redifined their hedgehog concept in terms of building global brands in not so healthy consumables Phillip Morris maintained the discipline

18. Start a “Stop Doing” list Many people have a to do list, but most of us live busy undisciplined lives. Those who built good to great companies used the stop doing list just as much as the to do list. They displayed a remarkable discipline to unplug all sorts of extraneous junk Darwin Smith, CEO of Kimberly Clark made great use of the stop doing list

19. Start a “Stop Doing” list The good to great companies institutionalized the discipline of “stop doing” through the use of a unique budget mechanism. If you look back, good to great companies displayed remarkable courage to channel their resources into one or a few arenas.

20. In conclusion If you have confront the brutal facts of reality Create a climate where the truth is heard Work within your three circles Frame all your decisions in the context of the Hedgehog concept ……then one can be correct in making big decisions the real question is once you know the right thing to do, do you have the discipline to do it