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
Hierarchal Organization Great Organization
Bureaucratic Organization Start-up Organization
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
• Dont 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/curfews
• 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 doesnt 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 PBs 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). PBs
  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
Nucors 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 shouldnt 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
  dont fit.
• Ex Kimberly-Clark

28
Student Examples
To Do List Stop Doing List
Go to class today. Dont miss any class.
Do homework this weekend. Stop procrastinating.
Print out slides for the exam after watching a little TV. Stop wasting time.
29
When Its Right, Its 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 youre 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 dont 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 dont 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.