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Freedom is only part of the story and half the truth….That is why I recommend that the statue of liberty on the East Coast be supplanted by a Statue of Responsibility on the West Coast….. Viktor Frankl in his book Man's Search for Meaning
A culture of discipline…….
New people/customers/orders /products/ideas
Business Crumbles as Entrepreneur Fails to Grow with Business
Disorganized-lack of a/cing,system,hiring constrainsts create friction
Prof managers create order out of mess, reporting relations.
Culture of Discipline -right people at first place, avoid bureaucracy/ hierarchy
Dictatorship (Tyrannical Rule) -Business eventually becomes stagnant, no creativity, nothing spl.
Typical Progression of Business
Getting disciplined people who engage in disciplined thought and who then take disciplined action. Gives people freedom and responsibility within framework of that system. People who “rinse their cottage cheese” – fanatical adherence. Not about a tyrant who disciplines. Budgeting is to decide which arenas fit Hedgehog Concept and should be fully funded and which should not be funded at all. “Stop doing” lists are more important than “to do” lists.
Culture of discipline….basis
The good to great matrix of Creative Discipline
but they also gave people freedom and responsibility within the framework of that system. and then manage the system. not the people Freedom and Responsibility within a framework…. .Good to Great Companies: Built a consistent system with clear constraints. They hired self-disciplines people who didn‟t need to be managed.
while retaining resolute faith that you can and will create a path to greatness Disciplined Action: ◦ Primary subject of this chapter ◦ The comparison companies often tried to skip this jump right to disciplined plan Freedom and Responsibility within a framework…. but getting self-disciplined people on the bus in the first place Disciplined Thought: ◦ You need to confront the brutal facts of reality. Disciplined People: ◦ Not trying to discipline the wrong people into the right behaviors. .
Rinsing the COTTAGE CHEESE . Everyone would like to be the best. ◦ Rinsing the cottage cheese was one more small step he believed would make him that much better. but most organizations lack the discipline to figure out with egoless clarity what they can be the best at and the will to do whatever it takes to turn that potential into reality. ◦ Would literally rinse his cottage cheese to get the extra fat off.People in the Good to Great Companies went extremes in the fulfillment of their responsibilities The cottage cheese analogy comes from Dave Scott: ◦ Hawaii Ironman Triathlon six times. one more small step -create a consistent program of “super-discipline”. THEY LACK THE DISCIPLINE TO RINSE THEIR COTTAGE CHEESE.
8 billion over 3 years THEN made the necessary changes in response to the bank deregulation (hired a lot of ex-Wells execs) Wells Fargo and Bank of America . Wells Fargo ◦ During bank deregulation. 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 even a „fancy binder‟ Bank of America ◦ Did not have the discipline to rinse their own cottage cheese Preserved all exec perks Lost $1. Carl Reichardt knew Wells Fargo would emerge stronger.
the un-sustained comparisons had Level 4 leaders who personally disciplined the organization through sheer force. Ray MacDonald era.” •Discipline-rigorous planning and competitor analysis. president of Chrysler 1979-The Dictator Lee •Financial Controls. quality control. but I’m a sincere tyrant. Stanley Gault former president of Rubbermaid •Accusation-”Yes.. •Rubbermaid rose dramatically and declined when he departed.etc… •Lost focus and company declined again. cost control. systematic market research. Lee Iacoca. 1964-2000 •Produced remarkable results during his reign •Got things done through sheer force •No culture of discipline to endure beyond him •Burroughs’-cumulative returns fell 93% below market. mass layoff. A culture not a tyrant . profit-analysis.Whereas the good-to-great companies had level 5 leaders who built an enduring culture of discipline. quality control.
Fanatical Adherence to the Hedgehog Concept . If it doesn‟t fit. Period. thank you” to big opportunities. we don‟t do it. We will not make unrelated acquisitions. The fact that something is a “one-in-lifetime-opportunity” is irrelevant if it doesn‟t fit within the three circles. we will not do. It takes discipline to say “No.The good-to-great companies at their best followed a simple mantra “Anything that does not it with our Hedgehog Concept . We will not launch unrelated businesses. We will not do unrelated joint ventures.
NUCOR-KEN IVERSON 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 Aligning worker interests with management interests worked ◦ They did not struggle with adversarial labor relations and union battles 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 Fanatical Adherence to the Hedgehog Concept .
• Companies waste too much time getting caught up in what they have to do that they forget about what they shouldn‟t do. • • Start a “Stop-Doing” list . while not funding the activities that don‟t fit. or determining how much money each activity costs. It IS about deciding which activities support your Hedgehog concept and providing them with funding. Budgeting is NOT about managing costs. Ex: Kimberly-Clark didn‟t just reallocate resources from the paper business to the consumer business. It completely eliminated the paper business.
Chapter 7 Technology Accelerators .
released IPO Within seconds the stock multiplied threefold to $65 per share Four weeks later the stock closed as high as $69 Market valuation of over $3.com . drugstore.com. In July 2009.5 Billions Just a 9 month old company Fewer than 500 employees Offered no hope of investor dividends for years Deliberately planned to lose hundreds of millions of Dollars before returning profits Drugstore.
nothing more. When he launched IPO public invested $1. The logic was – ◦ ◦ ◦ ◦ “new technology will change everything” “Internet will revolutionize all businesses” “Be there.1M in shares! Internet Fad . internet fad An entrepreneur just launched an informational website with his business plan. Be Fast” “You win no matter how expensive it is” People were willing to shell out money on shares of companies that were connected to internet.
walk. they decided to pause and reflect.com‟s public offering.com challenged Walgreen. drugstore. In 1999. Instead of reacting. Walgreen was under pressure to react as it lost $15B in market value. ◦ Crawl : experimented with web site while engaging in intense internal dialogue in the context of its own Hedgehog Concept ◦ Walk : began to find ways to tie internet directly to its sophisticated inventory-and-distribution model – Convenience concept ◦ Run – harness the internet – launch of walgreens. Walgreen stock suffered by over 40% in the months leading to drugstore.com Walgreens . run. They believed in the concept of crawl.
S. (Centralised) ◦ Can be shipped anywhere in U.S.com ◦ continued to accumulate massive losses ◦ Stock lost its value considerably Aftermath . Walgreens ◦ website was Easy to use & Reliable ◦ Place Online order & collect from any store in U. ◦ Significant increase in job openings – expansion ◦ Stock price nearly doubled Drugstore.
electricity.Bubbles come and go . Wal-Mart. Walgreens. Kimberly Clark. PnG. great companies have: ◦ adapted & endured ◦ have lasted hundred years ◦ viz. Abbott ◦ Been thru‟ multiple generations of technology change Technology-induced change is nothing new.Internet. The real question is not “What is the role of technology?” rather it is “How do g2g organizations think differently about technology?” Technology & Hedgehog Concept . PCs It will continue to happen with unforeseen new technologies Through all this change. radio. Merck.
Company had a history of investing in technology long before other companies in the industry became tech savvy.S. 1980‟s pioneered a massive network system – Intercom All Walgreen stores linked electronically and customer data was sent to a central server. robotics & advanced warehouse tracking systems. which turned every store in U. into customers local pharmacy. Walgreen had invested over $400M in 1970-80. computerised inventories control. Own satellite system costing $100M Pioneered the adaptation of scanners. Walgreen .
of Technology . All g2g companies were never about technology but about pioneering application of carefully selected technologies. Strategic Mgmt. It used Tech.Walgreen didn‟t adopt Technology for the sake of it or in fearful reaction to falling behind competitors. Clear strategy – Hedgehog concept to drive technology and not vice versa. as a tool to accelerate momentum after hitting breakthrough & tied technology directly to its Hedgehog concept of convenient drugstores increasing profit per customer visit.
Changed customers tastes from small store to huge store A&P refused to believe or act on this customers taste Kroger systematically replaced all old and small stores with nice. spent twice its profits for 30 years They improved customer shopping experience. An early pioneer in application of bar code scanners It helped them accelerate past A&P by linking frontline purchases to backroom inventory management. big. added variety of products & paid of Millions of $ of debts Better warehouse management => quicker rotation Kroger . shiny superstores Invested $9B – on avg.
Pioneered laser welding tech on mass scale – a tech used in sophisticated products like heart pacemakers. For developing Sensor. they invested $200M in design and development. Heavy manufacturing technology in making low cost high-tolerance blades with fantastic consistency. registered 29 patents. In the process. Gillette .
of packaging & manufacturing technology First company to make the revolutionary flip-top boxes. Able to operate geographically dispersed system with consistency Algorithm & computer analysis to accurately assess mortgage risk Linked to passion for democratizing home ownership for LIG KimberlyClark Nucor (Steel) Philip Morris Manufacturing-process technology of woven materials Supported their passionate pursuit of product superiority Most advanced mini-steel manufacturing technology Shopped the world for the most advanced technology at huge costs Advanced computer tech. early adopter of ATM. buy n sell Funds Tech Accelerators in G2G Cos.COMPANY Abbott (Pharma) Circuit City (Retail) Fannie Mae (Mortgages) PIONEERED APPLICATION OF Computer tech. to increase profit per employee Not a pioneer in RnD but had a different Hedgehog concept. . in ‟80 Pitney Bowes Wells Fargo Sophisticated maths to conduct better risk assessment in lending 24 hr. Sophisticated point-of-sale & inventory tracking tech. Huge R&D investment to reinvent basic postage meter tech. Mechanical postage meters to eMach. to mail room. banking by phone. Advance tech.
not a Creator of Momentum . technology becomes an accelerator of momentum. not a creator of it. When used right. These technologies are those that link directly to the three intersecting circles of the Hedgehog concept. G2G companies never began their transitions with pioneering technology. Tech an Accelerator. You cannot make good use of technology until you know which technologies are relevant.
As they strayed outside the 3 circles in mid-1980s from Gulfstream jets to Maserati sports cars. at no. 1 position. 80% of the 84 G2G executives who were interviewed didn‟t even mention tech. Chrysler made superb use of advanced computeraided & other design technologies but failed to link those technologies to a consistent Hedgehog concept. Technology Fad . People are obsessed with technology-driven change. no advance technology by itself could have saved the company from another massive downturn. Technology alone cannot create sustained great results. as one of the top 5 factors the in transition. only 2 ranked tech.
in itself is never a primary cause of greatness or decline. If not Tech. you can‟t remain laggard. Bethlehem Steel‟s faced difficulties due to adversarial labour relations owing to unenlightened & ineffective management. but tech. then What? . is important. Factors that mattered in the G2G companies were:◦ ◦ ◦ ◦ ◦ getting people with a farmer work ethic on the bus Getting the right people in key management positions The simple structure Lack of bureaucracy The relentless performance culture Nucor (Steel) believes their 80% of their success is because of their excellent culture and only 20% is Tech. Tech.
is a liability. Pioneers rarely prevailed . nor by itself prevent a disaster. • U. • Thoughtless reliance on tech.S debacle in Vietnam - US had the most sophisticated technology but still could not defeat Vietnam as they lacked a simple coherent concept for war. Tech. Sony Boeing GE Palm Computing AOL • Technology cannot turn a good enterprise into great. Apple CompuServe.Vietnam employed simple AK-47 which linked directly to their simple. Prodigy INDUSTRY Spreadsheet First portable Computers Aeroplanes AC Electrical Systems PDA Internet SUCCESSOR MS Excel Dell. coherent concept of guerrilla war of attrition. not an asset.PIONEER VisiCalc > Lotus 123 Osborne Computers > IBM De Havilland Westinghouse Newton. on which to attach that technology .
From the interviews of G2G companies it was very evident ◦ There was no talk about “Competitive Strategy” ◦ There was talk about Strategy. Fear of being left Behind .e. winning and being the best ◦ No reactionary strategies i. Those who built the G2G companies weren‟t driven by fear of: ◦ ◦ ◦ ◦ what they didn‟t understand looking like a chump watching others hit it big while they didn‟t Being hammered by competition Rather they are motivated by a deep creative urge & inner compulsion for sheer unadulterated excellence for its own sake. strategy made in response to what competitors were doing ◦ There was talk about how they were trying to create & improve relative to an absolute standard of excellence.
By itself ignite a shift from good to great Make a company level 5 Turn the wrong people into the right Instill the discipline to confront brutal facts of reality or Instill unwavering faith Supplant the need for deep understanding of the three circle & Hedgehog concept Create a culture of discipline Instill the simple inner belief that leaving unrealized potential on the table – letting something remain good when it can become great – is a secular sin No Technology can .
Bottom-line . yet they become pioneers in application of carefully selected Technologies which are aligned with the three circles of Hedgehog concept. not creator of it. Good organizations become Great by avoiding technology fads. Technology is an accelerator of momentum.
The flywheel…… and the doom loop…. ..
Good-to-great transformations often look like dramatic. Key point 1 . revolutionary events to those observing from the outside. cumulative processes to people on the inside. but they feel like organic. Ex–Circuit City.
G2G comes about by a cumulative process – step by step. The flywheel image captures the overall feel of what it was like inside the companies as they went from good to great. action by action. G2G firms inevitably hit a point of breakthrough. turn by turn of the flywheel – that adds up to sustained and spectacular results. Pushing on that flywheel in a consistent direction over an extended period of time. decision by decision. Buildup and Breakthrough . The good-to-great transformation never happened in one fell swoop.
No matter how dramatic the end result. the good-to-great transformations never happened on one fell swoop. no grand program. There was no single defining action. Example – Abbott. no solitary lucky break. no miracle moment. Key point #2 . no one killer innovation.
Not Just a Luxury of Circumstance . People who say. It‟s important to understand that following the buildup-breakthrough flywheel model is not just a luxury of circumstance.” should keep in mind that the G2G companies followed this model no matter how dire the short-term circumstances. but we‟ve got constraints that prevent us from taking this longer-term approach. “Hey.
but with persistent pushing in a consistent direction over a long period of time. eventually hitting a point of breakthrough. Example – Kroger. Like pushing on a giant. Sustainable transformations follow a predictable pattern of buildup and breakthrough. the flywheel builds momentum. heavy flywheel. Key point #3 . it takes a lot of effort to get the thing moving at all.
It gets your employees motivated as they can feel the buildup of momentum too. The “Flywheel Effect” . Eliminates the need to communicate the firms‟ goals.The G2G companies understood a simple truth: Tremendous power exists in the fact of continued improvement and the delivery of results. it shows how it fits into the context of an overall concept that will work. However small the accomplishments. they will line up with enthusiasm.
Then. failing to maintain a consistent direction. Ex -Warner-Lambert. they‟d lurch back and forth. The comparison companies followed a different pattern. Rather than accumulating momentum – turn by turn of the flywheel – they tried to skip buildup and jump immediately to breakthrough. Key point #4 . the doom loop. with disappointing results.
and throw it into yet another direction. They were looking to skip the arduous buildup stage and jump right to breakthrough.A different pattern observed at the comparison companies. then stop. change course. They would push the flywheel in one direction. Instead of a deliberate process of figuring out what needed to be done and then simply doing it. the comparison companies frequently launched new programs – often with great fanfare and hoopla aimed at “motivating the troops” – only to see the programs fail to produce sustained results. Doom Loop .
The comparison companies frequently tried to create a breakthrough with large. misguided acquisitions. In contrast The good-to-great companies principally used large acquisitions after breakthrough. Misguided Use of Acquisitions . Example – Harris Corporation. to accelerate momentum in an already fast-spinning flywheel.
dramatic revolutions. fearful of being left behind. turn by turn of the flywheel. Table to spot whether a firm is on the flywheel or in the doom loop .always looking for a miracle moment or new savior. Sell the future. Reach breakthrough by an accumulation of steps. Signs that you’re in the Doom Loop (Comparison Companies) Skip buildup and jump right to breakthrough. Let results do most of the talking. resolutely staying with the 3 circles. Confront the brutal facts to see clearly what steps must be taken to build momentum. Attain consistency with a clear Hedgehog Concept. one after the other. Run about like Chicken Little in reaction to technology change. Implement big programs. Embrace fads and engage in management hoopla. chronic restructuring. rather that confront the brutal facts. to accelerate momentum. radical change efforts. to compensate for lack of results.Signs that you’re on the Flywheel (Good-to-Great Companies) Follow a pattern of buildup leading to breakthrough. feels like an organic evolutionary process. Demonstrate chronic inconsistency-lurching back and forth and staying far outside the 3 circles. Harness appropriate technologies to your Hedgehog Concept.
G2G firms did not signify their transformation with any name tag. No effort was spent trying to “create alignment.Employees and managers both were often unaware of the magnitude of their transformation at the time. not the other way around. these problems largely took care of themselves. The flywheel effect does not conflict with these pressures. Indeed. it is the key to managing them. or anything fancy. Unexpected Results observed in G2G firms . launch event.” Under the right conditions. In retrospect it become clear to them. By following this model G2G firms could handle the short-term pressures from Wall Street.” “motivate the troops.” or “manage change. Alignment principally follows from results and momentum.
From Good to Great to Built to Last .
Big Hairy Audacious Goals Preserve the Core .Articulate a Core Philosophy/Values Change and Improve Everything Except Core Values Create a Passionate Culture that Preserves Core and Stimulates Progress Achieve BHAGs.
Change and Improve Everything Except Core Values ◦ Clear on difference between core values and practices. innovation and renewal surrounding core ◦ Core should be limited to no more than six values Preserve the Core . strategies and tactics ◦ Stimulate change. improvement. norms.
Create a passionate culture that preserves core and stimulates progress ◦ ◦ ◦ ◦ Culture consistently reinforces core Promote leaders who live core Core values evidenced everywhere Productively “neurotic. big hairy audacious goals ◦ Rarely fall short of extreme standards of performance ◦ Multi-year BHAGs with intermediate objectives ◦ Set with understanding not bravado and in alignment with hedgehog Preserve the Core .” obsessive focus on shortcomings Achieve BHAGs.
Not Time Keeping . great beyond a single leader or idea Create catalytic mechanisms Manage for the quarter century Clock Building.System independence.
Not Time Keeping . System independence. great beyond a single leader or idea ◦ build a team of strong individuals ◦ build a culture of discipline ◦ hold leaders accountable for success of successors Create catalytic mechanisms ◦ ◦ ◦ ◦ “red flag” mechanisms in place mechanisms to force continuous improvement mechanisms cannot easily be subverted a “council” plays a key role in decision-making Clock Building.
ignore shortterm pressure ◦ leaders measure success by successors performance as much as their own Clock Building. Manage for the quarter century ◦ build for long-term greatness. Not Time Keeping .
but a combinations of all pieces working as an integrated package consistently. Examples: Gillette-18 yrs of exceptional performance but in 1999 Nucor-hit peak in 1994. . Fell off after Ken Iverson‟s retirement Epilogue…. Not one variable.How do you explain recent difficulties at some of the good-to-great companies? Every company faces difficult time-ups and downs. If a company ceases to practice all of the findings it will slide backwards. Critical Factor-Ability to bounce back.
properly conceived. enables GE to operate in diverse businesses yet remain focused on intersection of 3 circles. Economic denominator-Profit per top-quartile management talent. Exception: GE What GE can do better than other companies ? Essence of GE Hedgehog-develop first rate GM.Its rare for diversified firms to produce sustained great results. Pride of GE (passion)-Having the best set of GM. Hedgehog concept. Can a company have a hedgehog concept and have a highly diverse business portfolio? .
How can you practice the discipline of “first who” when there is a shortage of outstanding people? . even if you don‟t have a job then. Take advantage of difficult economic times to hire good people. Discipline-not to hire until you find the right people Define “right people”-focus on character attributes and less on specialized knowledge.
Ex: A prominent medical school from 1960-1970. Hired right people for every opening. May have to carry wrong people along. How can you practice the discipline of the “right people on the bus and the wrong people off the bus” in situation where it is very hard to get the wrong people off the bus-such as academic institutions and govt. agencies? . environment where wrong people felt uncomfortable. Council mechanism can be used-fill council seats with right people and ignore others. but restrict their activities.Same discipline-it takes more time to accomplish. The director changed entire faculty-2 decades.
Familiarize yourself with all findings. Where and how should I begin? . All need to work together as an integrated set. No single finding by itself makes a great org. Work towards developing level 5 leadership. Work sequentially through the framework-”first who” then all major components.
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