Good to Great Chapter 7: Technology Accelerators

Good to Great Chapter 7:Technology Accelerators Group 5: Laura Moore Jeffri Vaughn Grant Gerhardt Patrick Kirkland Chet Visser

Good to Great Chapter 7: Technology AcceleratorsThe Hedgehog • In every good-to-great case it was never just technology, but “The pioneering application of carefully selected technologies” • “Technology-induced change is nothing new. The real question is not, what is the role of technology? Rather, the real question is, how do good-to-great organizations think differently about technology?”

Drugstore.com VS. Walgreens • Drugstore.com opened an internet pharmacy for people to order their prescriptions online and have them mailed to them. • Walgreens stock price dropped 40% when Drugstore.com challenged Walgreens. • Walgreens was very quiet and simply said, “We’re a crawl, walk, run company.” • Drugstore.com did the opposite: ran first, then walked, and crawled last as their value dropped and debt grew. • Walgreens ended up prospering during the “.com” craze with their well planned strategy.

Good VS. Great • Great companies (Hedgehogs) find ways to use new technology for advancing their business before anybody else, and make sure it will work with extensive research. • For Example: Kroger used barcode scanners for speedier checkout and more efficient inventory. Later, Wal-Mart would use JIT Inventory to keep inventory costs low. • Good companies (Foxes) implement new technologies after they have been successfully used by someone else. • For Example: Everybody else soon followed Kroger and their barcode scanners. Later, some followed Wal-Mart’s JIT inventory system, but many have not yet adopted this strategy.

Technology Accelerators in the Good-to-Great Companies • Abbot • Computer technology to increase economic denominator of profit per employee • Circuit City • Sophisticated point-of-sale and inventory-tracking technologies • Able to operate a geographically dispersed system with great consistency • Fannie Mae • Sophisticated algorithms and computer analysis to more accurately assess mortgage risk, thereby increasing economic denominator of profit per risk level • Increases access to home mortgages for lower-income groups, linking to passion for democratizing home ownership

Technology Accelerators in the Good-to-Great Companies • Gillette • Sophisticated manufacturing technology for making billions of high-tolerance products at low cost with fantastic consistency • Kimberly-Clark • Manufacturing-process technology, especially in nonwoven materials, to support their passionate pursuit of product superiority • Sophisticated R&D labs • Kroger • Computer and information technology to the continuous modernization of superstores • First to seriously experiment with scanners, which it linked to the entire cash-flow cycle, thereby providing funds for the massive store-revamping process

Technology Accelerators in the Good-to-Great Companies • Nucor • Most advanced mini-mill steel manufacturing technology • Willing to make huge bets (up to 50% of corporate net worth) on new technologies that other viewed as risky, such as continuous thin slab casting

Technology Accelerators in the Good-to-Great Companies • Philip Morris • Both packaging and manufacturing technologies • Bet on technology to make flip-top boxes – the fist packaging innovation in 20 years in the industry • First to use computer-based manufacturing • Huge investment in manufacturing center to experiment with, test, and refine advanced manufacturing and quality techniques

Technology Accelerators in the Good-to-Great Companies • Pitney Bowes • Advanced technology to the mailroom • Mechanical postage meters • Invested heavily in electrical, software, communications, and Internet engineering for the most sophisticated back-office machines • Huge R&D investment to reinvent basic postage meter technology in the 1980s

Technology Accelerators in the Good-to-Great Companies • Walgreens • Satellite communications and computer network technology, linked to its concept of convenient corner drugstores, tailored to the unique needs of specific demographics and locations • Big investment on a satellite system that links all stores together, like one giant web of a single corner pharmacy • Led the rest of the industry by at least a decade

Technology Accelerators in the Good-to-Great Companies • Wells Fargo • Technologies that would increase economic denominator of profit per employee • Early leader in 24-hour banking by phone, early adopter of ATMs, first to allow people to buy and sell mutual funds at an ATM, pioneer in Internet and electronic banking • Pioneered sophisticated mathematics to conduct better risk assessment in lending

Technology as an Accelerator, Not a Creator, of MomentumFannie Mae • Jim Johnson became CEO of Fannie Mae and hired a consulting firm to conduct technology audit • Lead consultant, Bill Kelvie, used a four-level ranking • Four is cutting edge • One is stone age • Fannie Mae ranked two

Technology as an Accelerator, Not a Creator, of MomentumFannie Mae • Kelvie was hired to move the company ahead • When Kelvie came to Fannie Mae in 1990, the company lagged about 10 years behind Wall Street in the use of technology • Over the next five years, Kelvie took Fannie Mae from a two to a 3.8 on the four-point ranking • Created over 300 computer applications • Sophisticated analytical programs to control the $600 billion mortgage portfolio • Online data warehouses covering 60 million properties and streamlined workflows • Reduced paper and clerical effort

Technology as an Accelerator, Not a Creator, of MomentumFannie Mae • “We moved technology out of the back office and harnessed it to transform every part of the business. We created an expert system that lowers the cost of becoming a home owner. Lenders using our technology reduced the loan-approval time from 30 days to 30 minutes and lowered the associated costs by over $1,000 per loan.” – Kelvie • The system has saved home buyers nearly $4 billion

Technology as an Accelerator, Not a Creator, of MomentumFannie Mae • Fannie Mae transition began in 1981, yet the company lagged behind in the application of technology until the early 1990s • Technology became of prime importance to Fannie Mae AFTER it discovered its Hedgehog Concept and AFTER it reached breakthrough • Technology was a key part of what Fannie Mae leaders called “the second wind” of the transformation and acted as an accelerating factor • Same pattern holds for Kroger, Gillette, Walgreens, and all the good-to-great companies • Pioneering application of technology usually came late in the transition and never at the start

Technology as an Accelerator, Not a Creator, of Momentum • When used right, technology becomes an ACCELERATOR of momentum, not a creator of it • The good-to-great companies never began their transitions with pioneering technology, for the simple reason that you cannot make use of technology until you know which technologies are relevant • Relevant technologies are those that link directly to the three intersecting circles of the Hedgehog Concept

Technology as an Accelerator, Not a Creator, of Momentum • To make technology productive in a transformation from good to great, ask the following questions: • Does the technology fit directly with your Hedgehog Concept? • Yes: You need to become a pioneer in the application of that technology • No: Ask another question • Do you need this technology at all? • Yes: All you need is parity, don’t need the most advanced technology to be a great company • No: The technology is irrelevant and can be ignored

Technology as an Accelerator, Not a Creator, of MomentumGood-to-Great Companies • Good-to-great companies remained disciplined within the frame of their Hedgehog Concept • Their relationship to technology is no different from their relationship to any other category of decisions • Disciplined people, who engage in disciplined thought, and who then take disciplined action • If a technology doesn’t fit squarely within their three circles, they ignore it • Once they understand which technologies are relevant, they become fanatical and creative in the application of those technologies

Technology as an Accelerator, Not a Creator, of MomentumComparison Companies • In comparison companies, only three cases of pioneering in the application of technology • Chrysler: Computer-aided design • Harris: Electronics applied to printing • Rubbermaid: Advanced manufacturing

Technology as an Accelerator, Not a Creator, of MomentumComparison Companies • Demonstrates that technology alone cannot create sustained great results • Chrysler made superb use of advanced computer-aided and other design technologies but failed to link those technologies to a consistent Hedgehog Concept • No advanced technology by itself could save the company from massive downturn

Technology as an Accelerator, Not a Creator, of Momentum • Technology without a clear Hedgehog Concept, and without the discipline to stay within the three circles, cannot make a company great

Technology Trap • The 20th Century’s theme: Technology • In the 20th Century we saw some of the most earthshaking advances in technology • Ex. Aviation, Cars, Electricity, Computers, Nuclear Energy • This theme is proven by Time’s Choice of Albert Einstein as Man of the Century and Jeff Bezos of Amazon.com as the 1999 Man of the Year

Master’s Forum Seminars • For 15 years had one constant theme “Technology, Change, and the connection between the two” • The reason is that “people do not always know what they do not know.” They are always afraid of some previously unknown technology cropping up and hurting them. • What do good-to-great executives think of technology? • It is a tool that accelerates success, not one that produces success • It is neither a main factor in your success nor your decline

80% of the good-to-great executives interviewed by the author did not even mention technology as one of the top five factors in the transition. • When technology was mentioned, it only had a medium ranking. • You cannot rely on technology to transition your company from good to great. But, it certainly can help you.

Ken Iverson of Nucor was asked where he would rate Technology among the five factors that helped him transit from good to great • His answer: Not in the top five • Real reason for success: The company’s consistency, and their ability to project their philosophies throughout the whole organization, enabled by their lack of layers and bureaucracy • Only 20% of Nucor’s success was based on technology

Early Technology • Throughout business and history, there are countless examples of those who were first with a technology or completely relied on technology and fell behind or perished.

Examples • Boeing and Dehavilland • Dehavilland was the company that actually built the first jetliner, the Comet, some 4 to 5 years prior to the first flight of the 707 • Dehavilland lost out in the end because of some teething problems that resulted in 3 in-flight breakups of their Comet jetliner • USAF and USN During Vietnam • Early 1960 Air combat doctrine stated guided missiles made dogfighting obsolete • All dogfight teaching was stopped and it was even forbidden to be practiced • Resulted in a nearly 1 to 1 kill ratio in aerial combat • USN started Top Gun and USAF initiated a similar program, Red Flag, to rectify this problem. Kill ratio improved to 5 to 1.

Titanic • Believed that new technology of watertight compartments made the ship unsinkable, and new wireless would keep them appraised of ice situation • Took on fewer than necessary life boats • Barreled into the dark at nearly full speed in poor ice spotting conditions • Resulted in massive loss of life due to reliance and over confidence on new and untried technologies

Takeaways • Never blindly rely on technology • When technology is used correctly and linked to simple, clear, and coherent concepts rooted in deep understanding, technology will drive you towards success • When technology is not used correctly, it will accelerate your demise • Technology is never the primary cause of a company’s demise. This responsibility usually belongs to the executives and their management techniques

Technology and the Fear of Being Left Behind • Technology is important, but as a subset of discipline or perhaps the flywheel. • “Why did the good-to-great companies maintain such a balanced perspective on technology, when most companies become reactionary, lurching and running about like Chicken Little, as we’re seeing with the internet?” • Chris Jones, Good to Great researcher

Strategy • If you had the opportunity to sit down and read all 2000+ pages of transcripts from the good-to-great interviews, you’d be struck by the utter absence of talk about “competitive strategy.” • They never talked in reactionary terms and never defined their strategies principally in response to what others were doing.

Strategy • The good-to-great companies talked in terms of what they were trying to create and how they were trying to improve relative to an absolute standard of excellence. • “We’re just never satisfied. We can be delighted, but never satisfied.” • Wayne Sanders, Kimberly-Clark

No Fear • Those who built good-to-great companies weren’t motivated by fear. • Fear of what they didn’t understand. • Fear of looking like a chump. • Fear of watching others hit it big while they didn’t. • Fear of being hammered by the competition.

Technology Bubble • Took place right smack in the middle of the research on good to great. • It served as a perfect stage to watch the difference between great and good play itself out, as the great ones responded like Walgreens. • Walgreens became great with calm equanimity and quiet, deliberate steps forward—while the mediocre ones lurched about in fearful, frantic reaction.

The Big Point • The big point of this chapter is not about technology per se. • No technology, no matter how amazing—not computers, not telecommunications, not the internet—can itself ignite a shift from good to great. • No technology can make you Level 5. • No technology can turn the wrong people into the right people.

The Big Point • No technology can instill the discipline to confront brutal facts of reality, nor can it instill unwavering faith. • No technology can supplant the need for deep understanding of the three circles and the translation of that understanding into a simple Hedgehog Concept. • No technology can create a culture of discipline. • No technology can 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.

Conclusion • Those that stay true to these fundamentals and maintain their balance, even in times of great change and disruption, will accumulate the momentum that creates breakthrough momentum. • Those that do not, those that fall into reactionary lurching about, will spiral downward or remain mediocre. • This is the big-picture difference between great and good, the gist of the whole study captured in the metaphor of the flywheel versus the doom loop.

Good to Great Chapter 7: Technology Accelerators