Chapter 3 – Good to Great

1. Chapter 3 – Good to Great Bunde Walker James Yost Trent Hemann

2. FIRST WHO…THEN WHAT • Initial thoughts: • Set new direction • Set new vision and strategy for company • Then get people that are committed to new direction • After research: • First get the right people on the bus (wrong people off) and then figure out the direction.

3. Three Simple Truths • Focus on “who”, rather than “what,” can be adapted to a changing company. • The right people will eliminate the problem of how to motivate and manage people largely • Great vision without great people is irrelevant.

4. Wells Fargo • Dick Cooley – CEO • Created one of the most talented management teams in the industry • Focused on “injecting an endless stream of talent” into the company • “If I’m not smart enough to see the changes that are coming, they will…” Dick Cooley

5. Wells Fargo • When banking industry fell 59% behind general stock market, Wells Fargo outperformed the market by over 3 times. • Almost every executive went on to become a CEO of another company.

6. Bank of America • Followed the “weak generals, strong lieutenants” model • Strong lieutenants will stick around if weak generals are picked. • Weak generals for Bank of America would wait for direction instead of seeking solution to problems.

7. Bank of America • After losing $1 billion in the mid 1980s, they started to recruit strong generals. • Most executives were recruited from Wells Fargo. • New strategy created an upward climb

8. “Genius” Model • “Genius With A Thousand Helpers” • One genius is the driving force in company’s success. • Doesn’t need a management team. • Effective unless genius isn’t there to make decision.

9. Jack Eckerd and Cork Walgreen Jack Eckerd (Genius) Cork Walgreen • Picked the right stores to buy • Which stores should go in what location. • Had no executive team • Picked the right people to hire • Which people should go in what seats. • Best executive team in the industry • Selection of a great successor

10. Teledyne(A genius with a thousand helpers) • Henry Singleton-CEO • Made every decision • Created enterprise with 130 profit centers • Exotic metals to insurance. • “…Teledyne is not so much a system as it is the reflection of one man’s singular discipline.” Forbes • Stepped away from day-to-day management • Entire enterprise began to crumble

11. High Incentives=Great Results? • Analyzed use of stock, high salaries, bonus incentives, and long-term compensation • No systematic pattern linking executive compensation to the process of going from good to great. • GTG executives received LESS cash • Not HOW you compensate, it is WHO you compensate

12. Eric E. Schmidt • Chairman/CEO of Google • Former CEO of Novell • Former CTO of Sun Microsystems • In 2009, Compensation cut back 52% in order to lift profits during the recession • Salary of $1 for five consecutive years http://www.huffingtonpost.com/2010/03/30/eric-schmidt-google-ceo-g_n_518198.html

13. Nucor • Cannotteach work ethic • Opened up plants near real farming communities • Created environment where hard-working people would thrive • Greater weight on character attributes

14. Rigorous, Not Ruthless • Tough places to work • Ruthless • Hacking and cutting in difficult times • Rigorous • Consistently applying standards at all levels • Deal with issues up front

15. Rigorous Cultures • Wells Fargo acquired Crocker Bank • 1,600 Crocker managers gone the first day • Wells Fargo replaced their own managers in the case where a Crocker manager was more qualified • Need to be “Rigorous” not “Ruthless”

16. How to be Rigorous • Packard’s Law • Growth rate in revenues faster than growth rate in people; cannot build a great company • Get and keep enough of the right people • From top to bottom • Do not compromise or settle

17. Circuit City Silo • Understood Packard’s Law • Spent the bulk of his time hiring the right people • Took off beating the general stock market 18.5:1 • Did not follow Packard’s Law • Focused his time on the right stores to buy • Could not perform basics • Was bought out by a foreign company

18. Get the right people • Get people who don’t need to be managed • When making business changes don’t fire, retain the best • Many times character traits are more important than technical knowledge

19. Act when a decision is needed • Waiting is not a good strategy • Take extra time to make sure you hire the right people • Focus on getting the best people in the right spot • Move people around • Square pegs in square holes

20. When to make a change • Would you hire again? • If an employee said they were leaving, would you be disappointed or excited? • Put your best people on opportunities • Build opportunities, don’t manage problems

21. Hire people you want to work with • Try to keep the right people • Don’t fire people when making change, the best people will embrace change • Hire people who love what they are doing and want to build something great • Company ambition, not personal ambition

22. Hire Confident People • Don’t hire people who follow blindly • Hire people with confidence to disagree when it is needed • Argue and debate until the best answer is made • Stand behind the decisions the company makes

23. Have fun • It is important to first worry about who, then what • When hiring, be rigorous, not ruthless • Enron • If in doubt, postpone hiring • Google ads in New York magazine

24. 3 main points • First get the right people on the bus (wrong people off) and then figure out the direction. • The good to great leaders were rigorous, not ruthless, in hiring decisions. • Hire people you want to work with.