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CH. 6

CH. 6. Team 1 Section: 092 Book: Good to Great Document Title : Chapter 6, A culture of Discipline. Presentation Date: 6-10-2010. 1. Amgen. Successful biotechnology company Founded by George Rathmann Produce blood products $3.2 billion dollar company 6,400 employees.

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CH. 6

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  1. CH. 6

  2. Team 1Section: 092Book: Good to GreatDocument Title: Chapter 6, A culture of Discipline.Presentation Date: 6-10-2010 1

  3. Amgen • Successful biotechnology company • Founded by George Rathmann • Produce blood products • $3.2 billion dollar company • 6,400 employees

  4. Start-ups and there success • Few start ups become great companies WHY? • Simple change in environment • More growth (people, resources, cash more Chaos)

  5. Abbott • You record your objective in concrete • You can change plans, but never change what you measure yourself against. • Responsibility accounting- clearly identified each individual responsible for each item

  6. Avoiding the Entrepreneurial Death Spiral. • Right people in the first place. • Create a culture of discipline • Ethics of entrepreneurship

  7. Freedom within a framework

  8. Rinsing Your Cottage Cheese • Expression arise from Dave Scott

  9. A Culture, Not A Tyrant

  10. Discipline • Eric Hagen • Completed a special analysis unit looking at the leadership cultures across the companies • “It is absolutely clear that the unsustained comparison CEO’s brought tremendous discipline to their companies, and that is why they got such great initial results”

  11. Discipline cont… • 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

  12. Burroughs • Ray MacDonald • Got things done through sheer force. Called “The MacDonald Vise” • Produced great results during his time (1964-1977). Returns 6.6 times better than the market • Company began a long slide when he retired with returns falling 93% below the market

  13. Rubbermaid • Stanley Gault • Sincere tyrant, brought strict discipline to company • Beat the market 3.6 to 1 when he was there. When he left, Rubbermaid lost 59% of its value and was bought by Newell

  14. Chrysler • Lee Iacocca (1979) • “The Man. The Dictator. Lee” • Overhauled the entire management structure, mass layoffs, improved quality control measures, and instituted strict financial controls in his first year • Produced great results and Chrysler became on of the most celebrated turnarounds in industrial history

  15. Chrysler cont… • During Iacocca’s first half of his tenure, her took the company from near bankruptcy to nearly three times the market • During the second half of his tenure, the company slid 31% behind the market and faced bankruptcy again

  16. A culture of Discipline • Discipline is essential for great results, but disciplined action without disciplined understanding of the three circles cannot produce sustained great results

  17. Fanatical Adherence to the Hedgehog Concept Pitney Bowes • Postage meter machine monopoly • Attained 100% of metered mail market • Not so much a great company, but a great monopoly

  18. Pitney Bowes • What went wrong? • Certain laws put into place that created competition • Reacted poorly, and even lost $70 million on a venture • Fred Allen steps in to start running things • Messaging vs. Postage Meter company • Eventually outperformed Coca-Cola, 3M, P&G…

  19. Hedgehog Concept • Don’t launch unrelated businesses • Don’t make unrelated acquisitions • Don’t do unrelated joint ventures • If it doesn’t fit, DON’T DO IT!

  20. Pitney Bowes • Good illustration of what can happen when a company gets outside of its 3 circles • Also a good example of how a company can benefit from regaining discipline

  21. Going Outside the 3 Circles RJ Reynolds • Top tobacco company in US in mid 20th century • Began to diversify once Surgeon General submitted report linking tobacco and cancer • Spent 1/3 of assets to invest in a shipping container and oil company…..?

  22. RJ Reynolds • Invested around $2 billion into Sea-Land, nearly equaled amount of stock holders equity • RJR was good at making and selling tobacco, what did they know about shipping or oil? • Better idea would’ve been what Phillip Morris did in response to same situation • Redefined their Hedgehog Concepts instead of abandon 3 Circles

  23. Hedgehog Applied Internally • Inequality within each company is rampant • People at top of hierarchy give themselves privileges and flaunt them • People at the bottom are the ones doing the work • Millions of dollars are spent by The Top to motivate The Bottom, and yet The Top still puts The Bottom down

  24. Nucor • Hedgehog Concept internally was aligning interests of worker, management and shareholders avoiding class distinctions • Had only 4 layers of Management • Corporate headquarters had only 25 people and was a small rental office • Executives and all workers received same benefits

  25. Bethlehem Steel • Exact opposite of Nucor • Huge headquarters • Fleet of corporate aircraft • World class 18 hole golf course • New technology imports kept the company afloat

  26. Nucor vs. Bethlehem • Nucor has 34 consecutive years of profit starting in 1966 • Bethlehem lost money in 12 of those years • Nucor’s average 5 year profit/employee exceeded that of Bethlehem by almost 10x • In 1966, if you invested $1 in each company, Nucor’s return would have yielded 200x more than Bethlehem

  27. Stop Doing List • Helps get rid of a lot of junk Darwin Smith, CEO Kimberly-Clark • Annual Forecasts with Wall Street too short termed • No titles for positions, eliminates class-consciousness

  28. Budgeting • Discipline to decide which areas should be fully funded and which should not be funded • Budget process should be about determining which activities best support the Hedgehog concept and should be fully strengthened • As well as which processes should be eliminated entirely

  29. Once you know your main concepts and strengths, you have to have the courage to trust an investment in it • Most effective strategy is a highly UNdiversified portfolio, but only when you’re right • How do you know when you’re right?

  30. When you’re right… • You: • Have the right people on the bus • Confront the brutal facts • Create a climate where the truth is heard • Work within your 3 Circles • Frame all decisions in Hedgehog Concepts context • Act from understanding Once you know the right thing, do you have the discipline to DO the right things, and STOP DOING the wrong things?

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