Good to Great: Chapter 6

1. Good to Great: Chapter 6 By: Jake Alonzo Charly Cone Natalie Bohman Meredithe Marshall Michael Scott Mikey Via Virginie Charlotte Milhaud A Culture of Discipline

2. A Culture of Discipline • Few start-ups have great success because: • Company responds to rapid growth in wrong way • Company can “trip” over its own rapid growth. • There is inherent lack of resources for new successful companies because they cannot keep up with • This quickly will push the firm to organize a more hierarchical structure • Employees: structured reporting relationships

3. Discipline for Success • From an Entrepreneurial standpoint: • Employees begin to hate the organizational structure • Have added job responsibilities with unequal perceived compensation • The process of disciplining involves: • Forming hierarchical relationships and initiating bureaucratic rules to follow to avoid mayhem • This is aimed at managing the “wrong people” • Proves to drive away the “right people” on your corporate “bus”

4. Main Ideas Build a culture of disciplined employees who fall into the three circles Be consistent to hedgehog mind state Go over how a “stop doing list” helps firms get rid of extraneous factors Freedom and responsibility framework Why executive managers should “rinse their cottage cheese” The difference between culture of discipline and tyrannical disciplinarian

5. Freedom (and Responsibility) in a Framework • Concept introduced through the example of the Air Traffic System: • Pilots operate through a very strict system • But lot of freedom when it comes to crucial decisions (whether to land, whether to abort etc.) • Regardless of the stricture of the system, Pilots have ultimate responsibility. • Good to Great companies build a consistent system with clear constraints, but they also give people freedom and responsibilities within the framework of that system.

6. Freedom (and Responsibility) in a Framework How to develop freedom and responsibility in a Framework? • Need people and managers who believe in the system • Operate with great consistency • Create a culture of discipline • Install disciplined actions When a company has a strong culture of discipline, then it rarely needs to discipline people A culture of discipline is not about punishing people, it is about control

7. Freedom (and Responsibility) in a Framework « Good-to-Great companies built a consistent system with clear constraints but they also gave people freedom and responsibilities in the framework of that system. They Hired self-disciplined people who didn’t need to be managed and then managed the system, not the people. » Good to Great – J. Collins – P.125 Freedom at Google In the workplace Employees manage their time To emphasize creativity Tour inside Google Headquarters Responsibility at Google Strong Code of Conduct

8. Rinsing Your Cottage Cheese Analogy comes from an athlete named Dave Scott. The Answer to the question of “good to great” lies in the discipline to do what ever it takes to become the best.

9. Rinsing Your Cottage Cheese Every company wants to be the best, but most companies lack the discipline to figure out what they need to do to become the best. “they lack the discipline to rinse their cottage cheese” Getting rid of it takes tenacity, not brilliance

10. Wells Fargo • Froze executive salaries for 2 years • Took away executive dining room, replaced it with a college dorm food service • Closed down the executive elevator, sold corporate jets and removed live plants. • He threw back reports that had fancy binders, with the admonishment: “Would you spend your OWN money this way? What does a binder add to anyways”

11. Bank of America • Executives at Bank of America didn’t have the discipline to rinse their own cottage cheese. • Northeast corner suite, large conference room, oriental rugs, and floor-to-ceiling windows viewing the Golden Gate to the Bay Bridge. • Bank of America asked “why rinse our cottage cheese when life is so good?”

12. A Culture, Not a Tyrant Discipline created by CEO vs. discipline as a culture Why are Great companies more disciplined? “Whereas the 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.” Collins

13. Level 4 Culture Ray MacDonald-Burroughs Criticized everyone less smart than him “The MacDonald Vise” Retirement Stanley Gault- Rubbermaid “Sincere Tyrant” He was their number one control mechanism After his departure.. Lee Iacocca- Chrysler “The Man. The Dictator. Lee.” Distractions (bottling his own wine, house in Italy, new found fame, Maserati venture, Second book) Departure

14. What not to do? The level four executive show us the culture we don’t want to have. Discipline by force and fear Discipline through hierarchy No culture after disciplinarian leaves

15. Level 5 Culture Google- Enduring culture Sergey Brin calm, quiet, not a tyrant No hierarchy, keeps creativity Discipline comes from having the right people on the bus. Google’s office. Disciplined action, without disciplined understanding of the results can not produced sustained great results.

16. Pitney Bowes example • Monopoly • Government broke it up • Had to give patents to the competition • Severely hurt Pitney Bowes, profitability drastically decreased • Level five leader helped the situation • Fred Allen and successor • Started increasing marketability again • High end copiers and fax machine market segment

17. Explanation • Pitney Bowes • Became a pioneer in the PMS (pioneer, migration, and settler) map • Through innovation (pioneer) and use of level 5 management entered into blue ocean market • Ex. High end copiers and fax machines, internet capable backroom machines • Through all of these favorable variables turned the eminent decline of the company around • 77% behind market in 1973 to 11x the market in 2000

18. 3 Circles • Companies would fail due to not adhering to 3 circles • What you can be best in the world at, driver of economic engine, and what are you deeply passionate about • Good to Great company mantra: “Anything that does not fit with our hedgehog concept, we will not do… no unrelated business or acquisitions and no unrelated ventures” • R.J. Reynolds: • Stepped outside their circle • Bought sea-land shipping company and Aminoil oil company. • 2 billion dollar loss

19. Explanation • The more the company stays within its 3 circles the more it will have attractive opportunities for growth • Google • Stays within 3 circles very successfully • Everything is tech based, and very closely related • I.e. All of its various internet services

20. Nucor’s 3 Circles

21. Stop Doing List • Jim Collins notes, “Those who built the good to great companies , however, made as much use of stop doing as to do list”. • In addition, good to great companies focus resources in few areas. • Walgreens went from a food service business to most convenient drugstore.

22. The purpose of a budget A budget should not be based on which areas need the funding but which area supports the hedgehog concept.

23. Summary of Chapter 6 Good to great companies give employees freedom and responsibility Disciplined is about getting people to buy into system by engaging in thought than action Do not confuse culture of discipline with a Tyrant Budget only the areas that support the Hedgehog Concept “Stop doing” list is just as important as “to do” list