Chapter 6A Culture of Discipline

Jessica Drummond, Adrienne Collins, Mark Beal, Spencer Thomas, Michael Sanchez,

Chad Hensley, Mario Santos, Alec Wegmann

Few successful Start-Ups become Great Companies

This is because of how they respond to growth

ACCT 2301 Professor Steve Buchheit, spoke of his father’s appliance business loosing shipments of refrigerators

Companies trip over their own success

Too many NEW PEOPLE

Too many NEW CUSTOMERS

Too many NEW ORDERS

Too many NEW PRODUCTS

This leads to disorganization

Lack of PLANNING

Lack of ACCOUNTING

Lack of SYSTEMS

Lack of HIRING

In response to these problems

Management is often replaced- This changes corporate culture- Increase in procedures, processes, etc.

Reporting Relationships and Hierarchy are established. - “We” and “They” segmentation appears

This can create the wrong Culture of Discipline

A company’s Culture of Discipline must complement their Ethic of Entrepreneurship

The Good-to-Great Matrix of

Creative Discipline

Hierarchical Organization

GreatOrganization

BureaucraticOrganization

Start-upOrganization

High

Culture of Discipline

Low

Low

Ethic ofEntrepreneurship

High

Airline Pilot Model and the Framework

Guiding framework required In the end, the operator makes the

decision. Must Have Discipline BLAW 3391(Reed)

Airline Pilot Example

Stormy conditions Option to land Option to not land These options ultimately rest in the

hands of the pilot; however, the pilot will base his decision on regulations (such as air traffic control and the FAA)

Hedgehog and Discipline

Find your Hedgehog Concept Stick to it The Culture of Discipline has 3 Parts

The Three Parts of Discipline

1. Get self-disciplined people on the bus› Don’t discipline wrong people into right

actions. 2. Disciplined thought

› Confront the brutal facts of reality › Keep the faith

3. Disciplined action› This is the last part, some people jump

straight to it and this is incorrect. Must have the prior two parts before action is taken!

Rinsing Your Cottage Cheese

Analogy used by Collins to explain how “good to great” companies have the discipline to do whatever it takes to become the best, and then seek continual improvement from there

Everyone would like to be the best, but most organizations lack the discipline to do whatever it takes to turn that potential into reality.

These companies lack the discipline to “rinse their cottage cheese”

Wells Fargo vs. Bank of America

President of Wells Fargo, Carl Reichardt, believed his bank could emerge from bank deregulation in the 1970s as a stronger company

Key to becoming a great company was not with brilliant new strategies but to eliminate a hundred years of banker mentality

“There’s to much waste in banking, getting rid of it takes tenacity, not brilliance.”

Wells Fargo vs. Bank of America

Reichardt set a clear tone: We’re not going to ask everyone to else to suffer while we sit high

Started by “rinsing their own cottage cheese”, right off with the executives

Froze executive salaries for two years Replaced executive dining room with

college dorm food catering Sold corporate jets Removed free coffee from executive suite

Wells Fargo vs. Bank of America

On the other hand, B of A executives didn’t have the discipline to “rinse their own cottage cheese”

They kept all their perks believing: why “rinse our cottage cheese “ when life is so good?

After losing $1.8 billion across three years in the mid-1980s, B of A eventually made the necessary changes in response to deregulation (largely by hiring ex- Wells Fargo executives)

A Culture, Not A Tyrant

A company’s approach to discipline affects the company’s performance in the long-run.

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.

Ray MacDonald

President of Burroughs in 1964. He got things done through sheer force

of personality, using a form of pressure that came to be known as “The MacDonald Vise.”

After he retired, his helper minions were frozen by indecision, leaving the company unable to get anything done.

Stanley Gault

Gault, convinced that the lip of the dustpan was too thick, issued a dictate to his engineers to redesign the product.

When called a tyrant he responded with, “Yes, but I’m a sincere tyrant.”

Rubbermaid rose dramatically under the tyranny of this singularly disciplined leader but then just as dramatically declined when he departed.

Lee Iacocca

Iacocca became president of Chrysler in 1979 and imposed his towering personality to discipline the organization into shape.

Iacocca produced spectacular results and Chrysler became one of the most celebrated turnarounds in industrial history…› Until he got caught up in his own hobbies.

Fanatical Adherence to The Hedgehog Concept

“anything that does not fit with our Hedgehog Concept, we will not do. We will

not launch unrelated businesses, make unrelated acquisitions, or launch

unrelated joint ventures. If it doesn’t fit we won’t do it”

Sticking to your Hedgehog Concept: Disciplined Diversification

Pitney Bowes Had a monopoly on the sale of postage meter

machines when they lost their monopoly the company

started to rapidly decline Company was saved by shifting to a broader

focuse› went from a “postage meter company” to a broader

focus on “messaging” high end fax machines, specialized copiers, other various

high tech office machines later on became a pioneer at linking backroom machines

to the internet

Lack of Discipline leads to straying from your Hedgehog Concept which leads to failure

1960s: RJ Reynolds was a tobacco company

Started to diversify outside its 3 circles of defined logic› bought a shipping container company› ultimately failed

Nucor Steel Built success around the Hedgehog Concept

› Fanatical consistency› Harnessed culture & technology› 34 straight years of profitability (1966-1999)

Main concept: Idea to align workers interests with management & shareholders interest

Goal was to avoid any hierarchical inequalities› Avoided class distinctions› Executives received less perks› Compensated all workers for profitable years › Small sized headquarters

Nucor’s Three CirclesPassion

For eliminating class distinctions and creating an egalitarian meritocracy that aligns management, labor,

and financial interest

Could become the best in the world at

harnessing culture and technology to produce low-cost

steel

Economic Denominator of profit per ton of

finished steel

Nucor had a better relationship with its workers because they went to extreme lengths to build their enterprise with a simple, transparent concept.

The “Stop Doing List”

Instead of just a “To Do List” try implementing a “Stop Doing List”› This will help eliminate dead weight

Kimberly-Clark CEO, Darwin Smith› Future Earnings› Official Titles› Layering in the Office

It Takes Courage

If you focus on becoming a Hedgehog, you will have to give up a lot› Kimberly-Clark left the paper business

completely› Became a consumer company which led to

them becoming “great”

What is Budgeting? How much each activity gets?

• Which activity best supports the Hedgehog Concept• Allocate resources appropriately

Effective Undiversified Portfolio

Being undiversified is the most effective way to invest…only when you’re right

When are you right?› Level 5 Leaders› Create a climate where truth is heard› Decisions based on the Hedgehog Concept

Summary

Avoid bureaucracy and hierarchy and instead create a culture of discipline.

Stick to freedom and responsibility within the framework of a highly developed system.

“Good to Great” companies have the discipline to do whatever it takes to be the best.

Summary

A culture of discipline is not a tyrant who disciplines

Diversification and innovation within the three circles will lead to success

Staying within the three circles creates more opportunities for growth

Utilize a “Stop Doing List”