CH. 6

1

Team 1

Section: 092

Book: Good to Great

Document Title: Chapter 6, A culture of Discipline.

Presentation Date: 6-10-2010

Amgen

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

Start-ups and there success

• Few start ups become great companies

WHY?• Simple change in environment– More growth (people, resources, cash more

Chaos)

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

Avoiding the Entrepreneurial Death Spiral.

• Right people in the first place. • Create a culture of discipline• Ethics of entrepreneurship

Freedom within a framework

Rinsing Your Cottage Cheese

• Expression arise from Dave Scott

A Culture, Not A Tyrant

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”

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

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

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

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

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

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

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

• 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…

Pitney Bowes

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!

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

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…..?

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

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

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

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

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

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

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

• 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?

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?