Savita Soni-D Sumitro Dutta-D Sundeep Laxman-D Varun Pai-D

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Freedom is only part of the story and half the truth.That is why I recommend that the statue of liberty on the East Coast be supplanted by a Statue of Responsibility on the West Coast.. Viktor Frankl in his book Man's Search for Meaning

A culture of discipline.

Start-up(creativity, vision)
Business Grows

New people/customers/orders /products/ideas

Business Restructures

Business Crumbles as Entrepreneur Fails to Grow with Business

Disorganized-lack of a/cing,system,hiring constrainsts create friction

Prof managers create order out of mess, reporting relations.

Culture of Discipline -right people at first place, avoid bureaucracy/ hierarchy

Dictatorship (Tyrannical Rule) -Business eventually becomes stagnant, no creativity, nothing spl.

Typical Progression of Business

Getting disciplined people who engage in disciplined thought and who then take disciplined action. Gives people freedom and responsibility within framework of that system. People who rinse their cottage cheese fanatical adherence. Not about a tyrant who disciplines. Budgeting is to decide which arenas fit Hedgehog Concept and should be fully funded and which should not be funded at all. Stop doing lists are more important than to do lists.

Culture of discipline.basis

The good to great matrix of Creative Discipline

Good to Great Companies:

Built a consistent system with clear constraints, but they also gave people freedom and responsibility within the framework of that system. They hired self-disciplines people who didnt need to be managed, and then manage the system, not the people

Freedom and Responsibility within a framework.

Disciplined People: Not trying to discipline the wrong people into the right behaviors, but getting self-disciplined people on the bus in the first place Disciplined Thought: You need to confront the brutal facts of reality, while retaining resolute faith that you can and will create a path to greatness Disciplined Action: Primary subject of this chapter The comparison companies often tried to skip this jump right to disciplined plan

Freedom and Responsibility within a framework.

People in the Good to Great Companies went extremes in the fulfillment of their responsibilities The cottage cheese analogy comes from Dave Scott: Hawaii Ironman Triathlon six times. Would literally rinse his cottage cheese to get the extra fat off. Rinsing the cottage cheese was one more small step he believed would make him that much better, one more small step -create a consistent program of super-discipline.

Everyone would like to be the best, but most organizations lack the discipline to figure out with egoless clarity what they can be the best at and the will to do whatever it takes to turn that potential into reality. THEY LACK THE DISCIPLINE TO RINSE THEIR COTTAGE CHEESE.

Rinsing the COTTAGE CHEESE

Wells Fargo
During bank deregulation, Carl Reichardt knew Wells Fargo would emerge stronger, not weaker Rinsed the executives cottage cheese by:
Freezing exec salaries for 2 yrs Shutting down exec dining room and elevator Sold corporate jets Did not invest in even a fancy binder

Bank of America

Did not have the discipline to rinse their own cottage cheese
Preserved all exec perks Lost $1.8 billion over 3 years THEN made the necessary changes in response to the bank deregulation (hired a lot of ex-Wells execs)

Wells Fargo and Bank of America

Whereas the good-to-great companies had level 5 leaders who built an enduring culture of discipline, the un-sustained comparisons had Level 4 leaders who personally disciplined the organization through sheer force.
Ray MacDonald era, 1964-2000 Produced remarkable results during his reign Got things done through sheer force No culture of discipline to endure beyond him Burroughs-cumulative returns fell 93% below market. Stanley Gault former president of Rubbermaid Accusation-Yes, but Im a sincere tyrant. Discipline-rigorous planning and competitor analysis, systematic market research, profit-analysis, cost control, quality control. Rubbermaid rose dramatically and declined when he departed. Lee Iacoca, president of Chrysler 1979-The Dictator Lee Financial Controls, quality control, mass layoff..etc Lost focus and company declined again.

A culture not a tyrant

The good-to-great companies at their best followed a simple mantra Anything that does not it with our Hedgehog Concept , we will not do. We will not launch unrelated businesses. We will not make unrelated acquisitions. We will not do unrelated joint ventures. If it doesnt fit, we dont do it. Period.

It takes discipline to say No, thank you to big opportunities. The fact that something is a one-in-lifetime-opportunity is irrelevant if it doesnt fit within the three circles.

Fanatical Adherence to the Hedgehog Concept

NUCOR-KEN IVERSON Posted 34 consecutive years of profit between 1966 and 1999 Began at less than 1/3 the size of Bethlehem, but concluded larger 5 year profit per employee exceeded Bethlehem by 10 times Nucor enjoyed good relations with employees due to company culture

Aligning worker interests with management interests worked

They did not struggle with adversarial labor relations and union battles

BETHLEHEM STEEL Focused on social status and hierarchy

executive rank determined shower priority at their private club

Purpose and motivation of their activities was to perpetuate a class system Posted a loss 12 times between 1966 and 1999

Fanatical Adherence to the Hedgehog Concept

Companies waste too much time getting caught up in what they have to do that they forget about what they shouldnt do. Budgeting is NOT about managing costs, or determining how much money each activity costs. It IS about deciding which activities support your Hedgehog concept and providing them with funding, while not funding the activities that dont fit. Ex: Kimberly-Clark didnt just reallocate resources from the paper business to the consumer business. It completely eliminated the paper business.

Start a Stop-Doing list

Chapter 7 Technology Accelerators

In July 2009, drugstore.com, released IPO Within seconds the stock multiplied threefold to $65 per share Four weeks later the stock closed as high as $69 Market valuation of over $3.5 Billions Just a 9 month old company Fewer than 500 employees Offered no hope of investor dividends for years Deliberately planned to lose hundreds of millions of Dollars before returning profits

Drugstore.com

The logic was

new technology will change everything Internet will revolutionize all businesses Be there, Be Fast You win no matter how expensive it is

People were willing to shell out money on shares of companies that were connected to internet; internet fad An entrepreneur just launched an informational website with his business plan, nothing more. When he launched IPO public invested $1.1M in shares!

Internet Fad

In 1999, drugstore.com challenged Walgreen. Walgreen stock suffered by over 40% in the months leading to drugstore.coms public offering. Walgreen was under pressure to react as it lost $15B in market value. Instead of reacting; they decided to pause and reflect. They believed in the concept of crawl, walk, run.
Crawl : experimented with web site while engaging in intense internal dialogue in the context of its own Hedgehog Concept Walk : began to find ways to tie internet directly to its sophisticated inventory-and-distribution model Convenience concept Run harness the internet launch of walgreens.com

Walgreens

Walgreens website was Easy to use & Reliable Place Online order & collect from any store in U.S. (Centralised) Can be shipped anywhere in U.S. Significant increase in job openings expansion Stock price nearly doubled Drugstore.com continued to accumulate massive losses Stock lost its value considerably

Aftermath

Bubbles come and go - Internet, electricity, radio, PCs It will continue to happen with unforeseen new technologies Through all this change, great companies have:

adapted & endured have lasted hundred years viz. Wal-Mart, Walgreens, PnG, Kimberly Clark, Merck, Abbott Been thru multiple generations of technology change

Technology-induced change is nothing new. The real question is not What is the role of technology? rather it is How do g2g organizations think differently about technology?

Technology & Hedgehog Concept

Company had a history of investing in technology long before other companies in the industry became tech savvy. 1980s pioneered a massive network system Intercom All Walgreen stores linked electronically and customer data was sent to a central server, which turned every store in U.S. into customers local pharmacy. Walgreen had invested over $400M in 1970-80. Own satellite system costing $100M Pioneered the adaptation of scanners, computerised inventories control, robotics & advanced warehouse tracking systems.

Walgreen

Walgreen didnt adopt Technology for the sake of it or in fearful reaction to falling behind competitors. It used Tech. as a tool to accelerate momentum after hitting breakthrough & tied technology directly to its Hedgehog concept of convenient drugstores increasing profit per customer visit. Clear strategy Hedgehog concept to drive technology and not vice versa. All g2g companies were never about technology but about pioneering application of carefully selected technologies.

Strategic Mgmt. of Technology

An early pioneer in application of bar code scanners It helped them accelerate past A&P by linking frontline purchases to backroom inventory management. Changed customers tastes from small store to huge store A&P refused to believe or act on this customers taste Kroger systematically replaced all old and small stores with nice, big, shiny superstores Invested $9B on avg. spent twice its profits for 30 years They improved customer shopping experience, added variety of products & paid of Millions of $ of debts Better warehouse management => quicker rotation

Kroger

Heavy manufacturing technology in making low cost high-tolerance blades with fantastic consistency. For developing Sensor, they invested $200M in design and development. In the process, registered 29 patents. Pioneered laser welding tech on mass scale a tech used in sophisticated products like heart pacemakers.

Gillette

COMPANY Abbott (Pharma) Circuit City (Retail) Fannie Mae (Mortgages)

PIONEERED APPLICATION OF Computer tech. to increase profit per employee Not a pioneer in RnD but had a different Hedgehog concept. Sophisticated point-of-sale & inventory tracking tech. Able to operate geographically dispersed system with consistency Algorithm & computer analysis to accurately assess mortgage risk Linked to passion for democratizing home ownership for LIG

KimberlyClark Nucor (Steel) Philip Morris

Manufacturing-process technology of woven materials Supported their passionate pursuit of product superiority Most advanced mini-steel manufacturing technology Shopped the world for the most advanced technology at huge costs Advanced computer tech. of packaging & manufacturing technology First company to make the revolutionary flip-top boxes. Advance tech. to mail room. Mechanical postage meters to eMach. Huge R&D investment to reinvent basic postage meter tech. in 80

Pitney Bowes

Wells Fargo

Sophisticated maths to conduct better risk assessment in lending 24 hr. banking by phone, early adopter of ATM, buy n sell Funds

Tech Accelerators in G2G Cos.

When used right, technology becomes an accelerator of momentum, not a creator of it. G2G companies never began their transitions with pioneering technology. You cannot make good use of technology until you know which technologies are relevant. These technologies are those that link directly to the three intersecting circles of the Hedgehog concept.

Tech an Accelerator, not a Creator of Momentum

Technology alone cannot create sustained great results. Chrysler made superb use of advanced computeraided & other design technologies but failed to link those technologies to a consistent Hedgehog concept. As they strayed outside the 3 circles in mid-1980s from Gulfstream jets to Maserati sports cars, no advance technology by itself could have saved the company from another massive downturn. People are obsessed with technology-driven change. 80% of the 84 G2G executives who were interviewed didnt even mention tech. as one of the top 5 factors the in transition; only 2 ranked tech. at no. 1 position.

Technology Fad

Factors that mattered in the G2G companies were: getting people with a farmer work ethic on the bus Getting the right people in key management positions The simple structure Lack of bureaucracy The relentless performance culture

Nucor (Steel) believes their 80% of their success is because of their excellent culture and only 20% is Tech. Bethlehem Steels faced difficulties due to adversarial labour relations owing to unenlightened & ineffective management. Tech. is important, you cant remain laggard; but tech. in itself is never a primary cause of greatness or decline.

If not Tech. then What?

PIONEER VisiCalc > Lotus 123

Osborne Computers > IBM De Havilland Westinghouse Newton, Apple CompuServe, Prodigy

INDUSTRY Spreadsheet
First portable Computers Aeroplanes AC Electrical Systems PDA Internet

SUCCESSOR MS Excel
Dell, Sony Boeing GE Palm Computing AOL

Technology cannot turn a good enterprise into great; nor by itself prevent a disaster. U.S debacle in Vietnam
-

US had the most sophisticated technology but still could not defeat Vietnam as they lacked a simple coherent concept for war, on which to attach that technology - Vietnam employed simple AK-47 which linked directly to their simple, coherent concept of guerrilla war of attrition. Thoughtless reliance on tech. is a liability, not an asset.

Tech. Pioneers rarely prevailed

From the interviews of G2G companies it was very evident

There was no talk about Competitive Strategy There was talk about Strategy, winning and being the best No reactionary strategies i.e. strategy made in response to what competitors were doing There was talk about how they were trying to create & improve relative to an absolute standard of excellence.

Those who built the G2G companies werent driven by fear of:
what they didnt understand looking like a chump watching others hit it big while they didnt Being hammered by competition

Rather they are motivated by a deep creative urge & inner compulsion for sheer unadulterated excellence for its own sake.

Fear of being left Behind

By itself ignite a shift from good to great Make a company level 5 Turn the wrong people into the right Instill the discipline to confront brutal facts of reality or Instill unwavering faith Supplant the need for deep understanding of the three circle & Hedgehog concept Create a culture of discipline Instill the simple inner belief that leaving unrealized potential on the table letting something remain good when it can become great is a secular sin

No Technology can

Good organizations become Great by avoiding technology fads; yet they become pioneers in application of carefully selected Technologies which are aligned with the three circles of Hedgehog concept. Technology is an accelerator of momentum; not creator of it.

Bottom-line

The flywheel and the doom loop..

Good-to-great transformations often look like dramatic, revolutionary events to those observing from the outside, but they feel like organic, cumulative processes to people on the inside. ExCircuit City.

Key point 1

The flywheel image captures the overall feel of what it was like inside the companies as they went from good to great. The good-to-great transformation never happened in one fell swoop. G2G comes about by a cumulative process step by step, action by action, decision by decision, turn by turn of the flywheel that adds up to sustained and spectacular results. Pushing on that flywheel in a consistent direction over an extended period of time, G2G firms inevitably hit a point of breakthrough.

Buildup and Breakthrough

No matter how dramatic the end result, the good-to-great transformations never happened on one fell swoop. There was no single defining action, no grand program, no one killer innovation, no solitary lucky break, no miracle moment. Example Abbott.

Key point #2

Its important to understand that following the buildup-breakthrough flywheel model is not just a luxury of circumstance. People who say, Hey, but weve got constraints that prevent us from taking this longer-term approach, should keep in mind that the G2G companies followed this model no matter how dire the short-term circumstances.

Not Just a Luxury of Circumstance

Sustainable transformations follow a predictable pattern of buildup and breakthrough. Like pushing on a giant, heavy flywheel, it takes a lot of effort to get the thing moving at all, but with persistent pushing in a consistent direction over a long period of time, the flywheel builds momentum, eventually hitting a point of breakthrough. Example Kroger.

Key point #3

The G2G companies understood a simple truth: Tremendous power exists in the fact of continued improvement and the delivery of results. However small the accomplishments, it shows how it fits into the context of an overall concept that will work. It gets your employees motivated as they can feel the buildup of momentum too, they will line up with enthusiasm. Eliminates the need to communicate the firms goals.

The Flywheel Effect

The comparison companies followed a different pattern, the doom loop. Rather than accumulating momentum turn by turn of the flywheel they tried to skip buildup and jump immediately to breakthrough. Then, with disappointing results, theyd lurch back and forth, failing to maintain a consistent direction. Ex -Warner-Lambert.

Key point #4

A different pattern observed at the comparison companies. Instead of a deliberate process of figuring out what needed to be done and then simply doing it, the comparison companies frequently launched new programs often with great fanfare and hoopla aimed at motivating the troops only to see the programs fail to produce sustained results. They were looking to skip the arduous buildup stage and jump right to breakthrough. They would push the flywheel in one direction, then stop, change course, and throw it into yet another direction.

Doom Loop

The comparison companies frequently tried to create a breakthrough with large, misguided acquisitions. Example Harris Corporation. In contrast

The good-to-great companies principally used large acquisitions after breakthrough, to accelerate momentum in an already fast-spinning flywheel.

Misguided Use of Acquisitions

Signs that youre on the Flywheel (Good-to-Great Companies)

Follow a pattern of buildup leading to breakthrough. Reach breakthrough by an accumulation of steps, one after the other, turn by turn of the flywheel; feels like an organic evolutionary process. Confront the brutal facts to see clearly what steps must be taken to build momentum. Attain consistency with a clear Hedgehog Concept, resolutely staying with the 3 circles. Harness appropriate technologies to your Hedgehog Concept, to accelerate momentum. Let results do most of the talking.

Signs that youre in the Doom Loop (Comparison Companies)

Skip buildup and jump right to breakthrough. Implement big programs, radical change efforts, dramatic revolutions; chronic restructuring- always looking for a miracle moment or new savior. Embrace fads and engage in management hoopla, rather that confront the brutal facts. Demonstrate chronic inconsistency-lurching back and forth and staying far outside the 3 circles. Run about like Chicken Little in reaction to technology change, fearful of being left behind. Sell the future, to compensate for lack of results.

Table to spot whether a firm is on the flywheel or in the doom loop

Employees and managers both were often unaware of the magnitude of their transformation at the time; In retrospect it become clear to them. G2G firms did not signify their transformation with any name tag, launch event, or anything fancy. No effort was spent trying to create alignment, motivate the troops, or manage change. Under the right conditions, these problems largely took care of themselves. Alignment principally follows from results and momentum, not the other way around. By following this model G2G firms could handle the short-term pressures from Wall Street. The flywheel effect does not conflict with these pressures. Indeed, it is the key to managing them.

Unexpected Results observed in G2G firms

From Good to Great to Built to Last

Articulate a Core Philosophy/Values Change and Improve Everything Except Core Values Create a Passionate Culture that Preserves Core and Stimulates Progress Achieve BHAGs, Big Hairy Audacious Goals

Preserve the Core

Change and Improve Everything Except Core Values

Clear on difference between core values and practices, norms, strategies and tactics Stimulate change, improvement, innovation and renewal surrounding core Core should be limited to no more than six values

Preserve the Core

Create a passionate culture that preserves core and stimulates progress

Culture consistently reinforces core Promote leaders who live core Core values evidenced everywhere Productively neurotic, obsessive focus on shortcomings

Achieve BHAGs, big hairy audacious goals

Rarely fall short of extreme standards of performance Multi-year BHAGs with intermediate objectives Set with understanding not bravado and in alignment with hedgehog

Preserve the Core

System independence, great beyond a single leader or idea Create catalytic mechanisms Manage for the quarter century

Clock Building, Not Time Keeping

System independence, great beyond a single leader or idea

build a team of strong individuals build a culture of discipline hold leaders accountable for success of successors

Create catalytic mechanisms

red flag mechanisms in place mechanisms to force continuous improvement mechanisms cannot easily be subverted a council plays a key role in decision-making

Clock Building, Not Time Keeping

Manage for the quarter century

build for long-term greatness, ignore shortterm pressure leaders measure success by successors performance as much as their own

Clock Building, Not Time Keeping

How do you explain recent difficulties at some of the good-to-great companies?

Every company faces difficult time-ups and downs. Critical Factor-Ability to bounce back. If a company ceases to practice all of the findings it will slide backwards. Not one variable, but a combinations of all pieces working as an integrated package consistently.

Examples:

Gillette-18 yrs of exceptional performance but in 1999 Nucor-hit peak in 1994, Fell off after Ken Iversons retirement

Epilogue.

Its rare for diversified firms to produce sustained great results. Exception: GE What GE can do better than other companies ? Essence of GE Hedgehog-develop first rate GM. Economic denominator-Profit per top-quartile management talent. Pride of GE (passion)-Having the best set of GM.
Hedgehog concept, properly conceived, enables GE to operate in diverse businesses yet remain focused on intersection of 3 circles.
Can a company have a hedgehog concept and have a highly diverse business portfolio?

Discipline-not to hire until you find the right people

Define right people-focus on character attributes and less on specialized knowledge.

Take advantage of difficult economic times to hire good people, even if you dont have a job then.

How can you practice the discipline of first who when there is a shortage of outstanding people?

Same discipline-it takes more time to accomplish. Council mechanism can be used-fill council seats with right people and ignore others. May have to carry wrong people along, but restrict their activities.

Ex: A prominent medical school from 1960-1970. The director changed entire faculty-2 decades. Hired right people for every opening, environment where wrong people felt uncomfortable. How can you practice the discipline of the right people on the bus and the wrong people off the bus in situation where it is very hard to get the wrong people off the bus-such as academic institutions and govt. agencies?

Familiarize yourself with all findings. No single finding by itself makes a great org. All need to work together as an integrated set.

Work sequentially through the framework-first who then all major components.
Work towards developing level 5 leadership.

Where and how should I begin?