1. Good to Great Chapter 6 – Culture of Discipline Team #1: Chris Bolinger Jeff Ward Ben Baker Jordan Guenther Josh Carver Chris Athens

2. The title “Culture of Discipline” gives the impression of a recipe for a company that is run like a dictatorship with set schedules, procedures and protocols. One in which creativity, fulfillment, and passion are unnecessary. We hope to explain the true meaning of this chapter’s title. What does the title “Culture of Discipline” bring to your mind?

3. Typical Progression of Businesses Start-up Number of Employees Increase as Business Grows Business Crumbles as Entrepreneur Fails to Grow with Business Business Restructures Culture of Discipline -Business grows and has potential of being “great”. Dictatorship (Tyrannical Rule) -Business eventually becomes stagnant

4. Culture of Discipline Companies –Amgen Few successful start- ups become great companies Avoid bureaucracy and hierarchy and instead create a culture of discipline –Abbott Laboratories Allow employee creativity and freedom within designated perimeters. Companies that don’t make the leap –Lubbock Barber College Found a blue ocean in 1955. Over 49 years, the college grew from 8 students to 50 students. Ownership then passed to another family member and business started to stagnate.

5. THE GOOD TO GREAT MATRIX OF CREATIVE DISCIPLINE Hierarchical Organization Great Organization Bureaucratic Organization Start – Up Organization Ethics of Entrepreneurship Low High Culture of Discipline

6. Culture of Discipline’s Primary Idea “Build a culture full of people who take disciplined action within the three circles, fanatically consistent with the Hedgehog Concept.” (Collins, 124)

7. Four Key Points 1. Freedom and responsibility within a framework 2. Fill the company with self-disciplined people who are willing to go the extra mile and rinse their “Cottage Cheese” 3. Don’t confuse a Culture of Discipline with a tyrannical disciplinarian 4. Fanatical adherence to the hedgehog concept and start a “Stop-Doing” list

8. FREEDOM (AND RESPONSIBILITY) WITHIN A FRAMEWORK A Culture of Discipline: –People must stick to a consistent system –Allows people freedom within the framework of the system A highly developed system has both freedom and responsibility –Example: Airline Pilot

9. 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

10. FREEDOM (AND RESPONSIBILITY) WITHIN A FRAMEWORK 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 didn’t need to be managed, and then managed the system, not the people

11. RINSING YOUR COTTAGE CHEESE People in the Good to Great Companies became extreme in the fulfillment of their responsibilities The cottage cheese analogy comes from Dave Scott: –Ironman Tri-Athlete –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 added to all the other steps to create a consistent program of “super-discipline”

12. RINSING YOUR COTTAGE CHEESE 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 They will do whatever it takes to turn potential into reality They lack their discipline to rinse their cottage cheese –Example: Wells Fargo v. Bank of America

13. A CULTURE, NOT A TYRANT Good to Great companies had Level 5 leaders who built an enduring culture of discipline Comparison companies had Level 4 leaders who personally disciplined the organization through sheer force

14. A CULTURE, NOT A TYRANT Examples: –Ray MacDonald –Stanley Gault of Rubbermaid –Lee Iacocca of Chrysler –Each example illustrate a pattern: A spectacular rise under a tyrannical disciplinarian, followed by a decline with the disciplinarian stepped away –Disciplined action without disciplined understanding of the 3 circles cannot produce sustained great results.

15. Adhering to the Hedgehog Concept Pitney Bowes, attained 100% of the metered mail market. By 1950, nearly half of all U.S. mail passed through Pitney Bowes. There wasn’t any competition in this market, and Pitney wasn’t really a great company as it was a wonderful monopoly

16. Adhering to the Hedgehog Concept The long slide for Pitney, began when they were required to license its patents to competitors. Within 6 years, they had 16 competitors and were in a freefall as they had to be rid of ill-fated acquisitions and joint ventures. Company lost money for the first time in its tenure in 1973.

17. Adhering to the Hedgehog Concept Fred Allen stepped in and took the company in the right direction. Thought of specializing in faxing and special copiers. George Harvey was Allen’s successor and they instituted a disciplined diversification model.

18. Adhering to the Hedgehog Concept Pitney then attained a 45% of the high-end fax market. Also began the Paragon mail processor that seals and sends letters. By the late 1980’s, these recent technological advances by Pitney and their business model drove over half of its revenues. Also linked these advances to the internet, which brought forth another opportunity.

19. Adhering to the Hedgehog Concept After falling 77% behind the market in 1973, they changed their course and rose to over 11 times the market by 1999. Outperformed Coca Cola, 3M, Johnson & Johnson, Merck, Motorola and many other fortune 500 companies.

20. Adhering to the Hedgehog Concept The goal is to stay within the three circles of the hedgehog concept. –If it doesn’t fit, don’t do it. RJ Reynolds, a tobacco company, was the best in the 1960’s. When the Surgeon General’s Office traced tobacco to cancer, RJR diversified from the tobacco industry. They took part in the shipping industry, which had nothing to do with what their company was founded on.

21. Adhering to the Hedgehog Concept Phillip Morris took a better path. They sought the not-so-healthy consumables market. In November 1988, RJR they accepted the $24.88 billion offered by Kohlberg Kravis Roberts & Co. (KKR). Phillip Morris beat RJR by 4 times since the Surgeon General’s news.

22. Adhering to the Hedgehog Concept Nucor, built around the hedgehog concept, produced steel. There weren’t any class distinctions in regards to workers. Grew into a $3.5 billion fortune 500 company with only four layers of management. The perks were for the workers, not the executives, who did the work. All 7,000 employees appeared in the annual report, and Nucor stuck by their concept through thick and thin. Still trading On the NYSE

23. Bentley Motors “To build a good car, a fast car, the best in class”. W.O. Bentley’s mission statement since the beginning. Located in Crewe, England since 1946 and owned since 1998 by Volkswagen AG, Bentley Motors is dedicated to making responsive and powerful Grand Tourers with the stamina to cross continents at pace, and drive in refined comfort and style. They know their cars are expensive, but they stick to their hedgehog concept, of producing the best cars in style, comfort, and performance. Which they only advertise to the people who are willing to pay for the cream of the crop. They haven’t changed their business model since 1946.

24. Nucor’s Opposite Bethlehem Steel –Culture was built upon a class system executive “corner” offices executive country club executive fleet of jets

25. Bethlehem survived the 1970’s and 1980’s due to the technological advances in the industry. By the 1990’s, the corporate culture was so focused on the class system, that the business forgot about the clients. $1 invested in Nucor was worth 200 times more than $1 in Bethlehem Steel Nucor chose to fanatically follow their Hedgehog concept and made a leap from “Good to Great.”

26. “STOP DOING” LIST “To Do” List- Rarely Work Kimberly Clark -Darwin Smith, CEO Company Titles - Can you justify Budgeting? Understanding YOUR Hedgehog Concepts Examples: Kroger- Superstores Walgreens- Best, Most Convenient

27. The Real Question? Once you know the right thing, do you have the discipline to do the right thing and, equally important, to stop doing the wrong things?