 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

 Too many NEW PEOPLE  Too many NEW CUSTOMERS  Too many NEW ORDERS  Too many NEW PRODUCTS

 Lack of PLANNING  Lack of ACCOUNTING  Lack of SYSTEMS  Lack of HIRING

 Management is often replaced - This changes corporate culture - Increase in procedures, processes, etc.  Reporting Relationships and Hierarchy are established. - “We” and “They” segmentation appears

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

High Culture of Discipline Low Ethic of Entrepreneurship High

 Guiding framework required  In the end, the operator makes the decision.  Must Have Discipline  BLAW 3391(Reed)

 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)

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

 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!

 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”

 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.”

 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

 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 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.

 President of Burroughs in  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.

 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.

 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.

 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

 1960s: RJ Reynolds was a tobacco company  Started to diversify outside its 3 circles of defined logic › bought a shipping container company › ultimately failed

 Built success around the Hedgehog Concept › Fanatical consistency › Harnessed culture & technology › 34 straight years of profitability ( )  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

Passion 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.

 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

 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”

 How much each activity gets? Which activity best supports the Hedgehog Concept Allocate resources appropriately

 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

 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.

 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”