Roger MayLauren Heldreth

Jade BlackKody Roach

Taylor Hutcherson

Few start-ups become great

Growing too fast

Fixing the problems breaks the company

Segmentation

Bureaucracy

Right people

Need for bureaucracy

Discipline

Goals

Rinsing the Cottage Cheese

Airline pilot example◦ Methodical vs the Freedom to make decisions

Good-to-great companies build a consistent system with clear constraints, but also give people freedom and responsibility within the framework of the system

Hire self-disciplined people who do not need to be managed, then manage the system

Disciplined People: Don’t put the wrong people into the right behaviors; Get the RIGHT people first

Disciplined Thought: Confront the brutal facts of reality, while maintaining faith that you can and will become great

Disciplined Action: Most important; must do this last◦ Disciplined Action without Disciplined People is

impossible to sustain, and Disciplined Action without Disciplined Thought just leads to disaster

Analogy saying that people who accomplish their goals do things that other people don’t

Origins: Tri-athlete (Dave Scott) who went to the extra measure to maintain a low-fat, high-carbohydrate diet (rinse his cottage cheese), in order to wash away the added fat, even though he was burning over 5,000 calories a day in training◦ He won the Hawaii Ironman 6 times

Wells Fargo ◦ During bank deregulation, CEO 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 anything in 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)

Most organizations lack the discipline to figure out what they can be the best (too much ego)

Lack the will to do whatever it takes to turn their potential into reality

They lack the discipline to rinse their cottage cheese

Good-to-great companies became more disciplined than the direct comparison companies◦ But the unsustained companies showed

themselves to be just as disciplined as the good-to-great companies

Huge difference between the two sets of companies in their approach to discipline

Good-to-great companies had Level 5 Leaders who build enduring culture of discipline

Unsustained comparisons level 4 leaders who personally disciplined the organization through sheer force◦ EX: Ray MacDonald: Burroughs◦ EX: Stanley Gault: Rubbermaid

Found in every unsustained comparison◦ Rise under a tyrannical disciplinarian, followed by an

equally spectacular decline when they stepped away

The Rise of Apple• Apple founded in 1976.• They created the home computer market.• Apple created first GUI in early 80’s.• However, computer only came with 2 programs. • Company also would not accept outside programmers and wouldn’t license it’s programs to others. • Other computer manufacturers had to use other programs.

• By 1990’s Windows and PCs dominated the market.• Let external companies make Mac Clones starting in early 90’s.• During mid-90’s Apple had purchased two of their operating systems from outside companies.• By end of 90’s market share dwindled to 5%.• As early as late 80’s Apple was straying from a focus on the three hedgehog circles and by mid 90’s had completely strayed.

The Fall of Apple

The Rise Again of Apple• In ‘97 Steve Jobs returned.• Company restructured and refocused with an emphasis on high quality, aesthetics, usability, and great customer relations.• Started working with outside software developers.• Struck $150 million software development deal with Microsoft.• Opened Apple stores with “Apple Geniuses” to provide free help.• Stopped allowing inferior Mac Clones.• Released IMac and then Mac OS X.• Released Ipod, then Itunes, and IPhone.• Relaxed constraints on software development for Apple products.

To be great a company; ◦ Has to have the discipline to understand its three

circles.◦ Has to have the discipline to stay within the three

circles. The more a company has the discipline to

stay within its three circles, the more it will have attractive opportunities for growth.

It takes discipline to turn down big opportunities that do not fit within the three circles.

It also takes discipline to adhere to keep a large company passionate and focused on your product, your customers, and the external world.

Passion- eliminating class distinctions by creating an egalitarian meritocracy ◦ Nucor executives received fewer benefits than

frontline workers Economic Denominator- focus on profit per

ton of finished steel Becoming the Best- harness culture and

technology in order to produce low-cost 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

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◦ They did not struggle with adversarial labor

relations and union battles Aligning worker interests with

management interests worked

As important or maybe more so than the “to do list”◦ Budgeting is a discipline to decide which areas

to fully fund and which to cut Making huge investments after the three

circles are understood Great companies rarely hedge their bets

once the three circles are understood◦ The most effective investment strategy is a

highly undiversified portfolio when you are right