RAFAEL GARCIA ALLYSON HATZ

BONNIE LEEALEXA MCDANIELMOLLY MOSELEY

SMaCGreat By Choice

SMaC

Howard Putnam, CEO of Southwest Airlines in 1979, wrestled with a question:

“Does the sweeping disruption of deregulation call for a revolution in how we run our company?”

SMaC

So Putnam considered 4 main questions: Does deregulation..

Undermine our low-cost model?Threaten our high-spirit, employee-

focused culture?Erode the competitive value of rapid

gate turns or destroy the viability of our point-to-point system?

Does radical change in our environment call for inflicting radical change upon ourselves?

SMaC

Mr. Putnam concluded that Southwest Airlines should continue to expand based on the ‘cookie-cutter’ approach.

He also concluded the Southwest Airlines “cookie recipe”.

1. Remain a short-haul segment2. Utilize only 737 aircraft3. Continued high aircraft utilization and

quick turns4. The passenger is our #1 product5. Continued low fares and high frequency

of service6. Stay out of food services7. No interlining 8. Retain Texas as our #1 priority9. Keep the ‘family and people feeling’ in our

service10. Keep it simple

SMaC

Putnam stayed away from issuing vacuous statements

Although he specified: Two-hour segments 737s No food service No seat selectionPutnam laid out a CLEAR, SIMPLE, and CONCRETE

framework for decisions and action.

SMaC

This elements have only changed about 20% in a quarter of a century, despite a series of disruptive events. Such as: Massive industry mergers Recessions Interest-rate spikes The Internet 9/11

Adhering To the SMaC Recipe With Fanatic Discipline

• 10X companies kept ingredients for more than 20 years

• Comparisons showed SMaC during best years

• Comparisons changed recipes to a greater degree

Southwest Airlines vs. PSA

Facing deregulation, disruptive environment, identical recipes, fabulous

core marketsSouthwest• Began as a copy of PSA• Builds momentum in

Texas• Analysts said they

needed to change their formula

• Putnam’s simple list “needed major revision• CEO kept most of the

recipe intact• Became one of the most admired companies in the

world•Only one that endured as

great company

PSA• Reacted to deregulation

by becoming more like United Airlines

• Moved away from recipe• Languished post

deregulation• Sold out to US Air

• Became irrelevant, then forgotten

Apple

Rise and fall illustrates the danger of straying from a recipe and the value of restoring it

Mid-1990s: fallen from glory days – Will Apple Computer Survive?

Chronic inconsistency: revolving door at the top 4 changes of CEO in 11 years

Turnaround began in 1997 with Steve JobsApple had successful rebirth because it

returned with fanatic discipline to original recipe

John Wooden – UCLA Basketball

10 NCAA championship teams in 12 yearsExemplified power of consistencyRan drills from same set of 3x5 cards with

rare modifications“Pyramid of Success”: a philosophy of life and

competition Detailed recipe down to how players should tie their

shoes

IKEA

Main Ingredients: Simple product design Massive friendly retail stores Very low prices Create a better life for people

In the beginning: concentrated on continuous cost reduction

During rising prices and global recession, they set out for a new path to offer even lower prices to consumers Lowering operational costs Become better at increasing volume Develop better functioning supply chain Empower co-workers

Adhering To the SMaC Recipe With Fanatic Discipline

Change is not the most difficult part10Xers ask why their recipe isn’t working

anymore before assuming obsolete methodsSignature of mediocrity = chronic

inconsistency10Xers accomplish goals by adhering to what

they know works

Amending the SMaC recipe: Paranoid, Creative Consistency

A great company must evolve its recipe, revising selected elements when conditions merit, while keeping most of its recipe intact.

EX: in 1985, Intel’s memory-chip business.Japanese competitors threw the industry into

a price war by driving prices down 80% in 2 years.

Intel’s Recipe for Success

In 1969, Intel began making microprocessors, putting all the computer functions on a single chip. (They were originally only in the memory-chip business).

Over 16 years they continuously gained momentum with the microprocessors.

“If New Management Came In, What Would They Do?”

Get out of the memory-chip business. Put their full attention into the

microprocessor business. Crucial to their success:

Exit from memory chips Not changing other elements of its SMaC recipe

“Genius of the AND”

On one hand, Intel changes only a small fraction of its SMaC recipe at any given time, keeping the rest of it intact.

On the other hand, this isn’t just an “incremental” change- a SMaC recipe change is a significant change.

By grasping this point, a 10X enterprise can achieve significant change and continuity-at the same time.

Firing Bullets

The Intel case shows how firing bullets can give you a hedge against an uncertain future, so that you might have a ready-made amendment ready to go when the world changes.

Intel didn’t react to the memory-business disruption by inventing the microprocessor; it had been firing bullets for more than a decade, proving itself in microprocessors.

2 Approaches to Amending the SMaC Recipe

1) Exercising empirical creativity (internally driven)- Firing bullets to discover and test a new practice before making it part of the recipe.

2) Exercising productive paranoia (externally focused)- Disciple to zoom out to perceive and access a change in conditions, then zoom in to implement amendments as needed.

10Xers employ both approaches

Intel’s Success

In the Intel case, empirical creativity came 1st, and then productive paranoia kicked in when the memory-chip business became untenable.

10Xers reject the choice between consistency and change; they embrace consistency and change, both at the same time

IKEA

How does IKEA embrace change and consistency simultaneously?

They are consistently changing and lowering their prices to compete with competitors.

Focused on conceptual consistency. Although the product assortment and functionality of IKEA’s products differ between regions, and new products and themed showroom corners are constantly added to its range, the overall IKEA experience remains consistent, no matter when, where, or how consumers interact with the brand. This makes the IKEA experience memorable.

SMaC Recipe

SMaC Specific, Methodical, and Consistent

SMaC Recipe A set of durable operating practices that create a

replicable and consistent success formula Turns strategic concepts into reality Unchanging from situation to situation Helps people keep their bearings and sustain high

performance in extreme conditions The more unforgiving your world, the more SMaC

you need to be

SMaC Recipe

“Not to do” Southwest Airlines: Do not interline, serve food, offer

first-class seats, carry air freight Microsoft: Do not wait to develop perfect software to

enter the market; get good enough to launch and then improve.

Intel: Do not cut R&D during industry recession.

IMAX on Everest

David Breashears developed SMaC recipe for filmmaking in high mountains. 50-degree-below-zero freezer in Toronto for practice Developed protocols for handling IMAX camera with

bare hands “Idiot Check List” 160 mile, 28 day trek in Nepal before Everest

May 23, 1996: Mount Everest IMAX project

Consistency and Change: The Great Human Tension

Create practical framework that is flexible and durable Ex: US constitution Amendment mechanism Consistent, to work in radically changing and

unpredictable environmentBalance between continuity and change

Concrete rules to guide decisions Understanding what actually works takes time

SMaC Recipe Comparison

Changes to a SMaC recipe are like amendments

Greatness is ability to: keep moving forward Figuring out what works

Consistent approach with discipline, creativity and paranoia