Good to Great – Part 5

This is part five of a multi-part blog, sharing my thoughts on the book Good to Great by Jim Collins.  Here are links to Part 1, Part 2, Part 3, and Part 4.

Chapter 6 – A Culture of Discipline

I’m going to start off with one of the best quotes of this chapter, and maybe the entire book: “The purpose of bureaucracy is to compensate for incompetence and lack of discipline – a problem that goes away if you have the right people in the first place.”  He continues, “Most companies build their bureaucratic rules to manage the small percentage of wrong people on the bus, this in turn drives away the right people on the bus, which then increases the percentage of wrong people on the bus, which increases the need for more bureaucracy to compensate for the incompetence and lack of discipline, which then further drives away the right people.

I could probably write an entire blog about that one quote and all the different ways I’ve seen it play out in my career.  You probably could too.  This particular chapter is pretty long though, so rather than get caught up on the one quote, let’s see what other interesting thoughts Mr. Collins brings up.  Actually, before we do that let me provide some context.  The quote above comes a few paragraphs into the chapter.  Prior to that Mr. Collins is describing a startup company growing into a more professional organization.  That process often involves hiring management; these managers often start with instituting process controls.  Then we see the quote above.

That quote allows us to segue into how important it is for an entrepreneur to have discipline, and how future employees or partners may not have that same discipline.  Finding partners and employees with a high level of discipline enables a company to go farther before needing the red tape of bureaucracy.  I particularly enjoyed a chart presented in the book, which contrasts the axis of Discipline and Entrepreneurial Spirit:

I thought it interesting that an organization with a lot of discipline but little entrepreneurial spirit was labeled hierarchical.  It reminds me of the military, where they achieve balance by compartmentalizing discipline and entrepreneurship.  I’ve heard a few examples of military inventiveness that started in the rank and file, but from what I’ve seen and heard that doesn’t seem to be the norm.  The rank and file experiences mostly discipline, and then some groups are created specifically to experiment.  If those experiments pan out the results are spread to the rest of the organization.  As mentioned earlier, Churchill created a channel for obtaining information from outside his political bubble to work around these kinds of limitations.

Mr. Collins mentions Responsibility Accounting (an accounting framework created by Bernard H. Semler at Abbott Laboratories in the 1960s) as a good example of innovation that tied together Discipline with Entrepreneurship.  When managers are responsible for the returns made on the expenditures of their departments they have a good reason to keep track of costs and profitability.  The idea is to have controls without being too strict.

The rest of the chapter gives details about the next five concepts:

  • Build a culture around the idea of freedom and responsibility, within a framework.
  • Fill that culture with self-disciplined people who are willing to go to extreme lengths to fulfill their responsibilities.  They will “Rinse their cottage cheese.”
  • Don’t confuse a culture of discipline with a tyrannical disciplinarian.
  • Adhere with great consistency to the Hedgehog Concept, exercising an almost religious focus on the intersection of the three circles.
  • Equally important, create a “stop doing” list and systematically unplug anything extraneous.

Freedom (and Responsibility) Within A Framework

The book gives an example of an airline pilot attempting to land in rough weather.  The plane almost lands but then the passengers find themselves thrust backwards into the seat as the plane accelerates back into the sky.  There were some bad crosswinds and the plane lands on their second attempt.  The analogy here is that the airline industry is extremely regulated, but there are certain freedoms in the right places to enable a pilot to do the right thing – extremely important when the pilot is ultimately responsible for many lives.

There is another point well-made in this subsection of the chapter, written clearly enough that I have to include it verbatim (emphasis added by me):

“In a sense, much of this book is about creating a culture of discipline.  It all starts with disciplined people.  The transition begins not by trying to discipline the wrong people into the right behaviors, but by getting self-disciplined people on the bus in the first place.  Next we have disciplined thought.  You need the discipline to confront the brutal facts of reality, while retaining resolute faith that you can and will create a path to greatness.  Most importantly, you need the discipline to persist in the search for understanding until you get your Hedgehog Concept. Finally we have disciplined action, the primary subject of this chapter.  This order is important.  The comparison companies often tried to jump right to disciplined action.  But disciplined action without disciplined thought is a recipe for disaster.

That paragraph does an excellent job of underscoring points made earlier in the book about having leaders that lean too much on discipline, or bringing in celebrity CEOs who have a great vision that doesn’t align with the company’s core.  It’s great to have discipline, but it can destroy an organization if it’s not being used in the right place or right time.

Rinsing Your Cottage Cheese

“Rinsing your cottage cheese” is a phrase the author uses to refer to extreme discipline.  The phrase refers to Dave Scott, six-time winner of the Hawaii Ironman Triathalon:  “In training, Scott would ride his bike 75 miles, swim 20,000 meters, and run 17 miles – on average, every single day.  Dave Scott did not have a weight problem! Yet he believed that a low-fat, high-carbohydrate diet would give him an extra edge.  So, Dave Scott – a man who burned at least 5,000 calories a day in training – would literally rinse his cottage cheese to get the extra fat off.”

I liken it to that phrase, “You miss 100% of the shots you don’t take.”  It’s the willingness to take those extra shots that made the difference, even if some of the shots you took were misses.  This man’s dedication meant that he was willing to take a few extra steps in order to achieve his goal.  Even if that specific step wasn’t what gave him his winning edge, it was part of an overall package.  He took those extra shots, and some of them scored.

 A Culture, Not A Tyrant

“Whereas the good-to-great companies had Level 5 leaders who built an enduring culture of discipline, the unsustained companies had Level 4 leaders who personally disciplined the organization through sheer force.” (Emphasis in original.)

The unsustained comparison companies failed to sustain their excellence because they didn’t make it part of the organizational culture.  When the leader left they went back to their prior level of experience.  This section also contained another note I enjoyed because it was exactly how I felt when I read the material in my own college Ethics class:  “It kind of reminds me of Lawrence Kohlberg’s stages of moral development that I learned about in my college Ethics class.  Doing the right thing because it’s the right thing to do is higher on the moral development chart than doing the right thing out of fear of being punished.”  If you want people to keep doing the right thing after you’re gone you have to teach them the value of doing the right thing because it’s the right thing to do.

Fanatical Adherence to the Hedgehog Concept

This section can really be summed up by these two quotes:

 “The good-to-great companies at their best followed a simple mantra: ‘Anything that does not fit 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 doesn’t fit, we don’t do it.  Period.’”

“In contrast, we found a lack of discipline to stay within the three circles as a key factor in the demise of nearly all the comparison companies.  Every comparison either (a) lacked the discipline to understand its three circles, or (b) lacked the discipline to stay within the three circles.”

I liked one of the supporting statements, which spoke about leadership being faced with “once-in-a-lifetime opportunities” – specifically, that if you stay true to your Hedgehog Concept you may come across more of these opportunities than you’d expect.  As an aside, in my personal life I’m finding things like this more and more as I get older.  I’ll only have a limited number of hours in my life and I’ve had to accept that certain things on my “to do” list may never, ever get done.  That’s not to say it wouldn’t be nice if I could do something, but that I really have to start being aware of the choices I make with my time now.

The seven bullet points that follow are taken verbatim from the book, discussing steel producer Nucor.  I’m pulling out the most important lines, and then I’ll discuss below.

  • This notion of fanatical consistency relative to the Hedgehog Concept doesn’t just concern the portfolio of strategic activities.  It can relate to the entire way you manage and build an organization.  Central to the Nucor concept was the idea of aligning worker interests with management and shareholder interests through an egalitarian meritocracy largely devoid of class distinctions.
  • When we interviewed Ken Iverson, he told us that nearly 100 percent of the success of Nucor was due to its ability to translate its simple concept into disciplined action consistent with that concept.
  • It grew into a $3.5 billion Fortune 500 company with only four layers of management and a corporate headquarters staff of fewer than twenty-five people – executive, financial, secretarial, the whole shebang – crammed into a rented office the size of a small dental practice.
  • Executives did not receive better benefits than frontline workers.  In fact, executives had fewer perks.
  • But when Nucor faced difficult times, everyone from top to bottom suffered.  But people at the top suffered more.  In the 1982 recession, for example, worker pay went down by 25 percent, officer pay went down 60 percent, and the CEO’s pay went down 75 percent.
  • Nucor had no union and enjoyed remarkably good relations with its workers.  In fact, when union organizers visited one plant, workers felt so ferociously loyal to Nucor that management had to protect the union organizers from workers who began shouting and throwing sand at them.
  • But the union argument begs a crucial question: Why did Nucor have such a better relationship with its workers in the first place?  Because Ken Iverson and his team had a simple crystalline Hedgehog Concept about aligning worker interests and management interests and – most importantly – because they were willing to go to almost extreme lengths to build the entire enterprise consistent with that concept.

I was very impressed with the example of what Nucor did.  I’ve been a supporter of running a lean company for a long time, and a supporter of the idea that when employees see their bosses living and acting like normal people instead of kings and queens they are much more motivated by that than by anything else.  Employees know when their employers are loyal to them, and when they’re being given lip service.  If Nucor can build themselves a $3 billion business with employee loyalty like that there’s no reason other people can’t do it as well.

Start a “Stop Doing” List

Once you’ve determined your Hedgehog Concept and you whittle away all the distractions from it pursuing that goal is almost easy.  Indeed, doing all the study and preparation necessary to come to your Hedgehog Concept is where the hardest work seems to be.  In one section of the book Mr. Collins mentions the leaders of the Good to Great companies were often confused by the interview questions.  They considered the work of finding their Hedgehog Concepts to be common sense, a part of the process that was so intuitive they couldn’t imagine not doing it.

From that perspective, once that’s done everything that comes after is easy.  So the leaders just chalked all their success up to luck.  More specifically, what they felt was lucky was getting a group of people who could work on this process – getting the right people on the bus.  Having worked in organizations with people who were either the wrong people or in the wrong seats, it’s easy to understand how lucky it would feel to find myself on a bus where everyone’s where they need to be.

Anyway, whittling away the distractions is an important piece.  This is one I really need to do for myself.  A few paragraphs up I said I’m finding myself prioritizing differently, but I really like the idea of making a concrete list of things I need to stop doing.  Without a “stop doing” list our “to do” list can just keep growing and growing.  If left unchecked we wind up getting pulled away from our Hedgehog Concept.  The same is true of any organization.

In my next installment I’m going to combine chapters 7 and 8 (“Technology Accelerators” and “The Flywheel and the Doom Loop”).  Again, if all goes as planned that’ll be up next week.  Thanks for reading!

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