Ch. 6: A Culture of Discipline
Meghan Davidson
Berklye Dominguez
Justin Pickard
Michael Simpson
Andrew Varga
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George Rathmann
◦ Successful Entrepreneur
◦ Amgen
◦ Learned from working at Abbott Laboratories
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Why do start up companies rarely become
great companies?
◦
◦
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◦
Too
Too
Too
Too
many
many
many
many
new
new
new
new
people
customers
orders
products
High
Hierarchical
Organization
Great
Organization
Culture of
Discipline
Bureaucratic
Organization
Start-Up
Organization
Low
Low
Ethic of
Entrepreneurship
High
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Abbott Laboratories
◦ Bernard H. Semler
◦ Responsibility Accounting
◦ Rigor and Discipline
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Performance is linked to an organizations
culture.
Bureaucratic cultures lead to incompetence.
Instead get the right people on the bus.
A culture of discipline involves a duality.
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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 to 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.

A Good to Great company must not always
be strict and inflexible
◦ Ex: Airline Pilot on approach
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Build a consistent system with clear
constraints, but give people freedom and
responsibility within framework of that
system
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Combination of Great store managers who
had ultimate responsibility for stores.
Created a consistent experience that was
hard to duplicate
Beat the general stock market by more than
18 times over during the next 15 years
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Create a discipline culture by starting with
disciplined people
Next disciplined thought must occur to
understand the facts of reality
Finally disciplined action must be taken
Get self-disciplined people who engage in
rigorous thinking, who then take disciplined
action within framework of a consistent
system
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Triathlon David Smith would literally rinse his
cottage cheese to get the fat off
Same idea applies to companies who tried to
minimize expenses
◦ Ex: American Airlines and the olive
◦ Ex: Carl Reichardt with Wells Fargo
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“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 and the will to do whatever it takes to turn
that potential into reality. They lack the
discipline to rinse their cottage cheese.”
(p.128)
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Looking into the disciplining of companies,
Eric Hagen didn’t think it was a necessary
part of the chapter.
After further research, he found that in one
case, the good-to-great companies became
more disciplined than the direct comparison
companies. On the other hand, the
unsustained companies showed themselves
to be just as disciplined as the good-togreat companies.
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During his analysis, Hagen found the way the
companies approached their discipline were
completely different.
“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.” p.130
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Ray MacDonald, President of Burroughs,
controlled everything through his force of
personality.
His form of pressure became known as “The
MacDonald Vise”.
Every dollar invested in 1964 and taken out in
1977 produced returns 6.6 times better than
the general market.
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Stanley Gault, President of Rubbermaid
Corporation, brought strict disciplining to the
Corporation.
He included competitor analysis, rigorous
planning, market research, profit analysis,
hard-nosed cost control, and more.
Gault worked 80 hour weeks and expected
his managers to do the same.
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After reconstructing the design of the
dustpan, Rubbermaid rose significantly under
this very particular leader.
The Corporation beat the market out 3.6 to 1.
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These cases demonstrate how there was a
rise under a tyrannical disciplinarian
followed by a decline after the disciplinarian
stepped down.
With them leaving, there was no enduring
culture of discipline left in the corporations.
Discipline is necessary for great results, but
disciplined action without disciplined
understanding cannot produce continued
success.
•
Pitney Bowes
– Had a monopoly for nearly 40 years
– Then eventually the competitors showed up
– Started losing money and thought it would
eventually go under
– Fortunately Fred Allen stepped in and asked the
hard questions to better understand the meaning of
the company's role in the world
– Sees the broader concept of the business and starts
specializing in many other things
•
•
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Instituted a model of disciplined
diversification such as high-end fax market
and investment in new technologies
The key point is that every step of
diversification and innovation stayed within
the three circles
They ended up turning the business around
and outperformed top companies such as
Coca-cola, Johnson & Johnson, General
Electric etc.
•
The good-to-great companies at their best
followed a simple rule:
– “Anything that does not fit with our Hedgehog
Concept, we will not do. We will not launch
unrelated businesses, we will not make unrelated
acquisitions, and we will not do unrelated joint
ventures. If it doesn’t fit, we don’t do it.”
•
It takes discipline to say “No” to big
opportunities. The fact that something is a
“once-in-a-lifetime” opportunity is irrelevant
if it doesn’t fit within the three circles
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The more an organization has the discipline
to stay within its three circles, the more it will
have attractive opportunities for growth
A lack of discipline to stay within the three
circles is a key factor in the demise of nearly
all the comparison companies.
◦ Example: R. J. Reynolds tobacco company vs. Philip
Morris
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The best tobacco company for 25 years
Then the surgeon general’s office issued a
report that linked cigarettes with cancer
They made the mistake of abandoning their
hedgehog concept and wandering outside its
three circles and bought a shipping container
company and oil company (Sea-Land)
They eventually had to sell the Sea-Land and
lost tons of money
•
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On the other had Philip Morris had the same
problem and RJ Reynolds but displayed
greater discipline in response to the surgeon
general’s report
Instead of abandoning it’s hedgehog concept,
they redefined in terms of building global
brands in “not-so-healthy” products such as
beer, tobacco, soft drinks, chocolate etc.
One dollar invested in Philip Morris beat one
dollar invested in RJR by over four times
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Those who built the good-to-great
companies made as much use of a “stop
doing” list as they did a “to-do” list.
They displayed a remarkable discipline to
unplug all sorts of extraneous junk.
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When Darwin Smith took over as CEO, he
made great use of “stop doing” lists.
What did he “stop doing”:
◦ Stopped annually forecasting to satisfy Wall Street.
◦ Removed titles for employees and instituted new
leadership qualifications.
◦ Removed Kimberly Clark from all paper company
trade associations.
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In a good-to-great transformation is a
discipline to decide which arenas should be
fully funded and which should not be funded
at all. In other words, the budget process is
not about figuring out how much each
activity gets, but about determining which
activities best support the Hedgehog Concept
and should be fully strengthened and which
should be eliminated entirely.
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Kimberly Clark made the decision to not just
reallocate some resources from the paper
business to the consumer business.
It completely eliminated the paper business,
sold the mills, and invested all of the money
into the emerging consumers industry.
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If you look back at the good-to-great
companies, they displayed remarkable
courage to channel their resources into only
one or a few arenas. Once they understood
their three circles, they rarely hedged their
bets.
Who did this?
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Kroger vs. A&P
Abbott vs. Upjohn
Walgreens
Gillette and Sensor
Nucor and the mini-mills
Kimberly Clark
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Collins claims that the most effective
investment strategy is a highly undiversified
portfolio.
If you can get the right people on the bus and
find your Hedgehog, then having the courage
to fully invest in one arena and stick to it are
what helped companies transform from good
to great.