Good To Great
Chapter 3
First Who…Then What
“There are going to be times when we can’t wait for somebody.
Now, you’re either on the bus or off the bus.” - Ken Kesey
Anna Rendon
Ashley Hoptay
Olivia Erwin
Paige Stone
Brandon Laviage
Chase Mueller
Tanner Gilreath
Transforming From Good to
Great
The executives who ignited the transformations
from good to great did not first figure out where
to drive the bus and then get people to take it
there.
 What did they do then?
 They FIRST got the right people on the bus and
the wrong people off of the bus, and THEN they
figured out where to drive it.

What They Said

“Look, I don’t really know where we
should take this bus. But I know this
much: If we get the right people on the
bus, the right people in the right seats,
and the wrong people off the bus, then
we’ll figure out how to take it someplace
great.”
Three Simple Truths
1.
2.
3.
Begin with the “Who” rather than the “What”. Helps
you adapt to a changing world.
If you have the right people on the bus, the problem
of how to motivate and manage people largely goes
away. The right people are self-motivated to produce
the best results.
Going in the right direction with the wrong people will
never produce a great company. Great vision without
great people is irrelevant.
Excerpts From Obama’s Inaugural
Address




This is the journey we continue today. We remain the most
prosperous, powerful nation on Earth. Our workers are no less
productive than when this crisis began. Our minds are no less
inventive, our goods and services no less needed than they were
last week or last month or last year. Our capacity remains
undiminished. But our time of standing pat, of protecting narrow
interests and putting off unpleasant decisions -- that time has surely
passed. Starting today, we must pick ourselves up, dust ourselves
off, and begin again the work of remaking America.
For everywhere we look, there is work to be done. The state of the
economy calls for action, bold and swift, and we will act -- not only
to create new jobs, but to lay a new foundation for growth.
Where the answer is yes, we intend to move forward. Where the
answer is no, programs will end. And those of us who manage the
public's dollars will be held to account -- to spend wisely, reform bad
habits, and do our business in the light of day -- because only then
can we restore the vital trust between a people and their
government.
Know that America is a friend of each nation and every man,
woman and child who seeks a future of peace and dignity, and that
we are ready to lead once more
What Does this Show?

Obama’s Inaugural Speech shows he is a level
five leader in many ways:
– He doesn’t focus on himself; he focuses on everyone.
– In this situation, he knows that in order to turn
America around, he has to get everyone on the bus
before he drives it in the right direction.

Another example
– Picking the right cabinet. One of the first things
Obama did was make his new Cabinet sign a new
code of ethics – his way of making sure he has the
right people on the bus
– But he allowed someone on the bus who was a
lobbyist in the area he is working?
 William Lynn – Deputy Defense Secretary
Wells Fargo
CEO Dick Cooley foresaw that the banking
industry would eventually undergo change.
 Instead of focusing on change, he focused on
finding the right people.
 Focused on “injecting an endless stream of
talent” directly into the veins of the company.
 Hired outstanding people whenever and
wherever they found them, often without any
specific job in mind.

Wells Fargo

“That’s how you build the future,” Cooley
said. “If I’m not smart enough to see the
changes that are coming, they will. And
they’ll be flexible enough to deal with
them.”
Wells Fargo’s Success
By getting the right people on the bus,
Wells Fargo outperformed the market by
over three times.
 This occurred at a time when its sector of
the banking industry fell 59% behind the
general stock market

Bank of America
Bank of America took a different approach:
“Weak generals, strong lieutenants”
 If you pick strong generals for key positions,
their competitors will leave. But if you pick weak
generals – placeholders, rather than highly
capable executives – then the strong lieutenants
are more likely to stick around.

BOA – Management Climate
Weak generals would wait for direction from
above.
 Sam Armacost, who inherited the weak generals
model, said, “I came away quite distressed from
my first couple of management meetings. Not
only couldn’t I get conflict, I couldn’t even get
comment. They were all waiting to see which
way the wind blew.”

Bank of America’s Success
Lost $1 billion
 Ended up recruiting a gang of strong
generals to turn the bank around.

Wells Fargo VS BOA

In 1998, the cumulative value of $1
invested:
– Wells Fargo = $74.47
– General Market = $19.86
– Bank of America = $15.60
Good to Great Distinctions
1.
2.
Get the right people on the bus and the
wrong people off the bus before you
figure out where to drive it.
The degree of sheer rigor needed in
people decisions in order to take a
company from good to great.
David Maxwell
CEO of Fannie Mae during its darkest days
 Held off on developing a strategy until he got
the right people in place, while the company was
losing $1 million every single business day with
$56 billion of loans underwater.
 Focused on getting the right people on the
Fannie Mae management team.

Maxwell’s A Team

Maxwell made it absolutely clear that there
would only be seats for A players who were
going to put forth A+ effort, and if you weren’t
up for it, you better get off the bus, and get off
now!
– Example: think of our teams – we want only A players
who will put forth an A+ effort. The alternative is
getting fired.

14 of the 26 executives left the company
Wells Fargo and Fannie Mae Lessons
“Who” questions come before “what” questions
– before vision, before strategy, before tactics,
before organizational structure and before
technology.
 Exemplified a Level 5 style
 “I don’t know where we should take this
company, but I do know that if I start with the
right people, ask them the right questions, and
engage them in vigorous debate, we will find a
way to make this company great.”


“Genius With a Thousand
Helpers”?
In this model, the company is a platform for the
talents of an extraordinary individual.
– In these cases, the towering genius, the primary
driving force in the company’s success, is a GREAT
asset….. AS LONG AS THE GENIUS STICKS
AROUND!
Company’s who take this approach are usually
successful UNTIL the “genius” of the company
leaves.
 Ex.: Steve Jobs

Level 5+
Management
Team
A “Genius With
A Thousand
Helpers”
(Good To Great Companies)
(Comparison Companies)
Level 5 Leader
First Who
Get the right people on
the bus. Build a superior
executive team.
Level 4 Leader
First What
Set a vision for where to drive
the bus. Develop a road map
for driving the bus.
Then What
Then Who
Once you have the right
people in place, figure
out the path to
greatness.
Enlist a crew of highly
capable “helpers” to
make the vision happen.
Good to Not So Great
Companies- classic scenarios

Eckerd Corporation, led by Jack Eckerd expanded the Eckerd Empire
with over 1000 stores across the southeastern U.S. In the late
1970’s, Eckerd’s revenues equaled Walgreens. But when Jack Eckerd
left to pursue his passion for politics, Eckerd Corp. took a toll for the
worse as the company began a long decline and eventually taken
over by J.C. Penny.

Henry Singleton, owner of Teldyne had proclaimed a small
enterprise to number 293 in the Fortune 500 list in only 6 YEARS!
The company dominated the marketplace from exotic metals to
insurance. Once Singleton stepped away, soon the company
crumbled.

Each of these cases failed utterly at the task of building a
great company.
It’s Who You Pay, Not How You
Pay Them

Top Executives, Managers and Employees
 Compensation
– Stock Options
– Huge Incentives (Jets, Vacations, company cars, etc)
Examples: Big 3 Auto Makers, Lehman
Brothers, Merrill Lynch
 Do these things really increase
performance and create great results?

– NO!
Data Inputs

Collected weeks of data from proxy statements
– Preformed 112 separate analyses looking at patterns
and correlations
 Qualifications: Cash vs. Stock, LT vs. ST Incentives, Salary
vs. Bonus, etc..
– Outcome: No significant patterns related to executive
compensation, and no systematic differences on
compensation packages
Main Point

Good to Great
– Received slightly less total cash compensation 10
years after the transition than others in mediocre
companies
 Not that these people will work for free
– But do better work with less incentives because they
want what's best for the company
– The right people will do the right things and deliver
the best results they are capable of regardless of the
incentive system
Nucor Example

Built on the idea that you can teach farmers to
make steel but you cant teach a farmer work
ethic, to people who don’t have it in the first
place
– Plants: Crawfordsville, Indiana; Norfolk, Nebraska;
Plymouth, Utah

They generated as high as 50% turnover in the
first year, followed by very low turnover as the
right people settled in
Nucor Environment

Workers
– Teams of 20 to 40 people
 Team Bonus mechanism with over 50% tied directly to the
productivity of the team
– Highest paid steel workers in the world
– Arrived to work 30 minutes early and ready to go
when the shift bell rang
– The system did not aim to turn lazy people into hard
workers, but to create an environment where
hardworking people to thrive and lazy ones to fail
Rigorous, Not Ruthless

Good to great companies are not ruthless
cultures they are rigorous
– Ruthless – Hacking and Cutting or Wantonly firing
people without any thoughtful consideration
– Rigorous – Consistently applying exacting standards
at all times and all levels

The best people need not to worry about their
positions and can concentrate fully on their work
Wells Fargo Example

Acquired Crocker Bank in 1986
 Consolidation
– Removed 1600 managers and top executives
– However some Crocker managers took positions in
Wells Fargo because they were better qualified then
the ones originally in that spot

“The only way to deliver to the people who are
achieving is not to burden them with the people
who are not achieving.”
Wells Example Cont

Ruthless
– To let the workers stay employed and waste
precious time when other job opportunities
might arise

Rigorous
– To deal with it up front and let people move
on with their lives
How to Be Rigorous
3 Practical disciplines for being rigorous rather
than ruthless
When in doubt, don’t hire…keep looking.
2. When you know you need to make a people
change, act.
3. Put your best people on your biggest
opportunities, not your biggest problems.
1.
When in doubt, don’t hire…
keep looking

For growth, companies should not focus
on:
– The markets
– Technology
– Competition

Instead, they should concentrate on
finding and keeping enough of the right
people.
Packard’s Law

“No company can grow revenues
consistently faster than its ability to get
enough of the right people to implement
that growth and still become a great
company.”
Circuit City- Always Looking for
Great People
Focused one getting the right people from
top to bottom.
 Alan Wurtzel’s (CEO) goal was to build the
best, most professional management team
in the industry.
 Delivery drivers wore uniforms, were clean
shaving, and had to be professional.

Practical Discipline #2

When you know you need to make a
people change, act.
– The best people don’t need to be managed,
but instead guided and taught
What Happens With The Wrong
People
When you let the wrong people stay
around, the right people always need to
be compensating for the inadequacies of
the wrong people
 They are constantly on your mind and are
a constant drain on your energy

Why Do People Wait

Mainly cause it can be an inconvenience to
get rid of them, they constantly come up
with excuses on why they should wait
– But meanwhile it constantly affects the right
people
Churn?
Turnover within a period of time
 The good-to-great did not churn more,
they just churned better, meaning that
people either stayed for a long period of
time or they left quickly

A+ Selections
The good-to-great companies didn’t have the
theory of “try a lot of people and see who
works”. They took their time and would find the
perfect person for the position
 When Colman Mockler became CEO of Gillette,
he spent 55% of his time in his first 2 years
changing or moving 38 of the top 50 people of
his management team

When Is It Time?

2 key questions can help:
– 1.) If you are trying to place someone
somewhere, ask your self, “Would you hire
them again?”
– 2.) If the person came to you and told you
that he/she was leaving would, “Would you
feel disappointed or relieved?”
Practical Discipline #3

Put your best people on your biggest opportunities, not your biggest
problems.

There is an important corollary to this discipline: When you decide to sell off
your problems, don’t sell off you best people. This is one of those little
secrets of change. If you create a place where the best people always have
a seat on the bus, they’re more likely to support changes in direction.

One of the crucial elements in taking a company from good to great is
somewhat paradoxical. You need executives, on the one hand, who argue
and debate – sometimes violently – in pursuit of the best answers, yet, on
the other hand, who unify fully behind a decision, regardless of parochial
interests.

The good to great companies made a habit of putting their best people on
their best opportunities, not their biggest problems.
First Who, Great Companies, and A
Great Life

Good to great management teams consist of people who
debate together vigorously in search of the best
answers, yet who unify behind decisions, regardless of
parochial interests.

The old adage “People are your most important asset” is
wrong. People are not your most important asset. The
right people are.

The “right person” has more to do with character traits
and innate capabilities than with specific knowledge,
background, or skills.
Conclusion: Main Points





Find the right people for the job
Focus on who is running the company, not what is
running it
Find level 5 leaders
Tie compensation into performance
3 Disciplines
– When in doubt, don’t hire…..keep looking
– When you know you need to make a people change
– Put your best people on your biggest opportunities, not your
biggest problems