“Why some companies make the leap… and others don’t?”

AGENDA

•The Research

•GTG Framework

•GTG Concepts

•Comparison

•Examples

•Unexpected Findings

•Quiz

•Ice Breakers

THE BOOK

•Written by Jim Collins

•Translated in 35

languages

•Result of 5-year intensive

research

•3 Million Copies Sold

•One of the most

influential business book

before the 21st century

“Our five-year quest yielded many insights,

a number of them surprising and quite

contrary to conventional wisdom, but one

giant conclusion stands above the others: -

We believe that almost any organization

can substantially improve its stature and

performance, perhaps even become great, if

it conscientiously applies the framework of

ideas we’ve uncovered.”

- Jim Collins

1965 - 1995

1995 - 2000

COMPANIES STUDIED GOOD TO GREAT COMPANIES COMPARISON COMPANIES

Abbott (3.98) Upjohn

Circuit City (18.5) Silo

Fannie Mae (7.56) Great Western

Gillette (7.39) Warner-Lambert

Kimberly Clark (3.42) Scott Paper

Kroger (4.17) A&P

Nucor (5.16) Bethlehem Steel

Philip Morris (7.06) RJ Reynolds

Pitney Bowes (7.16) Addressograph

Walgreens (7.34) Eckerd

Wells Fargo (3.99) Bank of America

* 15-year return compared to general stock market

LEVEL 2 – CONTRIBUTING TEAM MEMBER Works effectively with others for the achievement of its objectives.

LEVEL 3 – COMPETENT MANAGER Organizes people and resources towards effective pursuit of pre-determined objectives.

LEVEL 4 – EFFECTIVE LEADER Vigorous pursuit of clear and compelling vision, stimulating higher performance standards.

LEVEL 1 – HIGHLY CAPABLE INDIVIDUAL Knowledge, Skills and Good Work Habits

LEVEL 5 – EXECUTIVE Builds enduring greatness through a blend of PERSONAL HUMILITY and PROFESSIONAL WILL.

PERSONAL HUMILITY And

PROFESSIONAL WILL

• CEO of Kimberly Clark

• Stodgy old paper company

whose stock has fallen 36%

behind the general market over

past 20 years.

• Other management team told

him that he lack qualifications

• Among the 10 Greatest CEO of

all times

•CEO of Fannie Mae

•Company is losing $1M dollar

daily when he joined but earned

$4M every business day 9 years

after.

•Set up his successor for success

•“I want to look out from my porch

someday and look at Fannie Mae

and say “I used to work there”.

• CEO of Chrysler

• Talented yet egocentric

• Chrysler rose to height halfway

of his tenure

• Diverted his attention

• Made himself one of the most

celebrated CEO’s in America’s

history

• His book sold 7 Million copies

• Chrysler fell 31% behind the

market and return to glory

5 years after his retirement

Most remarkable CEO’s of the century:

• George Cain

• Alan Wurtzel

• David Maxwell

• Colman Mockler

• Darwin Smith

• Jim Herring,

• Lyle Everingham.....

....but almost no one ever remarked about them...

THE 11 GTG CEO’S

“Did I have a lot to do with it?” “There are plenty of people in this company who could do my job better than I do.” “I hope I am not sounding like a big shot.”

1. Right people on the bus

2. Wrong people off the bus

3. Proper seats for the right people

•Foresaw that banking industry

would eventually undergo wrenching

change

•Focused on “injecting an endless

stream of talent” directly into the

veins of the company

•He hired the most talented

management team in the industry

instead of mapping strategy for

change

•Wells Fargo outperformed the

market 3 times when banking

industry fell 59% behind

“That is how you

build the future.”

– Dick Cooley

•Followed “Weak Generals, Strong Lieutenants”

model

•Strong lieutenants will stick around if weak

generals are picked.

•Weak generals for Bank of America would wait for

direction instead of seeking solution to problems.

•After losing over $1 Billion in mid 80’s, they

recruited a gang of strong generals (from Wells)

•They refer themselves as “Wells of America”

•BA began to climb upward again

• One genius is the driving force in company’s

success

• Does not need a management team

• Does not give serious thought on

succession planning

• Effective unless genius isn’t

there to make decision

LEVEL 5 + MANAGEMENT

(Good to Great Companies)

LEVEL 5 LEADER

FIRST WHO

Get the right people on the bus. Build a superior executive team.

THEN WHAT

Once you have the right people in place, figure out the best path for

greatness.

A “GENIUS WITH THOUSAND HELPERS”

(Comparison Companies)

LEVEL 4 LEADER

FIRST WHAT Set a vision for where to drive the

bus. Develop a road map.

THEN WHO

Enlist a crew of highly capable “helpers” to make the vision

happen.

WALGREENS (Cork Walgreen)

ECKERD CORPORATION (Jack Eckerd)

Picked the right people to hire

Picked the right stores to buy

Which people should go in what seats

Which stores should in what location

Best executive team in the industry

Had no executive team

Selection of a great successor

With bunch of capable helpers

• Made every decision

• From small enterprise to #295 in the Fortune 500 in just 6 years

• Completed 10 acquisitions in 10 years

• No serious thought given to succession

• Failed 66% behind the market when he left the company

1. Set up steel factories in provinces with farmers who go to bed early, rise at dawn and get right to work without fanfare

2. Idea of “You can teach farmers how to make a steel but you can’t teach work ethic to people who don’t have it in the first place”

3. Pays more than any other steel company in the world, with bonus tied directly with productivity

Three (3) Practical Disciplines on how to be rigorous in

people decision.

When in doubt, don’t hire – keep looking.

No company can grow revenues consistently faster that its ability to get enough of the right people to implement that growth and still become a great company.

If your growth rate in revenues consistently outspaces growth rate in people, you simply will not – indeed cannot – build a great company.

CIRCUIT CITY (Alan Wurtzel)

SILO (Sidney Cooper)

Goal - Build the best, most professional management team in the industry

Goal – To grow as fast as possible

Spent the bulk of his time hiring the right people

Focused his time on the right stores to buy

Took off like a rocket and beat the general stock market at 18.5:1

Could not even perform basics - Deliveries

“Always Looking for Great People”

Bought by a foreign company

When you know you need to make a people change,

ACT!!

We have wrong person on the bus and we know it. Yet we

wait, we delay, we try other alternatives, we give a 3rd and 4th

chance hoping that situation will improve, we invest time in

trying to properly manage this person but we fail. We go

home and we find our energy diverted by thinking (or talking

to your spouse) about that person.

Worse is, all the time and energy we spend on that one

person takes the energy away from developing and working

with all the right people.

We continue to stumble along until this person leaves on his

own or we finally act after waiting for so long. Meanwhile,

our best people will wonder and ask “WHAT TOOK YOU SO

LONG?”.

•Letting the wrong people hang around is unfair to all the right people •Waiting too long before acting is equally unfair to the people who need to get off the bus •Two key questions – Would you hire that person again? Would you feel terribly disappointed if that person leaves?

Put your best people

on your biggest opportunities,

not your biggest problems.

Joe

Cullman

Identified international markets as the

best opportunity for growth even with

less than 1% of total co. Revenue

Came up with brilliant answer to “Who”

and not “What”

Assign his number one executive,

George Weissman who was running 99%

of the company that time

Few years later, Marlboro became the

best selling cigarette in the world, 3 years

before it became number one in US

UNEXPECTED FINDINGS:

1. There is no link between executive compensation and the shift from good to great. The purpose of compensation is not to motivate the right behavior from the wrong people, but to get and keep the right people.

2. The old adage “People are your most important asset” is wrong. The right people are.

3. “Right Person” has more to do with character, traits and inner capabilities than with specific knowledge, background and skills.

1950’s - Largest

retailing corporation in

US

1960’s – Began to falter

Lagged behind the

market

1950’s – Unspectacular

grocery chain, half the

size of A&P

1960’s – Began to lay the

foundations to become

great company

25 years later, generated

cumulative returns 10x

the market and 8x better

than A&P

•Old company facing

new reality (111 years)

•All assets invested in

traditional grocery

stores

•Brutal fact – this model

was going to become

extinct

•Never dealt with the

facts

•Failed to adapt

•Old company facing new

reality (82 years)

•All assets invested in

traditional grocery stores

•Brutal fact – this model

was going to become

extinct

•Confronted the brutal

fact heads on and change

its whole system

•Became very successful

1973-1998

25 years later, generated cumulative returns 10x the market like a

rocket and 8x better than A&P, while A&P lagged behind the market

•Postage meters

•Year 1973 – similar revenue and

headcount

•Imminent reality of losing their

monopoly

•Management meetings – 15

minutes discussion about

accomplishments and 2 hours

about “scary squiggly things”

that might impede future results

•Year 2000 – with 30,000

employees and revenue of $4

Billion

•Address-duplicating machines

•Year 1973 – similar revenue and

headcount

•Imminent reality of losing their

monopoly

•Charismatic leader – Roy Ash

•Set a vision to dominate IBM,

Xerox and Kodak

•Refused to confront that his plan

has a little chance of success and

was doomed to fail

•Year 2000 – only 670 employees

and revenue of &100 million

•Company closed

•Ash thrown out of the office

Pitney Bowes outperformed Addressography by 3,581 to 1. (3,581 times better)

Pitney Bowes

“There is nothing wrong with pursuing a vision for greatness. After all, the good-to-great companies also set out to create greatness.

But, unlike the comparison companies, the good-to-great companies continually refined the path to greatness with the brutal facts of

reality.”

How to Create a Climate Where the Truth is Heard

Lead with questions, not answers

Engage in dialogue and debate, not coercion

Conduct autopsies, without blame

Build “Red Flag” mechanism

Each MBA student will have a bright red sheet of paper, with

the following instructions:

“This is your red flag for the quarter. If you raise your hand

with your red flag, the classroom will stop for you. There are

no restrictions on when and how to use your red flag; the

decision rests entirely in your hands. You can use it to voice

an observation, share a personal experience, present an

analysis, disagree with the professor, challenge a CEO guest,

respond to a fellow student, ask a questions, make a

suggestion, or whatever. There will be no penalty whatsoever

for any use of a red flag. Your red flag can be used only once

during the quarter. Your red flag is nontransferable; you

cannot give or sell it to another student.”

Key psychology for leading companies from good to great...

• Named after Jim Stockdale • Highest ranking US military officer

during Vietnam war • Tortured over 28 times during his 8-year imprisonment • No prisoner’s rights, no set release

date, and no certainty he would even survive to see his family again.

• Never lost faith during his ordeal: “I never doubted not only that I would get out,

but also that I would prevail in the end and turn the experience into the defining event of my life, which, in retrospect, I would not trade.”

He noted that it was always the most

optimistic of his prison mates who failed

to make it out of there alive.

“They were the ones who said, „We‟re

going to be out by Christmas.‟ And

Christmas would come, and Christmas

would go. Then they‟d say, „We‟re going

to be out by Easter.‟ And Easter would

come, and Easter would go. And then

Thanksgiving, and then it would be

Christmas again. And they died of a

broken heart.”

Retain absolute

faith that you can

and will prevail at

the end...

And at the same

time...confront the

brutal facts of

reality whatever

they might be.

Life is unfair – sometimes to our advantage and

sometimes to our disadvantage. We will all

experience disappointments and crushing events

somewhere along the way.

What separates people is not the presence or

absence of difficulty but how we deal with them.

What are

you

deeply

Passionate

about?

What you

can be the

best in the

World at?

What

drives your

Economic

engine?

You cannot manufacture passion or motivate people to feel

passionate. You can only discover what ignites

your passion and the passions around you.

CIRCUIT CITY

Best at implementing 4S Model (Service, Selection, Savings and Satisfaction

FANNIE MAE

Best capital market player in anything that pertains to mortgagest

GILETTE

Best at building premier global brands of daily necessities of sophisticated

technology

KIMBERLY CLARK

Best in the world at paper-based consumer product

NUCOR

Best in technology to produce low cost steel

PHILIP MORRIS

Best at “sinful” products like tobacco, beer, coffee and chocolate (Marlboro,

Miller, Maxwell House and Toblerone)

WELLS FARGO

Best at running a bank like a business.

ABBOTT LABORATORIES

Best at creating portfolio that lowers cost of health care

COMPANY ECONOMIC DENOMINATOR

ABBOTT Profit per employee

CIRCUIT CITY Profit per economic region

GILETTE Profit per customer

KIMBERLY CLARK Profit per customer brand

KROGER Profit per local population

NUCOR Profit per ton of finished steel

PHILIP MORRIS Profit per global brand category

WALGREENS Profit per customer visit

WELLS FARGO Profit per employee

•Breakthrough Strategy -

Best, most convenient

drugstores with high profit

per customer visit

•Became the best in the

world at convenient

drugstores

•Exceeded the market

over 15 times beating

great companies like

Coke, Intel and GE.

•Acquire lumps of stores

– 46 here 36 there – with

no unifying theme

•Lurched after growth

•Purchased American

Home Video Corp.

•Produced &31 million in

losses

•Eckerd ceased to exist

as an independent

company

Author of the book Good to Great (1)

What are the 3 broad stages of transformation from being

good to great company (2-4)

Two distinguishing characters of Level 5 leader (5-6)

Three steps to implement the “First Who then What”

concept (7-9)

What do you call this psychology that states “ Retain absolute faith that you can and will prevail at the end... And at

the same time...confront the brutal facts of reality whatever

they might be. (10)

Three dimensions of the Hedgehog Concept (11-13)

What does the title “Culture of Discipline”

bring to your mind?

AIRLINE PILOT

AN AIRLINE PILOT •Heads $84 Million piece of machinery

•Sits in a cockpit surrounded by dozes of

complicated gauges switches

•Begins with pre flight checklist,

systematically moves through methodical step

by step procedure

•Cleared for departure, he begins working with

air traffic control

•Once aloft, communicates continually with

flight-control centers

•Hits a ferocious thunder and hail storm, wings

tilt to the left and right*

•Did some maneauvers until it safely lands

•Dave Scott

•Won Hawaii Triathlon 6 times

•Would ride his bike 75 miles,

swim 20,000 meters and run 17

miles

•No weight problem

•Believed that low-fat diet

would give him extra edge

•Literally rinse his cottage

cheese to get the extra fat off

•Froze executive salaries for 2

years

•Shut the executive dining

room and replaced with food

service caterer

•Closed the executive elevator

•Sold the corporate jets

•Banned green plants from

Executive Suite

•Threw fancy-binded reports

•“Would you spend your own

money this way?”

•Preserved their posh

executive kingdom

•CEO’s office has large

attached conference room,

oriental rugs, floor-to-ceiling

windows, with a sweeping

panorama view of

Golden Gate

•“Why rinse the cheese when

life is so good?”

• Good to Great companies had Level 5 leaders who built an enduring culture of discipline

• Comparison companies had Level 4 leaders who personally disciplined the organization through sheer force

EXAMPLES:

1. Stanley Gault of Rubbermaid – imposed strict disciplines,

arrives work at 6:30 am and worked 80 hours a week and

expects his managers to do the same. Rose dramatically

but also declined when he departed.

2. Lee Iacocca of Chrysler – imposed his towering personality

to discipline the organization, overhauled the management

structure, instituted strict financial controls, improved

quality measures, conduct mass lay off, etc.

3. Ray MacDonald of Burroughs – controlled the

conversations, told all jokes and criticized those not as

smart as he. Company succeeded but no culture of

discipline to endure beyond him, failed 93% below the

market after he left

MANTRA :

“Anything that does not fit with our Hedgehog Concept, we will not do.”

DARWIN SMITH

Kimberly Clark

•Stopped the Annual Forecast

Game with Wall Street

•Unplugged titles of executives

•Unplugged layers in the

organization

•Unplugged Kimberly from all

paper industry trade

associations

Good to Great companies institutionalized the discipline of

“Stop Doing” through the use of unique budget mechanism.

“Budgeting is a discipline to decide which

arenas should be fully funded and which

should not be funded at all....determining

which activities best support the

Hedgehog concept and should be fully

strengthened and which should be

eliminated entirely.”

Stop

Doing List

To Do List

Is more

important than

The key question is :

Does the technology fit directly with

your Hedgehog Concept?

If yes, then you need to become a pioneer

in the application of that technology.

If no, then you can settle for parity or

ignore it entirely.

No Technology can: • Make you a level 5 leader! • Turn wrong people into right people! • Instill discipline to confront the brutal facts! • Create a culture of discipline!

“If you ever find yourself thinking that technology alone holds the key to success, then think of the US-Vietnam war.

The Americans lost to the

Vietnamese despite superior technology.”

•Technology by itself, is never a primary root cause of

either greatness or decline

•Across 48 interviews with GTG executives, 80% did

not even mention technology as one of the top five

factors in the transformation.

•“Crawl, walk, run” can be a very effective approach,

even during times of rapid and radical technological

change.

A massive metal disk 30 feet diameter 2 feet thick 5,000 pounds in weight It’s your job to turn this wheel and get it going as fast and long as possible Turning this wheel is like moving a company so it will begin to produce results

Good to Great transformations do not happen overnight or in one big leap. Rather, it starts one movement at a time, gradually building up momentum till there is breakthrough.

•Egg sitting there

•No one pays attention

•Egg cracks open

•Out jumps a chick

•Media

•“The Transformation”

•“The Remarkable Evolution”

•“Stunning Turnaround”

•GTG companies had no name for their

transformation, no launch event, no tag

line, there were no miracle moment!

ABBOTT

“It wasn’t a binding flash or sudden revelation from

above”. Our change was a major change, and yet in

many respects simply a series of incremental

changes...”

FANNIE MAE

“There was no one magical event, no one turning

point, It was a combination of things. More of an

evolution, though the end results were dramatic.”

WELLS FARGO

“It wasn’t a single switch that was thrown at one

time. Little by little, the themes became more

apparent and stronger....”

Is your organization on a FLYWHEEL or on a DOOMLOOP?

You are in a Flywheel, if you: •Follow a pattern of build up, leading to breakthrough •Confront the brutal facts to see what steps must be taken to build momentum •Attain consistency with a clear “Hedgehog Concept”, staying within the 3 circles •Follow the pattern of disciplined people, thought and action •Harness appropriate technologies to your Hedgehog concept •Spend little energy trying to motivate or align people; the effect of Flywheel is infectious •Maintain consistency over time.

Is your organization on a FLYWHEEL or on a DOOMLOOP?

You are in a Doomloop, if you: •Skip build up and jump right into breakthrough •Implement big programs, radical change efforts, dramatic revolutions and chronic restructuring •Embrace fads and engage in management hoopla, rather than confront the brutal facts •Demonstrate chronic inconsistency, lurching back and forth, and straying outside the 3 circles •Jump right into action, without disciplined thought, or first getting the right people on the bus •Spend a lot of energy trying to align and motivate people, rallying them around new visions •Sell the future to compensate for lack of results in the present

Please fill up the EVALUATION FORM

It is about having disciplined people engaged in disciplined

thought and who then take disciplined action (14)

A very effective approach in considering technology in our

business (15)

Concept of going from build up to breakthrough (16)

Two popular doomloops to avoid (17-18)

What are the 7 concepts of being good to great company?

(19-25)

Author of the book Good to Great (1) JIM COLLINS

What are the 3 broad stages of transformation from being good to great

company (2-4) DISCIPLINED PEOPLE, DISCIPLINED THOUGHT AND DISCIPLINED

ACTION

Two distinguishing characters of Level 5 leader (5-6) PERSONAL HUMILITY OR

MODESTY AND POLITICAL WILL

Three steps to implement the “First Who then What” concept (7-9) RIGHT

PEOPLE ON THE BUS, WRONG PEOPLE OFF THE BUS, RIGHT SEAT FOR THE

RIGHT PEOPLE.

What do you call this psychology that states “ Retain absolute faith that you can

and will prevail at the end... And at the same time...confront the brutal facts of

reality whatever they might be. (10) STOCKDALE PARADOX

Three dimensions of the Hedgehog Concept (11-13) WHAT YOU CAN BE THE

BEST AT, WHAT ARE YOU PASSIONATE ABOUT, WHAT DRIVES YOUR ECONOMIC

ENGINE

It is about having disciplined people engaged in disciplined thought and who

then take disciplined action (14) – CULTURE OF DISCIPLINE

A very effective approach in considering technology in our business (15)

CRAWL, WALK, RUN

Concept of going from build up to breakthrough (16) FLYWHEEL

Two popular doomloops to avoid (17-18) MISGUIDED ACQUISITIONS AND

LEADERS WHO STOPS THE FLYWHEEL

What are the 7 concepts of being good to great company? (19-25) LEVEL 5

LEADER, FIRST WHO THEN WHAT, HEDGEHOG CONCEPT, CULTURE OF

DISCIPLINE, TECHNOLOGY ACCELERATORS, FLYWHEEL

THANK YOU!!!!!