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Good To GreatGood To GreatChapter 3 Chapter 3

First Who…Then What 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

Transforming From Good to Transforming From Good to GreatGreat

The executives who ignited the The executives who ignited the transformations from good to great did not transformations from good to great did not first figure out where to drive the bus and first figure out where to drive the bus and then get people to take it there.then get people to take it there.

What did they do then?What did they do then? They FIRST got the right people on the bus They FIRST got the right people on the bus

and the wrong people off of the bus, and and the wrong people off of the bus, and THEN they figured out where to drive it.THEN they figured out where to drive it.

What They Said What They Said ““Look, I don’t really know where we Look, I don’t really know where we

should take this bus. But I know this should take this bus. But I know this much: If we get the right people on much: If we get the right people on the bus, the right people in the right the bus, the right people in the right seats, and the wrong people off the seats, and the wrong people off the bus, then we’ll figure out how to take bus, then we’ll figure out how to take it someplace great.”it someplace great.”

Three Simple Truths Three Simple Truths 1.1. Begin with the “Who” rather than the “What”. Begin with the “Who” rather than the “What”.

Helps you adapt to a changing world.Helps you adapt to a changing world.2.2. If you have the right people on the bus, the If you have the right people on the bus, the

problem of how to motivate and manage people problem of how to motivate and manage people largely goes away. The right people are self-largely goes away. The right people are self-motivated to produce the best results.motivated to produce the best results.

3.3. Going in the right direction with the wrong Going in the right direction with the wrong people will never produce a great company. people will never produce a great company. Great vision without great people is irrelevant.Great vision without great people is irrelevant.

Excerpts From Obama’s Excerpts From Obama’s Inaugural AddressInaugural Address

This is the journey we continue today. We remain the most This is the journey we continue today. We remain the most prosperous, powerful nation on Earth. Our workers are no less prosperous, powerful nation on Earth. Our workers are no less productive than when this crisis began. Our minds are no less productive than when this crisis began. Our minds are no less inventive, our goods and services no less needed than they inventive, our goods and services no less needed than they were last week or last month or last year. Our capacity were last week or last month or last year. Our capacity remains undiminished. But our time of standing pat, of remains undiminished. But our time of standing pat, of protecting narrow interests and putting off unpleasant protecting narrow interests and putting off unpleasant decisions -- that time has surely passed. Starting today, we decisions -- that time has surely passed. Starting today, we must pick ourselves up, dust ourselves off, and begin again must pick ourselves up, dust ourselves off, and begin again the work of remaking America.the work of remaking America.

For everywhere we look, there is work to be done. The state 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 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 -- not only to create new jobs, but to lay a new foundation for growth. growth.

Where the answer is yes, we intend to move forward. Where Where the answer is yes, we intend to move forward. Where the answer is no, programs will end. And those of us who the answer is no, programs will end. And those of us who manage the public's dollars will be held to account -- to spend manage the public's dollars will be held to account -- to spend wisely, reform bad habits, and do our business in the light of wisely, reform bad habits, and do our business in the light of day -- because only then can we restore the vital trust day -- because only then can we restore the vital trust between a people and their government.between a people and their government.

Know that America is a friend of each nation and every man, Know that America is a friend of each nation and every man, woman and child who seeks a future of peace and dignity, woman and child who seeks a future of peace and dignity, and that we are ready to lead once moreand that we are ready to lead once more

What Does this Show?What Does this Show? Obama’s Inaugural Speech shows he is a Obama’s Inaugural Speech shows he is a

level five leader in many ways:level five leader in many ways:– He doesn’t focus on himself; he focuses on He doesn’t focus on himself; he focuses on

everyone.everyone.– In this situation, he knows that in order to turn In this situation, he knows that in order to turn

America around, he has to get everyone on the America around, he has to get everyone on the bus before he drives it in the right direction.bus before he drives it in the right direction.

Another exampleAnother example– Picking the right cabinet. One of the first things Picking the right cabinet. One of the first things

Obama did was make his new Cabinet sign a Obama did was make his new Cabinet sign a new code of ethics – his way of making sure he new code of ethics – his way of making sure he has the right people on the bushas the right people on the bus

– But he allowed someone on the bus who was a But he allowed someone on the bus who was a lobbyist in the area he is working?lobbyist in the area he is working? William Lynn – Deputy Defense SecretaryWilliam Lynn – Deputy Defense Secretary

Wells Fargo Wells Fargo CEO Dick Cooley foresaw that the banking CEO Dick Cooley foresaw that the banking

industry would eventually undergo industry would eventually undergo change.change.

Instead of focusing on change, he focused Instead of focusing on change, he focused on finding the right people.on finding the right people.

Focused on “injecting an endless stream of Focused on “injecting an endless stream of talent” directly into the veins of the talent” directly into the veins of the company.company.

Hired outstanding people whenever and Hired outstanding people whenever and wherever they found them, often without wherever they found them, often without any specific job in mind.any specific job in mind.

Wells FargoWells Fargo ““That’s how you build the future,” That’s how you build the future,”

Cooley said. “If I’m not smart enough Cooley said. “If I’m not smart enough to see the changes that are coming, to see the changes that are coming, they will. And they’ll be flexible they will. And they’ll be flexible enough to deal with them.”enough to deal with them.”

Wells Fargo’s Success Wells Fargo’s Success By getting the right people on the By getting the right people on the

bus, Wells Fargo outperformed the bus, Wells Fargo outperformed the market by over three times.market by over three times.

This occurred at a time when its This occurred at a time when its sector of the banking industry fell sector of the banking industry fell 59% behind the general stock market59% behind the general stock market

Bank of America Bank of America Bank of America took a different approach: Bank of America took a different approach:

“Weak generals, strong lieutenants”“Weak generals, strong lieutenants” If you pick strong generals for key If you pick strong generals for key

positions, their competitors will leave. But positions, their competitors will leave. But if you pick weak generals – placeholders, if you pick weak generals – placeholders, rather than highly capable executives – rather than highly capable executives – then the strong lieutenants are more likely then the strong lieutenants are more likely to stick around.to stick around.

BOA – Management Climate BOA – Management Climate Weak generals would wait for direction Weak generals would wait for direction

from above.from above. Sam Armacost, who inherited the weak Sam Armacost, who inherited the weak

generals model, said, “I came away quite generals model, said, “I came away quite distressed from my first couple of distressed from my first couple of management meetings. Not only couldn’t I management meetings. Not only couldn’t I get conflict, I couldn’t even get comment. get conflict, I couldn’t even get comment. They were all waiting to see which way the They were all waiting to see which way the wind blew.”wind blew.”

Bank of America’s Success Bank of America’s Success Lost $1 billionLost $1 billion Ended up recruiting a gang of strong Ended up recruiting a gang of strong

generals to turn the bank around.generals to turn the bank around.

Wells Fargo VS BOA Wells Fargo VS BOA In 1998, the cumulative value of $1 In 1998, the cumulative value of $1

invested:invested:– Wells Fargo = $74.47Wells Fargo = $74.47– General Market = $19.86General Market = $19.86– Bank of America = $15.60Bank of America = $15.60

Good to Great Distinctions Good to Great Distinctions 1.1. Get the right people on the bus and Get the right people on the bus and

the wrong people off the bus before the wrong people off the bus before you figure out where to drive it.you figure out where to drive it.

2.2. The degree of sheer rigor needed in The degree of sheer rigor needed in people decisions in order to take a people decisions in order to take a company from good to great.company from good to great.

David Maxwell David Maxwell CEO of Fannie Mae during its darkest daysCEO of Fannie Mae during its darkest days Held off on developing a strategy until he Held off on developing a strategy until he

got the right people in place, while the got the right people in place, while the company was losing $1 million every company was losing $1 million every single business day with $56 billion of single business day with $56 billion of loans underwater.loans underwater.

Focused on getting the right people on the Focused on getting the right people on the Fannie Mae management team.Fannie Mae management team.

Maxwell’s A Team Maxwell’s A Team Maxwell made it absolutely clear that Maxwell made it absolutely clear that

there would only be seats for A players there would only be seats for A players who were going to put forth A+ effort, and who were going to put forth A+ effort, and if you weren’t up for it, you better get off if you weren’t up for it, you better get off the bus, and get off now!the bus, and get off now!– Example: think of our teams – we want only A Example: think of our teams – we want only A

players who will put forth an A+ effort. The players who will put forth an A+ effort. The alternative is getting fired.alternative is getting fired.

14 of the 26 executives left the company14 of the 26 executives left the company

Wells Fargo and Fannie Mae Wells Fargo and Fannie Mae

LessonsLessons ““Who” questions come before “what” Who” questions come before “what”

questions – before vision, before strategy, questions – before vision, before strategy, before tactics, before organizational before tactics, before organizational structure and before technology.structure and before technology.

Exemplified a Level 5 styleExemplified a Level 5 style ““I don’t know where we should take this I don’t know where we should take this

company, but I do know that if I start with company, but I do know that if I start with the right people, ask them the right the right people, ask them the right questions, and engage them in vigorous questions, and engage them in vigorous debate, we will find a way to make this debate, we will find a way to make this company great.”company great.”

““Genius With a Genius With a

Thousand Helpers”?Thousand Helpers”? In this model, the company is a platform for In this model, the company is a platform for

the talents of an extraordinary individual. the talents of an extraordinary individual. – In these cases, the towering genius, the primary In these cases, the towering genius, the primary

driving force in the company’s success, is a driving force in the company’s success, is a GREAT asset….. GREAT asset….. AS LONG AS THE GENIUS AS LONG AS THE GENIUS STICKS AROUND!STICKS AROUND!

Company’s who take this approach are Company’s who take this approach are usually successful UNTIL the “genius” of the usually successful UNTIL the “genius” of the company leaves. company leaves.

Ex.: Steve JobsEx.: Steve Jobs

Level 5+ Management

Team(Good To Great Companies)

Level 5 Leader

First WhoGet the right people on

the bus. Build a superior executive team.

Then WhatOnce you have the right people in place, figure

out the path to greatness.

A “Genius With A Thousand

Helpers”(Comparison Companies)

Level 4 Leader

First What

Then Who

Set a vision for where to drive the bus. Develop a road map

for driving the bus.

Enlist a crew of highly capable “helpers” to

make the vision happen.

Good to Not So Great Good to Not So Great Companies- classic Companies- classic

scenarios scenarios Eckerd Corporation, led by Jack Eckerd expanded the Eckerd Corporation, led by Jack Eckerd expanded the

Eckerd Empire with over 1000 stores across the Eckerd Empire with over 1000 stores across the southeastern U.S. In the late 1970’s, Eckerd’s revenues southeastern U.S. In the late 1970’s, Eckerd’s revenues equaledequaled Walgreens. But when Jack Eckerd left to pursue his Walgreens. But when Jack Eckerd left to pursue his passion for politics, Eckerd Corp. took a toll for the worse as passion for politics, Eckerd Corp. took a toll for the worse as the company began a long decline and eventually taken the company began a long decline and eventually taken over by J.C. Penny.over by J.C. Penny.

Henry Singleton, owner of Teldyne had proclaimed a small Henry Singleton, owner of Teldyne had proclaimed a small enterprise to number 293 in the Fortune 500 list in only 6 enterprise to number 293 in the Fortune 500 list in only 6 YEARS! The company dominated the marketplace from YEARS! The company dominated the marketplace from exotic metals to insurance. Once Singleton stepped away, exotic metals to insurance. Once Singleton stepped away, soon the company crumbled.soon the company crumbled.

Each of these cases failed utterly at the task of Each of these cases failed utterly at the task of building a great company.building a great company.

It’s Who You Pay, Not How It’s Who You Pay, Not How You Pay Them You Pay Them

Top Executives, Managers and Top Executives, Managers and EmployeesEmployees

Compensation Compensation – Stock OptionsStock Options – Huge Incentives (Jets, Vacations, company cars, etc)Huge Incentives (Jets, Vacations, company cars, etc)

Examples: Big 3 Auto Makers, Lehman Examples: Big 3 Auto Makers, Lehman Brothers, Merrill LynchBrothers, Merrill Lynch

Do these things really increase Do these things really increase performance and create great results?performance and create great results?– NO!NO!

Data Inputs Data Inputs Collected weeks of data from Collected weeks of data from proxyproxy

statementsstatements– Preformed Preformed 112112 separate analyses looking at separate analyses looking at

patterns and correlationspatterns and correlations Qualifications: Cash vs. Stock, LT vs. ST Incentives, Qualifications: Cash vs. Stock, LT vs. ST Incentives,

Salary vs. Bonus, etc..Salary vs. Bonus, etc..

– Outcome: No significant patterns related to Outcome: No significant patterns related to executive compensation, and no systematic executive compensation, and no systematic differences on compensation packagesdifferences on compensation packages

Main Point Main Point Good to Great Good to Great

– Received slightly less total cash compensation Received slightly less total cash compensation 10 years after the transition than others in 10 years after the transition than others in mediocre companiesmediocre companies Not that these people will work for freeNot that these people will work for free

– But do better work with less incentives But do better work with less incentives because they want what's best for the because they want what's best for the companycompany

– The right people will do the right things and The right people will do the right things and deliver the best results they are capable of deliver the best results they are capable of regardless of the incentive systemregardless of the incentive system

Nucor Example Nucor Example Built on the idea that you can teach Built on the idea that you can teach

farmers to make steel but you cant teach farmers to make steel but you cant teach a farmer work ethic, to people who don’t a farmer work ethic, to people who don’t have it in the first placehave it in the first place– Plants: Crawfordsville, Indiana; Norfolk, Plants: Crawfordsville, Indiana; Norfolk,

Nebraska; Plymouth, UtahNebraska; Plymouth, Utah They generated as high as 50% turnover They generated as high as 50% turnover

in the first year, followed by very low in the first year, followed by very low turnover as the right people settled inturnover as the right people settled in

Nucor Environment Nucor Environment WorkersWorkers

– Teams of 20 to 40 peopleTeams of 20 to 40 people Team Bonus mechanism with over 50% tied directly Team Bonus mechanism with over 50% tied directly

to the productivity of the teamto the productivity of the team

– Highest paid steel workers in the worldHighest paid steel workers in the world– Arrived to work 30 minutes early and ready to Arrived to work 30 minutes early and ready to

go when the shift bell ranggo when the shift bell rang– The system did not aim to turn lazy people into The system did not aim to turn lazy people into

hard workers, but to create an environment hard workers, but to create an environment where hardworking people to thrive and lazy where hardworking people to thrive and lazy ones to failones to fail

Rigorous, Not Ruthless Rigorous, Not Ruthless Good to great companies are not ruthless Good to great companies are not ruthless

cultures they are rigorouscultures they are rigorous– Ruthless – Hacking and Cutting or Wantonly Ruthless – Hacking and Cutting or Wantonly

firing people without any thoughtful firing people without any thoughtful considerationconsideration

– Rigorous – Consistently applying exacting Rigorous – Consistently applying exacting standards at all times and all levelsstandards at all times and all levels

The best people need not to worry about The best people need not to worry about their positions and can concentrate fully their positions and can concentrate fully on their workon their work

Wells Fargo Example Wells Fargo Example Acquired Crocker Bank in 1986Acquired Crocker Bank in 1986

ConsolidationConsolidation– Removed 1600 managers and top executivesRemoved 1600 managers and top executives

– However some Crocker managers took However some Crocker managers took positions in Wells Fargo because they were positions in Wells Fargo because they were better qualified then the ones originally in that better qualified then the ones originally in that spotspot

““The only way to deliver to the people who The only way to deliver to the people who are achieving is not to burden them with are achieving is not to burden them with the people who are not achieving.”the people who are not achieving.”

Wells Example Cont Wells Example Cont Ruthless Ruthless

– To let the workers stay employed and To let the workers stay employed and waste precious time when other job waste precious time when other job opportunities might ariseopportunities might arise

RigorousRigorous– To deal with it up front and let people To deal with it up front and let people

move on with their livesmove on with their lives

How to Be Rigorous How to Be Rigorous 3 Practical disciplines for being rigorous 3 Practical disciplines for being rigorous

rather than ruthlessrather than ruthless

1.1. When in doubt, don’t hire…keep looking.When in doubt, don’t hire…keep looking.

2.2. When you know you need to make a When you know you need to make a people change, act. people change, act.

3.3. Put your best people on your biggest Put your best people on your biggest opportunities, not your biggest problems.opportunities, not your biggest problems.

When in doubt, don’t hire…When in doubt, don’t hire…keep looking keep looking

For growth, companies should not For growth, companies should not focus on:focus on:– The marketsThe markets– TechnologyTechnology– CompetitionCompetition

Instead, they should concentrate on Instead, they should concentrate on finding and keeping enough of the finding and keeping enough of the right people. right people.

Packard’s Law Packard’s Law ““No company can grow revenues No company can grow revenues

consistently faster than its ability to consistently faster than its ability to get enough of the right people to get enough of the right people to implement that growth and still implement that growth and still become a great company.” become a great company.”

Circuit City- Always Looking Circuit City- Always Looking for Great People for Great People

Focused one getting the right people Focused one getting the right people from top to bottom.from top to bottom.

Alan Wurtzel’s (CEO) goal was to Alan Wurtzel’s (CEO) goal was to build the best, most professional build the best, most professional management team in the industry.management team in the industry.

Delivery drivers wore uniforms, were Delivery drivers wore uniforms, were clean shaving, and had to be clean shaving, and had to be professional.professional.

Practical Discipline #2 Practical Discipline #2 When you know you need to make a When you know you need to make a

people change, act.people change, act.– The best people don’t need to be The best people don’t need to be

managed, but instead guided and managed, but instead guided and taughttaught

What Happens With The What Happens With The Wrong People Wrong People

When you let the wrong people stay When you let the wrong people stay around, the right people always need around, the right people always need to be compensating for the to be compensating for the inadequacies of the wrong people inadequacies of the wrong people

They are constantly on your mind They are constantly on your mind and are a constant drain on your and are a constant drain on your energy energy

Why Do People Wait Why Do People Wait Mainly cause it can be an Mainly cause it can be an

inconvenience to get rid of them, inconvenience to get rid of them, they constantly come up with they constantly come up with excuses on why they should waitexcuses on why they should wait– But meanwhile it constantly affects the But meanwhile it constantly affects the

right people right people

Churn? Churn? Turnover within a period of timeTurnover within a period of time The good-to-great did not churn The good-to-great did not churn

more, they just churned better, more, they just churned better, meaning that people either stayed meaning that people either stayed for a long period of time or they left for a long period of time or they left quickly quickly

A+ Selections A+ Selections The good-to-great companies didn’t have The good-to-great companies didn’t have

the theory of “try a lot of people and see the theory of “try a lot of people and see who works”. They took their time and who works”. They took their time and would find the perfect person for the would find the perfect person for the position position

When Colman Mockler became CEO of When Colman Mockler became CEO of Gillette, he spent 55% of his time in his Gillette, he spent 55% of his time in his first 2 years changing or moving 38 of the first 2 years changing or moving 38 of the top 50 people of his management team top 50 people of his management team

When Is It Time? When Is It Time? 2 key questions can help:2 key questions can help:

– 1.) If you are trying to place someone 1.) If you are trying to place someone somewhere, ask your self, “Would you somewhere, ask your self, “Would you hire them again?”hire them again?”

– 2.) If the person came to you and told 2.) If the person came to you and told you that he/she was leaving would, you that he/she was leaving would, “Would you feel disappointed or “Would you feel disappointed or relieved?”relieved?”

Practical Discipline #3Practical Discipline #3 Put your best people on your biggest opportunities, not your Put your best people on your biggest opportunities, not your

biggest problems.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.

Good to great management teams consist of Good to great management teams consist of people who debate together vigorously in search people who debate together vigorously in search of the best answers, yet who unify behind of the best answers, yet who unify behind decisions, regardless of parochial interests.decisions, regardless of parochial interests.

The old adage “People are your most important The old adage “People are your most important asset” is wrong. People are not your most asset” is wrong. People are not your most important asset. The important asset. The right right people are.people are.

The “The “rightright person” has more to do with character person” has more to do with character traits and innate capabilities than with specific traits and innate capabilities than with specific knowledge, background, or skills.knowledge, background, or skills.

First Who, Great Companies, First Who, Great Companies, and A Great Life and A Great Life

Conclusion: Main PointsConclusion: Main Points Find the right people for the jobFind the right people for the job Focus on who is running the company, not what is Focus on who is running the company, not what is

running itrunning it Find level 5 leadersFind level 5 leaders Tie compensation into performanceTie compensation into performance 3 Disciplines3 Disciplines

– When in doubt, don’t hire…..keep lookingWhen in doubt, don’t hire…..keep looking– When you know you need to make a people changeWhen you know you need to make a people change– Put your best people on your biggest opportunities, not Put your best people on your biggest opportunities, not

your biggest problemsyour biggest problems