W h y s o m e c o m p a n I e s m a k e t h e

G o o d to
they respond to growth and success in the wrong way. Entrepreneurial I success is fueled by creativity, imagination, bold moves into uncharted waters, and visionary zeal. As a company grows and becomes more complex, it begins to trip over its own success-too many new people, too many new customers, too many new orders, too many new products. What was once great fun becomes an unwieldy ball of disorganized stuff. Lack of planning, lack of accounting, lack of systems, and lack of hiring constraints create friction. Problems surface-with customers, with cash flow, with schedules. In response, someone (often aboard member) says, "Its time to grow up. This place needs some professional management" The company begins to hire and seasoned executives from blue-chip companies. Processes, procedures, checklists, and all the rest begin to sprout up like weeds. What was once an egalitarian environment gets replaced with a hierarchy. I Chains of command appear for the first time. Reporting relationships become clear, and an executive class with special perks begins to appear. We" and "they" segmentations just like in areal company. The professional managers finally rein in the mess. They create order out of chaos, but they also kill the entrepreneurial spirit. Members of the founding team begin to grumble, "This isn't fun anymore. I used to be able to just get things done. Now I have to fill out these stupid forms and follow these stupid rules. Worst of all, I have to spend a horrendous amount of time in useless meetings" The creative magic begins to wane as some of the most innovative people leave, disgusted by the burgeoning bureaucracy and hierarchy. The exciting startup transforms into just another company, with nothing special to recommend it. The cancer of mediocrity begins to grow in earnest. George Rathmann avoided this entrepreneurial death spiral. He understood that the purpose of bureaucracy is to compensate for incompetence and lack of discipline-a problem that largely goes away if you have the right people in the first place. Most companies build their bureaucratic rules to manage the small percentage of wrong people on the bus, which 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 incompetence and lack of discipline, which then further drives the right people away, and so forth. mann also understood an alternative exists Avoid bureaucracy and hierarchy and instead create a culture of discipline. When you put these two complementary forces together-a culture of discipline with an ethic

122 Collins of entrepreneurship-you get a magical alchemy of superior performance and sustained results. Hierarchical Great Organization Organization Bureaucratic Startup Organization Organization The Good-to-Great Matrix of Creative Discipline High Culture of Discipline Low Low Ethic of High Entrepreneurship Why start this chapter with a biotechnology entrepreneur rather than one of our good-to-great companies Because Rathmann credits much of his entrepreneurial success to what he learned while working at Abbott Laboratories before founding Amgen: What I got from Abbott was the idea that when you set your objectives for the year, you record them in concrete. You can change your plans through the year, but you never change what you measure yourself against. You are rigorous at the end of the year, adhering exactly to what you said was going to happen. You don't get a chance to editorialize. You don't get a chance to adjust and finagle, and decide that you really didn't intend to do that anyway, and readjust your objectives to make yourself look better. You never just focus on what you've accomplished for the year you focus on what you've accomplished relative to exactly what you said you were going to accomplish-no matter how tough the measure. That was a discipline learned at Abbott, and that we carried into

Good to
Great
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Many of the Abbott disciplines trace back to 1968, when it hired a remarkable financial officer named Bernard H. Semler. Semler did not see his job as a traditional financial controller or accountant. Rather, he set out to invent mechanisms that would drive cultural change. He created a whole new framework of accounting that he called Responsibility Accounting, wherein every item of cost, income, and investment would be clearly identified with a single individual responsible for that The idea, radical for the was to create a system wherein
every
Abbott manager in
every
type of job was responsible for his or her return on investment, with the same rigor that an investor holds an entrepreneur responsible. There would be no hiding behind traditional accounting allocations, no slopping funds about to cover up ineffective management, no opportunities for But the beauty of the Abbott system not just in its rigor, but in how it used rigor and discipline- to enable creativity and entrepreneurship. Abbott developed a very disciplined organization, but not in a linear way of thinking" said George Rathmann. "It was exemplary at having both financial discipline and the divergent thinking of creative work. We used financial discipline as away to provide resources for the really creative Abbott reduced its administrative costs as a percentage of sales to the lowest in the industry (by a significant margin)
and at the same time
became anew product innovation machine like deriving up to 65 percent of revenues from new products introduced in the previous four This creative duality ran through every aspect of Abbott during the transition era, woven into the very fabric of the corporate culture. On the one hand, Abbott recruited entrepreneurial leaders and gave them freedom to determine the best path to achieving their objectives. On the other hand, individuals had to commit fully to the Abbott system and were held rigorously accountable for their objectives. They had freedom, but freedom within a framework. Abbott instilled the entrepreneur's zeal for opportunistic flexibility. (We recognized that planning is priceless, but plans are useless" said one Abbott But Abbott also had the discipline to say no to opportunities that failed the three circles test. While encouraging wide-ranging innovation within its divisions, Abbott simultaneously maintained fanatical adherence to its Hedgehog Concept of contributing to cost-effective healthcare. Abbott Laboratories exemplifies a key finding of our study
a culture
of
discipline.
By its nature, "culture" is a somewhat unwieldy topic to discuss, less prone to clean frameworks like the three circles. The main points of this chapter, however, boil down to one central idea
Build a culture
of

124 Collins II who take disciplined action within the three circles, fanatically sistent with the Hedgehog Concept. More precisely, this means the following
1. Build a culture around the idea of freedom and within a I framework.
2. 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" I
3.
Don't confuse a culture of discipline with a tyrannical disciplinarian.
4. 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.

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