Team 2:Ty Parasiliti

Victor HemmatiBrent Hare

Lance HollisterVincent UkwuJosh Fernino

Chris Kerschen

From Good to Great – About Hedgehogs and Flywheels

The 4+2 Formula for Sustained Business Success◦ Excelling at Four Primary Practices◦ Embracing Two of Four Secondary Practices

Strategy and Performance: A Conceptual Framework◦ Strategy, Purpose, and Leadership◦ Strategy and Organizational Change◦ The Balanced Scorecard◦ Performance and Control

The Role of the Board

Jim Collins conducted two cited studies of companies that were sustainable for superior performance.

The first study published was titled, “Built to Last.” This described what makes great companies great and how they stayed great over time.

The second, “Good to Great: Why Some Companies Make the Leap…and Others Don’t”, which asked the question: what can merely good companies do to become truly great?

Collins defined “great” in terms of metrics, like financial statements that exceeded the market average and stayed that way for a period of time.

Level 5 Leadership This is the top of the Level 5 Hierarchy that ranges

from just competent supervision to strategic extreme decision making.

Level 5 Leader: A person with intense determination and profound humility that does not let ego and individual gain get in their way. He/She plans to be with the company for the long-haul as they try to climb the company’s ranks.

Before creating a game plan for a company, the right people have to be in place.

Willingness to Identify and Assess Defining Facts Company as well as the larger business environment must

meet market trends in what consumers desire, is constantly changing. The inability to do so results in failure.

Hedgehog Metaphor The way to go from good to great is not doing numerous

things well, but instead , doing “one” thing better than anyone else in the world.

1. Determine what the company can and cannot be best at.2. Determine what drives the company’s economic engine.3. Determine what the company’s people or deeply

passionate about.

Overarching organizational culture of discipline Creating a organization with people that have an

unrelenting determination. Great companies are not dependant on technology Apply few technologies to their Hedgehog ConceptFlywheel and Doom LoopFlywheel: when companies make decisions and take

actions that reinforce the company’s hedgehog competencies, which in return brings positive outcomes

Doom Loop: is characterized by reactive decision making and over involvement in too many diverse areas of concentration, in the end this will bring negative outcomes

Collins “core-values” to achieve long term sustainable success

Studies found management practices that help a company produce superior results

Four primary management practices:◦ Strategy, Execution, Culture, and Structure◦ Plus mastery of two or more secondary practices

(Ex. Talent, innovation)◦ Must have strength in all six (or more) areas to

excel

Executives have tried TQM and other strategies in an effort to improve execution

No single alternative will bring a company success

The most consistently successful companies for the past 10 years have implemented these four strategies

The chosen strategy must be clear and consistently communicated

Focus on growth

Consistently exceed customer expectations Increased productivity Realistic goals

Right Culture◦ The right combination of high-performance and

ethical behavior Everyone responsible for success, not just

upper-level management

High-performance companies try to eliminate extra layers of management , an abundance of rules and regulations, and outdated formalities

They want their structures and processes simple for their employees, vendors and customers

Findings confirm the “how” is more important than the “what” of organizational structure

The four secondary practices are talent, innovation, leadership, and mergers and partnerships

Winning companies had superior performance in two of the four practices (it did not matter which two)

There was no difference if the company excelled in all four or just two, going beyond “4+2” was not rewarded

Hold on to talented employees and find more

Best test of a company’s talent base is ability to replace from within

In-house talent is often cheaper, more reliable, and promotes loyalty

Make Industry-transforming innovations Companies apply new technologies to their

business processes Yield huge savings and sometimes have the

power to transform an industry

Find leaders who are committed to the business and its people

The right CEO can raise performance significantly

They must build relationships with people at all levels and inspire the rest of the management team

Must spot opportunities and problems early Seize opportunities before their competitors

do

Seek growth through mergers and partnerships

The second most popular avenue of growth Winners created value in most deals they

struck Winning companies often drew lessons from

experience enabling them to more consistently choose the right partners and integrate quickly

Underperformers destroyed shareholder value

Within today’s complex business environments, no single person or small group can acquire all that is necessary to make a company successful.

Corporate success depends on the ability of every manager to not just meet their own divisional responsibilities, but how they can influence the company as a whole.

Organizational performance is the result of thousands of decisions made every day by individuals at all levels of organization

When strategy is not effective, focus should be shaping the organizational environment to encourage productive decision making

First step to realigning the organizational environment is to understand why and where suboptimal decisions are made

Success requires the right people, armed with the right information and motivated by the right incentives

In developing the right organizational model, Companies must focus on three critical dimensions

1.People 2.Knowledge 3.Incentives

Strategy

Purpose

Leadership

Structure

Systems Processes

Culture

Performance/Control

People

Strategy-structure-systems paradigm dominated thinking about the role of corporate leaders for many years.

This doctrine remained dominant for most of the twentieth century and helped companies cope with high growth, integrate operations, and manage diversified business portfolios.

Corporate leaders began to articulate broader, long-term strategic intent to deal with more intense global competition.

Successful strategy development require obtaining commitment, focus, and control at all levels of organization.

There are five organizational variables that are key to crating effective organizational change.◦ Structure◦ Systems◦ Process◦ People ◦ CultureThey are all interrelated, so a new strategy often

requires change in variables.

The issue of structure is not just one of deciding whether to centralize or decentralize decision making.

The goal should be to create an organizational environment that gathers resources effectively and is naturally self-correcting as strategic changes need to be made.

Corporate structures typically reflect on of five dominant approaches to organization:◦ Functional organizational structures◦ Geographically based structures◦ Decentralized (divisional) structures◦ Strategic business units◦ Matrix structures

Having the right systems and process enhances organizational effectiveness and facilitates coping with change.

Support systems, such as company’s planning, budgeting, accounting, information, and reward and incentive systems, can be critical to successful strategy implementation.

A process is a systematic way of doing things.

Processes can be formal or informal.

They define organizational roles and relationships, and they can facilitate or obstruct change.

Attracting, motivating, and retaining the right people have become important strategic objectives.

Many companies have come to realize that developing tomorrow’s skills, individually and collectively, is key to strategic flexibility.

Performance is linked to the strength of a company’s corporate culture.

A company’s corporate culture is a shared system of values, assumptions, and beliefs among a firm’s employees that provides guidance on how to think, perceive, and act.

A set of measures designed to provide strategists with a quick, yet comprehensive, view of the business

Traditionally, performance has focused on annual budget and operating plan; this promotes short-term, tactical behavior

These must be replaced by a set of measurements that promote performance- and strategy-focused behavior

Asks managers to view the business from four different perspectives: customer, company capability, innovation and learning, and financial

Provides answers to 4 questions1. How do customers see us?2. At what must we excel?3. Can we continue to improve and create value?4. How do we look to our shareholders?

1. Customer Concerns◦ Product quality, on-time delivery, product

performance, service, and cost◦ Each factor must be measured based on

customers’ perspectives and expectations

2. Company Capability◦ Must achieve operation objectives such as cycle

time, product quality, productivity, and cost◦ This area focuses on inter business processes that

enable the organization to meet the customers’ needs

3. Innovation and Learning◦ Deals with ability to create new products, provide

value to customers, and improve operating efficiencies

◦ These abilities allow for entering into new markets increasing revenue, margins, and shareholder value

4. Financials◦ Signal whether strategy is achieving objectives that

relate to profitability, growth, and shareholder value◦ Measures cash flow, sales growth, operating income,

market share, ROA, ROI, ROE, and stock price

Balanced Scorecard encompasses four management processes:1. Translating a vision2. Communicating goals and linking rewards to

performance3. Improving business planning4. Gathering feedback and learning

Most performance evaluation is focused on outcome control, the attainment of specific targets in specific goals

Outcome control is achieved by altering incentive structures for managers and executives

Sometimes outcome control is not enough when we need to change the existing corporate culture, such as M&A’s

In these instances behavior control is needed, where the company directly monitors behavior rather than providing incentives

1. Define its role, agenda, and information needs.2. Ensure that management not only performs, but

performs with integrity.3. Set expectations about the tone and culture of the

company.4. Formulate corporate strategy with management5. Ensure that the corporate culture, the agreed

strategy, management incentive compensation, and the company’s approach to audit and accounting, internal controls, and disclosure are consistent and aligned.

6. Help management understand the expectations of shareholders and regulators.

From Good to Great – About Hedgehogs and Flywheels

The 4+2 Formula for Sustained Business Success◦ Excelling at Four Primary Practices◦ Embracing Two of Four Secondary Practices

Strategy and Performance: A Conceptual Framework◦ Strategy, Purpose, and Leadership◦ Strategy and Organizational Change◦ The Balanced Scorecard◦ Performance and Control

The Role of the Board