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Mastering the Rockefeller Habits: What You Must Do to Increase the Value of Your Growing Firm

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Mastering the Rockefeller Habits: What You Must Do to Increase the Value of Your Growing Firm

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Highlights & Notes

“If you want to teach people a new way of thinking, don’t bother trying to teach them. Instead, give them a tool, the use of which will lead to new ways of thinking.”

  • muy cierto!

Simply send an email to: vharnish@gazelles.com and put “weekly emails” in the subject line. We’ll add you to our growing list of executives.

Have a handful of rules Repeat yourself a lot Act consistently with those rules (which is why you better have only a few rules).

Data—Does the organization have sufficient data on a daily and weekly basis to provide insight into how the organization is running and what the market is demanding? Does everyone in the organization have at least one key daily or weekly metric driving his or her performance? Rhythm—Does the organization have an effective rhythm of daily, weekly, monthly, quarterly, and annual meetings to maintain alignment and drive accountability? Are the meetings well run and useful?

Defining a simple long-term vision 10–25 years out and deciding on a handful of priorities for the next quarter are the two most important

There are three barriers to growth common among all growing firms: the need for the executive team to grow as leaders in their abilities to delegate and predict; the need for systems and structures to handle the complexity that comes with growth; and the need to navigate the increasingly tricky market dynamics

“gazelles,” which are firms that grow at least 20% a year for four years in a row.

“The idea of always measuring and tracking a Critical Number gives you a firm foundation to know where you are—even if you don’t like the answer,”

So the tolerances of the system have had to tighten up as the company grows.”

They focus the entire workforce on that single, overriding quarterly target in a way that people can not only understand, but get excited about.

Themes create the focus and the fun, but what makes a quarterly goal achievable is a daily and weekly rhythm aimed at keeping everyone informed, aligned, and accountable.

These three Rockefeller Habits—priorities, data, and rhythm—are the key tools for handling the barriers that come with growth and keeping the company aligned.

To make the best possible use of these sessions, some companies set aside a special huddle area, where the walls are mapped with the top priorities, core values, metric charts, and market data.

But tough times offer good CEOs the opportunity to look at themselves and their role with new eyes.

three barriers that prevent firms from moving along this path: lack of leadership, lack of systems and structures, and market dynamics.

Successful delegation starts with choosing the right person. Keep in mind the rule that one great person can replace three good people.

Accountability charts: A company will often become stuck or experience a lot of miscommunications and balls getting dropped when there isn’t clear accountability established within an organization.

Work process charts: Because the accountability chart can’t capture all the interactions necessary to run a business without a mass of dotted lines running all over the chart, it’s better to keep the accountability chart clean and then establish four to nine work flow charts representing the critical processes that flow through the organization.

Almost Matrix: This chart shows the relationships between organizational functions and the business units that form as the organization grows.

Our position is that most people should be accountable to the business unit leaders; the role of the functional leader is one of coaching and bringing best practices into the organization. It’s a complex issue that requires some real thought and expertise.

The fundamental journey of a growing business is to create a predictable engine for generating wealth as it creates products and services that satisfy customer needs and creates an environment that attracts top talent.

There are three basic decisions an executive team must make: Do we have the Right People? Are we doing the Right Things? Are we doing those Things Right?

And their formula is fairly simple; fewer people, paid more and given lots of training and development.

The second question to ask, especially regarding your executive team and other key employees, is whether you think they have the potential to be the best in their position three to five years from now.

Testing is considerably more accurate and objective than interviewing and should always supplement the interview process. Many of the best-run firms have their applicants, especially potential executives or managers, submit to several hours of formal testing.

Overall, getting the right people in the right positions is the first and most important job of the CEO and executive team. Also important is getting the wrong people out as quickly as possible—though for many reasons this is one of the hardest aspects of running a business.

The key questions on the Right Things side of the model are “Do you have a viable economic model?” Or, more bluntly, can you ever make real money doing what you’re doing? Do you have a product or service that enough customers value to make a viable business? And have you determined the X factor that you can control that differentiates you from the competition, matters to customers and

The key questions on the Things Right side of the model are “Do you have the management practices and processes to take advantage of the market opportunity you’re pursuing?” Do you have the habits and disciplines in place to maintain your competitive advantage? Is your organization structured properly to maximize the productivity of the employees? Can you deliver a consistent service or product offering?

While continuing to inspire people through your leadership skills, you must also be diligent about holding people accountable to results.

Ultimately, this boils down to one overarching concept—the fundamental need to build a great reputation with all three stakeholders. You know you have a great reputation when it gets easier, instead of harder, to get, keep, and grow each of the three relationships

What’s important to note at this point is that there is a constant balancing act between the left and right sides of the model; between driving revenue and making sure the business is profitable; between having enough people and having enough activities for those people; between protecting the reputation of the firm and increasing the productivity of the firm. Business is a constant process of balancing priorities, which is why the top part of the model balances on the pinpoint vision of the company.

In summary, the Right People Doing the Right Things Right model encompasses the fundamental decisions leaders must make to successfully drive any business. The rest of the book provides specific tools for addressing each of these areas.

a framework that identifies and supports your corporate strategy, a common language in which to express that strategy, and, a well-developed habit of using this framework and language to continually evaluate your strategic progress.

A vision is a dream with a plan.

Core Values

Purpose

Why is this company doing what it’s doing? What’s the higher purpose for why we’re in the business we’re in? Why do I have such passion for what we’re doing? The purpose gives the company heart.

Actions and BHAG

The BHAG is your Big Hairy Audacious Goal. As the name implies, it’s a 10-to 25-year, lofty goal, similar to Kennedy’s legendary goal to put a man on the moon. It’s the sort of goal that challenges the firm to greatness.

Targets and Sandbox

Brand Promise

Key Thrusts/Capabilities

Goals and Key Initiatives

Critical Numbers

Actions and Rocks

Theme, Scoreboard Design, and Celebration/Reward

Looking Ahead

Schedules

Nothing ever gets done in any organization until it shows up on somebody’s weekly To Do list—and I do mean weekly! Quit thinking in monthly increments and drive all measurements, deadlines, and deliverables down to weekly increments.

Accountability

Having a few rules, repeating yourself a lot, and acting in ways that are consistent with the rules—these are the three keys whether you’re providing your children with a good moral foundation or providing a company with a strong cultural foundation.

Is it important for an organization and its CEO to understand one another in this way? Yes, absolutely. If the organization doesn’t understand and starts to drift, the CEO loses his edge—maybe even gives up and sells. If the organization does understand, however, alignment happens and the company thrives.

It’s the repeating of and living consistent with the firm’s values that’s the most difficult part of the process. A leader must go beyond merely posting the values on the wall and handing out plastic laminated cards. To keep things fresh, you have to get a little creative. You have to find lots of different ways to deliver the same information—over and over—so that it doesn’t get stale, yet is reinforced on a daily basis.

The more that employees are able to attach core values to incidents in their working lives, the more relevant and useful those core values become.

It’s critical for new employees to feel comfortable in your culture, and the best way to determine that is to ensure that they align with your core values. Start by using the language from your core values in recruitment ads and job descriptions. This will catch the attention of those people who resonate with those values.

Just as core values should be the outline for your selection and orientation process, they should also be the skeleton on which you hang your performance-appraisal system. With a little creativity, any performance measure can be made to link with a core value.

your core values are the most obvious source of quarterly or annual themes. Use your core values to bring attention to your corporate improvement efforts.

When you make a decision, relate it to a core value. When you reprimand or praise, refer to a core value. When customer issues arise, by all means compare the situation to the ideal represented by the core values. The same goes for employee beefs and concerns—weigh them against your company’s core values.

The organization with too many priorities has no priorities. This chapter will emphasize the need for man agement to clearly articulate to employees the five most important priorities that must be addressed or achieved to move the company to the next level.

It’s not that we don’t know what to do. It’s that we don’t do it.

The organization that understands—and acts upon—its Top 5 and Top 1 of 5 is the organization that progresses and prevails.

Begin by asking yourself, what do I need to be doing today to keep this company moving towards its plans at the speed the market demands?

It’s often helpful to hold a monthly or quarterly meeting of all your employees to review the firm’s Top 5 and Top 1 of 5 priorities. Along with your core values, these priorities become the “handful of rules” that should drive decisions the next quarter.

Not big enough to compete

The company lacks a key player

The economic engine is broken

Someone else is controlling our destiny

If a competitor gets hold of a key relationship or patent or supply line, you’d better have a good counter-move or you’re in trouble.

We need a war chest to compete

We can’t raise money ‘til we grow

We’ve got to scale back or we won’t survive

Often CEOs aren’t willing to make the necessary cuts fast and deep enough. Instead, the death is slow and painful.

Pursuing your Top 1 of 5 goal is probably the most distasteful, frustrating, and perhaps discouraging thing you’ll ever confront.

Once you’ve established what’s important for your workforce to accomplish in the next quarter or year, you’ve got to do something to help your associates make the necessary emotional connection that generates commitment.

What separates a plan on paper from one that lives and breathes on its own? It’s an idea, an image—in short, an organizing theme. That’s what transforms a mere managerial goal into a company-wide mission.

What makes a theme a mission rather than a mere event? Effective reinforcement does, and that can be achieved through publicly tracking progress and keeping score.

I think people need to know where they’re going and they want to know when they’ve arrived.

What makes people hate their jobs? What makes them non-productive, complaint-happy deadwood? The answer: recurring problems and hassles.

if you solve just one percent of your problems or make a one percent improvement in your products and services each week, you’ll gain greater and greater yields from the solutions with each passing year.

If your team is reluctant to provide feedback, don’t shame them; just work extra hard to respond to the few items you receive. You’ll get more participants next time, I promise. If, on the other hand, you find yourself swamped with input, don’t give in to the temptation to omit items, combine them, or summarize them.

The first three of my six guidelines have to do with getting your hassles under a microscope, checking them for relevancy and specificity, then making sure you’re addressing the root of the issue. Why tackle one particular hassle if there are others that have greater impact on how your company works (relevancy)? Go after what’s causing the most pain in the organization.

many big problems trace back to simple solutions if you’ll just get Colombo-like and ask a lot of questions.

The remaining three guidelines on my six-point list have to do with keeping your de-hassling system fair and humane: focus on the process (the “what”) and not the people (the “who”): involve all those affected; never backstab.

Most hassles are process hassles, not people hassles.

A Critical Number represents a key short-term focus in the company that will have the most impact on the future of the firm.

Overall, the key question to ask is “What is the single most important measurable thing we need to accomplish in the next 3-to-12 months?”

A Smart Number is typically a complex ratio made up of key indicators like the ratio of sales this week against the same week last year compared to the growth rate of the market.

Once you’ve discovered three effective measures, you need to stick with them for a period of time so you can compare apples to apples.

Once the Smart Numbers and Critical Numbers are decided, every person or team should have one or two daily or weekly measures that align with these numbers.

Make your measurements visible. Like the standard six-foot tall United Way campaign barometer, your company-wide measurements—preferably in some graphical form—should be on large charts placed where the individual, team, or company can see the results. And I strongly suggest that every office employee has some kind of whiteboard in their cubicle or office on which to graph their own daily and weekly measures. These numbers have a much greater impact if people see them on a large graph. It is even better if they have to plot the numbers themselves.

This involves making an educated guess about how the next few weeks or months are likely to turn out based on what you know now. Then, by comparing actual results against predicted results, you’ll begin to learn how to better predict outcomes and strengthen your knowledge about what drives results for yourself, your team, and the company.

In summary, it is absolutely essential that you develop daily and weekly measurements for the company, and daily and weekly measurements for every individual or team that align with the company measures. These numbers focus everyone’s attention on driving performance, reinforcing priorities, and helping anticipate problems and opportunities. Make these measurements highly visible and graphical for everyone to see, and create a situation room

Most importantly, just start measuring something and keep tracking different metrics until you find those that provide the most insight and useful feedback.

Relevancy—Does the issue really matter, is it of top importance, is there a customer affected by the hassle? Here you are looking for a pattern of recurring hassles.

However, you can’t begin to address these issues without knowing the who, what, when, where, how, and why of these hassles. Being specific also means being careful when using the words “always,” “never,” and “all the time.” In staff meetings, push people to give specifics.

One of the best ways to get to the root of the problem is using the “5 Whys” technique. Ask “why” several times until you get to the root cause.

Affected—Rather than run around getting ten explanations from ten people, get them all in the same room to give a truer picture of the entire problem. Getting everyone in the room together also helps to minimize suboptimization—where fixing a problem in one part of the organization causes greater problems elsewhere.

Backstab—Never talk negatively about anyone if that person is not present.

Besides, when you talk negatively about someone to another person, they have to then wonder if you are talking negatively about them behind their back.

With these meetings you’ll have opportunities to focus your executives on what’s important. You’ll also solve problems more quickly and easily, you’ll achieve better alignment around strategic decisions, and you’ll communicate more effectively.

I’m talking about short, punchy meetings with a structure, time limits, and a specific agenda. This type of meeting doesn’t leave you feeling bogged down. On the contrary! This type of meeting routine actually sets you free.

Your execs need regular, face-to-face huddles to discuss new opportunities, strategic concerns and bottlenecks as they arise.

Absolutely everybody in a growing company should be in some kind of five-to 15-minute huddle daily. I don’t mean they all have to be in the same meeting, just in some meeting. To me, this is non-negotiable.

the three most powerful tools a leader has in getting team performance: peer pressure, collective intelligence, and clear communication.

However, by having everyone on the same call for a few minutes, it takes the heat off the leader and provides peer pressure that increases the rate of deliverables.

I recommend that companies set the time a little irregularly—every day at 8:08 a.m., for example, or every day at 4:46 p.m. For whatever reason, people do a better job of being on time when the time’s not on the half or quarter-hour.

Overall, start and end on time and don’t problem solve. This meeting is simply for problem identification. And if it starts to go longer than 15 minutes, people will drop the habit.

Pick someone who is naturally structured and disciplined, (and that might not be the CEO). Whoever it is, the main job is to keep things running on time. Use a countdown stopwatch to make sure you don’t let any part of the agenda run away with the meeting.

The agenda should be the same structure every day, and it’s just three items long: what’s up, daily measures, and where are you stuck? In the first five minutes, each attendee spends a few seconds (up to 30) just telling what’s up. That alone is valuable, because it lets people immediately sense conflicts, crossed agendas, and missed opportunities.

your company uses to track its progress. (You do have one, don’t you?) A dot-com company might track Website hits. A sales organization might track the number of proposals that went out that day. Wal-Mart uses stock price. Also, choose a short-term employee-based activity you want to focus on and track daily. Maybe it’s accounts receivable, or getting contracts back on time. It ought to be some sort of measurable behavior. The third and most important agenda item is where people are stuck. You’re looking for bottlenecks, which ought to be your nemesis in business. Applying energy anywhere but the sticking point is a waste.

Second, the bottleneck discussion often reveals who’s not doing his or her job. Any time somebody goes two days without reporting a sticking point, you can bet there’s a bigger problem lurking. Busy, productive people who are doing anything of consequence get stuck pretty regularly. The only people who don’t get stuck are those who aren’t doing anything. So, scrutinize the exec who reports, “Everything is fine!”

Every firm should have three key performance indicators that I call Smart Numbers. These are usually ratios that provide true insight into the future performance of the business.

The key is focusing on a large priority for the month or quarter, what I described in Chapter 3 as Rocks.

If the focus of the quarterly and annual meetings is setting strategy and the focus of the daily and weekly meetings is execution, the focus of the monthly is on learning—a chance for the executive team to “pass its DNA” down to the next level.

Where goals are at stake, and accountability is an issue, the peer pressure of the daily and weekly meetings keeps things moving much better than if an individual exec is reporting to the CEO. Why? Because it’s just easier to get the job done than to have to face the team each day, each week, and make the same excuses for having failed to get it done.

Certainty comes with routine, with rhythm, and yes, with daily and weekly meetings.

5 minutes—Good News.

5 to 10 minutes—The Numbers.

10 minutes—Customer and Employee Data.

10 to 30 minutes—Collective Intelligence.

One-Phrase Closes.

Keep a Log.

Determining a brand promise is a fateful moment in the life of any company. Choose the right one—the one your customers respond to, the one you can track and execute day after day—and you win. It’s that simple. Choose the wrong one and you’ll probably flounder for years, never hitting your goals.

Next review your Top 5 and Top 1 of 5 established in Chapter 5. It’s quite likely that your brand promise is lurking somewhere in or around these goals.

Nike’s BHAG was to crush Adidas, which in the seventies seemed plenty hairy and audacious. Starbucks aims to be a bigger brand than Coca-Cola, and who’s to say they won’t succeed? For Gazelles, our very hairy and audacious goal is to serve 10,000 clients—which would put us among the elite consulting and organizational development firms like McKinsey or Arthur Andersen.

What you’re looking for is what really matters to the customer. At the same time, you want it to be something that demonstrably differentiates you from the competition. At Gazelles, our key customer need is to see action from the knowledge they’re receiving.

Bear in mind: your brand promise shouldn’t be easily accomplished. It ought to cause some stress in your organization.

avoid getting caught up in marketing slogans. This is often a point of confusion when huddling to develop a brand promise. Don’t get caught up in the wording of a slogan and forget the essence of the exercise. Stay pure.

Your measurable brand promise is crucial. It defines your company in the minds of the public. It gives your organization something huge and galvanizing to strive toward.

By considering your BHAG, defining your sandbox, determining customer needs, and controlling your bottleneck or chokepoint, you’ll have a measurable brand promise that will set you apart from your competition. That is, until your competition catches up and forces you to up the ante with a new and equally inspiring brand promise.

Step 1: Loan Opportunity Assessment

Your strategy begins with knowing what your real needs are and then creating a package that a bank (or other investor) would be interested in financing.

Step 2: Strategy Development

Putting together a strategic plan forces you to look beyond today and examine what your company’s future needs will be to grow or compete in the marketplace beyond the current year.

I discovered that the future-focused companies are the ones that continue to prosper. These companies tend to have a formalized planning process, a detailed marketing plan, and a market intelligence gathering system in place. This pro-active process enables them to take advantage of market trends and opportunities.

Step 3: Loan Package Preparation and Research

A Knock Your Socks Off Loan Package Will:

The challenge in writing the Executive Summary is to avoid rehashing what is inside the package, while immediately creating an interest in the business and opportunity for the bank or investor.

An Inc. 500 company went through this process and received six excellent proposals from various banks. After accepting one of the bank’s proposals, they received a commitment letter offering them $300,000 less. Despite the fact that they needed the money immediately, they were so furious that they refused the commitment and called the second bank on their list. They told the bank what had happened, and said “If you will provide us with a commitment letter today that is the same as your proposal letter, you will be our banker. If not, we will call the next bank on the list.”

“Failing to plan is planning to fail.”

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