Mastering the Rockefeller Habits [Book Summary]

Mastering the Rockefeller Habits has been an influential book for Binary.com. We have been through the process described in the book, and it greatly influenced the development of the company. Further information and tools from Verne Harnish may be found at https://gazelles.com.

MASTERING THE ROCKEFELLER HABITS, by Verne Harnish

Overview

In Parent Effectiveness Training (PET), they teach three fundamentals on how to best manage children:

  1. Have a handful of rules

  2. Repeat yourself a lot

  3. Act consistently with those rules (which is why you better have only a few rules)

The three Rockefeller Habits are:

  1. Priorities - does your company have Top 5 priorities for the year and the quarter? Do all staff have their handful of priorities?

  2. Realtime Data - does your company have daily and weekly data to provide insight into the organization and the market?  Do all staff have at least one key daily or weekly metric to drive his/her performance?

  3. Rhythm - does your company have an effective rhythm of daily, weekly, monthly, quarterly and annual meetings

Each company also has an X Factor - an underlying strategy which must be discovered to gain control of the key chokepoint in the business model and industry.  For example for Rockefeller, the key to winning in the oil business was gaining an advantage in transportation costs, so he bought all the railroads.

You don't have a real strategy if it doesn't pass these two tests:

  1. That what you're planning to do really matters to your existing and potential customers; and

  2. It differentiates you from your competition.

The two most important decisions a business leader makes are defining a simple long-term vision 10-25 years out, and deciding on a handful of priorities for the next quarter.  In planning, the "middle" is gone.  Decide where you want to be in 10-25 years, and what you need to do in the next 90 days.

The Rockefeller Principles introduce the following vocabulary:

  1. Priorities - Core Values, Purpose, BHAG, Targets, Sandbox, Brand Promise, Goals, Actions, Rocks, Schedule

  2. Data - Smart Numbers, Critical Numbers

  3. Rhythm - Daily huddle, Weekly, Monthly, Quarterly, Annual meetings

Mastering Growth

There are three barriers to growth common among all growing firms:

  1. Delegating to others: The need for the executive team to grow as leaders in their abilities to delegate and predict (these are the two most important abilities of a leader).  The CEO/founder should play only the role of leader and visionary.  He needs a managerial structure in place to let him focus on his real job of growing the company.  If he is focused solely inside the company, he cannot move the company ahead.  As goes the leadership team goes the rest of the firm: whatever strengths and weaknesses exist within an organisation can be traced right back to the cohesion of the executive team and their levels of trust, competence, discipline, alignment, and respect.

  2. Systems and Structures: The need for systems and structures to handle the complexity that comes with growth.  Increases in complexity lead to stress, miscommunication, costly errors, poor customer service, and greater overall costs; to keep from being buried, an organisation must put in place appropriate systems and structures.  Systems include accountancy systems, PABX, etc, and structures include organisational charts, of which there are there types:

    1. Accountability Chart - a standard hierarchical organisation chart, which clearly assigns accountability to a single person for a given task, priority or process.

    2. Work Process Chart - the critical processes that flow through the organisation.  E.g. how we acquire a customer, how employees are selected and trained, etc.

    3. Almost Matrix - the relationships between organisational functions and the business units of the organisation.

  3. Data Driving Prediction: The ultimate goal of imposing structure and systems is predictability. Unless a company has the ability to determine where it is today and project where it will be in a month/quarter/year, it's not on a trajectory for growth.  Growth decisions are dangerous if you don't have a good feel for what's going on both inside and outside the business.  Note: once a company reaches $50m in revenue, it should have acquired sufficient experience and position in the marketplace to accurately predict profitability.  The fundamental journey of a growing business is to create a predictable engine for generating wealth.

Priorities and Rhythm.  As you grow, you must keep the company focused.  To do this, you set priorities for each quarter.  Print the Top 5 corporate priorities for the quarter on laminated sheets and post them on employee desks, and include a space for each employee to write his/her own Top 5 priorities (which need to be aligned with the corporate Top 5).

Drive quarterly priorities with a Theme.  E.g. "Launch", "Escape Velocity", "Zero defects", "Customer WOW".  Quarterly themes are powerful goal motivators.  They focus the entire workforce on that single, overriding quarterly target in a way that people can not only understand, but get excited about.  It's amazing what you can accomplish when you get a hundred people all working on just one priority, instead of 27.

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.  Most important is the daily huddle that lasts no more than 15 minutes per group.  If possible, organise a special huddle area, where walls are mapped with the top priorities, core values, metric charts, and market data (the "Situation Room").

The Right People doing the Right Things

There are three basic decisions an executive team must make:

  1. Do we have the Right People?

  2. Are we doing the Right Things?

  3. Are we doing those Things Right?

The Right People

When you have "A" players, it makes all the difference in the world.

A quick way to discern whether you have the right people is to ask yourself if you would enthusiastically rehire each person on your team if given the opportunity.

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 3-5 years from now.

Hiring - Selling the Vision

"A" people tend to surround themselves with "A" people, so make a list of the Top 10 people who have contact with the kinds of people you want, and email them a two-paragraph summary describing your firm, the position, and the kind of person you want to hire.

Make sure you're truly selling the company and its vision in your recruitment adverts.

The Selection Process

Testing is considerably more accurate and objective than interviewing.  Have applicants submit to several hours of formal testing.  Also use the standard personality test.

The most important thing you're trying to determine in the select process is the candidate's fit with your culture.  A close second is whether they have a positive or negative outlook, which can be determined primarily through testing.  Testing for emotional maturity also ranks high.

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.

Right Things Model

The Right Things side represents the people and relationships involved in any business:

  • Customers (including suppliers)

  • Employees (including sub-contractors)

  • Shareholders

The Right Things side of the model represents the "Balance Sheet" of the business: who owes and who owns what.

The Things Right side represents the activities or transactions that occur within a business to deliver consistent products and services to the market:

  • Selling

  • Making or Buying something

  • Keeping Good Records

This mirrors the primary top executive functions of COO (Make or Buy), VP Sales (Selling), CFO (Records).  This fundamental troika serves under the CEO.

The Things Right side of the model represent the income statement (P&L), delineating the revenues and expenses with a bottom line of profitability.

Putting the Rockefeller Habits to Work

Habit #1 - Priorities.  Consider one of the six things as a potential priority and choose the one that needs the most attention at the moment.  Even though your firm may have issues in all six areas, you can only advance one of the areas at a time.

Habit #2 - Data.  You need metrics in all six areas.

Habit #3 - Rhythm.  On the Things Right side, operations, sales and accounting need to have their own daily and weekly rhythms.  On the Right Things side, you also need the right rhythms (if you are a public company, you need very specific Shareholder rhythms).

Organisational Structure

The six things provide guidance on your required organisational structure.  Note that around $10m of revenue, the three Things Right items begin to split:

  • Sell splits into separate sales and marketing functions

  • Make or Buy splits into separate operations and R&D functions

  • Keep Good Records splits into separate accounting and finance departments

Mastering a One-Page Strategic Plan

The Planning Pyramid provides a framework and common language to put it all together:

A vision is a dream with a plan.  Without all seven levels of the Planning Pyramid (which correspond to the different time frames, from daily to forever), your vision will be less than complete.

The One-Page Strategic Plan is essentially the Planning Pyramid turned on its side:  forever (Core Values) on the left, all the way to Quarterly Actions on the right:

Complete the One-Page Strategic Plan as follows:

  1. Opportunities and Threats - start with a SWOT analysis (Strengths, Weaknesses, Opportunities, Threats).

  2. Core Values - these are five to eight statements that broadly define the shoulds and shouldn'ts that govern your company's underlying decisions.  They are the Ten Commandments, or your Constitution, the foundation upon which the rest of your vision is built.

  3. Purpose - answers the very basic why questions: 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 a passion for what we're doing?  E.g. Wal-Mart's purpose is "To give ordinary folks the chance to buy the same things as rich people".

  4. Actions - the actions that the firm needs to take to align itself better with its core values and purpose statement.

  5. BHAG - Big Hairy Audacious Goal is a lofty 10-25 year goal.  For example, Kennedy's BHAG was to put a man on the moon.

  6. Sandbox - the firm's expected geographical/demographic/industry reach - must be a place where it can be #1 or #2.

  7. Targets - where you want the company to be in 3-5 years.

  8. Brand Promise - clearly articulate the key need you're going to satisfy for your customers (aka value-added proposition, differentiator).  E.g. FedEx's 10AM delivery promise, Sprint's "pin drop" clarity.

  9. Key Thrusts/Capabilities - 5-6 key thrusts/capabilities necessary for you to dominate your defined Sandbox, fulfil your Brand Promise, and meet your quantifiable Targets.  What are the 5-6 big things you need to do to reach your 3-5 year targets?

  10. Goals and Key Initiatives - what your company needs to achieve in the coming year to realise your longer-term targets.  The 5-6 Key Initiatives are like your corporate New Year's resolutions.

  11. Critical Numbers - they should represent key weaknesses at the heart of your economic model or operations that, if addressed successfully, will have a significant and positive impact on the business.  E.g. fundraising goals, an increase in the number of large accounts, etc.

  12. Actions and Rocks - the quarterly action steps.  This is the how stuff.  Break down your annual goals into quarterly action steps.  5 or 6 simultaneous 13-week missions that provide priorities to your entire organisation.  These quarterly missions are called Rocks to differentiate them from the fire fighting and pebble moving we do on a day-by-day basis.

  13. Theme, Scoreboard Design, and Celebration/Reward - Establish a quarterly or annual theme to bring additional focus to everyone's activities.  Post a scoreboard that will keep everyone apprised of your progress towards achieving the measurable target of the theme.  The celebration is enjoyed when the measurable target is hit.

  14. Schedules/Due Dates - Remember that nothing gets done in any organisation until it shows up on somebody's weekly to-do list.  Quit thinking in terms of monthly increments and drive all measurements, deadlines and deliverables down to weekly increments.

  15. Accountability - This is the who level.  There should never be more than one person who is accountable.  If everyone's accountable then no one's accountable.

Mastering the Use of Core Values

To discover your company's core values, gather a representative group of staff, ask them to select the five employees that best convey the good things about your company.  When each individual has five names, go around the room and determine the Top 3 vote getters.  Then brainstorm to find out the words that best describe who these employees are, how they go about their work, what would customers or co-workers say about them, and why they are valuable to the organisation.  You'll know you've arrived when you get goose bumps on your arm.

Go beyond simply posting the core values on the wall or handing out plastic laminated cards.  Get a little creative.  E.g. get storytelling into your routine, share a story from the past month or quarter that represents each core value.  Use the language from your core values in your recruitment ads and job descriptions.  Use these words during staff orientation on their first day, and during performance appraisals.  With a little creativity, any performance measure can be made to link with a core value.  Use the core values to generate catchy titles for your internal newsletters, and to set the themes.  As CEO, when you make a decision, relate it to a core value.  When you reprimand or praise, refer to a core value.  Remember: have a few rules, repeat yourself, and be consistent.

Mastering Organisational Alignment and Focus - Know your top priorities!

An organisation with too many priorities has no priorities.  It is important for management to clearly articulate to employees the five most important priorities that must be addressed to move the company to the next level.  It's then critical for everyone in the organisation to have their own Top 5 priorities, aligned with those of the company.  This list should be the basis of a regular performance appraisal.

This process creates something magical called alignment.  When you have everybody aligned, everybody at every level sees what you see and aspires to what you aspire.

To make your Top 5 (and Top 1 of 5) something more than words on paper, to transform them into something achievable, you need a Management Accountability Plan (MAP).  The MAP assigns the accountabilities necessary to get the job done.

To recognise your Top 1 of 5, look for the one that hurts.

Here is a list of seven common leading priorities for companies:

  • Not big enough to compete (need a merger?)

  • The company lacks a key player (CEO wearing too many hats - needs to recruit a professional COO, CFO, VP of Sales, etc.)

  • The economic engine is broken ("living dead" company with a business model that will never work) - get out, close it down.

  • Someone else is controlling our destiny (E.g. a competitor got hold of a key relationship or patent or supply line) - you need a good counter-move (brand promise/control the choke-point of your industry)

  • We need a war chest to compete (one of the best reasons to go public)

  • We can't raise money until we get back on a growth path.

  • We've got to scale back or we won't survive (take the wrenching decision to lay off staff)

Mastering the Quarterly Theme

A company's goals and priorities won't be successful if they're easily forgotten or ignored.  You've got to do something to help your associates make the necessary emotional connection that generates commitment, i.e. create the necessary themes and images to bring any corporate campaign to life.  It takes an idea or an image to anchor a message with its listening audience.  To get people to storm the barricades on your behalf, you've got to give them a concept that connects not just with their heads but with their hearts.

For exampe, Michael Dell rallies his troops for war against Compaq by donning army fatigues and stringing camouflage netting throughout the headquarters.  AOL reveals a huge dinosaur named Microsoft that is moved around headquarters as a trophy for any office that has struck a blow against Microsoft.

The most powerful themes are those anchored in quantitative goals; refer back to your Priorities and Critical Numbers to brainstorm a theme to go with them.  Another good source of quarterly themes are your core values.

A theme becomes a mission rather than a mere event when you publicly track progress and keep score.  E.g. AOL moving the dinosaur around to the offices that make inroads against Microsoft.

Add a reward and celebration.  This works even better when it is non-cash; e.g. a trip to Jamaica.

Mastering employee feedback

What makes people hate their jobs?  The answer: recurring problems and hassles.  Recurring problems eat up more than 40% of staff time.

  • Solve them one problem at a time.  If you aim for solving too many problems, you'll have made a hassle out of your de-hassling system!  Solving problems one at a time is like compound interest: solve just 1% of your problems each week, and soon you'll be gaining greater and greater yields.

  • Gathering the Data:  To get started, ask your employees a three-part question:  What should we start doing, what should we stop doing, and what should we continue doing?  Compile the raw data and keep a log of it. Then brainstorm solutions.  Don't make it a chore; make it fun.  Then report the progress in your company newsletter.

  • Handling the feedback:  the trick to getting your de-hassling system humming is to be responsive.  If employees feel their feedback is dropping into a black hole, it'll dry up.  Initially, find some quick-hit solutions.  Post the list of problems onto your intranet or distribute them over email.

  • Reporting Progress:  People will want to see change as it's occurring. E.g. post complaints and suggestions on a bulletin board, and scrawl on the notecards, "Noted, done".  Closing the loop in this fashion is critical.

Problem-solving guidelines:

  1. Relevancy - does the issue really matter, is it of top importance, does it affect customers?

  2. Be specific - list specifics, not generalities.  Don't list "communication problems" as a hassle - be more specific: find out the who, what, when, where, how, and why.

  3. Address the root - use the "5 Whys" Technique: ask "why" several times until you get to the root cause.

  4. Focus on the What, not the Who - don't turn your search into a blame game. Besides, 95% of the time it's a process problem, not a people problem.

  5. Involve all affected - rather than running around getting ten explanations from 10 people, get them all in the same room.

  6. Never back-stab - never talk negatively about anyone if that person is not present.

Mastering the Daily and Weekly Executive Meeting

To make more than just a lot of noise in your business, you've got to have rhythmAt the heart of executive team performance is a rhythm of tightly run daily, weekly, monthly, quarterly, and annual huddles and meetings - all of which happen as scheduled, without fail, with specific agendas.  You'll solve problems more quickly and easily, achieve better alignment, and communicate more effectively.

The Daily Meeting

  • Everybody in a growing company should be in some kind of 5-15 minute huddle daily.  Casual meetings or one-on-one meetings fail to take advantage of the three most powerful tools that a leader has in getting team performance:  peer pressure, collective intelligence, and clear communication.

    • Peer Pressure:  In one-on-one meetings there is too much private negotiation going on ("You know what I'm up against...").  In one-on-one meetings there is no Greek chorus singing out when the untruths begin to fly - people will give one-person excuses that they'd never try before an entire group.  Peer pressure during group meetings keeps things moving, 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.

    • Collective Intelligence:  The audience lifeline in "Who wants to be a millionaire?" is consistently more accurate than the phone-a-friend lifeline (the equivalent of a one-on-one).

  • Timing: set the time irregularly - every day at 8:08AM or 4:46PM.  People do a better job of showing up on time when the time's not on the half or quarter-hour.  Use services like iping.com to remind participants of the meeting by SMS.

  • Setting:  avoid sitting comfortably - make it a stand-up meeting - it helps to keep the meeting short.  Gathering in the leader's office makes it easier for him or her.

  • Who attendsthe more the merrier.

  • Who runs the meeting:  pick someone who is naturally structured and disciplined (doesn't have to be the CEO).  The main job is to keep things running on time, and the ability to say "take it offline" when two or more people get off on a tangent that doesn't require everyone's attention.

  • The agenda:  just three items long:  what's up, daily measurements (data), and where are you stuck? 

The Weekly Meeting

  • The weekly meeting has a different purpose, hence a different agenda.  It's intended to be more issues-oriented and strategic gathering.  Focus on what's important.  Once the habit is created and the meeting is structured properly, most people will look forward to the meeting and find they can't function properly without it.

  • Schedule:  same time same place every week, 30 minutes for front-line employees and a full hour for execs.  It can be a conference call if you have several office locations (try also freeconference.com or raindance.com)

    • Five minutes:  good news. Each weekly meeting starts with five minutes of good-news stories from everyone.

    • 10 minutes: the numbers.  Discuss the Smart Numbers (which should also be displayed graphically).

    • 10 minutes: Customer and Employee feedback.  What issues are cropping up day after day?  What are people hearing?

    • 30 minutes:  a Rock, or Single Issue.  A big mistake at weekly meetings is covering everything every week.  As a result, the team only deals with issues on a shallow level.

    • One-Phrase Closes:  ask each attendee to sum up with a word or phrase of reaction.

The Monthly Meeting

The focus of the monthly meeting is on learning - a chance for the executive team to "pass its DNA" down to the next level.  It is a two to four hour meeting for the extended management team to review progress, review numbers, discuss what's working and not working, make appropriate adjustments, and do an hour or two of specific training.

The Quarterly and Annual Meetings

The agenda for the quarterly and annual meetings is based around the One-Page Strategic Plan.

Mastering the Brand Promise

Identify the single most important measurable in building value.  What really matters to your customers?  What is it that brings your customers to you, and keeps them loyally returning, purchase after purchase, year after year?  It's your brand promise: the key factor that sets you apart from all competitors.  Your brand promise is the starting point from which all other executive decisions are derived.

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 goals.

  1. Consider your BHAG.  Recall Ronald Reagan's resolve to defeat the Soviet Union's "evil empire".  Few bothered to ask how it would be accomplished.  They just put their energies behind it, and almost miraculously, it became real.  By the way, make sure your BHAG is measurable.

  2. Define your sandbox.  Figure out your desired sphere of influence over the next 3-5 years.  Define it geographically (are you destined to remain a local company/regional/national/multinational), demographically (who will you be selling to), and in terms of product lines and distribution channels.

  3. Determine customer needs.  What is your customers' greatest need?  Not their wants - they'll "want want want" you all the way to bankruptcy if you let them!  What you're looking for is what really matters to the customer.  At the same time, it needs to be demonstrably different from the competition.

  4. What's your measurable brand promise?  At Orion International, a recruitment firm, it is "14 Days Done" - Orion will complete a hiring process in two weeks flat.  Bear in mind:  your brand promise shouldn't be easily accomplished.  It ought to cause some stress to your organisation.  Also, don't confuse brand promise with marketing slogans.  Stay pure.  Find the measurable deliverable, and leave the sloganeering to the marketing folks.

  5. Control your bottleneck or chokepoint.  This was Rockefeller's key strategy.  Now that you've put a stake in the ground by determining your measurable brand promise, what are you going to do to lock it up, to hold that position?

  6. Everything changes - including your brand promise.  E.g. for FedEx, it was the 10AM delivery.  But now all courier firms promise that, it became a given. So FedEx switched its brand promise to "Be absolutely sure" (online tracking of packages).  Note that FedEx didn't stop guaranteeing 10AM delivery, they just upped the ante.