SMaC Great By Choice

1. SMaCGreat By Choice Rafael Garcia Allyson Hatz Bonnie Lee Alexa McDaniel Molly Moseley

2. SMaC Howard Putnam, CEO of Southwest Airlines in 1979, wrestled with a question: “Does the sweeping disruption of deregulation call for a revolution in how we run our company?”

3. SMaC So Putnam considered 4 main questions: Does deregulation.. Undermine our low-cost model? Threaten our high-spirit, employee-focused culture? Erode the competitive value of rapid gate turns or destroy the viability of our point-to-point system? Does radical change in our environment call for inflicting radical change upon ourselves?

4. SMaC Mr. Putnam concluded that Southwest Airlines should continue to expand based on the ‘cookie-cutter’ approach. He also concluded the Southwest Airlines “cookie recipe”.

5. Remain a short-haul segment Utilize only 737 aircraft Continued high aircraft utilization and quick turns The passenger is our #1 product Continued low fares and high frequency of service Stay out of food services No interlining Retain Texas as our #1 priority Keep the ‘family and people feeling’ in our service Keep it simple

6. SMaC • Putnam stayed away from issuing vacuous statements • Although he specified: • Two-hour segments • 737s • No food service • No seat selection Putnam laid out a CLEAR, SIMPLE, and CONCRETE framework for decisions and action.

7. SMaC • This elements have only changed about 20% in a quarter of a century, despite a series of disruptive events. Such as: • Massive industry mergers • Recessions • Interest-rate spikes • The Internet • 9/11

8. Adhering To the SMaC Recipe With Fanatic Discipline • 10X companies kept ingredients for more than 20 years • Comparisons showed SMaC during best years • Comparisons changed recipes to a greater degree

9. Southwest Airlines vs. PSA Facing deregulation, disruptive environment, identical recipes, fabulous core markets • Southwest • Began as a copy of PSA • Builds momentum in Texas • Analysts said they needed to change their formula • Putnam’s simple list “needed major revision • CEO kept most of the recipe intact • Became one of the most admired companies in the world • Only one that endured as great company • PSA • Reacted to deregulation by becoming more like United Airlines • Moved away from recipe • Languished post deregulation • Sold out to US Air • Became irrelevant, then forgotten

10. Apple • Rise and fall illustrates the danger of straying from a recipe and the value of restoring it • Mid-1990s: fallen from glory days – Will Apple Computer Survive? • Chronic inconsistency: revolving door at the top • 4 changes of CEO in 11 years • Turnaround began in 1997 with Steve Jobs • Apple had successful rebirth because it returned with fanatic discipline to original recipe

11. John Wooden – UCLA Basketball • 10 NCAA championship teams in 12 years • Exemplified power of consistency • Ran drills from same set of 3x5 cards with rare modifications • “Pyramid of Success”: a philosophy of life and competition • Detailed recipe down to how players should tie their shoes

12. IKEA • Main Ingredients: • Simple product design • Massive friendly retail stores • Very low prices • Create a better life for people • In the beginning: concentrated on continuous cost reduction • During rising prices and global recession, they set out for a new path to offer even lower prices to consumers • Lowering operational costs • Become better at increasing volume • Develop better functioning supply chain • Empower co-workers

13. Adhering To the SMaC Recipe With Fanatic Discipline Change is not the most difficult part 10Xers ask why their recipe isn’t working anymore before assuming obsolete methods Signature of mediocrity = chronic inconsistency 10Xers accomplish goals by adhering to what they know works

14. Amending the SMaC recipe: Paranoid, Creative Consistency A great company must evolve its recipe, revising selected elements when conditions merit, while keeping most of its recipe intact. EX: in 1985, Intel’s memory-chip business. Japanese competitors threw the industry into a price war by driving prices down 80% in 2 years.

15. Intel’s Recipe for Success In 1969, Intel began making microprocessors, putting all the computer functions on a single chip. (They were originally only in the memory-chip business). Over 16 years they continuously gained momentum with the microprocessors.

16. “If New Management Came In, What Would They Do?” • Get out of the memory-chip business. • Put their full attention into the microprocessor business. • Crucial to their success: • Exit from memory chips • Not changing other elements of its SMaC recipe

17. “Genius of the AND” On one hand, Intel changes only a small fraction of its SMaC recipe at any given time, keeping the rest of it intact. On the other hand, this isn’t just an “incremental” change- a SMaC recipe change is a significant change. By grasping this point, a 10X enterprise can achieve significant change and continuity-at the same time.

18. Firing Bullets The Intel case shows how firing bullets can give you a hedge against an uncertain future, so that you might have a ready-made amendment ready to go when the world changes. Intel didn’t react to the memory-business disruption by inventing the microprocessor; it had been firing bullets for more than a decade, proving itself in microprocessors.

19. 2 Approaches to Amending the SMaCRecipe 1) Exercising empirical creativity (internally driven)- Firing bullets to discover and test a new practice before making it part of the recipe. 2) Exercising productive paranoia (externally focused)- Disciple to zoom out to perceive and access a change in conditions, then zoom in to implement amendments as needed. 10Xers employ both approaches

20. Intel’s Success In the Intel case, empirical creativity came 1st, and then productive paranoia kicked in when the memory-chip business became untenable. 10Xers reject the choice between consistency and change; they embrace consistency and change, both at the same time

21. IKEA How does IKEA embrace change and consistency simultaneously? They are consistently changing and lowering their prices to compete with competitors. Focused on conceptual consistency. Although the product assortment and functionality of IKEA’s products differ between regions, and new products and themed showroom corners are constantly added to its range, the overall IKEA experience remains consistent, no matter when, where, or how consumers interact with the brand. This makes the IKEA experience memorable.

22. SMaC Recipe • SMaC • Specific, Methodical, and Consistent • SMaC Recipe • A set of durable operating practices that create a replicable and consistent success formula • Turns strategic concepts into reality • Unchanging from situation to situation • Helps people keep their bearings and sustain high performance in extreme conditions • The more unforgiving your world, the more SMaC you need to be

23. SMaC Recipe • “Not to do” • Southwest Airlines: Do not interline, serve food, offer first-class seats, carry air freight • Microsoft: Do not wait to develop perfect software to enter the market; get good enough to launch and then improve. • Intel: Do not cut R&D during industry recession.

24. IMAX on Everest • David Breashears developed SMaC recipe for filmmaking in high mountains. • 50-degree-below-zero freezer in Toronto for practice • Developed protocols for handling IMAX camera with bare hands • “Idiot Check List” • 160 mile, 28 day trek in Nepal before Everest • May 23, 1996: Mount Everest IMAX project

26. Consistency and Change: The Great Human Tension • Create practical framework that is flexible and durable • Ex: US constitution • Amendment mechanism • Consistent, to work in radically changing and unpredictable environment • Balance between continuity and change • Concrete rules to guide decisions • Understanding what actually works takes time

27. SMaCRecipe Comparison • Changes to a SMaC recipe are like amendments • Greatness is ability to: • keep moving forward • Figuring out what works • Consistent approach with discipline, creativity and paranoia