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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 rhythm. At
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.
o 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.
o 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 attends: the 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)
o Five minutes: good news. Each weekly meeting starts with five minutes of
good-news stories from everyone.
o 10 minutes: the numbers. Discuss the Smart Numbers (which should also be
displayed graphically).
o 10 minutes: Customer and Employee feedback. What issues are cropping
up day after day? What are people hearing?
o 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.
o 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.