Some companies flourish and then fall into decay. Some are lucky to stay afloat. But there are companies that endure all hardships, only to become better. Boeing, Johnson & Johnson, Motorola, Disney, Walmart, Sony… They need no introduction. They have a long history. But how did they manage to live through multiple crises and yet stay the leader in the industry?
Jim Collins and Jerry I. Porras tried to discover the principles that led these companies to enduring success. “Built to Last: Successful Habits of Visionary Companies” is the result of their 6-year research, during which they analyzed the concepts, proven by time and experience, which can help other leaders improve their businesses.
We summarized “Built to Last” chapter by chapter so that you can learn about these concepts.
A word combination “the best of the best” may make you think of charismatic visionary leaders. But this book is not about leaders. It’s about visionary companies, which the authors define as “premier institutions in their industries… having a long track record of making a significant impact on the world about them.”
Out of the 20 organizations most frequently mentioned by different CEOs, the researchers picked companies founded before 1950, to eliminate the factor of a single successful leader or idea. The final list consisted of 18 companies.
For each visionary company, they selected a comparison one – an organization that 1) was founded at the same time; 2) started with producing similar products; 3) wasn’t a failure, but rather a silver or bronze medalist as compared to the gold medalist, as the authors put it.
The researchers were looking for specific patterns that would reveal trends, and in the course of their research, were applying them to other organizations to see if the patterns really worked.
Explaining the difference between visionary companies and just successful ones, Collins and Porras use the analogies of “time telling” and “clock building”.
If there was a person who could tell the right time just by looking at the sun or stars, that would be a time teller. This analogy stands for a charismatic leader who can make a significant impact on the company.
But if there was a person who could build a magic clock - a clock that would tell the time forever, he would be even more revered - because he’d create something that would last after his death. In other words, a clock builder is a leader who can create a long-lasting impact.
This way, building a company for the sake of the company, and not focusing on hitting the market, is what the authors call clock building.
Another important aspect of visionary companies is the yin/yang, the acceptance of two contradictory ideas at the same time.
Instead of saying “You can have change OR stability”, visionary companies say you can have both. The same concerns combining conservatism and risky moves, a high purpose and pursuit of profit, and other things that seem incompatible.
To put it differently, visionary companies do not blend the black and white colors of yin and yang into the grey area. They know how to keep things distinctly white and black at the same time.
Profitability is a necessary condition for existence and a means to more important ends, but it is not the end in itself for many of visionary companies. Profit is like oxygen, food, water, and blood for the body; they are not the point of life, but without them, there is no life.
The authors call the ideological nature of visionary companies pragmatic idealism. It means that while pursuing profits, the company still pursues higher ideals. There is no tyranny of the OR.
Consider the case of Merck, a pharmaceutical company. Proclaiming that the success of their business means “victory against disease and help to humankind”, they still get much profit.
Merck created a cure against “river blindness”, an infectious disease that broke out in the Third World. The customers couldn’t afford the product, and the governments didn’t purchase it either. Merck decided to give the drug to people for free and even spent their own money to make sure the drug actually reached those who needed it.
Did they do it out of kindness or for pragmatic reasons? Both.
It’s important that there is no right or wrong ideology. Some visionary companies choose customers as the center of their ideology. Some choose their product, innovation, risk-taking, or something else.
Analyzing visionary companies, Collins and Porras created a definition of core ideology:
Core values are the main guiding principles. The purpose is the reason why a company exists beyond just profit. These concepts will be explained in more detail in Chapter 11.
Thanks to the absence of the tyranny of the “or”, visionary companies do not seek balance between core and progress. They seek both. These organizations strive for more even if what they do works perfectly well.
Core should not be confused with culture, policies, or norms. Norms can change. Strategy can change. The structure can change. Even more – they must change. But core ideology, values, and purpose, never do.
As for the drive for progress, it’s based on two things - self-confidence and self-criticism. Self-confidence lets a company set bold goals and make risky moves, while self-criticism makes it improve before the outside world requires it.
While core ideology provides stability, the drive for progress urges change. Core ideology means that a company functions by having one thing that inspires it. Drive for progress makes it look for change – as long as it fits the ideology. This concept, preserving core AND striving for change, is the key concept of the book.
A powerful way to stimulate progress is BHAGs – Big Hairy Audacious Goals. This is not a typical goal. This is a huge challenge. To differentiate one from the other, ask yourself the following questions:
Does this goal stimulate progress? Does it excite people? Does it create momentum?
If the answer is yes, then it’s a BHAG.
In 1907, Henry Ford set a BHAG for his company - to build a motor car that would be affordable to basically everybody, so that even ordinary people would enjoy “the blessing of hours of pleasure in God’s great open space.”
At that time, there wasn’t one clear leader in the industry. Ford had 15 percent of the market. An ambitious goal - to democratize automobiles - made design teams, and Mr. Ford himself, work till late at night. This brought about amazing results - Ford became the leader number one.
However, once Ford had achieved its goal, it didn’t set a new one. This gave General Motors a chance to overcome Ford, which they used. That’s why the authors emphasize that “A BHAG only helps an organization as long as it has not been achieved.”
There are a few things to consider while creating BHAGs:
Now, look at the BHAGs through the “preserve core / stimulate progress” ideology. For example, Sony’s “preserve core” is to elevate the Japanese culture and be a pioneer. Its “stimulate progress” is to create a pocketable transistor radio.
Visionary companies are not a great place to work. In any case, not to everyone. The researchers found out that these companies are more demanding of their people. They require employees to fit in, perform to the standards, and stick to their ideology. And this is not always comfortable.
There is an explanation for this. Visionary companies know who they are, and they know what they try to achieve. This way, they don’t want people who don’t meet their requirements.
As one of the research assistants pointed out,
Joining these companies reminds me of joining an extremely tight-knit group or society… If you’re willing to really buy in and dedicate yourself to what company, then you’d be very satisfied and productive… If not, however, you’ll probably flounder, feel miserable and out of place.
Visionary companies are cult-like. The researchers found four characteristics of cult visionary companies share:
Let’s see how these characteristics are demonstrated by Nordstrom. These companies promote only those employees who reflect their ideology. They impose tightness of fit – those who fit, receive awards and recognition, and those who don’t – penalties. Also, they portray being inside the company as being special and elite, as belonging to something great.
As for indoctrination, let’s take a look at Procter & Gamble. Here, the indoctrination process is both formal and informal. The company conducts training for new employees, which includes reading its biography “Eyes on Tomorrow”. Besides that, they also receive informal training, working and socializing with their colleagues, who teach them the values and practices of the company. Since the company is located in a P & G-dominated town, it creates an even deeper sense of immersion.
This is not the cult of personality – it’s the cult of organization.
In examining the history of visionary companies, we were struck by how often they made some of their best moves not by detailed strategic planning, but rather by experimentation, trial, and error, opportunism, and – quite literally – accident.
Visionary companies undergo two types of progress. The first type was BHAG progress. The second one is evolutionary progress.
Evolutionary progress happens when goals, unlike BHAGs, are ambiguous – in other words, when you try many approaches and don’t know which one will work. It often happens in the form of small steps, or through seizing unexpected opportunities. Like it is in nature, evolutionary progress is unplanned.
But unlike natural selection, which is unconscious, evolution in organizations is totally conscious – because people can make decisions. And the difference between visionary and other companies is that the former stimulate decision-making aggressively. They do it, using the main five rules:
It’s very important to keep your eyes open and try, the authors highlight. J. Willard Marriott built a chain of profitable restaurants, and they would be even more profitable if the company just stuck to its expansion plan. But an opportunity for something bigger presented itself, and the company used it.
Marriott shop number 8 was located near an airport. During his inspection visit, Marriott learned that passengers would come there to buy snacks before their flights. He had an idea - to have shop number 8 deliver lunchboxes right onto the tarmac. They tried it out, and in a few months, the service catered 22 flights per day.
The authors emphasize that evolutionary progress, like BHAG progress, must happen in accordance with the core ideology. If it doesn’t, then it’s the wrong move.
For a visionary company, it’s not enough to be successful during the current generation. What matters is how the company will perform in the next generation. This is why these companies plan for succession and promote from within.
Even though the authors mention that CEOs of visionary companies are often humble, it would be a mistake to presume they’re just mediocre people. They’re not mediocre – and what’s more, they are never random.
Typically, these are family members or insiders who have been promoted. This happens because what they care for is not just good leadership – it’s the continuity of good leadership that preserves the core.
Consider the case of Colgate (a comparison to Procter and Gamble). The company was founded in 1806, and it started as very successful, having a strong core ideology formulated by Sidney Colgate. However, by the 1940s, it shrank by twice as much as it was, and its profitability was less than one-fourth the profitability of P&G.
The reason was that the first four generations of the company's top management were insiders, but then, by the late 1920-s, the company merged with Palmolive-Peet. The new manager didn’t really care for the values. He was more occupied with expanding the company. And even after he was replaced with Bayard Colgate, another family member, the company couldn’t catch up.
The situation was totally different in P&G. In the 1920-s, Cooper Procter was preparing a successor who’d become a chief executive. Nowadays, the company has a whole program of management development. These are mechanisms of homegrown management.
The critical question asked by a visionary company is not “How well are we doing?” or “How can we do well”… the critical question is “How can we do better tomorrow than we did today?
Visionary companies are very demanding of themselves. It’s not that they have some special secrets of success. Their success is about discipline and hard work. They continuously self-improve, and this self-improvement means not just improving processes, but also investing in employee development, adopting new ideas, and trying out new technologies.
To stimulate progress, these companies create discomfort. One way is internal competition. Another one is forcing themselves to be innovative and make new products, or to develop certain practices that create discomfort.
For example, in Boeing, managers have to develop a strategy as if they were working for a competing company.
Comparison companies don’t create any mechanisms of discomfort, nor do they have strict discipline.
So if you want your company to be visionary, make sure your employees understand that comfort is not an objective, and set long-term goals, even if you’re in trouble. And if you’re doing well, still don’t forget to invest in the future.
A vision statement doesn’t guarantee a company will become visionary. For that to happen, all elements of the company must work in accordance with the core ideology: goals, policies, pay systems, and management behaviors.
The authors provide a few guideposts to creating alignment:
Visionary companies care about little things. This is why Phillip Morris gives its employees a paycheck together with a box of cigarettes. This is why Walmart’s employees at the lowest levels get complete departmental financial reports. These things send a signal – you’re a part of something bigger.
A vision consists of two components: core ideology and envisioned future.
Core Ideology includes the following:
Envisioned future also consists of two parts:
1) Vision-level BHAG, which can be:
2) Vivid descriptions – a description of what a company will look like once it achieves its BHAG. For example, Churchill didn’t just say “beat Hitler”; he said, “If we can stand up to him all Europe may be free … if we fail, the whole world including the United States, including all we have known and have cared for, will sink into the abyss of a new Dark Age.”
To build a clock, not to tell the time – this is what you need if you want an enduring company with a long-lasting impact. However, the concepts described in this book apply worldwide, and not just in the corporate world. Yes, they have been applied in colleges, churches, governments, and even families. Many people have reported that they work. And this is why you can find these lessons useful as well, either in your organization or private life.
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