Built To Last - Summary of Key Points

Written by James Collins & Jerry Porras
both are associated with Stanford

About this book:

This summary of Built to Last is included because if one is going to change an organization, one needs to know what to change towards. This book is one of the best we know of that answers that question. It is one of the best pieces of research done on why certain organizations are more successful over time than others. Because its time horizon is a minimum of 50 years, its lessons are enduring. We highly recommend either the book or the audio taped version. We originally wrote this summary to accompany the audio taped version, which is required listening in our Leading Change Program, the students love this book.

Introduction:

The book makes a comparison of Visionary Companies to a comparison group of good companies. The Visionary Companies engaged in management practices that we would consider cutting edge long ago. The lessons of the Visionary Companies can be learned and practiced at all levels of the organization. The authors found that charismatic leadership was not a differentiating variable. The Visionary Companies survive, visionary leaders come and go and so do visionary products.

What is a Visionary Company?

For the purpose of this study they:

1. were the premier leader in their industry, widely admired
2. made an indelible mark on the world
3. have multiple products and have had multiple CEO's
4. are at least 50 years old

A dozen common myths were shattered:

1. It takes a great idea to start a great company. In fact, having a great idea to begin with is negatively correlated with becoming a great company.
2. Great companies require charismatic leaders. In fact, charismatic leaders can be detrimental to the long term health of the organization. The leaders of Visionary Companies sought to be clock builders not time tellers.
3. The most successful companies exist to maximize profits. In fact, maximizing profits has not been the dominate theme in the Visionary Companies. They pursue a number of objectives, sort of like the balanced scorecard. Clearly, profit is one of their objectives.
4. They share a common ("right") set of core values. The core values don't have to even be enlightened (Philip Morris), though they often are enlightened. What's most important about core ideology is how deeply the company believes in its ideology and to what extend it is aligned with it.
5. The only constant is change. The Visionary Companies have maintained their core values for many years. But they are adaptive, everything but the core values is subject to change.
6. The companies are conservative. In fact, they are not. They are willing to engage in BHAG's (big hairy audacious goals).
7. These companies are comfortable places to work. In fact, only those comfortable with the core ideology are comfortable working there.
8. Visionary Companies make their best moves by high level successful strategic planning. In fact, they progress by trying a lot of stuff and keeping what works.
9. Companies should hire outsiders as CEO's to breath new life into the organization. The authors found that only 4 of 113 CEO's in Visionary Companies came from the outside. The comparison companies go to the outside 6 times more frequently.
10. Visionary Companies focus on beating the competition. In fact, they focus on beating themselves. Always striving to be the best.
11. You can't have your cake and eat it to. The Visionary Companies believe in the genius of "the and" and abhor the tyranny of "the or."
12. Visionary Companies become visionary by writing vision statement. While they tend to write them, this is only one of thousands of things they do to be visionary.

Clock Building not Time Telling:

Clock building allows a visionary company to exist long beyond the founder. Leaders of Visionary Companies take an architectural approach to building the company. These leaders try to build a company. For example, Hewlett & Packard had no great concepts for products, they just wanted to build a company. HP went a year before it sold anything. Sony's first products were not very good. J.W. Marriott's first business was an A&W Root Beer stand in Washington DC, 3M started as a failed corundum mine. In fact, only 3 of 18 Visionary Companies started off successfully (J&J, Ford & GE). However, 11 of the comparison companies started out successfully with a great idea. The companies with early success are much more likely to stick with these products long after they should have been replaced by new products or abandoned.

For example, George Westinghouse was much more brilliant than Coffin at GE. Coffin's major contribution to GE was the development of the world's first industrial lab.

When David Packard was asked about HP's greatest innovation, he responded by talking about the HP way. The article's headline read, "Packard executive develops company by design, calculator by accident."

The comparison companies were just as likely to have had strong leadership in their formative years. What the authors are describing is leadership at the Visionary Companies that is interested in socialized power not personalized power.

The contrast between Disney and Columbia Pictures is a good example to illustrate the differences between clock building and time telling. Tape goes into good details.

The Tyranny of the "Or":

Visionary Companies do not accept that you have to chose between things, i.e. you can have quality or low cost. As F. Scott Fitzgerald pointed out, "The sign of a first rate mind is that it can hold two opposing ideas at the same time and be able to function."

More than Profits:

Clock builders at Visionary Companies build clocks with a purpose, with a human spirit. The sense of purpose goes beyond just making money. Their values fix a stake in the ground, this is what we stand for, this is what we are all about. Profitability was not the driving force in the Visionary Companies, but seen as necessary. Profits are like oxygen, food and water. You can not live without them, but they are not the purpose of life. In seventeen of eighteen pairs the Visionary company was more ideologically driven than their counterpart. This was one of the strongest correlation in the study. For example, in examining TI the comparison to HP, the authors could not find one single statement that linked TI to anything other than trying to maximize shareholder return. They looked at over 40 articles, studies etc. on TI.

The authors give the example of Merck's decision to develop a product to cure river blindness, an illness that affects millions in third world countries. While they knew there was not much profit in it, they also knew that they would probably get a lot of free and good publicity. George Merck 2nd, "If we focus on helping cure people through medicine, the profits will be there."

Not one core value was common across the eighteen companies. There is no set of core values one needs to have to be a visionary company. What is key is the authenticity of the core values and the alignment to those core values. For example, Walmart's key core value is customer service. Sam Walton would say if you are not serving the customer or helping someone to serve the customer we don't need you.

Core values are the things the company holds self evident. Core values exist independent of the business environment. Purpose is the fundamental reasons the company exists beyond making money. You should never be able to complete or achieve your purpose. As Walt Disney said, "Disneyland will never be completed as long as there is imagination left in the world." GE can never complete the task of improving the quality of life through technology and innovation.

Preserve the Core/Stimulate Progress:

The central concept of the book is preserve the core/stimulate progress. The only sacred cow in a company should be its philosophy of doing business. Companies must be able to adapt and change to thrive. Boeing's being on the leading edge of aviation technology is core, however, building a 747 Jumbo Jet is a strategy that can change. Over time competencies needed, strategies and goals all change, but the core remains the same. The drive for change in a Visionary Company is internal, they don't often wait for the external forces to make them change. These companies have a high level of achievement motive. Visionary Companies display an interesting mix of self confidence and self criticism. The self confidence allows them to set audacious goals. Self criticism allows them to make changes before the outside world demands them.

Visionary Companies develop tangible mechanisms to preserve the core and stimulate progress. For example, HP helps assure the HP way will continue by having a policy of promoting from within. It supports that policy by tying appropriate reinforcing criteria to selection, promotion and appraisal decisions.

The key is to align everything to the core . Comparison companies frequently tolerate cynicism, strategies, behavior and attitudes that are not aligned with the core values.

Big Hairy Audacious Goals (BHAG's):

The Visionary Companies use BHAG's to challenge and motivate their workforce. True commitment to the BHAG is critical, its where the rubber meets the road. A certain amount of hubris is needed to set these goals. However, the goals seem much more audacious to those outside the company than those inside the company. The leaders of the Visionary Companies had great faith they could do what they set out to do. The authors found that 14 of 18 Visionary Companies used BHAG's more frequently than did the comparison companies.

As an example, they give Boeing's decision to develop the 707 at a time when they were not the leader in commercial aviation. McDonnell Douglas then the commercial aviation leader thought the future of aviation was in propeller driven airplanes. Building the 707 was a BHAG, it required a commitment of a quarter of Boeing's then net worth. Its accomplishment propelled Boeing into commercial aviation leadership, where it has stayed. Boeing has a history of using BHAG's.

GE's vision statement, which is a BHAG, is compared to Westinghouse's. GE's vision, "Be number 1 or number 2 in every market we serve and revolutionize this company to have the speed and agility of a small enterprise." Westinghouse's was, "Total quality, market leadership, technology driven, global, focused growth, diversified." The contrast is that GE's goal is clear, compelling and exciting, and therefore, much more likely to propel progress.

The example of the moon mission illustrates the motivational power of BHAG's. Kennedy the charismatic leader, who set the BHAG, died six years before we landed on the moon. Yet we were able to achieve this momentous accomplish because the BHAG itself was compelling, it took on a life of its own. BHAG's help Visionary Companies transition across changes in leadership.

Paul Galvin of Motorola used BHAG's to propel the engineers to greater achievement, Zenith did this some in its early years, but stopped doing this with the death of its founder. Eugene McDonald, the founder of Zenith was a great leader, but he was a time teller. Galvin was a clock builder.

An organization can have multiple BHAG's at one time at different levels of the organization. They need to be very clear and very compelling. A BHAG is a goal not a statement. They should be outside your comfort zone. An organization has to watch out that once they have achieved their goal, they do not become complacent. One answer to complacency is to set another BHAG. BHAG's needs to be consist with your core ideology. Boeing's decision to develop both the 707 and 747 were clearly consistent with its core ideology of being on the cutting edge of aviation technology.

When a company develops a sense of its ability to defy the odds and accomplish great things, it makes people feel they belong to something unique, better. This is a key to high morale.

Cult Like Cultures:

Visionary Companies are not great places to work for everyone. If you do not endorse the core values of a Visionary Company, you will probably not like working there. Visionary Companies are not soft. They tend to be more demanding of their people for both accomplishment and adherence to the core ideology.

Visionary have four things in common with a cult: 1) a fervently held ideology, 2) indoctrination procedures, 3) acceptance of only those who adhere to the core ideology and 4) elitism. They draw clear boundaries to being inside or outside the company. If you are inside you are part of an elite group. The authors are not saying that these companies are cults, just more cult like.

The authors use IBM and Disney as really good examples of what it means to indoctrinate their people. The "In Search of Excellence" video has excellent examples to illustrate.

Try a lot of Stuff and Keep What Works:

Many of the Visionary Companies did their best things by opportunistic experimentation. They tried a lot of stuff and kept what worked and got rid of what did not work. Examples include:

• J&J getting into the talc (Baby Powder) business
• Marriott's getting into the business of supplying food to the airlines.
• 3M's getting into the wet sand paper and masking tape businesses.
• Walmart's people greeters system.

This is evolutionary progress. The book argues for a Visionary Company being able to make revolutionary progress (BHAG's) and evolutionary progress, if it is going to remain great. Evolutionary theory holds that changes that are adaptive to the changing environment allow the species to survive. "Multiply, vary, let the strongest live and weakest die," those were Darwin's words. RW Johnson said, "Failure is our most important product." Managing failure is a key to evolutionary progress. Many companies, try a lot of stuff. Many are not able to get rid of things that don't work all that well. They don't prune well.

A 3M concept is that, "You so often get to where you are going by stumbling, but you can not stumble unless you are moving forward." 3M understands that big things often come from little things, but you can not tell which little things will blossom into big things, try a lot stuff and keep what works. 3M in contrast to Norton installed a lot of practices that encouraged individual initiative and experimentation, Norton did no such thing. The saying at Norton was you could develop any product you wanted as long as it had a hole in the middle and was round. Norton is in the grinding wheel business.

Five rules to pursue to achieve evolutionary progress:

• Give it a try and quick
• Accept that mistakes will be made, let the weakest die
• Take small steps, its easier to accept failure when it is small
• Give people a lot room to act, allow people to be persistent
• Build that ticking clock, that is make the four points above into a process. 3M Examples: a) researchers get 15% of their time to research anything they want & b) turning new products into divisions when they get to a certain size.

They found that the Visionary Companies were less likely to stick to knitting than the comparison companies. The knitting in a Visionary Company is the core ideology.

Home Grown Management:

The authors point out that Jack Welch was not a savior for GE. Welch inherited a very well managed company. Welch's predecessor retired as the most respect business leader at that time. He was CEO of the year, one year. GE performed as well under Jones' eight years as they did under Welch's first eight years. Swope, CEO in the 20's, introduced what we would call today the Balanced Scorecard. Welch has done a fine job at GE, but the point is that so did Welch's predecessors at GE. They all: 1) were management guru's for their time, 2) changed the company and 3) outperformed the competition.

The Welch era is about average for GE. See page 280 for the data. Also see tape for excellent description of the succession planning process used by Jones to select Welch. Jones started the selection of his successor seven years prior to the actual selection.

Comparison companies are six times more likely to have their CEO come from the outside. Only about 3.5% of CEO's (4) at Visionary Companies came from the outside and three of them were from one company. Its the continuity of quality leadership that counts at the Visionary Companies. The authors found that continuity of leadership was better in 15 out of 18 pairs. Continuity of leadership is critical if you are going to preserve the core, while stimulating progress.

Good Enough Never Is:

A critical question at Visionary Companies is, How can we do better tomorrow than we have done today? Visionary Companies are tremendously demanding of themselves, i.e. they have very high standards.

Willard Marriott adapted what we'd call continuous improvement principles soon after opening his first AW Root Beer stand. Comfort is not the objective in Visionary Companies, they install powerful mechanisms to increase discomfort and stimulate change before the external environment demands it. They worry about becoming fat, lazy and complacent. Examples of mechanisms used to challenge complacency: