Built To Last by Jim Collins

In Built To Last, Jim Collins and Jerry Porras research and explain the characteristics of companies that have massive success over a long period of time.

These companies are:

  • Premier institutions in their industry
  • Widely admired by knowledgable businesspeople
  • Made an significant impact in the world
  • Had multiple generations of CEOs
  • Been through multiple product (or service) life cycles
  • Were founded before 1950

How do we know that these companies are so valuable? They compared these visionary companies with a comparison company that were founded at a similar time and in a similar industry. Think Ford vs GM, or HP vs Texas Instruments. In other words, other solid companies that were better than the general market.

They found that $1 invested in the comparison companies would have returned two times what the general market would have returned. But the visionary companies would have returned fifteen times the general market.

In essence, these companies have something to teach us about what it takes to be very good, for a very long time.

How did they do it? Let’s find out.

Clock Building, Not Time Telling

The authors use the metaphor of building a clock versus telling the time to make the first important distinction between the visionary companies and the comparison companies.

When you are merely telling the time, you are focussed on having a great idea or being a charismatic company leader.

Instead, a clock builder focusses on building a great company that can thrive beyond any product cycle or leader.

Interestingly, few of the great companies in their study can trace their roots back to a great idea or excellent initial product. Some of them began as outright failures.

When Masaru Ibuka founded Sony in 1945, he had no initial product idea. After considering bean-paste soup and miniature golf equipment as two potential first products, they settled on their first product – a rice cooker. It’s first significant product – a tape recorder – failed in the marketplace.

For the visionary companies, a runaway hit product was never the ultimate goal. Creating an enduring company was. As the authors describe it, the shift was in seeing the products as a vehicle to create the company instead of the company as a vehicle to create products.

The builders of the visionary companies were ready to kill or revise a failing product, but were never willing to give up on the company.

Something very interesting happens when you focus on creating an enduring company instead of great products – you realize that you don’t need a high-profile charismatic leader to succeed.

“Tyranny of the OR”

Another interesting thing the authors found was that the visionary companies didn’t seem to make the trade-offs that most companies would make.

Where most companies would make a choice – you can have change OR stability, or low cost OR high quality – the visionary companies would find ways to have both at the same time.

More Than Profits

Visionary companies exist to do more than just make money, where the comparison companies typically don’t.

If you go to business school they’ll teach you that the core purpose of a company is to make money for it’s shareholders. Making money is obviously necessary for a company to survive. Only in Silicon Valley can companies go on for years burning through mountains of cash and still stay in business.

But the visionary companies don’t put profit first – their put their hopes and dreams for what the company can do beyond creating a profit first.

This is what the authors call the core ideology of the company. It is a set of basic precepts that say this is who we are, this is what we stand for, and this is what we are all about.

The core ideology is a combination of core values and purpose.

The core values of a company are the essential and enduring principles that drive all decision making at the company. The Johnson and Johnson Credo is an often cited example (go look it up if you have some time). They remain fixed over time, the bedrock on which the entire company is built.

The purpose of a company is the set of fundamental reasons for the company’s existence beyond just making money. The purpose should be broad, fundamental and enduring. It is something to continuously pursue, not to achieve.

As Walt Disney once said:

Disneyland will never be completed, as long as there is imagination left in the world.

Preserve the Core/Stimulate Progress

Thomas J. Watson, Jr., the son of IBM’s founder and the 2nd president of the company, sums up what the authors are getting at in this section of the book when we says:

“If an organization is to meet the challenges of a changing world, it must be prepared to change everything about itself except its basic beliefs as it moves through corporate life…The only sacred cow in an organization should be its basic philosophy of doing business.”

Preserving the core while stimulating progress is the central concept of this book.

Stimulating progress in the visionary companies is an internal drive, not an external one. They don’t wait for the market to tell them it’s time to improve. They feel compelled to do it on their own – like a great artist feels compelled to create.

The trick is to have a firm understanding of what your core actually is. Most companies in the comparison group mistake strategies and tactics for their core, and thus don’t change their strategies and tactics readily enough.

Unfortunately, that also allows them to drift from their core purpose, leading to the double whammy of a rudderless company fixated on tactics and strategies that will eventually stop working.

Now that we’ve got the core idea of the book nailed down, it’s time to move onto the five categories of preserving the core and stimulating progress you can use to become a visionary company.

Big Hairy Audacious Goals (BHAGs)

Although I have a natural fear of things that are big and hairy, I’m willing to make an exception here.

BHAGs are commitments to challenging and often risky goals toward which a visionary company channels its efforts.

It’s the difference between having a good old regular goal, to becoming committed to a huge and daunting challenge. The most often quoted BHAG of all-time is when Kennedy told the world the US would land a man on the moon before the end of the 1960s were up.

 

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In order to work, the BHAG needs to be clear and compelling. Your people need to “get it” right away – it should take little or no explanation.

GEs goal in the 1980s fit the bill. Their goal was to “Become #1 or #2 in every market we serve and revolutionize this company to have the speed and agility of a small enterprise.”

When you read your BHAG, there should be some part of you that tells you that you’ve set yourself an unreasonable goal. But there should be another part of you that tells you that you can do it anyways.

People outside your organization will think (and sometimes tell you right to your face) that you are crazy.

But when you set it right, it will galvanize the energy of your entire company towards achieving it.

Cult-like Cultures

The visionary companies build a culture that is a great place to work only for those who buy in to the core ideology. Those who don’t fit in with it are ejected like a virus, which helps to preserve the core.

That’s because when you are very clear about what you stand for, and very clear about where you are heading (someplace amazing and scary at the same time), you tend to be more demanding of your people.

This causes some people to compare these types of companies to cults. In fact, as the authors point out, they do share at least four characteristics with them.

  • a fervently held ideology
  • indoctrination
  • tightness of fit
  • elitism

When you show up to a visionary company, you are going to be reminded of your purpose and BHAG on a regular basis. You’ll be rewarded in many ways if you become a permanent part of the team. And you’ll feel a sense of elitism because out of all of your friends, you’ll be the only one working on a mission greater than earning a paycheque.

To make the comparison complete, the people around you will probably accuse you of “drinking the Cool-Aid.”

But that’s ok – that’s what it takes to become a visionary company.

One last point on this topic – this is NOT about creating a cult of personality – this is about creating a cult of purpose and mission.

Try a Lot of Stuff and Keep What Works

To me, this sounds an awful lot like what people today would call the Lean Startup method. Or at least the beginnings of it.

In visionary companies we see high levels of action and experimentation – often planned and undirected – that produce new and unexpected paths of progress that enable visionary companies to mimic the biological evolution of species.

As Richard Carlton, the former CEO of 3M once said:

“Our company has, indeed, stumbled onto some of its new products. But never forget that you can only stumble if you are moving.”

Many of the visionary companies made transitions from one market to another not because of detailed strategic planning, but by experimentation, opportunism, and sometimes by accident.

American Express started off as a freight business in 1850. One of the things they originally shipped was cold hard cash (think of a Brinks truck today and you get the idea). The creation of money orders forced a decline in demand for their cash shipping service, so they created their own money order, which they called the “Express Money Order.” That started their transformation into the financial juggernaut we know today.

Each of the visionary companies exhibited this kind of behaviour. 3M famously created the Post-It note as a failed experiment into a permanent adhesive, which one of their engineers used to mark pages in his church hymnal. The rest, as they say, is history.

If you want to create a culture where evolutionary progress takes hold, start with these five principles.

  1. Give it a try—and quick!. Try new things, adjust to what you find, and for heaven’s sake, keep moving.
  2. Accept that mistakes will be made. The nature of experimentation is that you don’t know what you’ll find. So some things will work, and others won’t. Accept that mistakes will be part of the process.
  3. Take small steps. Small steps serve two purposes. First, any small mistake won’t sink the company. Second, many small steps put together are what it takes to make real progress.
  4. Give people the room they need. Give your people the latitude to try new things.
  5. Build the clock. Turn the previous four steps into something that becomes part of your culture.

Home-grown Management

In visionary companies we see a lot more promotion from within the company, which means that the senior management is always filled with people who’ve spend a significant amount of time immersed in the core ideology of the company.

This one is pretty straight-forward and doesn’t require much more explanation.

Just remember that you need to have a management development process and long-term succession planning in place to ensure a smooth transition from one generation to the next.

If you are doing a good job of developing talent internally and keeping them indoctrinated in your core purpose, you should have no problem finding your next great executive from your ranks.

Good Enough Never Is

In the visionary companies, we see a “continual process of relentless self-improvement with the aim of doing better and better, forever into the future.”

The critical question for each of the visionary companies is not “how are we doing compared to our competition?”, it is “how can we do better tomorrow than we did today.”

In fact, visionary companies will go to great lengths to ensure that they create discomfort so that they can create change before the external world demands it.

As an example, in the early 1930s, P&G already had the best products, the best people, and the best marketing. So they designed a brand management structure that allowed P&G brands to compete directly with other P&G brands.

In each of the visionary companies the authors found some sort of discomfort mechanisms to combat complacency – which is something that the best in any field have to combat.

Boeing had a practice they called “eyes of the enemy”, where they assigned managers the tasks of coming up with business plans with the sole purpose of destroying Boeing. Then they would come up with plans to respond to those (imagined, but very real) threats.

The goal for the visionary companies is to ensure the long-term health of the company, which requires constant investment into the future. This includes when times are good, and when times are bad. Long-term health is never sacrificed in the name of short-term profits.

Conclusion

Interestingly, much of what was written about these Built To Last companies is coming back into fashion about 35 years later.

What I want to suggest is that these principles were once required if you wanted to build a great and enduring company. These days, it seems as though you need to follow these principles if you merely want to survive.

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