ColBuil 97-12-76 Built to Last Successful Habits of Visionary Companies James C. Collins andJerry I. Porras Harper Business, 1994, 1997, 333 pp

Eighteen gold medal companies which have stood the test of time, representing several industries (those which current CEOs referred to as the best), were studied and compared, over their histories, against another set of very good companies. The fundamental principles that differentiated these companies are described and illustrated.

Summary:

“The essence of a visionary company comes in the translation of its core ideology and its own unique drive for progress into the very fabric of the organization.…” 201

“A company must have a core ideology to become a visionary company. It must also have an unrelenting drive for progress. And finally, it must be well designed as an organization to preserve the core and stimulate progress.” 216

CORE IDEOLOGY = CORE VALUES + PURPOSE 73

· Core Values = the organization’s essential and enduring tenets – a small set of guiding principles.

· Purpose = the organization’s fundamental reasons for existence – a perpetual guiding star on the horizon

Five methods of preserving the core and stimulating progress: 89-90

1. Big Hairy Audacious Goals (BHAGs) - Commitment to challenging, audacious goals

2. Cult-like Cultures – great places to work only for those who fit

3. Try a lot of Stuff and Keep What Works – high levels of action and experimentation – often unplanned and undirected

4. Home-grown Management – bringing to senior levels only those who are steeped in the core of the company

5. Good Enough Never Is – a continual process of relentless self-improvement

Notes:

“We’ve met executives from all over the world who aspire to create something bigger and more lasting than themselves….” xiii [significance for the world missionary movement?]

“Contrary to popular wisdom, the proper first response to a changing world is not to ask, “How should we change?” but rather to ask, “What do we stand for and why do we exist?” This should never change. And then feel free to change everything else. …visionary companies distinguish their timeless core values and enduring purpose (which should never change) from their operating practices and business strategies….” xiv

“If there is any one ‘secret’ to an enduring great company, it is the ability to manage continuity and change….” xv

ch 2 Clock Building, Not Time Telling

Being a charismatic leader or having a great idea is like “telling time.” Building a company that can prosper far beyond a single leader or and multiple product life cycles is like “building a clock.” This book is about being “clock builders” vs “time tellers.” 23

“…shift from seeing the company as a vehicle for the products to seeing the products as a vehicle for the company.” 28

Be prepared to kill, revise, or evolve and idea but never give up on the company. 29

Spend less time thinking about specific product lines and market strategies and more time about organization design. “…the continual stream of great products and services from highly visionary companies stems from them being outstanding organizations, not the over way around.” 31

The success of visionary companies comes from underlying processes and fundamental dynamics embedded in the organization more than from a great idea or a visionary leader. 41

Instead of being oppressed by the “tyranny of the OR,” highly visionary companies liberate themselves with the “Genius of the AND” – the ability to embrace both extremes … at the same time. e.g.

purpose beyond profit AND pragmatic pursuit of profit

a relatively fixed core ideology AND vigorous change and movement…. 44

ch 3. More than Profits

Because of their clear purpose (We are in the business of preserving and improving human life), Merck elected to develop and give away Mectizan, a drug to cure ‘river blindness,’ to people in the Third World. They even distributed the drug at their own expense. 47

“We try never to forget that medicine is for the people. It is not for the profits. The profits follow….” 48

“A fundamental element in … a visionary company is a core ideology – core values and sense of purpose beyond just making money – that guides and inspires people throughout the organization and remains relatively fixed for long periods of time.” 48

Just before the big turnaround at Ford, “there was a great deal of talk about the sequence of the three P’s – people, products, and profits. It was decided that people should absolutely come first…” This went back to the principles of Henry ford who cut the price of cars so that virtually everyone employed could own one. 52

“Profitability is a necessary condition for existence…, but it is not the end in itself for many of the visionary companies.” Profit is like oxygen,…required for life but not the point of life. 55

At Johnson & Johnson in the early 80s, CEO Jim Burke estimated he spent 40% of his time communicating the credo throughout the company. 60

Boeing has made key strategic decisions in its history as much out of an idealized view of its self-identity as out of strategic pragmatism.” “Boeing built the 747 …because it believed it should be on the leading edge of air transportation. “Because we’re Boeing.” 816

No single ideology is “right.” Some core values: customers, employees, products or services, risk taking, innovation. the core ideology gives guidance and inspiration to people inside the company. 67-8

“When people publicly espouse a particular point of view, they become much more likely to behave consistent with that point of view even if they did not previously hold that point of view.” 71

“Visionary companies don’t merely declare an ideology; they also take steps to make the ideology pervasive through the organization….” means: indoctrinate employees, nurture and select senior management based on fit, attain more consistent alignment of goals, strategy, tactics, and organization design 71

The real difference between success and failure in a corporation can often be how well the organization brings out the greatest energies and talents of its people, how it helps people find common cause with each other and sustain this cause and sense of direction – the power of beliefs. Thomas J. Watson, Jr. 73

In most cases a core value can be boiled down to a piercing simplicity that provides substantial guidance. (eg. Sam Walton – We put the customer number one.) 74

Only 3 to 6 core values. Capture what is authentically believed, not what others do. It is an internal element. The core values need no rational or external justification. They don’t change with trends and fads, or with changing market conditions. 74-5

Purpose is broad, fundamental, and enduring. Should guide and inspire the organization for years. Always pursued but never fully achieved or completed – like chasing the earth’s horizon or pursuing a guiding star. 76-7 “You cannot fulfill a purpose; it is like a guiding star on the horizon – forever pursued, but never reached.” 224

ch 4. Preserve the Core/Stimulate Progress

A core ideology is basic to a visionary company, but it is not sufficient. You must also stimulate progress. The core is protected but the manifestations of the core are open for change and evolution. [Thesis: “Preserve the Core/Stimulate Progress.”] 80-1

To succeed, you have to stay out in front of change. An organization must be prepared to change everything about itself except its basic beliefs. The only sacred cow is its basic philosophy of doing business. (paraphrased from Thomas J. Watson, Jr.) 81

The dynamic interplay between core ideology and the drive for progress: 85

Core Ideology Drive for Progress

Provides continuity & stability Urges continual change for strategies

Plants a fixed stake Impels constant movement

Limits possibilities Expands the variety of possibilities

Clear content Content-free (any progress is good)

Conservative Can be dramatic, radical & revolutionary

Diagnostic Questions for Your Organization: 90

Are you time telling or clock building?

Subject to the tyranny of the OR or embracing the AND?

Is there a core ideology?

Is there a drive for progress?

Are both of these maintained through BHAGs & homegrown management?

Is the organization in alignment so that people receive a consistent set of signals to reinforce behavior that supports the above?

ch 5. Big Hairy Audacious Goals

A BHAG is clear and compelling, a unifying focal point, often creating immense team spirit, having a clear finish line. It reaches out and grabs people in the gut. tangible, energizing, highly focused. People “get it” right away; it takes little or no explanation. 94

BHAGs border on the impossible, where reason and prudence might say, “This is unreasonable,” but the drive for progress says, “We believe we can do it nonetheless.” 97

It is not just the goal but the commitment to the goal that stimulates progress. “Staying in the comfort zone does little to stimulate progress.” 100

To set BHAGS “requires a certain level of unreasonable confidence.” 104 However, often they look more audacious to outsiders than to insiders. For some, it just didn’t occur to them that they couldn’t do it! 105

Review of BHAG (Big Hairy Audacious Goal) qualities: 111-12

· so clear and compelling it requires little explanation – a goal

· well outside the comfort zone

· bold and exciting in its own right – stimulates progress on its own

· inherent danger that completion may signal, “we’ve arrived.”

· consistent with the company’s core ideology

ch 6. The Culture

“…the point is to build an organization that fervently preserves its core ideology in specific, concrete ways. The visionary companies translate their ideologies into tangible mechanisms aligned to send a consistent set of reinforcing signals. They indoctrinate people, impose tightness of fit, and create a sense of belonging to something special through such practical concrete items as:…” (list follows). 135-36

ch. 7 Try a Lot of Stuff and Keep What Works

Many of the best moves were made by accident or experimentation rather than by strategy. 141

Evolutionary progress differs from BHAGs in two ways: ambiguity and stumbling onto something vs clear goals and small incremental steps vs bold discontinuous leaps. It is unplanned progress. 145

Try a lot of experiments, seize opportunities, keep those that work well and discard those that don’t. 148

3M phrases: 152

Listen to anyone with an original idea, no matter how absurd.

Encourage; don’t nitpick.

Hire good people, and leave them alone.

If you put fences around people, you get sheep.

Encourage experimental doodling.

give it a try – and quick!

Two key questions:

Does it work?

Does it fit with the core ideology? 167

ch 8. Home-Grown Management

“Promote from within to preserve the core.” 173

“Across seventeen hundred years of combined history in the visionary companies, we found only four individual cases of an outside coming directly into the role of chief executive.” 173

“It is not the quality of leadership…, but the continuity of quality leadership that matters.” 173 “A visionary company absolutely does not need to hire top management from the outside in order to get change and fresh ideas.” 182

ch 9. Good Enough Never Is

The critical question: “How can we do better tomorrow than we did today?” “Superb execution and performance naturally come to the visionary companies not so much as an end goal, but as the residual result of a never-ending cycle of self-stimulated improvement and investment for the future.” 185

Continuous improvement is not a program or fad but an institutionalized habit, a disciplined way of life. These are not exactly comfortable places. Comfort is not the objective. These companies install powerful mechanisms to create discomfort, to obliterate complacency and thereby stimulate change and improvement before it becomes a necessity because of external factors. 186-7

“If you really listen to your customers, they’re never happy – they’ll let you know what you’re doing wrong – and it just forces you to get better.” Bruce Nordstrom 188

Visionary companies habitually invest, build, and manage for the long term to a greater degree … Long term does not mean five or ten years, it means decades. Yet they do not let themselves off the hook in the short term. 192

“Managers at visionary companies simply do not accept the proposition that they must choose between short-term performance or long-term success. They build first and foremost for the long term while simultaneously holding themselves to highly demanding short-term standards.” 192

ch 10. The End of the Beginning

“The essence of a visionary company comes in the translation of its core ideology and its own unique drive for progress into the very fabric of the organization – into goals, strategies, tactics, policies, processes, cultural practices, management behaviors, building layouts, pay systems… - into everything that the company does.” 201

“Visionary companies do not rely on any one program, strategy, tactic, mechanism, cultural norm, symbolic gesture, or CEO speech to preserve the core and stimulate progress. It’s the whole ball of wax that counts.” 212

It’s the remarkable comprehensiveness and consistency over time that counts.” 213 It’s the little things that make a big impression. 213

“People want to believe in their company’s vision, but will be ever watchful for the tiny inconsistencies….” 214

“…the only sacred cow in a visionary company is its core ideology. Anything else can be changed or eliminated.” 216

ch 11. Building the Vision

Vision. A well-conceived vision consists of two major components – core ideology and an envisioned future. A good vision builds on the interplay: it defines “what we stand for and why we exist” and sets forth “what we aspire to become, to achieve, to create”…220-1

Envisioned future consists of a BHAG (which takes 10- 30-years and the whole organization to achieve) and vivid descriptions of what it will be like when the organization achieves it. 232

The “vivid description” is a vibrant, engaging, and specific description of what it will be like to achieve the BHAG, translating the vision from words into pictures, an image that people carry in their heads, picture-painting. 233

This requires thinking beyond the current capabilities of the organization and current environmental trends, forces, and conditions. It should not be a sure bet – maybe 50-70% probability – but the organization must believe ‘we can do it anyway.’ It should require extraordinary effort, and perhaps a little luck. 232

Identifying core ideology is a discovery process, setting the envisioned future is a creative process. 234

“In identifying the core values…, push with relentless self-honesty for truly CORE values. If you articulate more than five or six, …you’re not getting down to the essentials….” About each one, ask, “If the circumstances changed and penalized us for holding this core value, would we still keep it?” 222-3

“Do not ask, ‘What core values should we hold?’ Ask instead: ‘What core values do we actually hold?’ Core values and purpose must be passionately held on a gut level or they are not core. Values you think the organization ‘ought’ to have, but that you cannot honestly say that it does have, should not be mixed into the authentic core values. To do so creates cynicism throughout the organization.” 229

“Core ideology need only be meaningful and inspirational to people inside the organization; it need not be exciting to all outsiders.” 229

“You cannot ‘install’ new core values or purpose into people. Core values and purpose are not something people ‘buy in’ to. People must already have a predisposition to holding them. Executives often ask, ‘How do we get people to share our core ideology?’ You don’t. You can’t! Instead, the task is to find people who already have a predisposition to share your core values and purpose, attract and retain these people, and let those who aren’t disposed to share your core values go elsewhere.” 230

“Once you’re clear about the core ideology, you should feel free to change absolutely anything that is not part of the core ideology. From then on, anytime someone says something shouldn’t change because ‘It’s part of our culture’ or ‘We’ve always done it that way’ or any of the other excuses for resisting change, remind them of this simple rule: If it’s not core, it’s up for change.” 231

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