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Built to Last: Successful Habits of Visionary Companies | Jim Collins

Built to Last: Successful Habits of Visionary Companies | Jim Collins

TWELVE SHATTERED MYTHS

Myth 1: It takes a great idea to start a great company.

Reality: Starting a company with a “great idea”might be a bad idea. Few of the visionary companies began life with a great idea. In fact, some began life without any specific idea and a few even began with outright failures. Furthermore, regardless of the founding concept, the visionary companies were significantly less likely to have early entrepreneurial success than the comparison companies in our study. Like the parable of the tortoise and the hare, visionary companies often get off to a slow start, but win the long race.

Myth 2: Visionary companies require great and charismatic visionary leaders.

Reality: A charismatic visionary leader is absolutely not required for a visionary company and, in fact, can be detrimental to a company’s long-term prospects. Some of the most significant CEOs in the history of visionary companies did not fit the model of the high-profile, charismatic leader—indeed, some explicitly shied away from that model. Like the founders of the United States at the Constitutional Convention, they concentrated more on architecting an enduring institution than on being a great individual leader. They sought to be clock builders, not time tellers. And they have been more this way than CEOs at the comparison companies.

Myth 3: The most successful companies exist first and foremost to maximize profits.

Reality: Contrary to business school doctrine, “maximizing shareholder wealth”or “profit maximization”has not been the dominant driving force or primary objective through the history of the visionary companies. Visionary companies pursue a cluster of objectives, of which making money is only one—and not necessarily the primary one. Yes, they seek profits, but they’re equally guided by a core ideology—core values and sense of purpose beyond just making money. Yet, paradoxically, the visionary companies make more money than the more purely profit-driven comparison companies.

Myth 4: Visionary companies share a common subset of “correct”core values.

Reality: There is no “right”set of core values for being a visionary company. Indeed, two companies can have radically different ideologies, yet both be visionary. Core values in a visionary company don’t even have to be “enlightened”or “humanistic,”although they often are. The crucial variable is not the content of a company’s ideology, but how deeply it believes its ideology and how consistently it lives, breathes, and expresses it in all that it does. Visionary companies do not ask, “What should we value?”They ask, “What do we actually value deep down to our toes?”

Myth 5: The only constant is change.

Reality: A visionary company almost religiously preserves its core ideology—changing it seldom, if ever. Core values in a visionary company form a rock-solid foundation and do not drift with the trends and fashions of the day; in some cases, the core values have remained intact for well over one hundred years. And the basic purpose of a visionary company—its reason for being—can serve as a guiding beacon for centuries, like an enduring star on the horizon. Yet, while keeping their core ideologies tightly fixed, visionary companies display a powerful drive for progress that enables them to change and adapt without compromising their cherished core ideals.

Myth 6: Blue-chip companies play it safe.

Reality: Visionary companies may appear straitlaced and conservative to outsiders, but they’re not afraid to make bold commitments to “Big Hairy Audacious Goals”(BHAGs). Like climbing a big mountain or going to the moon, a BHAG may be daunting and perhaps risky, but the adventure, excitement, and challenge of it grabs people in the gut, gets their juices flowing, and creates immense forward momentum. Visionary companies have judiciously used BHAGs to stimulate progress and blast past the comparison companies at crucial points in history.

Myth 7: Visionary companies are great places to work, for everyone.

Reality: Only those who “fit”extremely well with the core ideology and demanding standards of a visionary company will find it a great place to work. If you go to work at a visionary company, you will either fit and flourish—probably couldn’t be happier—or you will likely be expunged like a virus. It’s binary. There’s no middle ground. It’s almost cult-like. Visionary companies are so clear about what they stand for and what they’re trying to achieve that they simply don’t have room for those unwilling or unable to fit their exacting standards.

Myth 8: Highly successful companies make their best moves by brilliant and complex strategic planning.

Reality: Visionary companies make some of their best moves by experimentation, trial and error, opportunism, and—quite literally—accident. What looks in retrospect like brilliant foresight and preplanning was often the result of “Let’s just try a lot of stuff and keep what works.”In this sense, visionary companies mimic the biological evolution of species. We found the concepts in Charles Darwin’s Origin of Species to be more helpful for replicating the success of certain visionary companies than any textbook on corporate strategic planning.

Myth 9: Companies should hire outside CEOs to stimulate fundamental change.

Reality: In seventeen hundred years of combined life spans across the visionary companies, we found only four individual incidents of going outside for a CEO—and those in only two companies. Home-grown management rules at the visionary companies to a far greater degree than at the comparison companies (by a factor of six). Time and again, they have dashed to bits the conventional wisdom that significant change and fresh ideas cannot come from insiders.

Myth 10: The most successful companies focus primarily on beating the competition.

Reality: Visionary companies focus primarily on beating themselves. Success and beating competitors comes to the visionary companies not so much as the end goal, but as a residual result of relentlessly asking the question “How can we improve ourselves to do better tomorrow than we did today?”And they have asked this question day in and day out—as a disciplined way of life—in some cases for over 150 years. No matter how much they achieve—no matter how far in front of their competitors they pull—they never think they’ve done “good enough.”

Myth 11: You can’t have your cake and eat it too.

Reality: Visionary companies do not brutalize themselves with the “Tyranny of the OR”—the purely rational view that says you can have either A OR B, but not both. They reject having to make a choice between stability OR progress; cult-like cultures OR individual autonomy; home-grown managers OR fundamental change; conservative practices OR Big Hairy Audacious Goals; making money OR living according to values and purpose. Instead, they embrace the “Genius of the AND”—the paradoxical view that allows them to pursue both A AND B at the same time.

Myth 12: Companies become visionary primarily through “vision statements.”

Reality: The visionary companies attained their stature not so much because they made visionary pronouncements (although they often did make such pronouncements). Nor did they rise to greatness because they wrote one of the vision, values, purpose, mission, or aspiration statements that have become popular in management today (although they wrote such statements more frequently than the comparison companies and decades before it became fashionable). Creating a statement can be a helpful step in building a visionary company, but it is only one of thousands of steps in a never-ending process of expressing the fundamental characteristics we identified across the visionary companies.

Having a great idea or being a charismatic visionary leader is “time telling”; building a company that can prosper far beyond the presence of any single leader and through multiple product life cycles is “clock building.” In the first pillar of our findings— and the subject of this chapter— we demonstrate how the builders of visionary companies tend to be clock builders, not time tellers. They concentrate primarily on building an organization— building a ticking clock— rather than on hitting a market just right with a visionary product idea and riding the growth curve of an attractive product life cycle.

Creating and building a visionary company absolutely does not require either a great idea or a great and charismatic leader.

Indeed, few of the visionary companies in our study can trace their roots to a great idea or a fabulous initial product. J. Willard Marriott had the desire to be in business for himself, but no clear idea of what business to be in. He finally decided to start his company with the only viable idea he could think of: take out a franchise license and open an A& W root beer stand in Washington, D.C. Nordstrom started as a small, single-outlet shoe store in downtown Seattle (when John Nordstrom, just returned from the Alaska Gold Rush, didn’t know what else to do with himself). Merck started merely as an importer of chemicals from Germany. Procter & Gamble started as a simple soap and candle maker— one of eighteen such companies in Cincinnati in 1837. Motorola began as a struggling battery eliminator repair business for Sears radios. Philip Morris began as a small tobacco retail shop on Bond Street in London.

Luck favors the persistent. This simple truth is a fundamental cornerstone of successful company builders. The builders of visionary companies were highly persistent, living to the motto: Never, never, never give up. But what to persist with? Their answer: The company. Be prepared to kill, revise, or evolve an idea (GE moved away from its original DC system and embraced the AC system), but never give up on the company. If you equate the success of your company with success of a specific idea— as many businesspeople do— then you’re more likely to give up on the company if that idea fails; and if that idea happens to succeed , you’re more likely to have an emotional love affair with that idea and stick with it too long, when the company should be moving vigorously on to other things.

Using a concept called “A Store Within a Store,” Walton gave department managers the authority and freedom to run each department as if it were their own business. He created cash awards and public recognition for associates who contribute cost saving and/ or service enhancements ideas that could be reproduced at other stores. He created “VPI (Volume Producing Item) Contests” to encourage associates to attempt creative experiments.

One of the most important steps you can take in building a visionary company is not an action, but a shift in perspective. There will be plenty of action-oriented findings in the chapters that follow. But to make good use of them requires first and foremost acquiring the right frame of mind. And that’s the point of this chapter. We’re doing nothing less than asking you to make a shift in thinking as fundamental as those that preceded the Newtonian revolution, the Darwinian revolution, and the founding of the United States.

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 the 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.

I want to discuss why [emphasis his] a company exists in the first place. In other words, why are we here? I think many people assume, wrongly, that a company exists simply to make money. While this is an important result of a company’s existence, we have to go deeper and find the real reasons for our being. As we investigate this, we inevitably come to the conclusion that a group of people get together and exist as an institution that we call a company so they are able to accomplish something collectively that they could not accomplish separately— they make a contribution to society, a phrase which sounds trite but is fundamental.... You can look around [in the general business world] and still see people who are interested in money and nothing else, but the underlying drives come largely from a desire to do something else— to make a product— to give a service— generally to do something which is of value. So with that in mind, let us discuss why the Hewlett-Packard Company exists.... The real reason for our existence is that we provide something which is unique [ that makes a contribution].

“Profit,” according to Packard, “is not the proper end and aim of management— it is what makes all of the proper ends and aims possible.”

A key step in building a visionary company is to articulate a core ideology. Drawing upon what we saw in the visionary companies, we’ve created a practical two-part definition of core ideology. Companies we’ve worked with have found this definition to be a useful guide for setting their own ideologies.

Core Ideology = Core Values + Purpose

Core Values = The organization’s essential and enduring tenets—a small set of general guiding principles; not to be confused with specific cultural or operating practices; not to be compromised for financial gain or short-term expediency.

Purpose = The organization’s fundamental reasons for existence beyond just making money— a perpetual guiding star on the horizon; not to be confused with specific goals or business strategies.

Beliefs must always come before policies, practices, and goals. The latter must always be altered if they are seen to violate fundamental beliefs.

Visionary companies tend to have only a few core values, usually between three and six. In fact, we found none of the visionary companies to have more than six core values, and most have less. And, indeed, we should expect this, for only a few values can be truly core—values so fundamental and deeply held that they will change or be compromised seldom, if ever.

All companies have goals. But there is a difference between merely having a goal and becoming committed to a huge, daunting challenge— like a big mountain to climb. Think of the moon mission in the 1960s. President Kennedy and his advisers could have gone off into a conference room and drafted something like “Let’s beef up our space program,” or some other such vacuous statement.

To set Big Hairy Audacious Goals requires a certain level of unreasonable confidence. It’s not reasonable to commit to the Boeing 707 or 747. The IBM 360 was not prudent, nor was it humble for a midsize butcher-scale seller to proclaim itself to be the International Business Machines Corporation. It’s not cautious to create Disneyland. It’s not modest to declare, “We will democratize the automobile.” It was almost foolhardy for Philip Morris— as the runt child of the tobacco industry— to take on R.J. Reynolds. It’s almost absurd to proclaim as a small company the goal of becoming the company that changes the worldwide image of Japanese products as being of poor quality.

THE BHAGs looked more audacious to outsiders than to insiders. The visionary companies didn’t see their audacity as taunting the gods. It simply never occurred to them that they couldn’t do what they set out to do.

BHAGs alone do not make a visionary company. Indeed, progress alone— no matter what the mechanism used to stimulate progress—does not make a visionary company. A company should be careful to preserve its core while pursuing BHAGs.

WELCOME TO NORDSTROM We’re glad to have you with our Company. Our number one goal is to provide outstanding customer service. Set both your personal and professional goals high. We have great confidence in your ability to achieve them. Nordstrom Rules: Rule #1: Use your good judgment in all situations. There will be no additional rules. Please feel free to ask your department manager, store manager or division general manager any question at any time.

“VISIONARY,”we learned, does not mean soft and undisciplined. Quite the contrary. Because the visionary companies have such clarity about who they are, what they’re all about, and what they’re trying to achieve, they tend to not have much room for people unwilling or unsuited to their demanding standards.

In examining the history of the 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. What looks in hindsight like a brilliant strategy was often the residual result of opportunistic experimentation and “purposeful accidents.” Consider the following examples at Johnson & Johnson, Marriott, and American Express.

LESSONS FOR CEOS, MANAGERS, AND ENTREPRENEURS

Using 3M as a blueprint for evolutionary progress at its best, here are five basic lessons for stimulating evolutionary progress in a visionary company.

1. “Give it a try—and quick!”

For 3M, unlike Norton, the modus operandi became: When in doubt, vary, change, solve the problem, seize the opportunity, experiment, try something new (consistent, of course, with the core ideology)—even if you can’t predict precisely how things will turn out. Do something. If one thing fails, try another. Fix. Try. Do. Adjust. Move. Act. No matter what, don’t sit still. Vigorous action—especially in response to unexpected opportunities or specific customer problems—creates variation. Had McKnight not asked why Okie sent his cryptic letter requesting grit samples, or had Dick Drew not impulsively promised a solution for two-tone paint jobs, or had Spence Silver not done the experiment that textbooks said could not work, or had Art Fry not tried to solve his church choirbook problem—and so on for a thousand such “ifs”—then 3M wouldn’t be a visionary company.

2. “Accept that mistakes will be made.”

Since you can’t tell ahead of time which variations will prove to be favorable, you have to accept mistakes and failures as an integral part of the evolutionary process. Had 3M nailed Okie and Drew to the wall (or fired them) for the failed car wax business, then 3M probably wouldn’t have invented Scotch tape. Remember Darwin’s key phrase: “Multiply, vary, let the strongest live, and the weakest die.”In order to have healthy evolution, you have to try enough experiments (multiply) of different types (vary), keep the ones that work (let the strongest live), and discard the ones that don’t (let the weakest die). In other words, you cannot have a vibrant self-mutating system—you cannot have a 3M—without lots of failed experiments. As former 3M CEO Lewis Lehr put it: “The secret, if there is one, is to dump the flops as soon as they are recognized. . . . But even the flops are valuable in certain ways. . . . You can learn from success, but you have to work at it; it’s a lot easier to learn from a failure.” Keep in mind J& J’s paradoxical perspective, described earlier in the chapter, that failures and mistakes have been an essential price to pay in creating a healthy branching tree that has not once posted a loss in 107 years. At the same time, keep in mind a lesson from the chapter on cult-like cultures: A visionary company tolerates mistakes, but not “sins,”that is, breaches of the core ideology.

3. “Take small steps.”

Of course, it’s easier to tolerate failed experiments when they are just that—experiments, not massive corporate failures. Keep in mind that small incremental steps can form the basis of significant strategic shifts. McKnight’s simple answer to Okie led to waterproof sandpaper, opening a large market in the auto industry, leading to Dick Drew’s masking tape and then to Scotch cellophane tape, which spawned recording tape, and so on. If you want to create a major strategic shift in a company, you might try becoming an “incremental revolutionary”and harnessing the power of small, visible successes to influence overall corporate strategy. Indeed, if you really want to do something revolutionary, it might be best to ask simply for permission to “do an experiment.”Recall American Express’s incremental steps in financial services that eventually became the primary strategic pillar of the company, and how William Dalliba used small experiments to incrementally revolutionize the company into travel services. Keep in mind the image of “twigs and branches.”Or consider the image of “seeds and fruit”used by Masaru Ibuka at Sony to convey the concept of small, idiosyncratic problems as the starting point of great big opportunities.

4. “Give people the room they need.”

3M provided greater operational autonomy and maintained a more decentralized structure than Norton—a key step that enabled unplanned variation. When you give people a lot of room to act, you can’t predict precisely what they’ll do—and this is good. 3M had no idea what Silver, Fry, and Nicholsen would do with their 15 percent “discretionary time.”In fact, the visionary companies decentralized more and provided greater operational autonomy than the comparison companies in twelve out of eighteen cases. (Five were indistinguishable.) To this lesson, we’d add a corollary: Allow people to be persistent. Although the Post-it clan had trouble convincing other 3Mers that their weird sticky little notes had merit, no one ever told them to stop working on it.

5. Mechanisms—build that ticking clock!

The beauty of the 3M story is that McKnight, Carlton, and others translated the previous four points into tangible mechanisms working in alignment to stimulate evolutionary progress—a step Norton never took. Look back at the list of mechanisms at 3M. Notice how concrete they are. Notice how they send a consistent set of reinforcing signals. Notice how they have teeth. If you’re a division manager, you damned well better meet the 30 percent new product goal. If you want to become a technical hero at 3M, you’d better share your technology around the company. If you want to receive a Golden Foot Award and become an entrepreneurial hero, you’ve got to create a successful new venture with actual products, satisfied customers, and profitable sales. Good intentions alone simply won’t cut it. 3M doesn’t just throw a bunch of smart people in a pot and hope that something will happen. 3M lights a hot fire under the pot and stirs vigorously!

We find that managers often underestimate the importance of this fifth lesson and fail to translate their intentions into tangible mechanisms. They erroneously think that if they just set the right “leadership tone,”people will experiment and try new things. No! It takes more than that. It requires putting in place items that will continually stimulate and reinforce evolutionary behavior. Tick, bong, click, whirr!

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.

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.

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, accounting systems, job design—into everything that the company does.

“We want you to be a sales professional.” Little things, like Wal-Mart giving employees at the lowest level complete departmental financial reports to send the signal, “You are a partner in the company and we want you to run your department as your own little business.”

  • Be a clock builder— an architect— not a time teller.
  • Embrace the “Genius of the AND.”
  • Preserve the core/ stimulate progress.
  • Seek consistent alignment.

Indeed, if there is any one “secret” to an enduring great company, it is the ability to manage continuity and change— a discipline that must be consciously practiced, even by the most visionary of companies.

INTENTIONS are all fine and good, but it is the translation of those intentions into concrete items— mechanisms with teeth— that can make the difference between becoming a visionary company or forever remaining a wannabe.

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