Built to Last: Successful Habits of Visionary Companies 1

Visionary companies

Like number one, visionary companies can teach usthrough their enduring success. So called visionary companies have a lot to teach us. They are companies with long track records for success and widely admired as the crown jewels of their industries. What’s more, their success is enduring,they prosper even as great leaders retire and individual hit products become obsolete.

To properly study and learn from these companies,the author’s first had to identify them by surveying 100s of prominent CEOs for the names of companies they considered visionary. The 18 most commonly mentioned firms including such venerable names as the Walt Disney Company, Marriott hotels and Merck were included in the study. The visionary companies were then paired up with comparison companies.Firms that shared similar products and markets but which while not being outright poor performers were called visionary far less often in the CEO survey.

Both groups of companies were then examinedacross their considerable lifespans, the average founding date lay in the 1890s for both groups.Based on massive amounts of data from interviews annual reports, financial statements, news articles and many other sources, all aspects of these corporations were studied ranging from their ownership structures to their cultures. To understand the extraordinary success of the visionary companies, consider this fact: If you had invested a dollar in their shares in 1926, that dollar would have been worth a $6,356 by 1990.

Compare that to 955 if you had invested in the comparison companies. And only $415 if you had invested in the general market. And you’ll see just how impressive the visionary company’s performance is. No wonder that all manner of fortune 500 companies have been fascinated by the findings of this study.

Clock building

Visionary companies are like machines that constantly produce great products and leaders. Contrary to what most people believe, the success of a visionary company is not dependent on great ideas. The founder of Sony, for example, had no specific idea of what products his company would make. He actually held a brainstorming session after founding the company to evaluate business ideas ranging from sweetened bean paste to miniature golf equipment. Bill Hewlett and Dave Packard also had no specific idea in mind when they founded Hewlett-Packard, HP. They experimented with almost farcically diverse ideas such as automatic urinal flushers, and bowling foul line indicators. Hence, it seems that great ideas are not necessary for the start of a visionary company, nor are high profile charismatic leaders. While visionary companies did have superb individuals at the top of their organizations, they were often down to earth, reserved, and modest people. But then, what is the secret of enduring success? Many comparison companies had great ideas and strong leadership, but they all fell behind the visionary companies eventually. Why? Instead of focusing on a single product or a single leader, the visionary companies studied, built themselves into outstanding organizations that constantly turned out great ideas and great leaders. The real creation of the founders was not a product at all, but the company itself. Constantly advancing independently of any one person or idea. Think of a clock on the wall. Having one great idea or visionary leader is like getting a glimpse of that clock and being able to tell the time in that instant, but building an organization that constantly generates great ideas and leaders, is like building your own clock, a reliable machine.

Core ideology over profits

Visionary companies are driven more by a core ideology than profits, but they still prosper. Visionary companies have a higher purpose for their existence than to merely chase profits. Together with the companies core values enduring tenets, that guide their decision. This purpose forms their core ideologies. A set of stable principles that guides the company through generations much like the truths of the American Declaration of Independence. Consider, for example, the pharmaceutical company Johnson & Johnson. J&J. In 1935, the CEO, Robert Johnson JR wrote out the companies core ideology in a document called Our Credo. Which listed the company’s responsibilities. First to their customers.Second to their employees and so forth. Finally, fifth and last on the list, after all the other responsibilities have been fulfilled, Johnson said that shareholders should receive a fair return. Likewise, most visionary companies studied were not primarily after profit.Nevertheless, while some ideologies may seem soft or idealistic, visionary companies managed to find a way to stay pragmatic in their business decisions and make profits without every wavering from their core ideologies. A core ideology is important. Not only when visionary companies prosper but also when they hit upon trouble. For example, when Ford faced a dire crisis in the 1980s, instead of just fighting fires, it’s management team stopped to discuss and clarify what the company stood for and how they could espouse the values of the founder, Henry Ford. Ford’s comparison company, General Motors, made no such effort. Though every visionary company studied had a core ideology, their content varied greatly. What counts is not the content of the ideology but rather that an authentic ideology exists and it’s rigorously acted upon.

Preservation and stimulation

Visionary companies preserve their core ideologies while relentlessly stimulating progress and improvement. The real heart of what makes visionary companies so successful is that, while they jealously guard the permanence of their core ideologies, the manifestations of that core ideology are always open for change and progress. For example, Walmart’s drive to exceed customer expectations, is a stable element of its core ideology. But the customer greeters at the entrance to their stores, are a practice that can change. Similarly, Boeing’s core ideology is to be a pioneer in the field of aviation. But building jumbo jets is a manifestation of that ideology that can change. This flexibility demonstrates how visionary companies refuse to abide by the so called “Tyranny of the OR”, whereby a company must choose between staying true to its core ideology or stimulating progress. Instead, visionary companies use the “Genius of the AND”experimenting and developing, while still adhering to their core ideologies. Visionary companies have their core ideologies to guide them but they are also relentless in their efforts to continually improve their products, business, and organization. They never settle and never become complacent. Consider the founder of the Marriott Corporation, J. Willard Marriott, who lived by the motto “Keep on being constructive, “doing constructive things until its time to die. “Make everyday count to the very end.” This sounds rather depressing, but is also a great commitment to constant progress. Just like their core ideologies, this drive for progress, is innate and unquestioned in visionary companies. Progress is stimulated both by, setting bold goals and by creating concrete mechanisms, that encourage people to innovate and improve.

Big hairy audacious goals

Visionary companies use big hairy audacious goals to stimulate progress. To drive progress, visionary companies often set themselves extremely bold objectives, so called, big hairy audacious goals, BHAGs. To which they commit utterly and completely. BHAGs are so ambitions that they often seem unrealistic especially to outsiders.Nevertheless, they’re also clear and tangible enough, to energize and focus the organization. A well known example of a non-corporate BHAG, is the one set by John F. Kennedy in 1961 when he proclaimed that the U.S. would take a man to the moon and back safely by the end of the decade. At the time, this was an almost ludicrously bold commitment. But it did get the U.S. moving vigorously forward. Boeing, set many BHAGs during its history. Including its commitment to developing the 747 jet. Boeing pursued this goal single-mindedly, without ever even considering the possibility of failure. The CEO stated that they would complete the jet, even if it consumed the entire company, which it nearly did. At one stage, roughly 86,000 people, some 60% of their workforce, were laid off, as sales of the plane did not meet expectations. Similarly, Thomas J. Watson Senior, the founder of the computer tabulating recording company, set a BHAG by renaming his company, which sold coffee grinders and butcher’s scales, to reflect his ambition for global status. The new name was audacious at the time. International Business Machines, IBM. BHAGs often take on lives of their own. Just as the space program continued after Kennedy’s death, the visionary companies studied, pursued their BHAGs even as new CEOs and directors came and went. Once a BHAG was achieved, new ones were set, always in line with the company’s core ideology.

Visionary organizations

The visionary organizations are almost cult-like. New recruits either thrive or leave. Visionary organizations pursue their core ideology so single-mindedly that their corporate cultures are almost cult-like. For example, new employees quickly find themselves socializing primarily with their colleagues and they are encouraged to be secretive about the inner workings of their companies. Employees often become completely immersed in the core ideology. Consider IBM, for example, where future managers in training would rise and sing songs from an IBM song book. ♪ Mark Job with IBM ♪ ♪ Work hard hand in hand ♪Similarly, the Walt Disney Company expected its employees to live and breathe its core ideology of wholesome family fun. For example, men with facial hair were not accepted as employees in theme parks and anyone heard uttering a four letter word in the presence of Walt Disney himself was fired immediately, no exceptions. There’s not much room in visionary companies for people who do not meet their tough expectations and standards. New employees often find that either they fit right in and thrive or they perform poorly are unhappy, and exit the company quickly. In this regard, there are no compromises at visionary companies. Conversely, because the employees are confident and can be counted on to adhere to the company’s core ideology, they can also be given leeway to experiment. This stimulates progress and enables the company to avoid the dangerous groupthink, endemic in many cults. Note, though, that visionary companies are not personality cults centered around a charismatic CEO or founder, but rather around the core ideology of the company. Though charismatic personalities can also drive passionate work, such cults invariably collapse when the person leaves.

Leaders from within

Visionary companies produce a continual stream of high-caliber leaders. While the visionary companies studied often had outstanding CEOs at their helms, at one time or another. What was even more impressive, was their ability to continually produce such high quality leaders. The organizations focused hard on cultivating managerial talent within the company, so that new leaders could be counted on to continue in line with the company’s core ideology. At the same time, visionary companies engaged in timely succession planning to ensure continuity in leadership even if something unexpected were to happen. Consider, for example, the General Electric Company, GE. Who’s most famous CEO is without a doubt, the legendary Jack Welch. But actually, thanks to the company’s fervent emphasis on internal management training and CEO succession, GE has enjoyed a century of Welch caliber CEOs. In fact, more GE alumni have gone on to become executives of American corporations than the alumni of any other company. And Welch himself outlined his plan for succession seven years before retiring. Though even this seems last minute compared to Bob Galvin, the former CEO of Motorola. Who began planning for the next generation a quarter century before leaving. In contrast, the comparison companies often hired external CEOs who were unfamiliar with the company, and who sometimes began staring at new, wholly ill-conceived directions. Also, the CEOs in comparison companies were often near tyrannical, and engaged in very little succession planning.Which left gaping holes in the company’s leadership when they’d left. Some comparison companies even had CEOs who actively hindered succession planning and sabotaged would-be candidates.These companies then stumbled when the troublesome CEO finally left.

Evolutionary progress

The visionary companies stimulate evolutionary progress by encouraging experimentation. Charles Darwin discovered that evolution is a series of successful experiments in which light variations are introduced to a species and the strongest new variance survived. Similarly, the visionary companies studied, understood the need to stimulate a similar evolutionary progress within their businesses. They encouraged their employees and management to experiment with new ideas, products and practices.Some of which became great successes. Consider for example Johnson & Johnson’s famous bandage.They were born when an employee put together some surgical tape and gauze to quickly bandage his wife’s finger after she accidentally cut herself with a kitchen knife. When he mentioned the idea to the J&J Marketing Department, they embraced it and eventually band-aid products became the company’s best-selling category. Or consider 3M, which directed its employees to use 15% of their working time to work on any pep projects they felt like. Two sets project by two separate employees eventually collided to produce the famous Post-It Notes. This would never have happened if 3M hadn’t actively encouraged experimentation and allowed its employees to continue with their pep projects even when early market studies were negative. Contrast this with 3M’s comparison company, Norton, which actually discouraged the pursuit of opportunities outside of its traditional product lines. One aspect of evolution is that some or even most variations fail.The same is true in business. J&J experienced some very prominent failures, too. For example its colored casts for children with bone fractures, the cast quickly turned hospital bedsheets into something resembling modern art and threw hospital laundries into chaos. Visionary companies understood that failed experiments are the necessary price to pay for evolution and must not be punished, lest further experimentation be discouraged.

Concrete mechanisms

Visionary companies don’t just talk, they take concrete actions to implement their values. While many companies claim to adhere to idealistic values, encourage experimentation, or embrace constant progress, very little is seen in practice. The visionary company studied on the other hand, managed to translate their values into reality by creating concrete mechanisms that affected the daily lives and decisions of employees. 3M did not merely say, we want our employees to be more innovative, instead itimplemented several mechanisms to encourage this idea. One example was allowing employees to use 15% of their time on pet projects and dictating that 30% of each division’s annual sales must come from products less than four years old. Likewise, visionary companies did not merely talk about constant improvement, rather they created mechanisms to ensure it. Walmart, for example, spurred constant growth with so-called beat yesterday ledgers, which were used to compare each day’s sales to those of the year prior. Similarly, Hewlett-Packard instituted a grueling process of ranking its employees annually, to stop those who gained a higher status from just coasting. The visionary companies also tookconcrete actions in the long run. They invested far more than comparison companies in creating new technologies in business practices, training and developing their human capital as well as in supporting research and development. For example, when Merck wanted to become a force in medical research, it deliberately modeled its labs on academic ones, and allowed its researchers to publish their findings in academic journals, very unusual for private companies at the time. It also decided the product development process should be driven by research rather than marketing, as it was in many other companies. This attracted top scientists to Merck’s labs.

Final summary

Thanks for listening to our readim to Built to Last by Jim Collins and Jerry I. Porras. The book’s key point is that visionary companies are able to obtain their phenomenal success by staying true to their core ideologies, while still relentlessly pursuing progress. A company’s core ideology comprises its core values, but also its purpose, meaning the reason it exists beyond profits or shareholder value.To supplement their core ideologies, visionary companies also stimulate constant progress by setting bold goals and by instituting grass-roots mechanisms to realize their policies.