Saturday, February 25, 2012

Built to Last: Successful Habits of Visionary Companies

 Built to Last: Successful Habits of Visionary Companies is the breakthrough work by Jim Collins and Jerry I. Porras. It is the predecessor to the transformational book Good to Great: Why Some Companies Make the Leap... and Others Don't that I read last year. For Built To Last, the authors spent six years analyzing a number of companies that had been in business for at least 50 years, and had managed to achieve spectacular results throughout their lifetime. Each company was paired with a comparison company that was similar in many ways, but which had achieved far less impressive results over a similar lifespan. Focusing on the difference between the 20 companies in the visionary vs. non-visionary set, the authors presented one overarching theme, and a number of supporting ideas. The list of visionary companies included GE, 3M, HP, Nordstroms, Merck, Proctor & Gamble, Citibank, Disney, Boeing, Motorola, Phillip Morris and Marriott.

The key recommendation for the book was to "Create tangible mechanism designed to preserve the core and stimulate progress".

Although these two principles might seem to be in conflict, the authors described a "yin and yang" system of opposing but necessary checks and balances.

The core of a business is the guiding ideology and purpose that can endure over many years and is unaffected by changes in the external environment. Leaders of a business may have started with this core first, or it may have developed over time. However, having a clear but limited set of core values and a supporting ideology was an important characteristic of the visionary companies.
A significant portion of the book was devoted to identifying the core values and ideology.  These values were almost always separate (and at times even at odds) with the necessary requirement of making a profit. They formed the foundation that continued to guide, inspire and focus the company in a volatile environment.

Two questions can be helpful in discovering/uncovering the core values of a company.

1.. What would we still want to do even if the market did not value it. What would we still be doing in 100 years that would be meaningful, even if the mechanics of how we accomplished it had completely changed?

2. If someone offered us a substantial buyout package to close our doors, what reasons would we have to reject the offer and continue? What is our value to the world?

There is no correct answer, but finding the answer for your company will help to define what is unique about it. One surprising finding was that having values appeared to be more important than what the values were. For example, Phillip Morris values individual freedom, responsibility and a strong desire to win, and these values permeated the culture even though the end result of those values was a profitable tobacco company that stands at best on very dubious moral grounds.

There were two primary mechanisms used to preserve the core ideology:

1. Promote home-grown management.

2. Build a cult-like culture.  It's a great place to work for those who buy into the core ideology. Those who don't fit are "ejected like a virus"

One of the more disturbing findings was that visionary companies were often cult-like, providing very concrete mechanisms intended to reinforce the core ideology to a level that went way beyond typical "corporate culture".

Visionary companies:

- Insure a tightness of fit either before hiring through tight screening, or soon after through a clear weeding process
- Create a sense of belonging to something special
- Provide ongoing corporate training programs with ideological as well as practical content,  teaching values, norms, history and tradition
- Encourage socialization within the organization on and off the job
- Promote from within, and explicitly link compensation and/or advancement policies to following the corporate ideology
- hire young, and indoctrinate
- Create and highlight a corporate mythology of heroes and examples
- Utilize unique terminology that reinforces the sense of belonging to an elite group
- Encourage corporate songs, pledges, affirmations or cheers that reinforce psychological commitment
- Provide awards and recognition for those who show great effort consistent with the ideology, as well as punishments
- Emphasize corporate heritage and values in written and verbal communications

Stimulating progress was similarly distilled down to a few mechanisms:

1. Set Big, Hairy, Audacious Goals (BHAGs)

BHAGs must be simple to understand, and pack an emotional punch. They are not boring missions statements, but concrete, easily stated goals that are so inspiring that they could persist even without the initial leader. They must be achievable, but only barely. The company must stretch to achieve them, and leaders must also be aware that once one is successfully completed, complacency can set it without another large goal. BHAGs must also remain in line with the core ideology.

2. Try lots of experiments, keeping what works and discarding the rest.

Mistakes and failures are a critical part of creation and success. Learn to fail faster, and to not repeat the same mistakes. Also, mistakes in execution are completely different from transgressions against the core values of the company, which are not tolerable.

Allow everyone to exercise a degree of autonomy. From their experiments will come progress. Also allow them to be persistent. Let them work through an idea. Companies that grant substantial operational autonomy have as a prerequisite a set of clear and guiding principles, a mission and purpose. For example, Nordstroms provided a one-page employees manual that boiled down to use your best judgment to make the customer happy. Once the core values have been clarified to provide a guiding framework and direction, then autonomy frees up the employees to move forward with those larger objects as they see fit.

3. Good enough never is. Practice continuous self improvement and set up mechanisms to guard against complacency.

Visionary companies drove themselves harder than the comparison companies. They build "mechanisms of discontent" to "obliterate complacency"  and bring about change and improvement from within still keeping true the core values.

Leaders a visionary companies were "clock builders", not "time tellers". They worked to create patterns today that would lay the foundations for success in the future.

Life in a visionary company is not supposed to be easy, in fact doing well is not even an end goal. Rather, the goal is to always do better tomorrow than you did today.

Mechanism examples:

  • Disney didn't leave ideology up to chance. It created Disney University and required all employees to attend classes on Disney history and traditions.
  • HP instituted a promote-from-within policy, and encorporated values from the "HP Way" into the annual review process, making it very difficult for anyone to rise through the ranks without demonstrating core values.
  • Marriott instituted rigorous employee screening, employee indoctrination programs, and customer feedback loops.
  • Nordstrom's created a cult of customer service reinforced by rewards and penalties. "Nordis" who treat the customer well become well-paid customer heros, and those who treat the customer poorly are ejected.
  • Motorola committed to six sigma quality, and pursued quality awards.
  • GE created one of the first corporate R&D labs to drive innovation.
  • Boeing made huge commitments to technological innovations, where failure could have killed the company.
  • P&G created an internal competition mechanism that put internal product against product to bring out the best
  • 3M decentralized, initiated a 15% time project, created an internal venture capital fund, and introduced a rule that 25% of each division's annual sales should come from products introduced the last 5 years.

In Built to Last, the authors make a strong case for visionary companies as a social institution driven by a shared ideology and set of goals, and  far beyond merely a profit-making venture.  The high-level strategies that visionary companies use to both preserve the core AND to stimulate progress are:

1. Make the shift from time telling to clock building (focus on building processes for the future, with an emphasis on building an organization that will endure)

2. Reject the tyranny of the OR. Embrace the genius of the AND. By changing the approach, it can be possible to have both quality and  low prices, for example.

3. Have a core ideology and core purpose beyond just making money

4. Have a drive for progress, an "almost primal urge for change and forward movement in all that is not part of the core ideology"

5. Preserve the core and stimulate progress through tangible mechanisms.

Built To Last has earned its place as one of the most thought-proving business books of the last 20 years, and although I found the ideas in Good to Great to be even more applicable and actionable, I would definitely recommend Build to Last as a follow-on.

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