Originally published at: https://blog.12min.com/built-to-last-summary/
MicroSummary: “Built to Last” is one more fascinating research-laden study by Jim Collins; co-written with Jerry Porras, it strives to understand why some companies - which they call visionary - survive through hard times, while others fail.
To understand the characteristics of the most successful companies in the United States and what they have in common, they observed 18 visionary companies and analyzed them in dozens of criteria defined by the authors.
With an emphasis on management principles that are timeless, they spent 6 years trying to understand how big companies become big and stay on top.
From this research came the book that breaks down several myths of the business world and reveals the characteristics of a secular company. The main myths broken in this book are:
- You need a good idea to set up a large company;
- You need a charismatic leader;
- Maximizing profits is the primary goal of visionary companies;
- A company made to last is necessary to destroy the competition;
- Bringing CEOs from other companies helps to evolve the organization;
Built To LastTo study the biggest and best companies in the United States, Jim Collins interviewed hundreds of market executives. From this research, he selected the 18 most cited and called them visionary companies.
These companies were surveyed over 6 years, always compared to companies that, even without fantastic performances, competed in the same market.
These were not bad companies, but they were called visionaries much less often by the executives interviewed.
The companies were evaluated according to their age. In both groups, the average founding date of the companies dates back to the end of the 19th century.
The survey data were obtained through a demonstration of results, interviews with executives, news and covered all aspects of the company.
The research took into account dozens of factors such as corporate culture, corporate structure, employee satisfaction and market penetration.
To exemplify just how extraordinary visionary companies are, Jim Collins proposes a simulation. If you had invested a dollar in visionary companies in 1920, in the 1990s, you would have accumulated more than $ 6,000.
For comparison purposes, if you had invested the same dollar on the American stock market, you would have accrued only $ 400 in the same period. That’s right. The companies evaluated as visionary had a performance 15 times better than the performance of the stock market.
The comparison companies of the study also had positive reviews, with a performance 2 times better than the stock market in this period.
One of the most exciting points of the research is that it destroys many myths associated with success in the corporate world, outlining the winning companies.
Let’s study them.
You Don't Need A Great Idea To Build A Great CompanyFew of the visionary companies started with a great idea. In fact, many started without a specific idea, and several of them started with bad ideas that ended up being abandoned halfway.
Hewlett-Packard (HP) also had no specific idea in mind when it was founded.
Its founders tried to sell automatic discharges to bathrooms and bowling equipment. Obviously, these were not the ideas that turned these companies into the powers that they are today.
Visionary Companies Do Not Need Visionary And Charismatic LeadersThey are focused on architecting an institution built to last. Successful companies have focused much more on architecting a lasting organization than on having a charismatic individual leader.
As much as visionary companies had notable individuals at the top, they were generally simple and modest people. Also, many of the comparison companies also had visionary leaders, and this was not enough for success. Instead of focusing on its leader, the visionary companies studied built organizations that constantly generated great ideas and new leaders.
The true creation of the founders was not a product, but the company itself, which was constantly advancing independently of a person or idea.
Visionary companies are not personality cults, centered around a charismatic CEO or founder, but rather around their core values.
Although charismatic personalities can also stimulate passionate work, such “cults” inevitably collapse when the person leaves, and this is not characteristic of a company built to last.
Visionary Companies Do Not Exist To Maximize ProfitsThey care first about their core values. They have a set of goals and profitability is just one of them and, in many cases, it is not the main one. They are guided by a fundamental ideology, a set of core values.
They have a greater purpose for their existence and have relevant principles that control all their decisions - this purpose forms their ideology: solid principles that guide the company through generations. Johnson & Johnson, for example, wrote its core values in the 1930s in a document called “Our Beliefs.”
The company’s responsibilities were already set there. First, what J & J sought was to serve its customers well. Then its employees. Once these priorities had been met, then the shareholders should receive a return on their investments.
Visionary companies do not share a set of predefined values.
Each company has its values. There is no fundamental set of values to become a visionary enterprise. The most important point is not what the content of the company’s ideology is but how much the organization believes in those values.
Core values are important not only when visionary companies succeed, but also when they face crises that can threaten their existence. When Ford faced an extreme crisis in the 1980s, its executives stopped to discuss and clarify what the company represented and how they could remain faithful to the values of its founder, Henry Ford.
The Only Constant Is Not Just ChangeThe established system also matters a great deal. A visionary company religiously preserves its core values. They are focused on the progress that allows them to change and adopt innovations, but they never compromise their core values.
This preservation is constant even as they seek relentlessly to stimulate progress and improvements.
For example, Wal-Mart’s motto of “exceeding customer expectations” is a stable element of core values, but greeting customers entering their stores is a practice that may change.
Visionary Companies Do Not Opt For Safe StrategiesThey experiment, get it right, fail and learn from their mistakes. Although people believe that visionary companies are conservative and bureaucratic, they are not afraid of taking risks and are always committed to big, audacious goals.
To achieve progress, visionary companies often define incredibly bold goals with which they fully commit themselves. They can often seem unrealistic, yet they are also clear and tangible enough to energize and increase the focus of the organization.
A well-known example of a goal like this is that set by John F. Kennedy in 1961 when he proclaimed that the US would take a man to the moon and return safely until the end of the decade.
At the time, this was an almost ridiculously courageous commitment, but it did move the US vigorously forward. Boeing has set many goals of its kind throughout its history, including its commitment to the development of the enormous 747 jet.
Boeing pursued this goal with full force without even considering the possibility of failure. The CEO said he would complete the model even if it consumed the entire company.
That almost happened, at one point he had to shut down 60% of the company’s workforce because airplane sales did not live up to expectations. J & J, for example, took risks and failed with a line of focused gypsum products to immobilize children with fractures.
The kids loved the product, but the hospitals had a huge rejection, after all, they did not want to have to deal with that kind of dirt on their stretchers and the parts that went to the laundromats and got colored with plaster.
Visionary companies understand that failed experiments are the price they need to pay for evolution and take these risks to reinvent themselves.
Visionary Companies Are Not Necessarily The Best Places To Work For EveryoneThey are great places for people who share their values to work together. Only those who fit the core values will find the company a great place to work. They reinforce their ideologies with such determination that their corporate cultures are almost like sects.
Employees often become completely immersed in the core values of the company. Consider IBM, for example, where future training managers sang group marches with their employees.
At the Walt Disney Company, the employees have to live and breathe their ideology of healthy fun for the family.
For example, bearded men were not accepted as staff at the theme parks, and if someone cursed in the presence of Walt Disney himself, he was fired immediately, no matter his place in the hierarchy.
New employees in these companies often realize that they either fit in perfectly and succeed or not and become unhappy and leave the company.
There is no middle ground in visionary companies, but because employees are confident and adhere to the core values, they also have the freedom to experiment. There is no space in visionary companies for people who do not meet their expectations and rigid standards.
Visionary Companies Do Not Move By Bright And Extremely Well Planned StrategiesThey are betting on experimentation. In general, the best results from featured companies comes from their ability to experiment, trial and error approaches and in some cases even accidentally. They stimulate evolutionary progress, always encouraging experimentation.
Visionary companies understand the need to foster a progressive evolution within their business. They encouraged their employees and managers to try out new ideas, products, and practices, some of which became great successes.
J & J’s famous Band-Aids were born when an employee gathered some bandages and gauze to quickly bandage his wife’s fingers after she accidentally cut herself with a kitchen knife.
He mentioned the idea to executives at J & J, who embraced the idea and launched the product on the market.
Quickly, the Band-Aid product line became the best-selling category in the company. In the case of 3M, the company encourages employees to spend 15% of their time on projects of their choice.
Some of the company’s extremely successful items such as Post-its came from this management model that embraces experimentation, while its direct competitors never ventured into the creation of products of greater commercial risk.
Visionary Companies Do Not Hire Market CEO's To Manage Change; They Create a Constant Flow Of New Leaders Formed In HouseHouse rules and practices are adopted much more often in visionary firms than in comparison group companies. While the visionary companies studied had notable CEOs at various times, what was most impressive was their ability to continue to produce quality leaders at all times.
These organizations focused massively on the cultivation of managerial talent within the company itself so that new leaders could always be retained to continue to perform by their fundamental values.
Visionary companies have always invested in clear succession plans to ensure continuity of leadership even if something unexpected happens. General Electric (GE) has as its most famous CEO the legendary Jack Welch.
But in fact, thanks to the company’s fervent emphasis on internal leadership training, GE has always had leaders of the caliber of Welch.
More leading professionals trained at GE have gone on to become executives of large US companies than any other company.
ack Welch, for example, designed his succession plan seven years before retiring. Bob Galvin, the former CEO of Motorola, planned his next generation of leadership a quarter of a century before leaving.
In contrast, comparison group companies often hire outside CEOs who were unfamiliar with the company and who in many cases ended up pointing in the wrong direction.
In the comparison group, company CEOs were very little involved in succession planning, leaving holes in the lead when they left. In some comparison firms, CEOs actively prevented any succession planning and sabotaged potential candidates.
Visionary Companies Do Not Focus On Beating The CompetitionThey focus on continuous improvement of themselves. The most successful companies never have their focus on competition and to gain more market share than their competitors.
They strive to compare themselves and be better than they were in the past, implementing processes that encourage continuous improvement.
Wal-Mart, for example, spurred steady growth with its “Beat Yesterday” campaign, which was based on monitoring and helping its employees always to increase sales over the previous day and year.
Hewlett-Packard has also created a continuous improvement mechanism based on employee rankings.
These rankings helped people develop and barred employees who were looking for promotions without really striving.
Visionary Companies Do Not Have a Limiting Vision of What Is PossibleThey do many things at once and pursue seemingly antagonistic goals. Visionary companies do not believe in the view that you have to choose rationally between a restrictive option A or B. They think in the paradoxical view that they can pursue multiple goals at the same time and seek A and B at the same time.
The central value of Boeing is to be a pioneer in the field of commercial aviation, but the construction of jumbo jets is a manifestation that the company can choose more than one way without losing its essence.
This flexibility shows how visionary businesses refuse to adhere to the so-called “tyranny,” in which a company must choose to remain faithful to its core values or to stimulate progress.
Instead, visionary companies use the “e” path, relying on experimenting and reconciling diverse models.
Visionary Companies Do Not Just Have a Clear And Well Defined VisionThey put their vision and values into practice, every day. Creating a statement defining the vision and purposes of the company can help, but it is only one of the thousands of steps in an endless continuous improvement process.
When Merck wanted to become a benchmark in medical research, it deliberately modeled its labs from the models of academic research centers and allowed its researchers to publish their findings in academic journals.
That was unusual for private companies, and they were against the tide. The company also decided that the product development process should be driven by the research team and not by marketing, as it was in many other companies.
That attracted the best scientists to Merck’s laboratories and made the company stay true to its values.
Becoming A Company Built To LastTo turn a business into an organization built to last, you need to have a well-designed vision that has 2 key components. The set of core values of the company and a visualization of the future.
A well-designed vision should explain why the company exists, but also the aspirations of what the company seeks and what progress should be achieved over time. Core values are the glue that joins the pieces of an organization as it grows, becomes decentralized, diversifies, and yet remains coherent.
They should be divided between the essential practices and beliefs of the day to day business of the company and the central purpose of the company, the reason the company exists. It is not possible to install new core values in people, so it is essential that they already have them.
The future visualized also consists of two parts. A daring long-term plan with a remarkably challenging and clear objective and a vivid description of how the company will be when it achieves this goal.
Defining a long-term goal asks you to understand precisely the current capabilities of the organization, but also take into account market forces and future conditions. An audacious goal should be so clear that it needs no explanation, but should also be out of your comfort zone.
Objectives should be focused on 20, 30 years and can be qualitative or quantitative.
They may involve a common enemy when it is based on winning something that is established, as in the fight between David and Goliath.
Or they can also be based on a major internal transformation or even become the primary reference in a given sector.
It is essential to keep in mind that this constant dynamics of revising core values and not necessarily focusing on mission phrases and values is the main machine to create companies made to last.
If done correctly, you will not need to revise it for at least a decade and will have created a great alignment in the organization.
Final Notes:Visionary companies must create a core set of values and remain faithful to them in all aspects of the business.
These core values of the company make clear to everyone what the reason the company exists.
Profits are not the most important thing, and before them, one should always focus on the customers and employees of the company.
If your core ideology is solid enough, to the point that people live daily on these principles and focused on continuous improvement, it may be that you have built a company built to last.