Author: Jim Collins, Jerry Porras
Built to Last: Successful Habits of Visionary Companies Jim Collins, Jerry Porras 1994
Great Companies: How They Achieved Greatness (Built to Last)
Author: Jim Collins, Jerry Porras
Built to Last: There are many companies in the world that achieve outstanding financial performance, you will find them in various financial rankings, such as the Fortune Global 500. But a few of them continue to operate effectively for 50, 100 or more years. And only a few truly change our lives and leave a mark on history.
Imagine what our world would be like without Scotch tape, Boeing 747s, Tide laundry detergent, Sony TVs, Hewlett-Packard laser printers, Motorola mobile phones and pagers, Donald Duck, Mickey Mouse and Disneyland.Built to Last
In 1989, Jim Collins and Jerry Porras set themselves the ambitious challenge of understanding how companies become great. The work took six years.
First of all, the authors compiled a list of great companies:
• made a selection from Inc. ratings. and Fortune and received a list of 700 companies;
• asked the CEOs of these companies to name the top five organizations on the list;
• chose 20 companies that were mentioned most often;
• Excluded companies founded less than 40 years ago (later than 1950).
There are 18 companies left. Their average age was 92 years. The oldest company was founded in 1812 (Douglas Citicorp), and the youngest in 1945 (Wal-Mart). 17 of the 18 companies were headquartered in the US.
The 18 great companies were matched with companies that were created in the same period, started in the same markets with a similar set of products and services and succeeded. Losers and outsiders were not included in the list, but champions were compared with silver and bronze medalists, who were also mentioned by the CEO, but much less frequently. This resulted in a list:
• 3M • Norton • American Express • Wells Fargo • Boeing • McDonnell • Douglas Citicorp • Chase Manhattan • Ford • GM • General Electric • Westinghouse • Hewlett-Packard • Texas Instruments • IBM • Burroughs • Johnson & Johnson • Bristol-Myers • Squibb Marriott • Howard Johnson • Merck • Pfizer • Motorola • Zenith • Nordstrom • Melville•Philip Morris
• RJR Nabisco • Procter & Gamble • Colgate • Sony • Kenwood • Wal-Mart • Ames • Walt Disney • Columbia
The researchers examined the history of companies by answering the following questions:
• How did they start? • How did they develop? • Where did you get the resources for growth? • How did the top management change? • How did they manage to survive wars and economic crises? • How have they been affected by the emergence of new technologies?
In the process of writing the book, the authors debunked many myths about great companies and tested their findings in 30 organizations from various industries, from small and young to the Fortune 500 list.
Jim Collins and Jerry Porras also refer to great companies as visionary companies because they have clear goals that may change with time and situation, but necessarily operate within a core ideology that has remained unchanged for decades.
Myth 1. It takes a great idea to build a great company.
Starting a company with a great idea is not necessary. Only three companies on the list had such an idea. These are Ford, Johnson & Johnson and General Electric. However, their ideas were not always unique, and they did not “shoot” immediately.
Henry Ford created the Ford Motor Company in 1903 to realize his engineering talent. This was his third company. The very idea of creating an automotive company can hardly be called innovative. Between 1900 and 1908, 502 similar companies were opened in the United States. Ford produced five Ford models before creating the legendary Model T in 1908.Built to Last
Most of the great companies started with no definite idea at all, many failed in the beginning, stalled, but won in the long run.
In 1937, Bill Hewlett and Dave Packard, having just graduated from university and received their engineering degrees, decided to start their own business. They had no great idea, no entrepreneurial experience. Bill and Dave only knew they wanted to do something electronic and do it together. Friends brainstormed, discussed dozens of ideas, market niches and promising products, but did not stop at anything. And then they decided that they would just create a company and start doing at least something.
The founders of Hewlett-Packard took on everything that made money: they made signal devices for bowling alleys, mechanisms for telescopes, devices for automatic flushing in toilet bowls. The young entrepreneurs barely made ends meet for a year until they received their first major order for eight sonic oscilloscopes from the Walt Disney Company. The company began to really develop when work on military orders began in the early 1940s.
Texas Instruments, unlike Hewlett-Packard, had a great idea from the very beginning. The company was engaged in the exploration of oil fields using the seismographic method. In her laboratories, special tools were created for the implementation of this business.Built to Last
The story of Hewlett-Packard threw business school professors into a stupor, destroying the legend of a visionary entrepreneur who managed to turn a successful idea into capital. However, among great companies, there are other stories of slow start without a great idea (Wal-Mart). And some visionary companies even started with a complete failure (Sony, 3M, Boeing).
The Walt Disney Company also started with a failure – the very first animated series Alice in Cartoon Land failed at the box office. Walt Disney biographer Richard Schickel recalled: “It was something lame, dull and overflowing with clichés. You could say that it was just a set of moving funny pictures, a little animated by photo tricks. Columbia Pictures’ first film More to be pitied than Scorned was a success. The production cost $20,000 and the film grossed $130,000 at the box office. This allowed the company to produce 10 more films in the next two years.Built to Last
Myth 2. Visionary companies create charismatic visionary leaders.
Most of the leaders of great companies do not conform to conventional wisdom about charismatic leaders. They focus on creating long-lived companies, while they themselves try to keep a low profile and do not position themselves as superheroes.
James Gamble, Walt Disney, William Boeing… These names are synonymous with incredible tenacity and outstanding leadership qualities. These people have led their companies to greatness. That’s what business schools say. However, William Colgate and Howard Johnson, who were at the helm of the companies on the comparison list, also stubbornly overcame difficulties, were great leaders and charismatics. However, their companies did not become number one.Built to Last
There is no direct evidence that having a great leader is a prerequisite for building a great company. The names of some of the leaders of great companies are little known.
Was William McKnight the greatest business leader? By the time the book was written, his name was not in the Fortune Hall of Fame, his biography was not published in millions of copies. Nevertheless, it was William McKnight who ran the great Minnesota Mining & Manufacturing Company (3M) for 52 years (from 1914 to 1966). McKnight’s biographer described him as an attentive listener, shy, slightly stooped, modest, quiet, thoughtful, and unobtrusive.Built to Last
Thus, the style of leadership and the individual characteristics of the leader do not play a decisive role in the development of the company.
Myth 3. The main goal of the most successful companies is to maximize profits.
Business schools teach that the driving force behind a successful business is the desire to increase the wealth of shareholders and increase profits. Visionary companies strive to maximize profits, but this is only one of their goals, and usually not the main one. At the same time, they have a greater profit than companies that are completely focused on obtaining it. Pairwise analysis showed that 17 out of 18 companies consider adherence to the company’s ideology a priority goal, and profit as a consequence of adherence to the ideology .
Mazaru Ibuka created Sony in the ruined defeated Japan of 1945. Undoubtedly, he thought about profit, product development and marketing. However, already in the first year of the company’s existence, he wrote its charter, which outlined the ideology of Sony. It is reflected not only in methods, culture and structure (Sony is decentralized, unlike most Japanese companies), but also in product development. Sony does not conduct traditional market research, but “leads the market … and perfects the product.” The company launched the production of goods for which there was no demand. Subsequently, they became bestsellers and a milestone in the world history of technology.These are a pocket radio (1957), a home video recorder (1964) and a Sony Walkman player (1979).
The authors could not find information about the ideology of Sony’s opponent, Kenwood, in open sources. Then they contacted the company directly with a request to send documents reflecting the philosophy, vision and values of Kenwood. They received an answer that there were no such documents. There were only annual financial reports that were attached to the letter.Built to Last
Myth 4. Visionary companies have identical values.
There is no win-win set of values and the right ideology to build great companies. They do not even have to be educational and humanistic, although they usually are. The secret of success is not in the “stuffing” of the ideology, but in whether the company really lives in accordance with it.
Procter & Gamble’s set of core values looks like this:
• perfect products;Built to Last
• continuous improvements;
• honesty and justice;
• concern for people and respect for the individual.
Great companies don’t ask, “What values should we choose?” They ask the question, “What do we really believe?”
Johnson & Johnson and Merck put consumers first, while Sony and Ford don’t care too much about their needs.
HP and Marriott see employees as their number one asset, while Nordstrom and Disney don’t.
Ford and Disney focus on products and services, while IBM and Citicorp do not consider them a priority value.Built to Last
Myth 5. Constant change is the key to company success.
Change is important, but not everything can be changed. The ideology of a visionary company has remained unchanged for decades, and its specific manifestations can change and develop.
“Customer service above all else” is an important and changing tenet of Nordstrom’s philosophy. And the piano in the lobby, the accounting procedures and the movement of inventory are things that can be changed.
Wal-Mart’s slogan “Exceed customer expectations” is a constant. Greeting each customer at the entrance is a variable.Built to Last
Myth 6. Large companies always act cautiously.
Great companies seem conservative from the outside. However, in reality, they set themselves ambitious goals, generate and implement bold ideas, and believe in progress. This distinguishes them from the companies on the comparison list.
Walt Disney risked his reputation by taking on the construction of Disneyland, for which there was no market demand.
Henry Ford was putting the company’s future on the line by trying to democratize the automobile.Built to Last
In successful companies, the ideology is associated with a thirst for progress. It is human nature to explore the world, to create and create. And within every great company lives the same drive for change and improvement. They set themselves super-tasks that are clear and attractive to employees and raise team spirit.
Citicorp set itself the goal of becoming the largest financial institution in the world at the very beginning of its journey, when the company was too small and such a goal seemed crazy.Built to Last
Myth 7. A visionary company is an ideal place to work for everyone.
Great companies are only good for those people who share their values and are ready to follow the requirements for employees. You will either fit into the culture of the company, thrive and grow with it, or be rejected as something alien. Visionary companies are more demanding of employees in terms of performance and commitment to ideology. They resemble a cult or sect.
If you feel uncomfortable in a customer service environment, you won’t fit in at Wal-Mart.
You can’t be a real Motorola if you don’t embrace the idea of crusades for quality.
Not everyone can stand the puritanical atmosphere of Marriott’s perfect service.
Those who fit into Nordstrom’s rigorous standards are rewarded with a variety of benefits: high salaries, bonuses, and recognition. The rest receive fines and marks in the personal file. Belonging to the “Nordi” is cultivated in the company.Built to Last
Great companies place a significant amount of influence on the education and training of their staff. They have many prohibitions and restrictions.
Disney requires every employee to attend the Disney Traditions for Newcomers courses at Disney University. Regardless of the position, all employees of the company must have an idea about the philosophy, values and rules of this business. Applicants for any position (including cleaners) go through at least two stages of interviews with different interviewers.
Unshaven men are not taken to Disneyland and women with large earrings are weeded out immediately. Those who are accepted are taught the language of Disneyland, in which a job is called a role, a shift is called a show, and visitors are called spectators.Built to Last
Myth 8. The most successful companies make the right moves due to a good strategy.
As the experience of great companies shows, success comes through experimentation, trial and error, and sometimes just by chance . What later looks like the result of brilliant strategic planning usually began like this: “Let’s try as many options as possible and leave what works.”
In 1890, Johnson & Johnson was in the business of making medical gauze and band-aid when the quality department received a complaint from a physician that a patient was irritated by the band-aid. The director of new developments sent the doctor a package of talcum powder, which soothes the skin. He also convinced the company’s management to put a jar of talc in the band-aid.
Gradually, buyers began to buy more talc, and not a band-aid. Then Johnson & Johnson released a new product – baby powder. The company began making powder by chance, but it was this accident that brought Johnson & Johnson 44% of the profits.Built to Last
Great companies prefer an evolutionary path of development and rarely plan for many years ahead. They are ready for mistakes, take small steps towards the goal, do not seek to revolutionize the industry, give employees more autonomy in their activities than companies from the comparison list. And most importantly, they do not focus on the plan, but allow for diversity and even a change in direction of activity.
If 3M had stuck to its original plan of mining or sandpapering, there would be no Post-it stickers in the world. When creating the film company, Disney had no idea about theme parks. HP didn’t know what a computer was until they made the first one.Built to Last
Myth 9: For meaningful transformation, companies should hire strong managers from outside
In visionary companies, managers who grew up inside the company are much more common than in companies from the comparison list. Over the course of 1,700 years (the sum of the lifetimes of 18 companies), visionary companies have had only four instances (in two companies, Philip Morris and Walt Disney) of bringing in a CEO from outside.
Jack Welch is often portrayed as the savior of General Electric, an old-fashioned company that hasn’t changed since the invention of electricity.
However, Welch, with his managerial baggage, did not show up at GE in 1981 out of nowhere. He grew up in this company, having started working in it at the age of 25 right after university. He worked at GE for 20 years before becoming its CEO. All of its predecessors were also “products” of GE.
GE by 1981 was not an unmanaged unstructured company. Its previous leader, Reginald Jones, was the most influential business leader according to US News and World Report in 1979 and 1980, the best CEO according to a Gallup poll in 1980. GE’s financial performance during the eight years of Jones’ leadership was similar to that of the first eight years of Welch’s tenure.
Welch’s organizational changes are significant, but he was not the first to initiate them. Gerard Swope, CEO of GE from 1922-1939, led the company into the home appliance market and introduced the concept of enlightened management that balances the interests of customers, shareholders, and employees. Ralph Cordiner, who ran the company from 1950–1963, introduced management by objectives and established the Crotonville Corporate Learning Center.
This does not detract from the merits of Welch. He changed GE, but his predecessors did the same. This is all thanks to a tradition of more than 100 years of GE CEO appointments from among employees.Built to Last
Growing great leaders is the hallmark of great companies.
Myth 10. The desire to win the competition is an important element in the growth of great companies.
Visionary companies seek to outdo their competitors, not themselves. Success and victory in the competitive struggle is not the goal, but the side effects of hard work. Every day, companies ask themselves the question: “How can we change so that tomorrow we can be better than today?” Continuous improvement in performance is part of the visionary lifestyle, and some companies have lived that way for more than 150 years. They never stop there.
The term “continuous improvement” began to be actively used in management in the 1980s, and great companies have used it for many decades.
William Procter and James Gamble talked about continuous improvement in the 1850s, William McKnight of 3M in the 1910s, Willard Marriott in 1927 after the first beer garden opened, and David Packard in the 1940s.Built to Last
Visionary companies are united by a negative attitude towards comfort. They deliberately introduce mechanisms that prevent employees from relaxing and encouraging change.
At the beginning of the 20th century, Richard Dupree, who ran Procter & Gamble, worried that the company was growing too fast and might become too full, complacent and lazy. He thought about creating an internal incentive for progress in P&G and decided to pit the various brands of the company against each other, forcing them to compete with each other. The system of internal competition launched in the 1930s was so successful that many American companies began to copy it, including Colgate, a competitor to P&G.Built to Last
Myth 11. The right choice is the key to the success of great companies.
Every great company has a yin and a yang (a symbol of Chinese dualistic philosophy often appears on the pages of the book). Great companies practice pragmatic idealism – do not choose from two opposites (A or B), but use both (A and B) :
• progress and stability;
• conservatism and risk;
• profit of shareholders and benefit for all mankind.
The pharmaceutical company Merck acts for the benefit of mankind, which does not prevent it from being an industry leader. George Merck said in the 1920s: “Medicine is for patients, not for profit. But the profit will come. The company supplied free streptomycin to Japan to fight the tuberculosis epidemic after World War II.
Nothing has changed decades later. In 1991, Merck CEO Roy Vagelos declared: “…the success of our business lies in defeating the disease and helping humanity,” and the company provided free medicines for “river blindness”, which affected more than a million people, to third world countries . The company was also engaged in the distribution of the drug so that the drugs reached those in need.
Pfizer, a competitor to Merck, also makes life-saving drugs. However, its founders and leaders emphasized profit rather than value. John McKean, president of Pfizer in the 1920s, said, “…we intend to make a profit out of everything we do.” He didn’t supply drugs for free. However, Pfizer never took a leading position in the pharmaceutical market in Japan. And Merck has been a leader in it for many decades and profits from the grateful Japanese.Built to Last
Myth 12. Great companies proclaim their mission.
The greatness of visionary companies is not the result of proclaiming mission, values, and goals, although great companies proclaimed them long before they became fashionable. Articulating key principles is a helpful step in building a successful company, but it’s only one of thousands of steps. And the presence of such declarations does not guarantee high results.
The essence of a visionary company is to build a key ideology and the desire for progress into every element of the business structure: goals, strategies, tactics, procedures, processes, cultural traditions, leadership style, salary system, etc. All this creates a special atmosphere, being in which it is impossible not to be imbued with ideology and misunderstand the ultimate goal. A great company works in concert, within a common vision.
Great companies are not perfect. They have crises and failures. They are on the verge of bankruptcy. However, they remain true to the key ideology, find a way out of the most difficult situations.
In the 1980s, Ford Motor Company needed a major overhaul. An important part of it was the declaration “Mission, Values and Guiding Principles”, which proclaimed the superiority of people and products over profit, emphasized the need to improve product quality, employee engagement and customer satisfaction. However, the declaration itself did not change the company. It was revived by thousands of concerted actions within the framework of this declaration. Here are just a few of them:
• Ford implemented statistical quality control, which included stopping the assembly line when defective parts were found.Built to Last
• Ford has created and distributed programs to all divisions to involve employees in the management of the company.
• To better inform employees, the company has created its own television.
• A direct relationship was established between the work of employees and the results of the company through the inclusion of an article on profit sharing in the collective agreement.
• A working group was established to create a world-class brand new car based on consumer needs. To implement the Taurus/Sable program, they provided $3.25 billion, which is four times the maximum budget allocated in the past.
Top 10 Thoughts
1. Great companies achieve outstanding financial performance, operate effectively for more than 50 years, and leave a mark on history, changing people’s lives.
2. Most great companies started without a definite idea, many failed at the start but won in the long run.
3. The best leaders grow within companies. Most of them do not correspond to conventional ideas about great charismatic leaders. They focus on building long-lived companies while keeping a low profile.
4. Great companies consider following their ideology as a priority goal , and profit as a consequence of adherence to ideology. At the same time, there is no universal idea and a specific set of values for creating a great company.
5. A visionary company keeps its ideology unchanged for decades, and its manifestations can change and develop.
6. Great companies are less conservative than their competitors. They set themselves ambitious goals, generate and implement bold ideas, believe in progress and are not afraid to take risks.
7. A great company is a suitable place to work only for those who share its values and are ready to follow the requirements for employees.
8. The success of most great companies is the result of experimentation, trial and error, and sometimes accident.
9. Visionary companies do not seek to defeat competitors, but themselves.
10. Great companies practice pragmatic idealism – they don’t choose between two possibilities, but use both.