Built To Last: Successful Habits of Visionary Companies
by Jim Collins and Jerry Porras
Paperback, 369 pages. Originally published 1994.
Not since In Search of Excellence has a business management book been as successful and iconic as Built To Last.
Published in 1994, Built To Last introduced the acronym ‘BHAG’ into the business lexicon, resurrected ‘vision’ as a respected idea in business again and vaulted Collins to fame as one of the leading management gurus of modern times.
It’s hard to overstate how big of a success Built to Last has been. It spent over six years on the Businessweek best-seller list.
Built to Last is focused on large, iconic companies. But it’s essential reading for any entrepreneur at any stage of building a company.
It looks at its subjects at every stage, from the moment of founding forward, and asks: what separates the most successful, enduring and visionary companies from merely great companies?
Collins and Porras are concerned with the unchanging fundamentals of successful businesses. The processes, approaches and areas of focus that generate continual success over long periods of time.
As they readily acknowledge, these aren’t always the companies or processes that attract the most attention.
The business press tends to rivet our attention on the Icarus companies—high-profile firms either on the way up or the way down. We regularly come in contact with a very different group of companies—solid, paying attention to the fundamentals, shunning the limelight, creating jobs, generating wealth, and making a contribution to society. We feel optimistic as we see these companies—and there are a lot of them—make their way in the world.
Collins and Porras are focused on identifying the approaches that don’t change.
Contrary to popular wisdom, the proper first response to a changing world is not to ask, “How should we change?” but rather to ask, “What do we stand for and why do we exist?” This should never change. And then feel free to change everything else. Put another way, visionary companies distinguish their timeless core values and enduring purpose (which should never change) from their operating practices and business strategies (which should be changing constantly in response to a changing world).
They are not focused on successful leaders in and of themselves, except for what they contributed to building successful, lasting businesses:
This is not a book about charismatic visionary leaders. It is not about visionary product concepts or visionary market insights. Nor even is it about just having a corporate vision. This is a book about something far more important, enduring, and substantial. This is a book about visionary companies.
A Unique Research Methodology
Collins and Porras both serve on the faculty of the Stanford Graduate School of Business. They are keen to point out how much research and data were involved in arriving at the conclusions presented in the book.
The authors recount six years of research, motivated by a seemingly simple question:
In 1988, we began to wrestle with the question of corporate “vision”: Does it actually exist? If so, what exactly is it? Where does it come from? How do organizations end up doing visionary things? Vision had received much attention in the popular press and among management thinkers, yet we felt highly unsatisfied by what we read.
Confronted with this question of corporate vision, Collins and Porras devised an approach they describe as unique in the annals of business writing.
We did something in researching and writing this book that, to our knowledge, has never been done before. We took a set of truly exceptional companies that have stood the test of the time—the average founding date being 1897—and studied them from their very beginnings, through all phases of their development to the present day; and we studied them in comparison to another set of good companies that had the same shot in life, but didn’t attain quite the same stature. We looked at them as start-ups. We looked at them as midsize companies. We looked at them as large companies. We looked at them as they negotiated dramatic changes in the world around them—world wars, depressions, revolutionary technologies, cultural upheavals. And throughout we kept asking, “What makes the truly exceptional companies different from the other companies?….We set out to discover the timeless management principles that have consistently distinguished outstanding companies.
They ended up selecting 18 ‘visionary’ companies to compare with 18 ‘comparison’ companies.
They arrived at their list (below) of visionary companies by surveying a sample of 700 CEOs from Fortune 500 industrial companies, Fortune 500 service companies, Inc. 500 private companies and Inc. 100 public companies. The CEO sample was meant to reflect different company sizes, industries and geographic areas.
They asked for suggestions of companies that had the following qualifications:
• Premier institution in its industry
• Widely admired by knowledgeable businesspeople
• Made an indelible imprint on the world in which we live
• Had multiple generations of chief executives
• Been through multiple product (or service) life cycles
Collins and Porras than used the 20 most-mentioned companies (subtracting 2 that were started after 1950).
As noted above, they then also selected a ‘control’ comparison company to compare with each visionary. The controls had to be from the same founding era, have had similar founding products and markets and not be a ‘dog’ company. That is, he comparison companies are successful companies in their own right.
When this final list is put together, the performance of its visionary members is extraordinary over time:
As a result, visionary companies attain extraordinary long-term performance. Suppose you made equal $1 investments in a general-market stock fund, and a visionary company stock fund on January 1, 1926. If you reinvested all dividends and made appropriate adjustments for when the companies became available on the Stock Exchange (we held companies at general market rates until they appeared on the market), your $1 in the general market fund would have grown to $415 on December 31, 1990—not bad. Your $1 invested in the group of comparison companies would have grown to $955—more than twice the general market. But your $1 in the visionary companies stock fund would have grown to $6,356—over six times the comparison fund and over fifteen times the general market.
No business book is as rigorous as a physical sciences book. And no business book is going to provide catchall guidance toward business success. And the authors are perhaps guilty of over-emphasizing the ‘rigor’ of their approach and the strength of their conclusions.
Nevertheless, it’s an undeniably interesting approach to looking at long-term business success. Take a set of the most admired and successful companies among business leaders, take another set of successful (but not extraordinary) companies started at the same times in the same industries, and then research them all exhaustively to see what patterns emerge.
One final note worth mentioning about the process is that the authors engaged in active corporate management consulting throughout the research and writing process and posed their research questions and ideas in this consulting work to get ‘real-world’ feedback.
And what was discovered from this approach? Collins and Porras’ six yeas of investigation resulted in the breaking of 12 ‘myths’ of business success.
Myth1: It takes a great idea to start a great company.
For anyone who has ever waited to jump into business because they didn’t have the perfect idea, this will be a motivating insight.
It’s also just interesting to read about the early failures and the motivations of some founders of iconic companies.
Sam Walton didn’t have much more than some basic retailing experience and a motivation for self-ownership when he started Wal-Mart. He’s quoted in a representative way:
Somehow over the years folks have gotten the impression that Wal-Mart was something that I dreamed up out of the blue as a middle aged man, and that it was just this great idea that turned into an over-night success. But [our first Wal-Mart store] was totally an outgrowth of everything we’d been doing since —another case of me being unable to leave well enough alone, another experiment. And like most over-night successes, it was about twenty years in the making.
Hewlett Packard was started with a random assortment of product ideas with no greater motivation than to make some money.
Ford, now thought of as the first great automaker, was one of 502 firms launched in the US between 1900 and 1908 to make automobiles.
Myth 2: Visionary companies require great and charismatic visionary leaders.
The authors use the idea of time telling vs. clock building to illustrate how the leaders of enduring companies work:
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.”
At some point, the leaders of the most enduring companies realize the most important product is the company itself:
But we suggest that the continual stream of great products and services from highly visionary companies stems from them being outstanding organizations, not the other way around.
Myth 3: The most successful companies exist first and foremost to maximize profits.
The companies are not opposed to making profits. Of course, they aim to do so and do so successfully. But these companies have a vision and purpose beyond just making money.
They are serious about these visions and purposes and they are publicized and acted upon.
Myth 4: Visionary companies share a common subset of “correct” core values.
While all exceptional companies have both ‘core values’ and ‘purpose,’ there’s no single set of ‘correct’ core values. Merck is motivated by healing sick people. Phillip Morris derives its zeal from the idea of consumer choice and freedom. In the context of business, both visions and sets of values are highly effective.
Some companies will be motivated by a focus on customers, some by a focus on products, some by a focus on ideas like ‘adventure’ or ‘risk-taking.’ What’s most important is that the companies actually takes these motives and values seriously, act upon them and set up mechanisms so that their companies are strongly ‘aligned’ with them.
Myth 5: The only constant is change.
The core values and purpose don’t change. But the tactics and strategies will.
Myth 6: Blue-chip companies play it safe.
Exceptional companies set goals that are risky, seem almost impossible to achieve and actually reflect a certain degree of hubris.
Collins and Porras reveal that these companies use BHAGS (big hairy audacious goals) to challenge themselves to greatness:
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. The most optimistic scientific assessment of the moon mission’s chances for success in 1961 was fifty-fifty and most experts were, in fact, more pessimistic. 13 Yet, nonetheless, Congress agreed (to the tune of an immediate $549 million and billions more in the following five years) with Kennedy’s proclamation on May 25, 1961, “that this Nation should commit itself to achieving the goal, before this decade is out, of landing a man on the moon and returning him safely to earth.”
Myth 7: Visionary companies are great places to work, for everyone.
Visionary companies are great places to work if the culture and values and vision align with yours. They’re terrible places to work if they don’t.
That’s because their cultures are so strong–their alignment so well-set–that there’s nowhere to hide if your not on board.
We learned that you don’t need to create a “soft” or “comfortable” environment to build a visionary company. We found that the visionary companies tend to be more demanding of their people than other companies, both in terms of performance and congruence with the ideology.
Myth 8: Highly successful companies make their best moves by brilliant and complex strategic planning.
Actually, in the real world, great companies make their best progress through ‘branching and pruning:’ trying a lot of different approaches and sticking with what works.
Myth 9: Companies should hire outside CEOs to stimulate fundamental change.
Collins and Porras claim this almost never works.
PUT another way, across seventeen hundred years of combined history in the visionary companies, we found only four individual cases of an outsider coming directly into the role of chief executive.
Myth 10: The most successful companies focus primarily on beating the competition.
At the very best companies, tactics and strategy change not primarily in reaction to outside pressure and changes, but from internal organizational ‘drive’ that never allows exceptional companies to become complacent:
Like core ideology, the drive for progress is an internal force. The drive for progress doesn’t wait for the external world to say “It’s time to change” or “It’s time to improve” or “It’s time to invent something new.” No, like the drive inside a great artist or prolific inventor, it is simply there , pushing outward and onward.
Myth 11: You can’t have your cake and eat it too.
The authors frequently use the image of ‘yin and yang’ throughout the book. Exceptional companies recognized ‘the value of the and’ and ignore the ‘tyranny of the or.’
That is, these companies are flexible enough to not be all-or-nothing in their approaches, but to balance competing and even contradictory approaches and goals.
Myth 12: Companies become visionary primarily through “vision statements.”
The vision statements are there. But the real value comes from alignment. From taking the visions and values seriously and implement mechanisms that force the company to act according to them.