Built to last, by Jim Collins

Built to Last

Jim Collins (born in 1958) is an American author and consultant focused on business management and company sustainability and growth.

In a six-year research project, Jim Collins and his team of researchers set out to find out what accounted for the success of visionary companies.

Below are the key lessons from the book.

The best of the best

1. Visionary companies meet the following criteria:
   1. Premier institutions in their industry.
   2. Widely admired by knowledgeable businesspeople.
   3. Made an indelible imprint on the world.
   4. Had multiple generations of CEOs.
   5. Have been through multiple product or service life cycles.
   6. Have been around for more than 50 years.
2. Visionary companies have faced setbacks and made mistakes, but display a remarkable resiliency, an ability to bounce back from adversity.
3. Few visionary companies began life with a great idea.
4. A charismatic leader is not required for a visionary company.
5. Visionary companies pursue a cluster of objectives, of which profits is only one and not necessarily the primary one.
6. There is no right set of core values for being a visionary company.
7. A visionary company almost religiously preserves its core ideology.
8. Visionary companies are not afraid to make bold commitments to Big Hairy Audacious Goals (“BHAGs”).
9. Only those who fit extremely well with the core ideology and demanding standards will find it a great place to work.
10. Visionary companies make some of their best moves by experimentation, trial and error, opportunism and accident, mimicking the biological evolution of species. What looks in retrospect like brilliant foresight and preplanning was often the result of “let’s just try a lot of stuff and keep what works”.
11. Few visionary companies hire outside CEOs.
12. Visionary companies focus primarily on beating themselves (“how can we improve ourselves to do better tomorrow than we did today”), not competition.
13. Visionary companies reject the “tyranny of or” and embrace the “genius of and”, allowing them to pursue both A and B at the same time.
14. Creating a statement is helpful, but it is only one of thousands of steps in a never-ending process.

Clock building, not time telling

1. Having a great idea or being a charismatic leader is “time telling”.
2. Building a company that can prosper far beyond the presence of any single leader and through multiple product life cycles is “clock building”.
3. Creating a great company does not require either a great idea or a charismatic leader.
4. The great idea approach shifts your attention away from seeing the company as your ultimate creation.
5. Builders of visionary companies are highly persistent: “be prepared to kill, revise or evolve an idea, but never give up on the company”.
6. Spend less of your time thinking about specific product lines and market strategies and spend more of your time thinking about organization design.
7. The continuous stream of great products and services from highly visionary companies stems from them being outstanding organizations, not the other way around.
8. A high-profile, charismatic style is not required to shape a visionary company.
9. E.g., Sam Walton at Walmart instituted concrete organizational mechanisms to stimulate change and improvement:
   1. Authority for department managers to run their own department
   2. Cash awards and public recognition for associates who contribute cost saving or service enhancements.
   3. Contests to encourage associates to attempt creative experiments.
   4. Merchandise meetings to discuss experiments that should be rolled out.
   5. Saturday morning meetings.
   6. Profit sharing and employee stock ownership.
   7. Publication of tips and ideas in the Walmart internal magazine.
   8. Groomed a capable successor to take over the company.
10. One of the most important steps in building a visionary company is a shift in perspective.
11. Think more in terms of being an organizational visionary and building the characteristics of a visionary company.

Embrace the “genius of the AND” and reject the “tyranny of the OR”

1. A visionary company does not seek balance, i.e. midpoint.
2. It seeks:
   1. To do very well in the short and in the long term.
   2. To be highly idealistic and highly profitable.
   3. To preserve a tightly held core ideology and stimulating vigorous change and movement.

More than profits

1. Core ideology = core values + purpose
   1. Core values = a small set of enduring tenets / general guiding principles.
   2. Purpose = the organization’s fundamental reasons for existence beyond just making money. The primary role of purpose is to guide and inspire.
2. J&J:
   1. The company exists to alleviate pain and disease.
   2. Hierarchy of responsibilities: customers, employees, society at large, shareholders.
   3. Individual opportunity and reward based on merit.
   4. Decentralization = creativity = productivity.
3. Mariott:
   1. Friendly service & excellent value (customers are guests).
   2. Make people away from home feel that they’re among friends and really wanted”.
   3. People are #1: treat them well, expect a lot, and the rest will follow.
   4. Work hard yet keep it fun.
   5. Continual self-improvement.
   6. Overcoming adversity to build character.
4. Merck:
   1. Preserving and improving human life.
   2. Honesty and integrity.
   3. Corporate social responsibility.
   4. Science-based innovation, not imitation.
   5. Unequivocal excellence in all aspects of the company.
   6. Profit, but from work that benefits humanity.
5. P&G:
   1. Product excellence.
   2. Continuous self-improvement.
   3. Honesty and fairness.
   4. Respect and concern for the individual.
6. Walmart:
   1. Provide value to our customers: make their lives better via lower prices and greater selection.
   2. Swim upstream, buck conventional wisdom.
   3. Be in partnership with employees.
   4. Work with passion, commitment, and enthusiasm.
   5. Run lean.
   6. Pursue ever-higher goals.
7. Disney:
   1. Bring happiness to millions and celebrate wholesome American values.
   2. No cynicism allowed.
   3. Fanatical attention to consistency and detail.
   4. Continuous progress via creativity, dreams and imagination.
   5. Fanatical control and preservation of Disney’s magic image.
8. When people publicly espouse a point of view, they are more likely to behave consistently.
9. Visionary companies don’t merely declare an ideology, they take steps to make it pervasive:
   1. Create cult-like cultures.
   2. Nurture and select senior management based on fit with a core ideology.
   3. Attain more consistent alignment with a core ideology.
10. A core ideology can be articulated to a work group, department or division.
11. Not all visionary companies begin life with a well-articulated core ideology.

Preserve the core / Stimulate progress

1. A visionary company carefully preserves and protects its core ideology, yet all the specific manifestations of its core ideology must be open for change and evolution.
   1. E.g. at Walmart, “exceeding customer expectations” is a permanent part of its core ideology, greeters at the front door is a noncore practice that can change.
2. Over time, cultural norms, strategy, product lines, goals, competencies, policies, organizational structure and reward systems must change. The only thing a company should not change is its core ideology.
3. Core ideology works hand in hand with a relentless drive for progress.
4. The drive for progress is not satisfied with the status quo, even when it is working well.
5. The core ideology provides continuity and stability, plants a fixed stake in the ground, limits possibilities and directions for the company.
6. The drive for progress urges continual change, impels constant movement, expands the number and variety of possibilities that the company can consider.
7. Although the core ideology and drive for progress usually trace their roots to specific individuals, a visionary company institutionalizes them.
8. It is the translation of intentions into concrete items that can make the difference.
   1. E.g. Disney created Disney University and required every employee to attend “Disney Traditions” seminars.
   2. E.g. Marriott instituted rigorous employee screening mechanisms, indoctrination processes, and elaborate customer feedback loops.
9. The essence of clock-building is to create tangible mechanisms aligned to preserve the core and stimulate progress. The methods to do so fall into 5 categories:
   1. BHAGs.
   2. Cult-like cultures.
   3. Try a lot of stuff and keep what works.
   4. Home-grown management.
   5. Good enough never is.

Big Hairy Audacious Goals (BHAGs)

1. A true BHAG is clear and compelling and serves as a unifying focal point of effort, creating immense team spirit. It has a clear finish line, so the organization knows when it has achieved the goal.
2. A BHAG engages people: it reaches out and grabs them in the gut. It is tangible, energizing, highly focused. People get it right away, with little or no explanation.
   1. E.g. GE: “to become #1 or #2 in every market we serve and revolutionize this company to have the speed and agility of a small enterprise”.
   2. E.g. Walmart: “to make my little Newport store the best, most profitable variety store in Arkansas within five years”.
3. BHAGs look more audacious to outsiders than to insiders.
4. A BHAG should be so clear and compelling that it requires little or no explanation.
5. A BHAG should fall well outside the comfort zone.
6. A BHAG should be so bold and exciting in its own right that it would continue to stimulate progress even if the leaders disappear before it has been completed.
7. A company should be prepared to prevent the “we’ve arrived” syndrome by having follow-on BHAGs.
8. A BHAG should be consistent with a company’s core ideology.

Cult-like cultures

1. Visionary companies translate their ideologies into tangible mechanisms:
   1. Orientation and training programs.
   2. Internal universities and training centers.
   3. On the job socialization by peers and supervisors.
   4. Up the ranks policies: hire young, promote from within, shape mindset from a young age.
   5. Exposure to mythology of heroic deeds and corporate exemplars.
   6. Unique language and terminology.
   7. Corporate songs, cheers, affirmations or pledges.
   8. Tight screening processes, during hiring and first few years.
   9. Incentive and advancement criteria linked to fit with the corporate ideology.
   10. Awards, contests and public recognition rewarding those who display great effort consistent with the ideology, and tangible and visible penalties for those who break boundaries.
   11. Tolerance for honest mistakes that do not breach the company’s ideology (“non-sins”), severe penalties or termination for breaching the ideology (“sins”).
   12. Buy-in mechanisms (financial, time investment).
   13. Celebrations that reinforce success, belonging and specialness.
   14. Plant and office layout that reinforces norms and ideals.
   15. Constant verbal and written emphasis on corporate values, heritage and the sense of being part of something special.
2. A cult-like culture can enhance a company’s ability to pursue BHAGs, because it creates that sense of being part of an elite organization that can accomplish anything.
3. Visionary companies impose tight ideological control and simultaneously provide wide operating autonomy that encourages individual initiative.
4. Companies seeking an empowered or decentralized work environment should first impose a tight ideology.

Try a lot of stuff and keep what works

1. Visionary companies often made their best moves not by detailed strategic planning but by experimentation.
2. Evolutionary progress differs from BHAG progress:
   1. Evolutionary progress involves ambiguity vs. clear and unambiguous goals.
   2. Evolutionary progress begins with small incremental steps vs. bold discontinuous leaps.
3. Darwin: “Multiply, vary, let the strongest live and the weakest die”.
4. Walmart: “Do it, fix it, try it: if you try something and it works, you keep it. If it doesn’t work, you fix it or try something else”.
5. Von Clausewitz: detailed plans usually fail because circumstances inevitably change.
6. 3M: “If you put fences around people, you get sheep. Give people the room they need”.
7. Mechanisms to stimulate progress at 3M:
   1. 15% rule: technical people spend up to 15% of their time on projects of their choice.
   2. 25% rule: each division is expected to generate 25% of sales from 5Y new products
   3. Golden step award: granted to those responsible for successful new ventures.
   4. Genesis grants: internal VC fund distributing up to $50,000 for prototypes and market tests.
   5. Technology sharing awards.
   6. Carlton society: honor society for technical contributors.
   7. Own business opportunities: champions of a new product get to run it as their project.
   8. Dual ladder career tracks: allows people to move up without sacrificing their research or professional interest
   9. New product forums: all divisions share their latest products.
   10. Technical forums: present technical papers and exchange new ideas and findings.
   11. Problem-solving missions: small hit teams sent to customer sites to solve problems.
   12. High impact programs: 1-3 priority products to get to market within a timeframe.
   13. Small autonomous divisions.
   14. Early use of profit sharing.
8. What to do:
   1. Give it a try, and quick.
   2. Accept that mistakes will be made, as you can’t tell ahead of time which variations will prove favorable.
   3. Take small steps.
   4. Give people the room they need.
   5. Mechanisms build that ticking clock.
   6. Never forget to preserve the core while stimulating evolutionary progress.
9. What not to do:
   1. Fear-filled environment.
   2. Publicly humiliate managers for failures and mistakes.
   3. Top-down autocratic approach.

Home-grown management

1. Visionary companies develop, promote and carefully select managerial talent grown from inside the company.
2. It is not the quality of leadership that separates visionary from other companies, it is the continuity of quality leadership that matters, continuity that preserves the core.
   1. Management development and succession planning –> strong internal candidates –> continuity of leadership excellence from within –> preserve the core / stimulate progress
   2. Poor management development, inadequate succession planning –> dearth of strong internal candidates –> leadership gap, corporate stall, search for a savior
3. If you must go outside for a top manager, look for candidates who are highly compatible with the core ideology.
4. Think about management development and succession planning:
   1. If you were hit by a bus, who could step into your role?
   2. What are you doing to help those people develop?
   3. What planning have you done to ensure a smooth and orderly transition when you move up to higher responsibilities?

Good enough never is

1. Visionary companies ask “How can we do better tomorrow than we did today”
2. They attain their position because they are terribly demanding of themselves.
3. Visionary companies install mechanisms to create discomfort and stimulate change and improvement before the external world demands it.
4. Visionary companies invest more heavily in R&D, PP&E, human capital, technical know-how, new technologies, new management methods and innovative practices.
5. Examples of mechanisms to stimulate improvement at Marriott:
   1. Guest service index reports based on customer comment cards and surveys. Managers can track their GSI and the reports affect bonus compensation and promotion opportunities.
   2. Annual performance reviews for every employee.
   3. Incentive bonuses based on service, quality, cleanliness and cost effectiveness.
   4. Profit sharing program.
   5. Extensive interviewing and screening to hire quality employees.
   6. Management and employee development programs.
   7. Investment in a full-scale corporate learning center.
   8. Phantom shoppers: $10 bonus if service has been good, “oops” card with retraining if not.
6. Questions to ask:
   1. What mechanisms of discontent can you create to obliterate complacency and bring change consistent with the core ideology?
   2. What are you doing to invest for the future while doing well today? Does your company adopt innovative new methods and technologies before the rest of the industry?
   3. How do you respond to downturns? Do you continue to build for the long-term even during difficult times?
   4. Do people in your company understand that comfort is not the objective? Do you reject doing well as an end goal and instead replace it with the never-ending discipline of working to do better tomorrow?
7. In martial arts, the black belt represents the start of a never-ending journey of discipline, work and the pursuit of an ever-higher standard.

The end of the beginning

1. A vision statement in no way guarantees a company will become visionary.
2. The essence of a visionary company comes in the translation of its core ideology and drive for progress into the very fabric of the organization:
   1. Goals.
   2. Strategies.
   3. Tactics.
   4. Policies.
   5. Processes.
   6. Cultural practices.
   7. Management behaviors.
   8. Building layouts.
   9. Pay systems.
   10. Accounting systems.
   11. Job design.
3. Paint the whole picture:
   1. Visionary companies do not rely on one program, tactic, mechanism, cultural norm, symbolic gesture, or CEO speech.
4. Sweat the small stuff:
   1. Little things send powerful messages, and people will be watchful for tiny inconsistencies.
   2. Walmart gives full departmental financial reports to lowest level employees as partners.
   3. J&J allows key divisions to put their logo in the products to operate as entrepreneurial Bus.
   4. Philip Morris sends employees a box of cigarettes every month to show they are proud.
5. Cluster, don’t shotgun:
   1. Visionary companies don’t put in place random mechanisms.
   2. They put in place pieces that reinforce each other.
6. Swim in your own current, even if you swim against the tide:
   1. The real question is not “Is this practice good” but “Is this practice appropriate for us? Does it fit with our ideology and ambitions?”
7. Obliterate misalignment:
   1. Does the incentive system reward behavior inconsistent with your core values?
   2. Does the structure get in the way of progress?
   3. Do goals and strategies drive the company away from its basic purpose?
   4. Do policies inhibit change and improvement?
   5. Does the office and building layout stifle progress?
8. Keep the universal requirements while inventing new methods
   1. Have a core ideology.
   2. Have an unrelenting drive for progress.
   3. Design the organization to preserve the core and stimulate progress.
   4. The specific methods to preserve the core and stimulate progress will change and improve
9. Four concepts to remember:
   1. Be a clock builder / an architect, not a time teller
   2. Embrace the genius of the AND.
   3. Preserve the core / Stimulate progress.
   4. Seek consistent alignment.

Building the vision

1. Visionary companies distinguish:
   1. Their timeless core values and enduring core purpose (which should never change).
   2. Their operating practices and business strategies (which should be changing constantly in response to a changing world).
2. A well-conceived vision consists of:
   1. A core ideology: What we stand for and why we exist
      1. Core values: essential and enduring tenets.
      2. Core purpose: fundamental reason for being.
   2. The envisioned future: What we aspire to become, to achieve, to create.
      1. 10-30 years BHAG.
      2. Vivid description of what it will be like when the company achieves the BHAG.
3. To identify core values:
   1. Push for truly core values, that must stand the test of time.
   2. Ask about each one: “If the circumstances changed and penalized us for holding this core value, would we still keep it?”
4. To get at purpose, use the “five whys” method:
   1. We make X products, or we deliver X services.
   2. Why is that important?
5. Examples of core purpose:
   1. Israel: to provide a secure place on Earth for the Jewish people.
   2. 3M: to solve unsolved problems innovatively.
   3. McKinsey: to help leading corporations and governments be more successful.
   4. Walt Disney: to make people happy.
6. Core values and purpose are not something people “buy in” to. The task is to find people who have a predisposition to share your core values and purpose, attract and retain these people; and let those who aren’t disposed to share your core values go elsewhere.
7. A company can have a strong core ideology without a formal statement.
8. Vision requires a special type of BHAG that applies to the entire organization and requires 10 to 30 years of effort to complete.
   1. Target BHAG:
      1. Become a $125m company by the year 2000.
      2. Democratize the automobile.
   2. Common-enemy BHAG:
      1. Knock off RJR as the #1 tobacco company.
      2. Crush Adidas.
   3. Role-model BHAG:
      1. Become the Nike of the cycling industry.
      2. Become the Harvard of the West.
   4. Internal transformation BHAG:
      1. Become #1 or #2 in every market and revolutionize the company.
      2. Transform this division from a poorly respected supplier to one of the most respected, exciting and sought-after divisions in the company.
9. Vivid description is a vibrant, engaging and specific description of what it will be like to achieve the BHAG

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Built to Last