Book Summary: Built to Last

Book: Built to Last: Successful Habits of Visionary Companies
Author: Jim Collins

The Best of the Best

Visionary Companies

“Visionary companies are premier institutions… in their industries, widely admired by their peers and having a long track record of making a significant impact on the world around them. The key point is that a visionary company is an organization“, not an individual or product.

Despite facing setbacks and mistakes, “visionary companies display a remarkable resiliency, an ability to bounce back from adversity. As a result, visionary companies attain extraordinary long-term performance.”

Twelve Shattered Myths

• Myth 1: It takes a great idea to start a great company.

  “Few of the visionary companies began life with a great idea. In fact, some began life without any specific idea and a few even began with outright failures.”

• Myth 2: Visionary companies require great and charismatic visionary leaders.

  “A charismatic visionary leader is absolutely not required for a visionary company… They concentrated more on architecting an enduring institution than on being a great individual leader.”

• Myth 3: The most successful companies exist first and foremost to maximize profits.

  “Visionary companies pursue a cluster of objectives, of which making money is only one—and not necessarily the primary one. …They’re equally guided by a core ideology.”

• Myth 4: Visionary companies share a common subset of “correct” core values.

  “There is no ‘right’ set of core values for being a visionary company. … The crucial variable is not the content of a company’s ideology, but how deeply it believes its ideology.”

• Myth 5: The only constant is change.

  “A visionary company almost religiously preserves its core ideology. … [However, they] display a powerful drive for progress that enables them to change and adapt without compromising their cherished core ideals.”

• Myth 6: Blue-chip companies play it safe.

  “Visionary companies may appear straitlaced and conservative to outsiders, but they’re not afraid to make bold commitments to ‘Big Hairy Audacious Goals’ (BHAGs).”

• Myth 7: Visionary companies are great places to work, for everyone.

  “Only those who ‘fit’ extremely well with the core ideology and demanding standards of a visionary company will find it a great place to work.”

• Myth 8: Highly successful companies make their best moves by brilliant and complex strategic planning.

  “Visionary companies make some of their best moves by experimentation, trial and error, opportunism, and—quite literally—accident.”

• Myth 9: Companies should hire outside CEOs to stimulate fundamental change.

  “Home-grown management rules at the visionary companies to a far greater degree than at comparison companies.”

• Myth 10: The most successful companies focus primarily on beating the competition.

  “Visionary companies focus primarily on beating themselves.”

• Myth 11: You can’t have your cake and eat it too.

  “Visionary companies do not [believe in the] purely rational view that says you can have either A OR B, but not both. …They embrace the… paradoxical view that allows them to pursue both A AND B at the same time.”

• Myth 12: Companies become visionary primarily through “vision statements.”

  “Creating a statement can be a helpful step… but it is only one of thousands of steps in a never-ending process.”

Clock Building, Not Time Telling

“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’.”

The Myth of the “Great Idea”

“Few of the visionary companies in our study can trace their roots to a great idea or fabulous initial product.” Some began “with outright failures.”

Waiting for “The Great Idea” Might Be a Bad Idea

If you want to start “a visionary company but have not yet taken the plunge because you don’t have a ‘great idea,’ we encourage you to lift from your shoulders the burden of the great-idea myth.”

The Company Itself is the Ultimate Creation

“Never, never, never give up. But what to persist with? Their answer: The company. Be prepared to kill, revise, or evolve an idea… but never give up on the company.”

The Myth of the Great and Charismatic Leader

“A high-profile, charismatic style is absolutely not required… Perhaps the continuity of superb individuals atop visionary companies stems from the companies being outstanding organizations, not the other way around.”

An Architectural Approach: Clock Builders at Work

“The evidence suggests to us that the key people at formative stages of the visionary companies had a stronger organizational orientation than in the comparison companies, regardless of their personal leadership style.”

The Message for CEOs, Managers, and Entrepreneurs

“If you’re involved in building and managing a company… think less in terms of being a brilliant product visionary or seeking the personality characteristics of charismatic leadership, and to think more in terms of being an organizational visionary and building the characteristics of a visionary company.”

“Bill Hewlett and Dave Packard’s ultimate creation wasn’t the audio oscilloscope or the pocket calculator. It was the Hewlett-Packard Company and the HP Way.”

“If you’re a high-profile charismatic leader, fine. But if you’re not, then that’s fine, too, for you’re in good company right along with those that built companies like 3M, P&G, Sony, Boeing, HP, and Merck. Not a bad crowd.”

No “Tyranny of the OR”

“The ‘Tyranny of the OR’ pushes people to believe that things must be either A OR B, but not both. …Highly visionary companies liberate themselves with the ‘Genius of the AND’—the ability to embrace both… at the same time.”

More Than Profits

“A fundamental element… of a visionary company is a core ideology—core values and sense of purpose beyond just making money—that guides and inspires people throughout the organization and remains relatively fixed for long periods of time.”

Pragmatic Idealism (No “Tyranny of the OR”)

Visionary companies aim for “both high ideals and pragmatic self-interest.”

Core Ideology: Exploding the Profit Myth

“We did not find ‘maximizing shareholder wealth’ or ‘profit maximization’ as the dominant driving force or primary objective through the history of most of the visionary companies.”

Is There a “Right” Ideology?

“No single [value] shows up consistently across all the visionary companies. …The critical issue is… whether it [even] has a core ideology.”

Words or Deeds?

“Visionary companies don’t merely declare an ideology; they also take steps to make the ideology pervasive throughout the organization and transcend any individual leader.”

Guidelines for CEOs, Managers, and Entrepreneurs

Core Ideology = Core Values + Purpose

Core Values

“The organization’s essential and enduring tenets—a small set of general guiding principles; not to be confused with specific cultural or operating practices; not to be compromised for financial gain or short-term expediency.”

Purpose

“The organization’s fundamental reasons for existence beyond just making money—a perpetual guiding star on the horizon; not to be confused with specific goals or business strategies.”

“Profitability is a necessary condition for existence and a means to more important ends, but it is not the end in itself for many of the visionary companies. Profit is like oxygen, food, water, and blood for the body; they are not the point of life, but without them, there is no life.”

“Visionary companies like Motorola don’t see it as a choice between living their values or being pragmatic; they see it as a challenge to find pragmatic solutions and behave consistent with their core values.”

“In short, we did not find any specific ideological content essential to being a visionary company. Our research indicates that the authenticity of the ideology and the extent to which a company attains consistent alignment with the ideology counts more than the content of the ideology.”

“In a visionary company, the core values need no rational or external justification. Nor do they sway with the trends and fads of the day. Nor even do they shift in response to changing market conditions.”

Preserve the Core/Stimulate Progress

“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. … It is absolutely essential not to confuse core ideology with culture, strategy, tactics, operations, policies, or other noncore practices.”

Drive for Progress

“Core ideology… works hand in hand with a relentless drive for progress that impels change and forward movement in all that is not part of the core ideology.”

An Internal Drive

“The drive to go further, to do better, to create new possibilities needs no external justification. …The drive for progress is never satisfied with the status quo, even when the status quo is working well.”

Preserve the Core and Stimulate Progress

“A visionary company does not seek mere balance between core and progress; it seeks to be both highly ideological and highly progressive at the same time, all the time.”

Key Concepts for CEOs, Managers, and Entrepreneurs

This framework has two layers. “You can think of the top layer as a set of guiding intangibles that are necessary requirements. … To become a visionary company requires translating these intangibles down into the second layer.”

“Intentions are all fine and good, but it is the translation of those intentions into concrete items—mechanisms with teeth—that can make the difference between becoming a visionary company or forever remaining a wannabe.”

“If you are involved in building and managing an organization, the single most important point to take away from this book is the critical importance of creating tangible mechanisms aligned to preserve the core and stimulate progress. This is the essence of clock building.”

Big Hairy Audacious Goals

Visionary companies have a “commitment to challenging, audacious—and often risky—goals and projects toward which a visionary company channels its efforts.”

BHAGs: A Powerful Mechanism to Stimulate Progress

“There is a difference between merely having a goal and becoming committed to a huge, daunting challenge.”

A Clear—and Compelling—Goal

“A true BHAG is clear and compelling and serves as a unifying focal point of effort—often creating immense team spirit. It [also] has a clear finish line.”

Commitment and Risk

“A goal cannot be classified as a BHAG without a high level of commitment to the goal.”

The “Hubris Factor”

“Highly visionary companies seem to have self-confidence bordering on hubris.”

The Goal, Not the Leader (Clock Building, Not Time Telling)

“The key mechanism at work here is not charismatic leadership. … The goal itself [is] the [key] motivating mechanism.”

BHAGs and the “Postheroic Leader Stall”

“Corporations regularly face the dilemma of how to maintain momentum after the departure of highly energetic leaders (often founders).”

Guidelines for CEOs, Managers, and Entrepreneurs

A BHAG should be:

• “So clear and compelling that it requires little or no explanation.”
• “Fall well outside your comfort zone.”
• “So bold and exciting… that it would continue… even if the organization’s leaders disappeared.”
• Inherently dangerous enough “that, once achieved, an organization can stall and drift into the ‘we’ve arrived’ syndrome.”
• “Consistent with a company’s core ideology.”

“A BHAG engages people—it reaches out and grabs them in the gut. It is tangible, energizing, highly focused. People ‘get it’ right away; it takes little or no explanation.”

“As in the Philip Morris case, BHAGs are bold, falling in the gray area where reason and prudence might say ‘This is unreasonable,’ but the drive for progress says, ‘We believe we can do it nonetheless.’ Again, these aren’t just ‘goals’; they are Big Hairy Audacious Goals.”

“The BHAGs looked more audacious to outsiders than to insiders. The visionary companies didn’t see their audacity as taunting the gods. It simply never occurred to them that they couldn’t do what they set out to do.”

Cult-Like Cultures

Visionary companies are “great places to work for only those who buy in to the core ideology; those who don’t fit with the ideology are ejected like a virus.” This also helps to preserve the core.

“Ejected Like a Virus!”

“Visionary companies tend to be more demanding of their people than other companies, both in terms of performance and congruence with the ideology. … Joining these companies [is like] joining an extremely tight-knit group or society. And if you don’t fit, you’d better not join.”

The Message for CEOs, Managers, and Entrepreneurs

“Unlike many religious sects or social movements which often revolve around a charismatic cult leader (a ‘cult of personality’), visionary companies tend to be cult-like around their ideologies. …Creating an environment that reinforces dedication to an enduring core ideology is clock building.”

“A cult-like culture can be dangerous and limiting if not complemented with the other side of the yin-yang. Cult-like cultures, which preserve the core, must be counterweighted with a huge dose of stimulating progress.”

“Ideological control preserves the core while operational autonomy stimulates progress.”

“‘Visionary,’ we learned, does not mean soft and undisciplined. Quite the contrary. Because the visionary companies have such clarity about who they are, what they’re all about, and what they’re trying to achieve, they tend to not have much room for people unwilling or unsuited to their demanding standards.”

“IBM attained its greatest success—and displayed its greatest ability to adapt to a changing world—during the same era that it displayed its strongest cult-like culture.”

“The point of this chapter is not that you should set out to create a cult of personality. That’s the last thing you should do.”

Try a Lot of Stuff and Keep What Works

Visionary companies practice “high levels of action and experimentation—often unplanned and undirected—that produce new and unexpected paths of progress and enable visionary companies to mimic the biological evolution of species.” This also helps to stimulate progress.

Corporations as Evolving Species

Visionary companies are stimulated by evolutionary progress, which is an “unplanned progress.”

Darwin’s Theory of Evolution Applied to Visionary Companies

“The central concept of evolutionary theory… is that species evolve by a process of undirected variation (‘random genetic mutation’) and natural selection. … Of course, all companies evolve to some degree. … [However,] visionary companies more aggressively harness the power of evolution.”

Lessons for CEOs, Managers, and Entrepreneurs

“Here are five basic lessons for stimulating evolutionary progress in a visionary company:”

Give it a try—and quick!

“Do something. If one thing fails, try another. Fix. Try. Do. Adjust. Move. Act. No matter what, don’t sit still.”

Accept that mistakes will be made

“In order to have healthy evolution, you have to try enough experiments (multiply) of different types (vary), keep the ones that work (let the strongest live), and discard the ones that don’t (let the weakest die).”

Take small steps

“If you want to create a major strategic shift in a company, you might try becoming an ‘incremental revolutionary’ and harnessing the power of small, visible successes to influence overall corporate strategy.”

Give people the room they need

“When you give people a lot of room to act, you can’t predict precisely what they’ll do—and this is good. … [Also,] allow people to be persistent.”

Mechanisms—build that ticking clock!

“Send a consistent set of reinforcing signals. … Good intentions alone simply won’t cut it.” You also need to provide incentives to reinforce their evolutionary progress.

“We like to describe the evolutionary process as ‘branching and pruning.’ The idea is simple: If you add enough branches to a tree (variation) and intelligently prune the deadwood (selection), then you’ll likely evolve into a collection of healthy branches well positioned to prosper in an ever-changing environment.”

“If well understood and consciously harnessed, evolutionary processes can be a powerful way to stimulate progress. And that’s exactly what the visionary companies have done to a greater degree than the comparison companies.”

“Although the invention of the Post-it note might have been somewhat accidental, the creation of the 3M environment that allowed it was anything but an accident.”

“If we mapped 3M’s portfolio of business units on a strategic planning matrix, we could easily see why the company is so successful (‘Look at all those cash cows and strategic stars!’), but the matrix would utterly fail to capture how this portfolio came to be in the first place.”

Home-Grown Management

Visionary companies practice “promotion from within, bringing to senior levels only those who’ve spent significant time steeped in the core ideology of the company.” This also helps to preserve the core.

Promote From Within to Preserve the Core

“Visionary companies develop, promote, and carefully select managerial talent grown from inside the company… [They also] had better management development and succession planning.”

The Message for CEOs, Managers, and Entrepreneurs

“Your company should have management development processes and long-range succession planning in place to ensure a smooth transition from one generation to the next.”

“To have a Welch-caliber CEO is impressive. To have a century of Welch-caliber CEOs all grown from inside—well, that is one key reason why GE is a visionary company.”

“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.”

“As companies like GE, Motorola, P&G, Boeing, Nordstrom, 3M, and HP have shown time and again, a visionary company absolutely does not need to hire top management from the outside in order to get change and fresh ideas.”

Good Enough Never Is

Visionary companies practice “a continual process of relentless self-improvement with the aim of doing better and better, forever into the future.” This also helps to stimulate progress.

Mechanisms of Discontent

“Visionary companies thrive on discontent. They understand that contentment leads to complacency, which inevitably leads to decline.”

Build for the Future (And Do Well Today)

“Visionary companies habitually invest, build, and manage for the long term”, meaning multiple decades out.

Greater Long-Term Investment in the Visionary Companies

“Visionary companies invested for the future to a greater degree than the comparison companies.” This includes investments in equipment, R&D, human resources, new technologies, and innovative management practices.

The Message for CEOs, Managers, and Entrepreneurs

“If you’re involved in building and managing a company, we urge you to consider the following questions:”

• “What ‘mechanisms of discontent’ can you create that would obliterate complacency and bring about change and improvement from within, yet are consistent with your core ideology?”
• “What are you doing to invest for the future while doing well today?”
• “Does your company continue to build for the long-term even during difficult times?”
• “Do people in your company understand that comfort is not the objective—that life in a visionary company is not supposed to be easy?”

“Comfort is not the objective in a visionary company. Indeed, visionary companies install powerful mechanisms to create discomfort—to obliterate complacency—and thereby stimulate change and improvement before the external world demands it.”

“Managers at visionary companies simply do not accept the proposition that they must choose between short-term performance or long-term success. They build first and foremost for the long term while simultaneously holding themselves to highly demanding short-term standards.”

The End of the Beginning

“The essence of a visionary company comes in the translation of its core ideology and its own unique drive for progress into the very fabric of the organization—into goals, strategies, tactics, policies, processes, cultural practices, management behaviors, building layouts, pay systems, accounting systems, job design—into everything that the company does.”

“Just because a company has a ‘vision statement’ (or something like it) in no way guarantees that it will become a visionary company! … A statement might be a good first step, but it is only a first step.”

Lessons of Alignment for CEOs, Managers, and Entrepreneurs

1. Paint the Whole Picture

   “It’s the nearly overwhelming set of signals and actions—signals to continually reinforce the core ideology and to stimulate progress—that lead to a visionary company.”

2. Sweat the Small Stuff

   “Social cognition research shows that individuals pick up on all the signals in their work environment—big and small—as cues for how they should behave.”

3. Cluster, Don’t Shotgun

   Visionary companies “put in place pieces that reinforce each other, clustered together to deliver a powerful combined punch.”

4. Swim in Your Own Current, Even if You Swim Against the Tide

   “Alignment means being guided first and foremost by one’s own internal compass, not the [trends and buzzwords] of the outer world. Not that you should ignore reality [either, but your] ideology and ambitions should [be the] guide.”

5. Obliterate Misalignments

   “Attaining alignment… is also a never-ending process of identifying and doggedly correcting misalignments.”

6. Keep the Universal Requirements While Inventing New Methods

   “You should be working to implement as many methods as you can think of to preserve a cherished core ideology [as well as] to invent mechanisms that create dissatisfaction with the status quo and stimulate change, improvement, innovation, and renewal.”

“Visionary companies do not rely on any one program, strategy, tactic, mechanism, cultural norm, symbolic gesture, or CEO speech to preserve the core and stimulate progress. It’s the whole ball of wax that counts.”

“The real question to ask is not ‘Is this practice good?’ but ‘Is this practice appropriate for us—does it fit with our ideology and ambitions?”

Building the Vision

This is “a conceptual framework that defines vision, adds clarity and rigor to the vague and fuzzy set of concepts swirling around that trendy term, and gives practical guidance for articulating a coherent vision within an organization.”

The Vision Framework

“A well-conceived vision consists of two major components—core ideology and an envisioned future. …It defines ‘what we stand for and why we exist’ that does not change (the core ideology) and sets forth ‘what we aspire to become, to achieve, to create’ that will require significant change and progress to attain (the envisioned future).”

Core Ideology

“Core ideology provides the bonding glue that holds an organization together as it grows, decentralizes, diversifies, expands globally, and attains diversity within.”

Core Values

“The organization’s essential and enduring tenets.”

Core Purpose

“The organization’s fundamental reason for being.”

A Few Key Points on Core Ideology

“You cannot ‘install’ new core values or purpose into people. [They] are not something people ‘buy in’ to. People must already have a predisposition to holding them.”

Envisioned Future

“Envisioned future… consists of two parts: a ten- to thirty-year ‘Big Hairy Audacious Goal’ and vivid descriptions of what it will be like when the organization achieves the BHAG.”

Vision-level BHAG

“Setting the BHAG ten to thirty years into the future requires thinking beyond the current capabilities of the organization and current environmental trends, forces, and conditions. In creating such a vision-level BHAG we suggest thinking about the following four categories:”

• Target BHAGs can be quantitative or qualitative.
• Common-enemy BHAGs involve focusing on beating a common enemy—a David versus Goliath BHAG.
• Role-model BHAGs are particularly effective for up-and-coming organizations with bright prospects.
• Internal Transformation BHAGs tend to be effective in old or large organizations in need of internal transformation.

Vivid Descriptions

“Vivid description… is a vibrant, engaging, and specific description of what it will be like to achieve the BHAG. … Passion, emotion, and conviction are essential parts of” this.

A Few Key Points on Envisioned Future

“Don’t confuse core ideology and envisioned future… We’ve found, therefore, that some executives make more progress by starting first with the vivid description and backing from there into the BHAG.” Also, “beware the ‘we’ve arrived’ syndrome’—complacent lethargy that arises once an organization has achieved a BHAG and fails to replace it with another.”

Putting It All Together

“Keep in mind that this dynamic[, preserving the core/stimulating progress], not vision or mission statements, is the primary engine of enduring great companies… If you do it right, you shouldn’t have to do it again for at least a decade, and you can get on with the most important work: creating alignment.”