Book Notes: Built to Last by Collins and Porras

ISBN: 0-88730-739-6

My rating: 81/100

See Book Notes for other books I have read. If you like my notes, go buy it!

Tagline: Successful Habits of Visionary Companies

Key Points:

Visionary companies tend to only have a few core values, usually between three and six.
A charismatic visionary leader is absolutely not required for a visionary company.
Myth of the “great idea”: Many of the visionary companies did not start with a great idea of revolutionary product.
We did not find “maximizing shareholder wealth” of “profit maximization” as the dominant driving force or primary objective throughout the history of most of the visionary companies.
Visionary companies install powerful mechanisms to create discomfort – to obliterate complacency – and therefore stimulate change and improvement before the external world demands it.
Motorola targets 40 hours of training per year for employees, and requires 1.5 percent of payroll is for training.

Visionary companies distinguish their timeless core values and enduring purpose from their operating practices and business strategies.

These notes are a collection of ideas and values that I find important. They may be used in the future to develop a more definite set of business values for companies that I start or work at.

Built to Last

Purposes of Incorporation

– To establish a place of work where engineers can feel the joy of technological innovation, be aware of their mission to society, and work to their heart’s content.
– To pursue dynamic activities in technology and production for the reconstruction of Japan and the elevation of the nation’s culture.
– To apply advanced technology to the life of the general public.

Management Guidelines

– We shall eliminate any unfair profit-seeking, persistently emphasize substantial and essential work, and not merely pursue growth.
– We shall welcome technical difficulties and focus on highly sophisticated technical products that have great usefulness in society, regardless of the quantity involved.
– We shall our main emphasis on ability, performance, and personal character so that each individual can show the best in ability and skill.

Henry Ford: I don’t believe we should make such an awful profit on our cars. A reasonable profit is right, but not too much. I hold that it is better to sell a large number of cars at a reasonably small profit … I hold this because it enables a larger number of people to buy and enjoy the use of a car and because it gives a larger number of men employment at good wages. Those are the two aims I have in life.

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.

3M values: Innovation “Thou shalt not kill a new product idea”
There are many other examples of company ideals on pg 68

Visionary companies tend to only have a few core values, usually between three and six.

Ask the five-fold “why” when coming up with business values.

Chapter 1 The Best of the Best

A charismatic visionary leader is absolutely not required for a visionary company.

Chapter 2 Clock Building Not Time Telling

Myth of the “great idea”: Many of the visionary companies did not start with a great idea of revolutionary product.

3M started as a failed corundum mine, not knowing what else to do, the company began making sandpaper.

Boeing’s first airplane failed, and his company faces such difficulty during its first few years of operations that it entered the furniture business to keep itself aloft!

We had to shift from seeing the company as a vehicle for the products to seeing the products as a vehicle for the company.

George Westinghouse founded nine other companies besides Westinghouse. None exist today.

Sam Walton valued change, experimentation, and constant improvement. But he didn’t just preach these values, he instituted concrete organizational mechanisms to stimulate change and improvement.

The Good King frame of reference VS the founding of the United States of America. They rejected the good-king model and took a more architectural approach.

Interlude: No “Tyranny of the OR” (Embrace the Genius of the AND)

I.E.
Change OR Stability
Conservative OR Bold
Low Cost OR High Quality
Creative Autonomy OR Consistency and Control
Invest for the Future OR Do Well in the Short Term
Methodical Planning OR Opportunistic Groping

Chapter 3 More Than Profits

Contrary to business school doctrine, we did not find “maximizing shareholder wealth” of “profit maximization” as the dominant driving force or primary objective throughout the history of most of the visionary companies.

We saw a core ideology that transcended purely economic considerations.

J&J values: the customer comes first, service to employees and management second, the community third, and service to stockholders last.

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.

3M values: Innovation “Thou shalt not kill a new product idea”
There are many other examples of company ideals on pg 68

Visionary companies tend to only have a few core values, usually between three and six.

Disneyland will never be completed, as long as there is imagination left in the world.

Ask the five-fold “why” when coming up with business values.

Chapter 4 Preserve the Core/Stimulate Progress

The drive for progress is never satisfied with the status quo, even when the status quo is working well.

3M gave researchers 15 percent of their time to pursue any project of their liking, and created an internal venture capital fund.

Chapter 5 Big Hairy Audacious Goals (BHAGs)

“Far better to dare mighty things, to win glorious triumphs, even though checkered by failure, than to take rank with those poor spirits who neither enjoy much nor suffer much, because they live in the gray twilight that knows not victory, nor defeat.” – Theodore Roosevelt, 1899

A true BHAG is clear and compelling and serves as a unifying focal point of effort – often creating immense team spirit. It has a clear finish line.

Most corporate statements we’ve seen do little to provoke forward movement.

Of the five also-ran tobacco companies in the 1960s, only one – Philip Morris – set and attained the ambitious goal of knocking the number one tobacco company on his rear and becoming the GM of the industry.

Tokyo Tsushin Kogyo -> Sony

Computer Tabulating Recording Company -> IBM

Highly Visionary Companies have a self-confidence bordering on hubris

Motorola’s CEO, Galvin, in training his son for the CEO position explained the importance of “keeping the company moving” and that vigorous movement in any direction is better than sitting still.
– A BHAG should be so clear and compelling that it requires little or no explanation. Remember, a BHAG is a goal – like climbing a mountain or going to the moon – not a “statement.” If it doesn’t get people’s juices going, then it’s just not a BHAG.
– A BHAG should fall well outside the comfort zone, People in the organization should have reason to believe they can pull it off, yet it should require heroic effort and perhaps even a little luck – as with the IBM 360 and Boeing 707.
– A BHAG should be so bold and exciting in it’s own right that it would continue to stimulate progress even if the organization’s leaders disappeared before it had been completed – as happened at Citibank and Walmart.
– A BHAG has the inherent danger that, once achieved, an organization can stall and drift in the “we’ve arrived” syndrome, as happened at Ford in the 1920s. A company should be prepared to prevent this by having follow-on BHAGs. It should also complement BHAGs with the other methods of stimulating progress.
– Finally, and most important of all, a BHAG should be consistent with a company’s core ideology.

Chapter 6 Cult-Like Cultures

Welcome to Nordstrom
We’re glad to have you with our Company. Our number one goal is to provide outstanding customer service.
Set both your personal and professional goals high. We have great confidence in your ability to achieve them.

Nordstrom Rules:
Rule #1: Use your good judgement in all situations.
There will be no additional rules.

Please feel free to ask your department manager, store manager or division general manager any question at any time.

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.

Tom J Watson, IBM, plastered the walls with slogans: “Time lost is gone forever”; “There is no such thing as standing still”; “We must never feel satisfied”; “We sell service”; “A company is known by the men it keeps.”

Disney shrouds much of its inner workings in secrecy, which further contributes to a sense of mystery and elitism.

– Orientation and ongoing training programs that have ideological as well as practical content, teaching such things as values, norms, history, and tradition.
– Internal “universities” and training centers.
– On-the-job socialization by peers and immediate supervisors.
– Rigorous up-through-the-ranks policies – hiring young, promoting from within, and shaping the employee’s mindset from a young age.
– Exposure to a pervasive mythology of “heroic deeds” and corporate exemplars (e.g. customer heroic letters, marble statues).
– Unique language and terminology (such as “cast members,” “Motorolans”) that reinforce a frame of reference and the sense of belonging to a special, elite group.
– Corporate songs, cheers, affirmations, or pledges that reinforce psychological commitment.
– Tight screening processes, either during hiring or within the first few years.
– Incentive and advancement criteria explicitly linked to fit with the corporate ideology.
– Awards, contests, and public recognition that reward those who display great effort consistent with the ideology. Tangible and visible penalties for those who break ideological boundaries.
– Tolerance for honest mistakes that do not breach the company’s ideolog; severe penalties or termination for breaching the ideology.
– “Buy-in” mechanisms (financial, time investment)
– Celebrations that reinforce successes, belonging, and specialness.
– Plant and office layout that reinforces norms and ideals.
– Constant verbal and written emphasis on corporate values, heritage, and the sense of being part of something special.
It means getting the right actors on the stage, putting them in the right frame of mind, and then giving them the freedom to ad lib as they see fit.

Chapter 7 Try A Lot Of Stuff And Keep What Works

“The Mutation Machine from Minnesota” – name for 3M

Francis G. Okie asked 3M to send samples of sandpaper of every kind. William McKnight, manager, instead of blindly sending all sandpaper they manufactured, asked “why?” Okie needed a waterproof sandpaper, which 3M then developed and sold very successfully. No one else bothered to ask “why?” McKnight, the consummate clock builder who always focused on building the organization – didn’t just sign an agreement with Okie and thank him. He hired him!

“Listen to anyone with an original idea, no matter how absurd it might sound at first.”

“Encourage; don’t nitpick. Let people run with an idea.”

“Hire good people, and leave them alone.”

“If you put fences around people, you get sheep. Give people the room they need.”

“Encourage experimental doodling.”

“Give it a try – and quick!”

Management that is destructively critical when mistakes are made kills initiative and it’s essential that we have many people with initiative if we are to continue to grow.

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.

Chapter 8 Home Grown Management

“You and I are flying in a company plane. It crashes. You and I are both killed. Who should be chairman of General Electric?”
—-Jones asked Jack Welch with the intention to discover compatibilities and elicit peer assessment.

Over the period 1806 to 1992, we found evidence that only two visionary companies (11.1%) ever hired a chief executive directly from outside the company.

Poor succession planning and management discontinuities kill companies.

If you were hit by a bus, who could step in your role? a.k.a. the “Bus Count”

Chapter 9 Good Enough Never Is

Don’t bother just to be better than your contemporaries or predecessors. Try to be better than yourself.” – William Faulkner

Visionary companies install powerful mechanisms to create discomfort – to obliterate complacency – and therefore stimulate change and improvement before the external world demands it.

Merck in the 1950s embraced a strategy of consciously yielding market share as products became low-margin commodities, thus forcing itself to produce new innovations in order to grow and prosper.

at GE – Groups of employees meet to discuss opportunities for improvement and make concrete proposals. Upper managers are not allowed to participate in the discussion, but must make on-the-spot decisions about the proposals, in front of the whole group – he or she cannot run, hide, evade, or procrastinate.

“eyes of the enemy” – managers develop strategy as if they worked for a competing company. Weaknesses exploited? Strengths levered? What markets would they invade?

HP instituted a pay-as-you-go philosophy. If you want to innovate, you must bootstrap.

David Packard – Anytime he discovered an employee had violated HP’s ethical principles in order to increase short-term divisional profits, the individual involved was fired – no exceptions, no matter what the circumstance, no matter what the impact on the immediate bottom line.

Motorola targets 40 hours of training per year for employees, and requires 1.5 percent of payroll is for training.

– 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? How can you give these mechanisms sharp teeth?
– 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?
– How do you respond to downturns? 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? Does your company reject doing well as an end goal, replacing it with the never-ending discipline of working to do better tomorrow than is did today?

Chapter 10 The End Of The Beginning

Visionary companies create a total environment that envelops employees, bombarding them with a set of signals so consistent and mutually reinforcing that it’s virtually impossible to misunderstand the company’s ideology and ambitions.

Merck gave research scientists “the greatest possible latitude and scope in pursuing their investigations, the utmost freedom to follow promising leads – no matter how unrelated to … practical returns.”

If you look around your company right now, you can probably put your finger on at least a dozen specific items misaligned with its core ideology that impede progress. What are they?

Chapter 11 Building the Vision

The five “WHYS”. Ask why five times to discover the purpose of what you are doing.