Built to Last

Successful Habits of Visionary Companies

by Jim Collins

Management & Leadership

Built to Last examines 18 extraordinary and venerable companies

to discover what has made them prosper for decades, in some cases for
nearly two centuries. This groundbreaking study reveals the simple
but inspiring differences that set these visionary companies apart
from their less successful competitors.

Built to Last is meant for every level of every organization, from

CEOs to regular employees, and from Fortune 500 companies to start-
ups and charitable foundations. The timeless advice uncovered in this
book will help readers discover the importance of adhering to a core
ideology while relentlessly stimulating progress.

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 Visionary companies can teach us through their
enduring success.

So-called visionary companies have a lot to teach us. They are

companies with long track-records for success and widely admired as
the crown jewels of their industries. Whats more, their success is
enduring they prosper even as great leaders retire and individual hit-
products become obsolete.

To properly study and learn from these companies, the authors

first had to identify them by surveying hundreds of prominent CEOs
for the names of companies they considered visionary. The 18 most
commonly mentioned firms including such venerable names as the
Walt Disney Company, Marriott Hotels, and Merck were included in
the study. The visionary companies were then paired up with
comparison companies: firms that shared similar products and
markets but which, while not being outright poor performers, were
called visionary far less often in the CEO survey.

Both groups of companies were then examined across their

considerable life spans (the average founding date lay in the 1890s for
both groups). Based on massive amounts of data from interviews,
annual reports, financial statements, news articles and many other
sources, all aspects of these corporations were studied, ranging from
their ownership structures to their cultures.

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 To understand the extraordinary success of the visionary
companies, consider this fact: if you had invested a dollar in their
shares in 1926, that dollar would have been worth $6,356 by 1990.
Compare that to $955 if you had invested in the comparison
companies, and only $415 if you had invested in the general market,
and youll see just how impressive the visionary companies
performance is.

No wonder that all manner of Fortune 500 companies have been

fascinated by the findings of this study.

Visionary companies can teach us through their enduring

success.

Visionary companies are like machines that

constantly produce great products and leaders.

Contrary to what most people believe, the success of a visionary

company is not dependent on great ideas.

The founder of Sony, for example, had no specific idea of what

products his company would make. He actually held a brainstorming
session after founding the company to evaluate business ideas ranging
from sweetened bean-paste to miniature-golf equipment.

Bill Hewlett and Dave Packard also had no specific idea in mind
when they founded Hewlett-Packard (HP). They experimented with
almost farcically diverse ideas, such as automatic urinal flushers and
bowling foul-line indicators.

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 Hence, it seems that great ideas are not necessary to start a
visionary company with.

Nor are high-profile, charismatic leaders. While visionary

companies did have superb individuals at the top of their
organization, they were often down-to-earth, reserved and modest
people.

But then, what is the secret of enduring success? Many

comparison companies had great ideas and strong leadership, yet they
all fell behind the visionary companies eventually. Why?

Instead of focusing on a single product or a single leader, the

visionary companies studied built themselves into outstanding
organizations that constantly churned out great ideas and great
leaders. The real creation of the founders was not a product at all but
the company itself; constantly advancing independently of any one
person or idea.

Think of a clock on the wall. Having one great idea or visionary

leader is like getting a glimpse of that clock and being able to tell the
time in that instant. But building an organization that constantly
generates great ideas and leaders is like building your own clock: a
reliable machine.

Visionary companies are like machines that

constantly produce great products and leaders.

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 Visionary companies are driven more by a core ideology than
profits, but they still prosper.

Visionary companies have a higher purpose for their existence

than to merely chase profits. Together with the companies core values
enduring tenets that guide their every decision this purpose forms
their core ideology: a set of stable principles that guides the company
through generations, much like the truths of the American
Declaration of Independence.

Consider for example the pharmaceutical company Johnson &

Johnson (J&J). In 1935, the CEO, Robert W. Johnson Jr., wrote out the
companys core ideology in a document called Our Credo, which
listed the companys responsibilities: first to their customers, second
to their employees and so forth. Finally, fifth and last on the list, after
all the other responsibilities had been fulfilled, Johnson said that
shareholders should receive a fair return.

Likewise, most visionary companies studied were not primarily

after profit. Nevertheless, while some ideologies may seem soft or
idealistic, visionary companies managed to find a way to stay
pragmatic in their business decisions and make profits without ever
wavering from their core ideology.

A core ideology is important not only when visionary companies

prosper but also when they hit upon trouble. For example, when Ford
faced a dire crisis in the 1980s, instead of just fighting fires, its
management team stopped to discuss and clarify what the company
stood for and how they could espouse the values of the founder, Henry
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Ford. Fords comparison company, General Motors, made no such
effort.

Though every visionary company studied had a core ideology,

their content varied greatly. What counts is not the content of the
ideology but rather that an authentic ideology exists and is rigorously
acted upon.

Visionary companies are driven more by a core

ideology than profits, but they still prosper.

Visionary companies preserve their core ideology while

relentlessly stimulating progress and improvement.

The real heart of what makes visionary companies so successful is

that while they jealously guard the permanence of their core ideology,
the manifestations of that core ideology are always open for change
and progress. For example, Wal-Marts drive to exceed customer
expectations is a stable element of its core ideology, but the customer-
greeters at the entrance to their stores are a practice that can change.
Similarly, Boeings core ideology is to be a pioneer in the field of
aviation, but building jumbo jets is a manifestation of that ideology
that can change.

This flexibility demonstrates how visionary companies refuse to

abide by the so-called tyranny of the OR, whereby a company must
choose between staying true to its core ideology or stimulating
progress. Instead, visionary companies use the genius of the AND
experimenting and developing while still adhering to their core
ideology.
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 Visionary companies have their core ideologies to guide them, but
they are also relentless in their efforts to continually improve their
products, business and organization. They never settle and never
become complacent. Consider the founder of the Marriott Corporation,
J. Willard Marriot, who lived by the motto Keep on being constructive,
doing constructive things, until its time to die make every day
count, to the very end. This sounds rather depressing, but is also a
great commitment to constant progress.

Just like their core ideology, this drive for progress is innate and
unquestioned in visionary companies. Progress is stimulated both by
setting bold goals and by creating concrete mechanisms that
encourage people to innovate and improve.

Visionary companies preserve their core ideology while

relentlessly stimulating progress and improvement.

Visionary companies use big hairy audacious

goals to stimulate progress.

To drive progress, visionary companies often set themselves

extremely bold objectives so-called big hairy audacious goals
(BHAGs) which they commit to utterly and completely. BHAGs are so
ambitious that they often seem unrealistic, especially to outsiders.
Nevertheless, theyre also clear and tangible enough to energize and
focus the organization.

A well-known example of a non-corporate BHAG is the one set by

John F. Kennedy in 1961 when he proclaimed that the U.S. would take
a man to the moon and back safely by the end of the decade. At the
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time, this was an almost ludicrously bold commitment, but it did get
the U.S. moving vigorously forward.

Boeing set many BHAGs during its history, including its

commitment to developing the 747 jet. Boeing pursued this goal
single-mindedly, without ever even considering the possibility of
failure. The CEO stated that they would complete the jet even if it
consumed the entire company, which it nearly did: at one stage
roughly 86,000 people some 60% of their workforce were laid off as
sales of the plane did not meet expectations.

Similarly, Thomas J. Watson Sr., the founder of the Computer

Tabulating Recording Company, set a BHAG by renaming his company
which sold coffee grinders and butcher scales to reflect his
ambition for global status. The new name was audacious at the time:
International Business Machines (IBM).

BHAGs often take on a life of their own. Just as the space program
continued after Kennedys death, the visionary companies studied
pursued their BHAGs even as new CEOs and directors came and went.
Once a BHAG was achieved, new ones were set always in line with
the companys core ideology.

Visionary companies use big hairy audacious goals to stimulate

progress.

Visionary organizations are almost cult-like new

recruits either thrive or leave.

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 Visionary organizations pursue their core ideologies so single-
mindedly that their corporate cultures are almost cult-like. For
example, new employees quickly find themselves socializing primarily
with their colleagues, and they are encouraged to be secretive about
the inner workings of their company.

Employees often become completely immersed in the core

ideology. Consider IBM, for example, where future managers in
training would rise and sing songs from an IBM songbook:

March on with I.B.M.,

Work hand in hand

Similarly, the Walt Disney Company expected its employees to live

and breathe its core ideology of wholesome family fun. For example,
men with facial hair were not accepted as employees at theme parks,
and anyone heard uttering a four-letter word in the presence of Walt
Disney himself was fired immediately no exceptions.

There is not much room in visionary companies for people who do

not meet their tough expectations and standards. New employees
often find that either they fit right in and thrive, or they perform
poorly, are unhappy and exit the company quickly. In this regard, there
are no compromises at visionary companies.

Conversely, because the employees are confident and can be

counted on to adhere to the companys core ideology, they can also be
given the leeway to experiment. This stimulates progress and enables
the company to avoid the dangerous group-think endemic in many
cults.
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 Note though that visionary companies are not personality cults,
centered around a charismatic CEO or founder but rather around the
core ideology of the company. Though charismatic personalities can
also drive passionate work, such cults inevitably collapse when the
person leaves.

Visionary organizations are almost cult-like new recruits

either thrive or leave.

Visionary companies produce a continual stream

of high-caliber leaders.

While the visionary companies studied often had outstanding

CEOs at their helm at one time or another, what was even more
impressive was their ability to continually produce such high-quality
leaders.

The organizations focused hard on cultivating managerial talent

within the company so that new leaders could be counted on to
continue in line with the companys core ideology. At the same time,
visionary companies engaged in timely succession-planning to ensure
continuity in leadership even if something unexpected should
happen.

Consider for example the General Electric Company (GE), whose

most famous CEO is without a doubt, the legendary Jack Welch. But
actually thanks to the companys fervent emphasis on internal
management training and CEO succession, GE has enjoyed a century

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of Welch-caliber CEOs. In fact, more GE alumni have gone on to
become executives of American corporations than the alumni of any
other company. And Welch himself outlined his plan for succession
seven years before retiring, though even this seems last-minute
compared to Bob Galvin, the former CEO of Motorola, who began
planning for the next generation a quarter-century before finally
leaving.

In contrast, the comparison companies often hired external CEOs

who were unfamiliar with the company and who sometimes began
steering it in new, wholly ill-conceived directions. Also, the CEOs at
comparison companies were often near-tyrannical and engaged in
very little succession planning, which left gaping holes in the
companies leadership when they left. Some comparison companies
even had CEOs who actively hindered succession planning and
sabotaged would-be candidates. These companies then stumbled
when the troublesome CEO finally left.

Visionary companies produce a continual stream of high-

caliber leaders.

Visionary companies stimulate evolutionary

progress by encouraging experimentation.

Charles Darwin discovered that evolution is a series of successful

experiments in which slight variations are introduced to a species
and the strongest new variants survive. Similarly, the visionary
companies studied understood the need to stimulate a similar
evolutionary progress within their businesses. They encouraged their

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employees and management to experiment with new ideas, products
and practices, some of which became great successes.

Consider for example J&Js famous Band-Aids. They were born

when an employee put together some surgical tape and gauze to
quickly bandage his wifes fingers after she accidentally cut herself
with a kitchen knife. When he mentioned the idea to the J&J
marketing department, they embraced it and eventually, Band-Aid
products became the companys best-selling category.

Or consider 3M, which directed its employees to use 15% of their

working time to work on any pet projects they felt like. Two such
projects by two separate employees eventually collided to produce the
famous Post-It Notes. This would never have happened if 3M hadnt
actively encouraged experimentation and allowed its employees to
continue with their pet projects, even when early market studies were
negative. Contrast this with 3Ms comparison company, Norton, which
actually discouraged the pursuit of opportunities outside of their
traditional product lines.

One aspect of evolution is that some or even most variations

fail; the same is true in business. J&J experienced some very
prominent failures too, for example, its colored casts for children with
bone fractures. The casts quickly turned hospital bed sheets into
something resembling modern art and threw hospital laundries into
chaos.

Visionary companies understood that failed experiments are the

necessary price to pay for evolution and must not be punished lest
further experimentation be discouraged.

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 Visionary companies stimulate evolutionary progress by
encouraging experimentation.

Visionary companies dont just talk they take

concrete actions to implement their values.

While many companies claim to adhere to idealistic values,

encourage experimentation or embrace constant progress, very little is
seen in practice. The visionary companies studied, on the other hand,
managed to translate their values into reality by creating concrete
mechanisms that affected the daily lives and decisions of employees.

3M did not merely say, We want our employees to be more

innovative. Instead, it implemented several mechanisms to
encourage this idea, for example, by allowing employees to use 15% of
their time on pet projects and dictating that 30% of each divisions
annual sales must come from products less than four years old.

Likewise, visionary companies did not merely talk about constant

improvement; rather, they created mechanisms to ensure it. Wal-Mart,
for example, spurred constant growth with so-called Beat Yesterday
ledgers, which were used to compare each days sales to those of the
year prior. Similarly, Hewlett-Packard instituted a grueling process of
ranking its employees annually to stop those who gained a high status
from just coasting.

The visionary companies also took concrete actions in the long

run. They invested far more than comparison companies in creating

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new technologies and business practices, training and developing
their human capital, as well as in supporting research and
development.

For example, when Merck wanted to become a force in medical

research, it deliberately modeled its labs on academic ones and
allowed its researchers to publish their findings in academic journals
very unusual for private companies at the time. It also decided the
product-development process should be driven by research rather
than marketing as it was in many other companies. This attracted top
scientists to Mercks labs.

Visionary companies dont just talk they take concrete actions

to implement their values.

Conclusions

Visionary companies are able to attain their phenomenal success

by staying true to their core ideology while still relentlessly pursuing
progress. A companys core ideology comprises its core values but also
its purpose, meaning the reason it exists beyond profits or shareholder
value. To supplement their core ideology, visionary companies also
stimulate constant progress by setting bold goals and by instituting
grassroots mechanisms to realize their policies.

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 About the Author

Jim Collins is an American author, lecturer and consultant, who,

among other things, has taught at the Stanford University Graduate
School of Business and is a frequent contributor to Fortune, Business
Week and Harvard Business Review. His other book, Good to Great, has
sold over four million copies.

Jerry I. Porras is an academic and business analyst. He is the Lane

Professor Emeritus of Organizational Behavior and Change at the
Stanford University Graduate School of Business. His primary interest
lies in finding methods for aligning companies with their core
purpose and values.

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