Wednesday, August 19, 2015

Built to Last by Collins and Porras (Book Review #63 of 2015)

Built to Last: Successful Habits of Visionary Companies (Harper Business Essentials)
To differentiate my review from the myriad others, I try to relate it to church and faith-based organizations. Collins has written his own summary on his website, which is handy. Really, this book is a study on management and organizational behavior in competitive by firms who went from a garage idea to income equivalent to the GNP of small countries and kept growing there for decades. I don't find the commonalities in practice between the 18 super companies different than you might find advised in a Blanchard or Maxwell leadership text. Reading this book you often think "Man, I wish my church/school/company/office would do these things." The list:

  1. 3M
  2. American Express
  3. Boeing
  4. Citicorp (now Citigroup)
  5. Disney
  6. Ford
  7. General Electric
  8. Hewlett Packard
  9. IBM
  10. Johnson & Johnson
  11. Marriott
  12. Merck
  13. Motorola
  14. Nordstrom
  15. Philip Morris (now Altria)
  16. Procter & Gamble
  17. Sony
  18. Wal-Mart

I've read both Levitt and Kahneman, I'm very familiar with their critique of Collins' hindsight bias, the halo effect, and the understatement of luck. But these types of studies are common in all fields where you want to compare entities over time. How would you have gone about it? Whether you're reading Diamond's Guns, Germs, and Steel; Thom Rainer's Autopsy of a Dead Church; or Fukuyama's Origins of Political Order or its sequel-- they're all basically doing the same thing. Americans watch former Governors debating on stage to be President, boasting of their states' economic and employment growth during their terms, as though they had something to do with it. What are some possible hypotheses for why certain institutions thrive and never regress to the mean, and why do some never make it out of incubation? If there was a clear answer, everyone would do it (and then it would't work). The authors do write, however, that following this patterns of the other companies may paradoxically make you more successful or less successful. It makes sense once you read the book.

This was the 2004 version, which was updated from the 1994 version and is now seems written to go logically after Good to Great. I liked this book much better than Good to Great, which I think suffered from the above much more and suffered the reader to remember their made-up jargon. Half companies in Good to Great have either gone bankrupt or fallen much further back to "average." The 18 "visionary" companies in BTL are mostly still household names, and while some have not thrived in the Internet and mobile age, they still thrived through 50+ years of technological change and economic churn, and while their benchmark competitors have also, not to the same extent. These firms were picked by a survey of 165 CEOs, not by cherry picking stock data. However, the firms identified each generated at a return to investors of over 15 times what investing in the entire market would have gotten, while the comparison companies outperformed the market, but at roughly only twice the market average. Over a 50-year time horizon (more since this book was updated in 2004) most are still performing well.

My biggest critique of the book is that they do not look at the rent-seeking behavior of these companies. Boeing, for one, is the multi-billion dollar recipient of tax incentives and subsidies in the states they operate. So, they used their market power to leverage government help. It is similar with the other entities in this book, if we agree with Kahneman that randomness explains the > 2sigmas above the mean returns over time, then perhaps when these companies achieved that return they were able to cash in by lobbying for trade protection, Ex-Im Bank favor, etc. Motorola and Sony had connections with the Japanese government that goes mostly unexplored. Controlling for that, you might have a different picture. But the authors would likely argue that competitor companies received just as much, and probably sometimes more, taxpayer help but without the same results.

Lessons from the book:
The core values of the organization are what matters, nothing else. "Your core values are your non-negotiables," what principles would you not give up even if it meant higher profit? This core is what you build around, regardless of what the profits will be. All 18 visionary companies do this, return to it continually, and success follows later.

The values are something every member should know, something everyone should be able to recite when asked. Just like America has the same Constitution whenever a new Congress or President is elected, visionary companies don't fundamentally change when a new CEO is appointed. Likewise, a church with a plurality of elders should transition fairly seamlessly if the lead pastor leaves, the vision and core values of the church shouldn't change.

Principles and processes more important than leaders and personalities. Most of the visionary companies did not have charismatic, salesman-like CEOs. Nor were their CEOs mostly outsiders-- most came from within the company already steeped in the values and the core business. Healthy organizations have a team of leaders that complement each other's weaknesses, if your organization is depending on one dynamic leader then it will fail when he leaves, retires, or dies.

There is no "tyranny of the 'or,'" if someone else can make your core business offering better than you can, move on to something else. Your core values are "the only sacred cow," you must be willing to change anything and everything else. American Express was once a delivery service like UPS, for example. But you must "preserve the core AND stimulate progress." "To be built to last, you must be built to change." The elephant must dance. Each of the companies had an ability to come back from difficult times better than before by changing what it made, "selling the mills," (story not included in this book), etc. When the PC market seemed to savage IBM, it rebuilt its core around servers and business services, dominating its chosen market. The business changed because the economy changed, but the values didn't.

The authors actually find a negative correlation between early success and later success. Failure comes first. Hewlett-Packard was once a garage workshop for two engineers trying gadgets like auto-sensing urinals. The products they produced did not matter, and profit was not the end-all, they just knew they wanted to work together and what they stood for. Finding the right product came later, the values and "who is on the bus" mattered first.

Policy and values must be put ahead of goals. In other words, "start with 'why?'" Visionary companies must have core values, that is the repeated message and jives with what I read in Toxic Workplace, which I also recommend. Only once values are embraced can you come up with the Big Hairy Audacious Goals that the 18 visionaries tended to have. Don't confuse the two, your core values are not "To sell..." or "To be the market leader..." but things like "Be a model of integrity in the industry," "value the customer," etc. Your BHAGs are essentially your short or mid-term vision, which also should be embraced by members. "200 adult baptisms next year," "Serve meals in every downtown block," or "produce the first water-powered airplane," etc. The goal should be clearly understood, and everyone sees his role as working to support that vision.

Sinek's Start With Why talked about companies allowing employees to experiment, and he was partly drawing from Collins et al. Extreme Toyota is another book I have read recently that looks at audacious successes and failures that come from permission to experiment. 3M is an example of unplanned success, giving its employees a rule of 15% of their time spent experimenting with new ideas. The employee is empowered to be creative and to fail. Allowing people to be persistent with their ideas until it's clear they won't work is also important, one trial run should not determine success or failure. The Wal Mart greeter was originally an experiment by one store to stop shoplifting, it worked and spread. Companies that embrace "evolutionary progress" become the elephants that can dance.

All leaders/CEOs/pastors and even parents are interim, it's just a matter of time. Visionary companies have a succession plan in place, including a culture of promoting from within to preserve the core. Continuity mattered in the 18 visionary companies, with few hiring CEOs from the outside. At Nordstron, everyone starts at the stockroom and works up to the store floor before progressing on to management, if they have met their targets and earned it; it's an expectation. I read at least one Ken Blanchard book where he wrote of his regret at leaving a church without a succession plan in place, he watched from a distance as his former church struggled to find a new pastor and declined abysmally. Not having a succession plan is irresponsibility.

Visionary organizations also create mechanisms of discomfort to combat complacency. This requires setting even more Big Hairy Audacious Goals, experimenting with new ways of doing things, and examining whether or not you've changed with the times. If you have a happy, holy huddle and you're fine with it, then decay is probably setting in. If you're not growing, you're dying.

The authors close with advice for leaders and Boards: Make a list of your top 3 priorities annually. Then, make a list of something you need to start doing, something you should stop doing, and determine how you'll measure these. If you're not self-improving ruthlessly, then you will just end up average, or even slightly above average, and not visionary.

I give it 4 stars out of 5. I enjoyed it, recommend it as a leadership and management book. One book the authors recommend which I have not read is Barbarians at the Gate, which is the R.J. Reynolds story.

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