ILLUSTRATION BY JULIA COLMENARESThis article appeared in:
It's a fine June day in the bright, leafy
town of Menlo Park, tucked in next
to Palo Alto and Stanford University. The plaza in front of Kepler's, the local
booklover's mecca, is asprawl with the latte-and-croissant crowd in the sun.
Upstairs over the bookstore I am closeted with Jim Collins in a small room with
a whiteboard scrawled with healthcare statistics charts, symbols for
yin-yang and ki, the names "Walt" and "Roy" and words like
"Preserve the Core" and "OR."
It's a lively two-way conversation, because we have a lot in common: he and
Jerry Porras, both on the faculty of the Graduate School of Business at
Stanford, have just published the results of a fascinating six-year study. They
wanted to find out what makes a truly great company. With survey results from
165 CEOs of major companies spread across many industries and sectors, they
complied a list of 18 "visionary companies," each the premier institution in
its industry, widely admired by knowledgeable business people, old enough to
have gone through a number of chief executives and product cycles, which have
made an indelible imprint on our world. Then they studied those companies not
just as they are today, but through their entire life cycles. It happens that I
had profiled one of those companies (Disney) in a book of my own, and two
others (Sony and Motorola) in major magazine pieces, and had interviewed the
chairman of a fourth (3M) in this magazine. So we compared notes and traded
stories until we were both late for other appointments.
Their book -- Built To Last: Successful Habits of Visionary Companies
(HarperBusiness 1994) -- makes fascinating reading as it explodes one myth
after another, and paints a startlingly clear picture of how ordinary people
can build an extraordinary organization that will last for generations and
change the world around it. But could these findings apply to healthcare, to
non-profits, to networks? "They apply to any type of organization," Collins
told me. "Jerry and I work for a non-profit -- Stanford University -- and we've
found that they apply there very well." So I asked him to spell out what
exactly he found that we could use.
"There is no reason you
can't be one of the most
in the world and one of
the most altruistic. There
is no inconsistency
It's a lively two-way conversation, because we have a lot in common: he and Jerry Porras, both on the faculty of the Graduate School of Business at Stanford, have just published the results of a fascinating six-year study. They wanted to find out what makes a truly great company. With survey results from 165 CEOs of major companies spread across many industries and sectors, they complied a list of 18 "visionary companies," each the premier institution in its industry, widely admired by knowledgeable business people, old enough to have gone through a number of chief executives and product cycles, which have made an indelible imprint on our world. Then they studied those companies not just as they are today, but through their entire life cycles. It happens that I had profiled one of those companies (Disney) in a book of my own, and two others (Sony and Motorola) in major magazine pieces, and had interviewed the chairman of a fourth (3M) in this magazine. So we compared notes and traded stories until we were both late for other appointments.
What we found is that almost anyone can do it. It doesn't take a genius.
A visionary company is not necessarily a company with a visionary product, a Macintosh or a Model T, or a great, charismatic, visionary leader, a Steve Jobs or a Henry Ford. It took nearly a decade of heating pads, and rice cookers that didn't work, before Sony began to come up with the products that made its reputation. Many of the companies we studied were founded and built by people whose names never became known to the general public, and many of the comparison companies were driven by charismatic leaders.
This was a big surprise to me, but not to my co-author. Jerry Porras has always been skeptical of the charismatic visionary leader. But many of the companies with which we are familiar are associated with a Walt Disney, a Sam Walton, or a Henry Ford. I went into the research project thinking, "When we start peeling away these companies, we are going to find that, say, 3M is great because of a great leader who arose at some point in its history, that it's still propelled by the motion of that one person."
But here is what was surprising to me: It turns out that having such a leader is probably a negative, an impediment to overcome. At a lot of these companies we didn't find a hero, a recognizable household name. Instead we found William McKnight at 3M, Charles Coffin at General Electric, Paul Galvin at Motorola, William Cooper Procter at Procter & Gamble, and Bill Allen at Boeing, people that I would not have known anything about if I had not done this research.
If I were to recreate
on another planet
with only 30 people,
whom should I take
Those companies became visionary in spite of the fact that they had charismatic visionary founders, not because of it.
What's different about those who built these visionary companies is that they focused on building a great organization, to a greater degree than those who built our comparison companies.
So, for example, we compared what William McKnight did at 3M to what Charles Norton did at Norton Corporation, both originally in the abrasives business. McKnight put a lot of time into building the processes and characteristics of the 3M company, whereas Norton spent much of his time galvanizing the company with his personal style, and coming up with the great ideas and the direction. Norton was a "time teller" who invented an innovative new type of grinding wheel. But only a "clock builder" would come up with 3M's 15 percent rule, which says you that you can have 15 percent of your time to do whatever you want to be innovative, or 3M's encouragement of persistence, or its tolerance for failure.
Similarly, at Westinghouse, George Westinghouse was a brilliant product visionary who founded the company on the AC power system. Charles Coffin, at General Electric, invented not one product -- and in fact GE had to abandon its original idea, Edison's DC power system. But Coffin created something better: the General Electric Research Laboratory. Westinghouse was a brilliant time-teller, Coffin a brilliant clock-builder.
Picture the yin-yang symbol, the circle divided by an "S" shape down the middle into two interlocking teardrops, one black and one white. That's an important symbol that captures a significant idea, that of embracing paradoxical extremes at the same time. In the left side of the yin-yang symbol is the company's cherished ideology, its core, that it preserves over time. In the right hand side is the drive for stimulation, change, and progress. A visionary company is one that preserves a cherished ideology and stimulates change at the same time. They will change anything else -- GE abandoned DC power, Motorola got out of the car radio business, 3M branched from abrasives to adhesives to thin films to nonwovens -- to preserve the company's core ideology.
We are very conscious in using the word "ideology." We hear a lot of discussion over the years about the core values of companies. But they have an abstract intellectual flavor to them. The core concepts that drive visionary companies aren't just pat sets of good ideas. They have an ideological, nearly religious flavor. They are held so fervently that people who don't share them tend to be very uncomfortable in those environments.
This drive on the progress side is almost artistic. If you asked William Faulkner, "Why are you trying to write a better novel?" he wouldn't say, "I did a five forces analysis and several focus groups and determined that the market wants a higher-quality prose fiction product." It would be more like: "It's in me to write a better novel. Therefore I must. I can't rest until I do."
So on one side you have a fierce core ideology that will not change, and on the other a relentless drive for progress, change, improvement, achievement, going somewhere, doing something, not sitting still.
But they get caught up in what we call "The Tyranny of the Or," the belief that you cannot live with two seemingly contradictory ideas at the same time, that you can have change or stability, you can be conservative or bold, you can have low costs or high quality -- but never both. Our visionary companies all operate in what we call "The Genius of the And," the ferocious insistence that they can and must have both at once.
One "Tyranny of the Or" in healthcare is the assumption that becoming more businesslike means giving up the social purpose of healthcare. Ironically, it might benefit people in health care to study these for-profit corporations that have strong ideologies, many of them even somewhat altruistic -- to see that they don't have to give up the roots of what they are about, their reason for existence, in order to change, to become more efficient and business-like.
Healthcare is going through re-engineering and re-organization like everyone else. It's in even greater chaos than most industries. Acute healthcare is shrinking. But if you know your deep purpose, then you can do all that in a context. We have to ask: Why? We have to ask: So what? We have to ask: Why not just shut this place down?
People consider it axiomatic that a company exists to return profit to its shareholders, that even a not-for-profit exists to return benefit to its stakeholders, and must have a healthy margin in order to survive. But all of the visionary companies we studied -- all of them major profit-makers -- are about something else, something beyond profit.
We all have to eat
to survive, but our lives
are about more than eating.
Organizations must make a profit
or meet their margin, to survive.
But to be great they must be
about more than survival.
Thinking about putting these visionary strategies in place is not a luxury that comes with success. It precedes long term success. No company ever lost as much money as Ford did in the early 1980's -- $3.3 billion in a three year period. Yes, they had to go into massive survival mode, redo their union contracts, lay off people, all the classic survival fire drill stuff. And -- back to the genius of the "And" -- they said, "We have to get back to the basic values of this company, from which we have strayed."
In the midst of one of the most brutal turnarounds in corporate history, they took the time for philosophical discussions about, "What is the Ford Motor Company really all about?" They produced the Mission, Values, Guiding Principles at that time, which were essentially a restatement of Henry Ford's core values, much the way Lincoln wrote the Gettysburg Address, restating the fundamental values of the country at the very moment that the country was being ripped apart.
Hewlett and Packard didn't wait until they were a big successful company before they started laying down the tenets of the "HP Way."
At Sony they wrote the philosophy before they had products. Here is Masaru Ibuka, with his small corps of engineers, in a bombed-out building in downtown Tokyo in 1946, eating rice and bean paste soup for lunch, worried about where the next bowl of rice is coming from. And Ibuka goes off and writes a nine-page philosophical prospectus, an unbelievably visionary document. Sony has been a pretty good innovation machine over the years, in part because Ibuka was already tinkering with the process of innovating long before the company was successful. Once they became successful the process was still there, as an engine of innovation.
I don't have a lot of patience for the idea that, "Life's too difficult, I don't have time to think about this stuff." Life is always difficult. George Merck was thinking about this stuff in the midst of the Depression. Whatever you are going through that is difficult, being a great manager involves carving out the time to think about these things too.
It's like a natural athlete who doesn't have to work that hard, versus Michael Jordan, who got cut from his high school basketball team, and then worked harder. Adversity can present an opportunity for people to build a truly creative organization.
Some will fall by the wayside. This is a great time in healthcare. The grounds are going to shake, and the previous pillars of strategic advantage are going to disappear. So it's an ideal time to establish new pillars of strategic advantage, based on your internal process, not just on the market. Market-based advantages can disappear quickly in the face of new technologies, fashions, business trends, and regulatory changes. Process-based advantages, such as Sony's ability to set targets and hit them, Motorola's experience with quality, Hewlett-Packard's constant pushing of the technological envelope, are much more resilient in the face of change.
In academia, for instance, we have a core value: intellectual freedom of inquiry. We have an operating practice called tenure, which grew out of that core value. People confuse the two. But tenure is a practice in support of a core value, academic freedom. We should be willing to abandon tenure if it no longer serves our needs. We may have better ways of preserving freedom of inquiry -- the value -- without being chained by the practice of tenure.
I suspect you could find the same thing in healthcare, things that people hold onto ferociously, saying, "That's fundamental. That's a core value," when in fact it's a practice, a particular way of delivering healthcare, rather than health itself. Times of great change give us the opportunity to go back to our roots, to our altruistic reasons for being, to our core values, to awaken those like they have never been awakened before -- and at the same time to say that we are willing to change anything that does not support those core values, no matter how seemingly sacred it is. It might mean, for instance, to deliver healthcare without hospitals.
Building hospitals is not a core value. It is a strategy in support of a value. Putting patients in beds is a strategy. Every technique, every therapy, every program, is just a strategy. What happens if we start with a blank page, and go back to the core purpose? We might see that some practices actually get in the way of our core values. The irony is that embracing a change in practices can help you better pursue the unchanging purpose.
If you can prosper in the environment that you have in healthcare, you deserve a heroic badge, because it's got to be tougher than running Hewlett-Packard.
We live in a culture that believes there is a solution for every problem. I don't believe that is true. There are unsolvable problems. On the other hand I believe very strongly in the genius of the "and," in the possibilities of creativity.
When people discuss healthcare we tend to think that healthcare can only do certain particular tasks. And everyone focuses on managing the cost side. Visionary companies have been brilliant at managing the revenue side. Sony and Disney managed their costs reasonably well. But it was not because of cost management that they have done well, but rather because they continually added new sources of revenue. All the visionary companies have moved into new arenas over time. All of HP's original markets are gone. Motorola doesn't even make TV sets anymore. There is no reason health care companies can't think more broadly about what they do.
Second, I would take them back to the foundation, our core values. I would ask all the employees: if I were to recreate this organization on another planet with only 30 people, who should I take with me? Everyone would get to nominate the five people in the company whom they most respect -- a genetic slice of the organization. It might include a nurse on the third floor, a maintenance foreman, the CFO, whoever.
I would bring those thirty together and tell them. "As a group, first, we are going to articulate the core values and purpose of this institution. Second, we are going to set some very big challenges for ourselves, what I like to call a BHAG -- a `big hairy audacious goal.' I don't know what it is going to be. But it will be something that we find awfully inspiring and exciting. Based on our core values and purpose, where do we want to take this thing? What do we want it to become?"
There may be a brilliant
administrator who thinks
the core values are
all a crock. Fine!
He or she can go be
a brilliant administrator
Excerpted from Built To Last: Successful Habits of Visionary Companies by James C. Collins and Jerry Porras (HarperBusiness 1994) by permission of the authors.
Myth 1: It takes a great idea to start a great company
Reality: Starting a company with a "great idea" might be a bad idea. Few of the visionary companies did. Like the parable of the tortoise and the hare, visionary companies often get off to a slow start, but win the long race.
Myth 2: Visionary companies require great and charismatic visionary leaders.
Reality: A charismatic visionary leader is absolutely not required and, in fact, can be detrimental to a company's long-term prospects.
Myth 3: The most successful companies exist first and foremost to maximize profits.
Reality: Contrary to business school doctrine, "maximizing shareholder wealth" or "profit maximization" has not been the dominant driving force or primary objective through the history of the visionary companies. Yet, paradoxically, the visionary companies make more money than the more purely profit-driven comparison companies.
Myth 4: Visionary companies share a common subset of "correct" core values.
Reality: There is no "right" set of core values for being a visionary company. Visionary companies do not ask, "What should we value?" They ask, "What do we actually value deep down to our toes?"
Myth 5: The only constant is change.
Reality: A visionary company almost religiously preserves its core ideology -- changing it seldom, if ever. Yet visionary companies 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.
Reality: Visionary companies may appear straitlaced and conservative to outsiders, but they're not afraid to make bold commitments to "Big Hairy Audacious Goals" (BHAGs). Visionary companies have judiciously used BHAGs to stimulate progress and blast past the comparison companies at crucial points in history.
Myth 7: Visionary companies are great places to work, for everyone.
Reality: 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. Visionary companies are so clear about what they stand for and what they are trying to achieve that they simply don't have room for those unwilling or unable to fit their exacting standards.
Myth 8: Highly successful companies make their best moves by brilliant and complex strategic planning.
Reality: Visionary companies make their best moves by experimentation, trial and error, opportunism, and -- quite literally -- accident. We found the concepts in Charles Darwin's Origin of Species to be more helpful for replicating the success of certain visionary companies than any textbook on corporate strategic planning.
Myth 9: Companies should hire outside CEOs to stimulate fundamental change.
Reality: In seventeen hundred years of combined life spans across the visionary companies, we only found four individual incidents of going outside for a CEO -- and those in only two companies.
Myth 10: The most successful companies focus primarily on beating the competition.
Reality: Visionary companies focus primarily on beating themselves. No matter how much they achieve -- no matter how far in front of their competitors they pull -- they never think they've done "good enough."
Myth 11: You can't have your cake and eat it too.
Reality: Visionary companies do not brutalize themselves with the "Tyranny of the Or" -- the purely rational view that says you can have either A or B, but not both. Instead, they embrace the "Genius of the And" -- 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."
Reality: Creating a statement can be a helpful step in building a visionary company, but it is only one of thousands of steps in a never-ending process of expressing the fundamental characteristics we identified across the visionary companies