Built to LastDr. Ron Lembke

SurvivalWhat does a company need to

have to survive?What does a company need to do

to survive?

Learning from OthersWhat makes a company worthy

to study?◦Popular CEO? ◦Business Week covers, pithy

sayings?◦Corporate Image?◦Customer satisfaction?◦Stock return? 5 yrs/ 10yrs?◦P/E ratio, (past, future) etc.?◦Earnings growth?

Built to LastJim Collins and Jerry Porras, 1994What makes companies

visionary?◦Premier institutions (crown jewels) of

their industries◦Widely admired by their peers◦Long track record of significant

impact on the world around them◦The institution is visionary

Surveys to 700 CEOs◦Fortune 500 industrial, service

(sales)◦Inc. 500 private, Inc. 100 public

(growth)Up to 5 “highly visionary”

companies◦20 most frequently mentioned

companies◦Founded before 1950 (>= 38 yrs old)◦Avg age = 92 yrs◦Oldest 1812 (Citicorp)

Visionary Companies

Visionary Companies

3M

American Express

Boeing

Citicorp

Ford

General Electric

Hewlett-Packard

IBM

Johnson & Johnson

Marriott

Merck

Motorola

Nordstrom

Philip Morris

Proctor & Gamble

Sony

Wal-Mart

Walt Disney

Avoid:“Discover buildings”

Visionary & ComparisonCompanies

Visionary Company Comparison Company

3M Norton

American Express Wells Fargo

Boeing McDonnell Douglas

Citicorp Chase Manhattan

Ford GM

General Electric Westinghouse

Hewlett-Packard Texas Instruments

IBM Burroughs

Johnson & Johnson Bristol-Meyers Squibb

Marriott Howard Johnson

Merck Pfizer

Motorola Zenith

Nordstrom Melville

Philip Morris RJR Nabisco

Proctor & Gamble Colgate

Sony Kenwood

Wal-Mart Ames

Walt Disney Columbia

Founding era

IndustryFewer votesNot a dogSilver

medalist

Finding Common CharacteristicsWhat is the essential difference

between the visionary company and the others?

Historical analysis: how founded, how deal with depressions, recessions, crises◦Not watching last minute of a

marathon

Clock Building vs. Time TellingFocus on building an organization

You Need a “Great Idea”Two new grad decided to form a company

◦No clear idea of what to makeTried anything to make a buck

◦Bowling line foul indicator◦Clock drive for telescope◦Automatic urinal flusher◦Shock machine to lose weight◦Oscilloscopes to Disney

Specific technological and market opportunity◦Reflection Seismograph surveys of potential oil

fields

You Need a Great IdeaSam Walton

◦Wanted to work for himselfAmes

◦4 year head start◦Specifically focused on small towns

Great Ideas, continuedSony

◦Masaru Ibuka, 1945◦Brainstorming with 7 employees for

weeks Sweetened bean paste soup Miniature gold equipment Slide rules Rice cooker (didn’t work) Heating pads Cassette recorder – first significant

product

Inauspicious Beginnings3M corundum mine failed

◦Make sandpaper◦President didn’t draw a salary for 11

years◦Norton paid dividends, 15x capital

Boeing’s first plane failed◦Made furniture to stay alive

Douglas first coast-coast non-stop◦Turned into torpedo bomber for Navy

Company as Ultimate CreationNot specific productsCompany and its atmosphere,

attitude

Charismatic LeaderSome had charismatic leadersBut so did lots of other companiesWilliam McKnight

◦Gen Mgr, CEO, Chariman for 52 years◦Soft-spoken, good listener, humble, modest

Bill Allen, BoeingProcter and GambleBill HewlettJack Welch

◦Product of GE environment

Retail LeadershipWalton valued change,

experimentation, constant improvement◦Instituted concrete mechanisms to

encourage◦Awards and recognition for

improvements◦Profit sharing, highlighted employee

innovation◦Easily disseminate ideas◦Groomed successor

Ames – (Gilmans) control freaks

More than Profits“We are workers in an industry who are

genuinely inspired by the ideals of advancement of medical science, and of service to humanity.”◦George Merck II, 1935

Give away Mectizan river blindness drug◦Million people with parasitic worms◦Why? “in the business of preserving and

improving human life”1945 streptomycin to Japan, no profits

◦1993 largest American pharm corp in Japan

MerckI want to … express the principles which

we in our company have endeavored to live up to… Here is how it sums up: We try to remember that medicine is for the patient. We try never to forget that medicine is for the people. It is not for the profits. The profits follow, and if we have remembered that, they have never failed to appear. The better we have remembered that, the larger they have been.” George Merck II, 1950

Afford High Ideals?High ideals – a core ideology

often existed not just when successful

Sony 1945 – codified ideologyPurposes 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

Sony ApproachLaunch products with no proven

demand◦First magnetic tape recorder in Japan

1950◦First all-transistor radio 1955◦First pocket-sized radio 1957◦First home-use videotape recorder

1964◦Sony Walkman 1979

Ford 1983Lost $3.3b in three years 43% net worthEmergency measuresClarified guiding principles

◦HF 1916 “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.”

Henry Ford, crackpot$5 wage (per day)

◦Twice industry rate◦WSJ “economic blunders, if not crimes”◦Soon “return to plague him and the

industry he represents”◦Ford had “injected spiritual principles

into a field where they do not belong” – a heinous crime

◦Captains of industry lined up to condemn “the most foolish thing ever attempted in the industrial world”

David PackardI want to discuss why this company

exists…I think many people assume, wrongly, that a company exists to make money. While this is an important result of a company’s existence, we have to go deeper to find the real reasons for our being… to accomplish something collectively we could not accomplish separately… the underlying drives come largely from a desire to do something else – to make a product – to give a service generally to do something that is of value.

David PackardMaximizing shareholder value

has always been way down on the list.

Profit has never been the point in and of itself

The point, in fact, is to win, and winning is judged in the eyes of the customer and by doing something you can be proud of.

If we provide real satisfaction to real customers – we will be profitable

BoeingAll about being cutting edge

aviationDirector asked “what is the ROI?”

(on proposed 747)We’ve run some studies, but he

couldn’t recall the results“My God, these guys don’t even

know what the return on investment will be on the thing.”

Is there a Right ideology?◦Customers◦Employees◦Products or services◦Risk taking◦Innovation

Authenticity of the ideology and extent to which the company attains alignment with ideology counts more than the content of the ideology

Make it PervasiveIndoctrinate employees

◦When you endorse a point of view publicly, more likely to behave that way

Select managers based on fit with the ideology

Preserve the Core/Stimulate ProgressRespect for individual employees

is permanent, doughnuts and juice are not (HP)

Respect for individual initiatives, 15% rule is not (3M)

“Service to customer above all else” piano players (Nordstrom)

Drive for ProgressDeep, inner, compulsive driveWal-MartDisneyMotorola

BHAGs“Make no little plans, for they

have no magic to stir men’s souls”◦Daniel Burnham

Boeing, 1952No commercial aircraftMostly Air Force bombersCommerical airlines not

interested, reallyPropeller driven expected to

dominateDeveloping jet will cost three

times annual profitsWhat do you do?

◦You build the 707

Boeing 727Land at La Guardia 4,860 ft longNonstop NY-Miami6-abreast131 passengersHigh standards of indestructibility

BHAGsPeople get it right awayBig, simple, understandableThe reasonable man adapts

himself to the world: the unreasonable man persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man.- Bernard Shaw, "Man and Superman"

Cult-like CultureYou fit in, or you don’tFervently held ideologyIndoctrinationGoodness of FitElitismNordstromDisney language

Promote from WithinPreserve the core4 cases of outside CEOsJames McNerny, 3M 2001-2005George Buckley 3M 2005-present

◦1in 10 chance of next promotion◦Own a fish farm

Try a lot of Stuff and keep what worksStumbling into best new

products: If you’re stumbling, at least you’re moving

If you put up fences, you get sheep

3M ◦WeToDry Sandpaper◦Post-its

Sony – put it out there, see what happens

The end?Paint the whole pictureSweat the small stuffCluster, don’t shotgunSwim in your own current, even if

you swim against the tideObliterate misalignmentsKeep the Universal requirements

while inventing new methods