167 “Built to Last” and “Good to Great”

I rarely read books on “leadership” or business management, finding them generally focused on “bottom line” issues and generally irrelevant (or even contrary) to the academic and religious world that’s always been my primary concern.  Some recent treatises, however, merit consideration, for they explore both the realm of economics and the deeper recesses of human nature.  Economics, in its most basic sense, means household management and obligates one to act wisely for the good of one’s family and community–certainly a central concern for any ethic.  And the ways people do business, in any society, obviously offers many clues to the nature of human nature.

A decade ago James C. Collins and Jerry I. Porras published Built to Last:  Successful Habits of Visionary Companies, setting forth the data and insights gained from a six-year research project at the StanfordUniversity graduate School of Business, and it became the number one business book for 1995. Two years later the authors added a new introduction and concluding chapter (New York:  HarperCollins, c. 1997), making the paperback edition both more extensive and conclusive, showing how the book’s business principles apply to individuals and small groups within corporations, non-profits as well as for-profit organizations.

The authors focused on some “truly exceptional companies that have stood the test of time” (p. xxiii), wondering how they lasted while competitors came and went.  What they discovered, first of all, was the difference between “clock building and time telling.”  Patiently constructing a well-honed organization, with less attention to quarterly statistics, matters much in the long run.  Lasting success comes through institutional soundness, not dramatic leadership or ephemeral enthusiasm.  “Luck favors the persistent.  This simple truth is a fundamental cornerstone of successful company builders.  The builders of visionary companies were highly persistent, living to the motto:  Never, never, never give up” (p. 29).

The best companies were almost uniformly devoted to “more than profits.”  Their main concern has been to preserve their “core values.”  The premier “architects” of great companies generally established a “core ideology” that has persisted, in some instances, for more than a century.  Though Henry Ford himself certainly had some unattractive traits, he seemed to care more for making lots of cars than maximizing his fortune.  “I don’t believe we should make such an awful profit on our cars,” said Ford.  “A reasonable profit is right, but not too much,” said he.  “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” (p. 53).  Though one should always place such rhetoric in perspective, Ford’s claim rings true for his and a number of built-to-last companies.  Collins and Porras conclude:  “Contrary to business school doctrine, we did not find ‘maximizing shareholder wealth’ or ‘profit maximization’ as the dominant driving force or primary objective through the history of most visionary companies.  They have tended to pursue a cluster of objectives, of which making money is only one–and not necessarily the primary one” (p. 55).

Paul Galvin, the founder of Motorola, consistently defined profits as the means to the company’s goal, making a good product, not its raison de etre.  Galvin’s son and successor, Robert, wrote a series of essays in 1991, stressing such things as “creativity, renewal, total customer satisfaction, quality, ethics, innovation, and similar topics; not once did he write about maximizing profits, nor did he imply this was the underlying purpose–the ‘why’ of it all” (p. 82).  Motorola’s competitor, Zenith, by contrast, lacked such a commitment and, following the death of its founder, focused almost singularly on profits and market share, losing its way in the process.

Importantly:  “You do not ‘create’ or ‘set’ core ideology.  You discover core ideology.  It is not derived by looking to the external environment; you get at it by looking inside.  It has to be authentic” (p. 228).  Furthermore:  “You cannot ‘install’ new core values or purpose into people.  Core values and purpose are not something people ‘buy in’ to.  People must already have a predisposition to holding them.  Executives often ask, ‘How do we get people to share our core ideology?’  You don’t.  You can’t!  Instead, the task is to find people who already have a predisposition to share your core values and purpose, attract and train these people, and let those who aren’t disposed to share your core values go elsewhere” (pp. 229-230).

In addition to preserving core values, great companies continually find innovative ways to “stimulate progress.”  Their identity remains constant but their strategies ever evolve.  This, in fact, is “the central concept of this book:  the underlying dynamic of ‘preserve the core and stimulate progress’ that’s the essence of a visionary company” (p. 82).  Successfully doing so involves five things, each given a separate chapter by Collins and Porras:  1) Big Hairy Audacious Goals; 2) Cult-like Cultures; 3) Try a Lot of Stuff and Keep What Works; 4) Home-grown Management; 5) Good Enough Never Is.

Henry Ford’s Big Hairy Audacious Goal was “to democratize the automobile.”  General Electric, under the legendary Jack Welch, sought to “become #1 or #2 in every market we serve and revolutionize this company to have the speed and agility of a small enterprise” (p. 95).  Boeing, in 1965, determined to build the 747 jumbo jet at all costs–and it nearly cost everything, stretching the company to its absolute maximum.  McDonnell Douglas, by contrast, consistently refused to risk losses and thus failed to successfully compete with Boeing.

Cult-like Cultures characterize companies like Nordstroms.  All employees start at the bottom, working on the floor as salesmen.  There they’re on trial, seeing whether they truly satisfy customers.  Employees receive a card–WELCOME TO NORDSTROM–stating the company’s character:  “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 judgment in all situations.  There will be no additional rules” (p. 117).  The company is fanatically committed to this simple rule, and customer satisfaction has validated its effectiveness.   “Nordstrom reminds us,” say the authors, “of the United States Marine Corps–tight, controlled, and disciplined, with little room for those who will not or cannot conform to the ideology” (p. 138).

Still more:  “This finding has massive practical implications.  It means that companies seeking an ’empowered’ decentralized work environment should first and foremost impose a tight ideology, screen and indoctrinate people into that ideology, eject the viruses, and give those who remain the tremendous sense of responsibility that comes with membership in an elite organization.  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.  It means, in short, understanding that cult-like tightness around an ideology actually enables a company to turn people loose to experiment, change, adapt, and–above all–to act”  (pp. 138-139).

Built-to-last companies continually adapt to the evolving marketplace by trying “a lot of stuff” and keeping “what works.”  In the methodological sense they are totally pragmatic, remarkably Darwinian.  They tenaciously retain their core values but freely change their modus operandi.  They have a “vision” but rarely craft detailed “long range” plans.  Thus “Bill Hewlett told us that HP ‘never planned more than two or three years out’ during the pivotal 1960s” (p. 144), and they learned from their mistakes.  As R.W. Johnson Jr., said, regarding Johnson & Johnson:  “Failure is our most important product” (p. 147).   A Wal-Mart store in Louisiana placed friendly “people greeters” at the store’s entrance primarily to deter shoplifters, only to discover that it was a marvelous public relations strategy that soon spread throughout the giant retail chain.  GE’s Jack Welch, reading Johannes von Moltke’s writings on military strategy, coined the phrase “planful opportunism” to describe the fact that in business as well as in war “detailed plans usually fail, because circumstances inevitably change” (p. 149).

Welch personifies the “Home-Grown Management” the authors find in most successful companies.  Bringing in an outsider–whether because of his charismatic gifts or her politically correct sex or some alleged need for “fresh blood” rarely helps a company.  Welch succeeded at GE because he followed a century of highly successful CEOs.  Amazingly, “across seventeen hundred years of combined history in the visionary companies, we found only four individual cases of an outsider coming directly into the role of chief executive” (p. 173).  Companies that nourish employees’ development, recognize their talent, and reward their commitment find able leaders to assume control of the corporation.  Companies that don’t–such as Disney in the ’70s–flounder while hiring outsiders like Michael Eisner.

Good Enough Never Is” means that successful companies never rest on their laurels.  Their CEOs demand continual improvement.  Thus J. Willard Marriott, Sr., said:  “Discipline is the greatest thing in the world.  Where there is no discipline, there is no character.  And without character, there is no progress. . . .  Adversity gives us opportunities to grow.  And we usually get what we work for” (p. 188).  His son sustained his “Mormon work ethic,” putting in 70-hour weeks and diligently traveling to make sure his facilities were first-rate.  Howard Johnson’s son, however, left the details of the organization to others while he enjoyed the “good life” in New York.  Before long Howard Johnson was failing while Marriott continued to prosper.  Momentary successes, however impressive, are but step stones to ever-higher goals.  “Like great artists or inventors, visionary companies thrive on discontent” (p. 187).   Like great coaches, thriving companies continually recruit the best available talent, work incessantly on training and motivating employees, and challenge everyone to excel in everything they do.

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Having analyzed companies that were “built to last,” Jim Collins (assisted by 10 researchers) sought to explain why a few of them truly excel in Good to Great:  Why Some Companies Make the Leap and Others Don’t (New York:  HarperBusiness, c. 2001).  “Good is the enemy of great,” he says in his first sentence (p. 1).  There are lots of “good” schools, teams, churches, and businesses.  Because they’re “good enough,” however, they never generate the commitment necessary to become truly great, an attribute Collins grants only eleven of the Fortune 500 companies–Abbott; Circuit City; Falnnie Mae; Gillette; Kimberly-Clark; Kroger; Nucor; Philip Morris; Pitney Bowes; Walgreens; Wells Fargo.  So he sought to discover the “timeless principles–the enduring physics of great organizations–that will remain true and relevant no matter how the world changes around us” (p. 15).

Some of the things they didn’t find are striking.  “Larger-than-life, celebrity leaders who ride in from the outside are negatively correlated with taking a company from good to great” (p. 10).  Financial packages for top executives matter little.  Long-range planning strategies aren’t a factor.  Nor do cutting-edge technologies, mergers and acquisitions, motivational novelties, or various other voguish “keys” make for success.  Conversely–and far less flamboyantly–what truly mattered, as companies climbed to greatness, was “a process of buildup followed by breakthrough, broken into three broad stages:  disciplined people, disciplined thought, and disciplined action” (p. 12).  Great “companies have a culture of discipline.  When you have disciplined people you don’t need hierarchy.  When you have disciplined thought, you don’t need bureaucracy.  When you have disciplined action, you don’t need excessive controls.  When you combine a culture of discipline with an ethic of entrepreneurship, you get the magical alchemy of great performance” (p. 13).

It all begins with what Collins calls a “Level 5 Executive,” such as Darwin E. Smith at Kimberly-Clark, who blends “personal humility and professional will” (p. 20) and orchestrates the transformation.  A shy, self-effacing, hard-working farm boy who slowly moved up the ranks of the company, Smith brought a “ferocious resolve” to renew an aging paper producer and did so.  Like Smith, Level 5 leaders are “incredibly ambitious–but their ambition is first and foremost for the institution, not themselves” (p. 21).  The eleven CEOs whose companies “met the exacting standards for entry into this study” (p. 28) were remarkable men, but they’re largely unknown!  The rarely graced the cover of People Magazine or appeared on 60 Minutes or dined with Barbara Streisand!  They rarely talked about themselves, and admiring outsiders tended to focus on the companies, not the executives who ran them!  Level 5 Executives take responsibility for failures and generously praise others for successes.  Lee Iacocca, by contrast, often seemed to lead Chrysler as a means of self-promotion, so “that insiders at Chrysler began to joke that Iacocca stood for ‘I Am Chairman of Chrysler Corporation Always'” (p. 30).  And Iacocca’s flamboyant success in the 1980s resembled a soaring, then quickly deflated, balloon.

The second phase in moving from good to great is finding the right (and eliminating the wrong) people.  People matter more important than plans.  “First who, then what,” guides the great companies.  Nucor succeeded because the company found “that you can teach farmers how to make steel, but you can’t teach a farmer work ethic to people who don’t have it in the first place” (p. 50).  So the company established steel plants in rural areas and focused on hiring men who knew how to work.  Great companies consider an employee’s character more important than job training or school degrees.

Thirdly, great companies “confront the brutal facts (yet never lose faith)” (p. 65).  In the 1960s, while the grocery giant A&P faltered by clinging to antiquated practices, “Kroger began to lay the foundations for a transition” (p. 65) that made it the number one grocery chain by 1999.  Facing facts, not dreaming dreams, distinguish solid leaders.  The reason “charismatic” leaders often fail, in the long run, is because of their penchant for casting unrealistic visions.  Winston Churchill had great oratorical ability, and his words inspired the world in the 1940s.  But he was adamantly realistic, demanding to know the “brutal facts” during the war, and his decisions were rooted in reality, not rhetoric.  Leaders aren’t cheerleaders.  “If you have the right people on the bus, they will be self-motivated.  The real question then becomes:  how do you manage in such a way as not to de-motivate people?  And one of the single most de-motivating actions you can take is to hold out false hopes, soon to be swept away by events” (p. 74).

Next Collins explains “the hedgehog concept, an important aspect of the breakthrough phase.  Unlike foxes, who dash in a dozen different directions, pursuing the freshest trail, hedgehogs “simplify a complex world into a single organizing idea, a basic principle or concept that unifies and guides everything” (p. 91).  Walgreens, for example, decided to establish “the best, most convenient drugstores, with a high profit per customer visit” (p. 92).  Committed to that task, Walgreens prospered while Eckerd (hungry for growth in any area, such as video games) withered.  The hedgehog concept brings together three essentials:  1) determining “what you can be the best in the world at;” 2) knowing that you can be well paid for your efforts; and 3) discovering that you deeply care for and love what you do (p. 96).

The fifth step in becoming great is “a culture of discipline” that is nourished rather than imposed.  Holding employees responsible, but granting them freedom to make their own distinctive contributions, distinguishes great organizations.  This requires rigorous recruitment and hiring–getting “self-disciplined” employees who are committed to the company.  “In a sense, much of this book,” says Collins, “is about creating a culture of discipline.  It all starts with disciplined people.  The transition begins not by trying to discipline the wrong people into the right behavior, but by getting self-disciplined people on the bus in the first place” (p. 126).  “Throughout our research, we were struck by the continual use of words like disciplined, rigorous, dogged, determined, diligent, precise, fastidious, systematic, methodical, workmanlike, demanding, consistent, focused, accountable, and responsible” (p. 127).

Finally, there are “technological accelerators.”  Good-to-great companies freely utilize the latest technologies, but they think differently about them.  Their core values, their hedgehog tenacity, determine the use of technologies.  Rather than insisting on everything be the latest and finest, they pick and choose precisely what new things will actually contribute to the organization’s goals.  Technologies may help, but they never create the momentum needed for success.  If the latest technology fits the goal, then every possible effort must be made to master and utilize it.  Be the very best in making it work for you.  If not, let it alone.

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Quite different in its approach to organizational success is The Way of the Shepherd:  7 Ancient Secrets to Managing Productive People (Grand Rapids:  Zondervan, c. 2004), by Kevin Leman and William Pentah.  The short book tells a story about an ambitious MBA student at the University of Texas who wanted to learn everything his professor could impart–and ended up making weekly visits to the professor’s nearby ranch, learning the art of shepherding.

First, you must “know the condition of your flock.”  This means keeping constantly in touch with employees, getting to know them personally, attending to their daily needs.  Isolated executives inevibably fail to understand the true condition of their organizations.  Nothing substitutes for walking about the workplace, asking questions, answering questions, being available.  Second, you must “discover the shape of your sheep.”  Before you hire an employee, discern whether he or she will contribute to the health of the organization.  Make sure you get healthy sheep and monitor their condition on a regular basis.  It’s the sheep, not the shepherd, who produce the wool and mutton!  Thirdly, you must “help your sheep identify with you.”  To do this you must model “authenticity, integrity, and compassion” (p. 51).  Living out the high standards you expect of your employees, carefully and continually communicating your own values and vision, elicits commitment from your “sheep.”  Being “professional” isn’t enough, because good leaders are primarily “personal” and they treat their workers as subjects rather than objects.

To “make your pasture a safe place” means making sure your employees don’t fight over scarce resources.  There must be enough good grass to eat.  Folks who are content where they are rarely look for “greener pastures.”  Just as sick sheep must be culled from the flock before they spread contagious diseases so too must disgruntled employees be dismissed.  This helps explain the need for a shepherd’s “rod and staff.”  At times one must tap a straying ewe with a staff to rightly direct her.  When a lamb gets stuck in a crevice, the crook on the staff enables one to rescue him.  Ever out front, leading, the shepherd uses the tools necessary to direct and encourage, to nudge or correct, his sheep.  Persuasion, not coercion, is most often the key–but there must be fence lines and limits to the freedom granted one’s flock.  The shepherd’s rod provides the means to protect the sheep from predators–both outsiders and insiders.  A shepherd uses a rod, when necessary, to discipline a wayward lamb or a deviant rebel.

Finally–the seventh point–a good shepherd has a good heart.  Hirelings often do the shepherd’s work, but they often do it poorly because they’re hirelings.  Getting paid is not a sufficient motivation to do the demanding work of a real shepherd.  Having a heart for people, actually caring for them and their situation, makes one a really good leader.  A good business is a good place to work, and a good workplace makes good things.

The Way of the Shepherd is a quick read, obviously rooted in biblical principles running from Psalm 23 to Jesus’ words concerning His shepherd’s role.

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