76 pages • 2 hours read
Jim CollinsBuilt to Last: Successful Habits of Visionary Companies
Nonfiction | Book | Adult | Published in 1994A modern alternative to SparkNotes and CliffsNotes, SuperSummary offers high-quality Study Guides with detailed chapter summaries and analysis of major themes, characters, and more.
Chapters 7-8Chapter Summaries & Analyses
Chapter 7 Summary: “Try a Lot of Stuff and Keep What Works”
In their extensive research, the authors discovered that many strategic triumphs of visionary companies resulted from experimentation and luck. Johnson & Johnson serves as a notable illustration, incorporating talc powder into products following customer complaints about skin irritation. Surprisingly, demand for the powder emerged, leading to Johnson & Johnson’s introduction of Toilet and Baby Powder, marking their initial venture into consumer goods. Similarly, Marriott’s entry into airline catering and American Express’s creation of the “Express Money Order” resulted from astute observations and client demands, emphasizing the accidental nature of these successes among visionary companies.
Collins and Porras acknowledge that visionary companies employ deliberate strategies and plans to drive progress. Yet, many of their triumphs unfold organically, characterized by what the authors term “evolutionary progress.” Unlike BHAGs (Big Hairy Audacious Goals), this form of progress is entirely unplanned. The authors draw parallels to Darwin’s theory of evolution, likening visionary companies to organisms adapting to their environment through mutation and variation coupled with natural selection. They describe this process as “branching and pruning,” suggesting that by introducing enough variations (branches) and intelligently eliminating unsuccessful ideas (pruning), companies evolve into robust and adaptive entities (140).
Examining the experimentation culture, Johnson & Johnson and Wal-Mart stand out as exemplars. Despite the inherent risk of failure, these companies continuously experiment, experiencing numerous setbacks and notable successes. The authors argue that visionary companies embrace evolutionary progress more frequently than their counterparts, citing 3M as a prime example. From a spectacular mining failure, 3M transitioned to selling grinding wheels and sandpaper, leading to the unexpected acquisition of wet-to-dry sandpaper rights. The company’s culture of experimentation, exemplified by the 15% rule allowing employees to dedicate time to individual projects, has resulted in innovations like masking tape and Scotch tape. While 3M later refined its experimentation standards, aligning them with core ideologies, the emphasis on a culture that values experimentation and accepts failure persists.
In stark contrast, the authors present Norton, a comparison company actively discouraging experimentation. Norton favored established product lines and efficiency, opting for external acquisitions over in-house experimentation. According to Collins and Porras, this fundamental difference played a pivotal role in 3M’s success and Norton’s eventual acquisition by Saint-Gobain.
The key insights derived from Collins and Porras’s analysis underscore the importance of continuous experimentation for visionary companies. They advocate for an ongoing cycle of trial, adjustment, and elimination, emphasizing the need for perpetual movement and change. Acknowledging failures as part of the growth process, the authors recommend cautious, incremental steps rather than large-scale risks. Simultaneously, they stress the significance of granting employees autonomy to experiment, encouraging persistence, and institutionalizing these ideas as tangible mechanisms within a company, complete with rewards for growth and consequences for stagnation.
Conversely, several comparison companies actively suppress experimentation, a practice cautioned against by the authors. While some business philosophies advise against venturing into unfamiliar territories, Collins and Porras propose the opposite approach. They contend that visionary companies, while adhering to their core ideology, should embrace viable business opportunities aligned with their values. The core ideology, therefore, serves as a stable foundation around which companies can adapt and evolve.
Chapter 8 Summary: “Home-Grown Management”
While charismatic leadership is optional for a visionary company, effective leadership remains essential. C-level executives wield significant influence over any company, prompting most visionary companies to cultivate their top management internally. Collins and Porras identified only four instances among their 18 visionary companies, encompassing 113 CEOs, where a visionary company sought an external CEO. The authors propose that internal promotions foster continuity within visionary companies, allowing them to uphold the company’s core ideologies.
To facilitate successful internal promotions, companies must establish tangible mechanisms. A robust management development system and a transparent succession plan are paramount. These elements should cultivate strong internal candidates who deeply understand the company’s core ideology and culture. When these candidates ascend to upper-level management, they often maintain a trajectory akin to their predecessors, instilling a sense of continuity and security among other employees. This practice enables the company to “preserve the core” while facilitating progress (174). The absence of these factors typically results in upper-level management gaps, compelling companies to seek external “saviors.” However, these C-level executives often lack familiarity with the company’s history and may divert from core ideologies.
Colgate and Procter & Gamble (P&G) serve as illustrative examples. Colgate, for its first century, relied on in-house management but lacked strong management development systems and succession plans in the early 1900s. Facing a shortage of CEO candidates, they merged with Palmolive-Peet, who deviated from Colgate’s core ideology under CEO Charles Pearce. The Colgate family regained control after a decline in return on sales, but leadership struggles persisted, culminating in a forced CEO removal in 1979. Conversely, P&G consistently nurtures managerial talent through various programs, avoiding leadership gaps at any level.
GE and Westinghouse as well as Motorola and Zenith are examples of ensuring leadership continuity and the problems resulting from failing to do so. The authors highlight failures in nurturing managerial candidates and ensuring succession in nearly every comparison company. They also acknowledge leadership gaps in visionary companies like Disney and IBM. Disney actively sought an outside CEO, Michael Eisner, who aligned well with the company’s ideology. In contrast, the authors question IBM’s 1993 decision to appoint Louis Gerstner from R. J. Reynolds, considering IBM’s renowned management development programs.
The authors advocate for businesses to establish clear, long-term, and short-term succession plans regardless of size. They emphasize the importance of training in-house successors to minimize disruptions in continuity.
Chapters 7-8 Analysis
Collins and Porras explore two additional strategies companies can employ to drive progress while safeguarding core ideals: extensive experimentation and cultivating in-house management. Drawing an analogy to evolution, the authors liken company experimentation to biological mutations, with natural selection determining the success of these variations in a corporate environment. The recommendation is for companies to experiment continually, avoiding stagnation by embracing diversity and both focused and diversified approaches.
The authors acclaim 3M as an exemplary model for employing tangible mechanisms that foster growth. Beyond the 15% rule, granting employees the autonomy to dedicate 15% of their time to self-selected projects, 3M mandates that 25% of their profits derive from products developed within the last four years. The company annually bestows coveted awards upon employees who spearhead successful new business ventures or provide original innovations. Additional initiatives, such as grants to promote promising ideas and research, encouragement and rewards for knowledge-sharing across divisions, and allowing employees to pursue dual technical and managerial roles underscore 3M’s commitment to its core ideals while nurturing growth and innovation. These often-overlooked mechanisms represent a critical aspect of the company’s experimentation.
Simultaneously, visionary companies often derive their experimental endeavors from keen observation. In numerous exemplar cases, the impetus for a company’s growth originated from the astute observation of anomalies or needs. For instance, 3M’s venture into wet-to-dry sandpaper began with an unconventional letter requesting grit samples. Marriott’s foray into catering for planes emerged from routine inspections, revealing unexpected surges in restaurant sales due to passengers seeking in-flight meals. Similarly, American Express strategically shifted from freight to financial services by responding to cash delivery requests, resulting in a successful money order service. The subsequent development of the American Express Travelers Cheque, triggered by challenges faced by the company’s president in Europe, led to further diversification into travel and tourism.
The authors also cite Wal-Mart as an illustration of experimentation within a narrow scope. Although Wal-Mart exclusively focuses on retail, its discount method and introduction of door-greeters stemmed from astute observations of specific needs. Initially implemented as a loss-prevention measure in a store grappling with shoplifting, door-greeters proved so successful that the practice was adopted across all stores.
Inadvertently, the authors underscore another pivotal element of visionary companies’ success: the seamless integration of observation with actionable initiatives. Each company keenly observed a need or anomaly and promptly translated it into a structured experimentation process, showcasing the dynamic interplay between observation, action, and innovation.
The significance of in-house management, or Leadership as a Driving Factor, emerges as a key theme, with Collins and Porras emphasizing its role in preserving a company’s ideology, preventing leadership gaps, and fostering organizational continuity. Home-grown management aligns with core values and enhances employee morale by providing a clear upward path within the company. The authors caution against the pitfalls of external leadership, citing Westinghouse’s historical struggles as a prime example of the adverse effects of constant leadership changes and a lack of succession planning. In contrast, they praise companies like GE for its management development and succession plans, exemplified by the long-term planning that led to Jack Welch’s successful tenure. At the same time, the authors question IBM’s installment of outsider Louis Gerstner near the publication of Built to Last.
Retrospectively, the author’s idealized view of Jack Welch and their skepticism of Louis Gerstner may seem misplaced. After the 2008 financial crisis, Jack Welch’s policies unraveled, leaving many to question if he was the worst CEO in GE’s history despite his short-term gains. In contrast, though some question the long-term impact of some of Gerstner’s policies, Gerstner is primarily credited with saving IBM from collapse in the 1990s.
Collins and Porras shed light on two critical strategies visionary companies employ for sustained progress: robust experimentation and cultivating home-grown management. The authors draw parallels between corporate experimentation and biological evolution, underscoring the need for companies to innovate and adapt continually. They highlight 3M’s exemplary use of tangible mechanisms, like the 15% rule and profit-based criteria, to encourage growth through experimentation. The authors underscore the significance of keen observation as a precursor to experimentation, showcasing how visionary companies address needs or anomalies before delving into the trial-and-error process. Additionally, Collins and Porras stress the importance of in-house management, asserting that it not only preserves a company’s core ideology but also prevents leadership gaps and boosts employee morale. The contrasting statistics between visionary and comparison companies regarding recruiting outside CEOs further emphasize the authors’ argument in favor of home-grown leadership. Overall, Collins and Porras provide insights into the intricate balance visionary companies strike between preserving their core values and fostering continual progress.
