REVIEW/PREVIEW

"Built to Last:
Successful Habits of Visionary Companies"

CLOCK BUILDING [ NOT TIME TELLING

Collins compares two types of great executives. The one is phenomenally talented, able to run a major corporation while balancing twelve spinning plates on various extremities. This executive has a knack for landing on the covers of business magazines. These people may have developed the product that is their companies' claim to fame. They are upfront, dazzling, superstars of leadership and persuasiveness. They have phenomenal personal powers, and their business runs on the electricity they personally emit.

Collins calls these people time tellers, because they have exceptional skills in the here and now. What they lack is the ability stars of lesser magnitude often have -- the ability to plant ideas that will flourish after they are gone.

The opposite of a time-teller is a clock builder. Instead of performing magic tricks himself, the clock builder creates processes that will yield magical results, over the long test of time.

Having s great product or operational idea is time-telling. Creating an organization that has the capacity to succeed through many product cycles, and under successive leaders, is clock-building. In this kind if organization, the company itself -- its systems, processes, and philosophy -- is its own greatest product.

Examples of time-tellers and clock-builders.

Apple's Steve Jobs versus 3M's William McKnight. Jobs was obviously a time-teller. The tip-off is his lifelong quest for "insanely great ideas," and his inability to inculcate a long-term vision anywhere he has been. McKnight was brilliant and charismatic in his way, too. But 3M did not go through a period of protracted confusion when McKnight left. The system he helped fashion was stronger than the individual.

Green Bay Packers coach Ernie Lombardi versus San Francisco 49ers coach Bill Walsh. Lombardi had a style of coaching that has proven inimitable. Walsh believed in strengthening the organization. Green Bay won under Lombardi, bit not since. Walsh created a system that his less flamboyant successor has been able to succeed with.

Then there's Microsoft's Bill Gates. He appears to be a time-teller, a genius with his finger on the changes in the world of desktop technology. But has he created a great company? Employees there say that without Bill, they can't be great. What will happen to Microsoft when Gates is gone? Only time will tell.

NO "TYRANNY OF THE OR" [ EMBRACE THE "GENIUSOF THE AND"

The yin-yang symbols strewn through this kit are an important symbol for Collins. The illustrate the eastern attitude that most things in life have an ambiguous nature, that things can contradict themselves, but that's OK.

Aristotle laid the foundation of western logic with his insistence that a thing cannot be one thing and simultaneously not be that one thing. A cannot be non-A.

In eastern philosophy, it is accepted that things can be both A and non-A. Collins urges organizations to liberate themselves from false dichotomies such as:

You cannot be conservative and bold.

You cannot commit to both low cost and high quality.

You can't aim for both long-term and short-term success.

You cannot be a "good" company while still pursuing profits.

Collins quoted an executive from The Body Shop, a chain selling environmentally safe soaps and toiletries, who told him, "It's principles, not profits." He quotes the opposite thought from a goldsmith, who told him that principles were irrelevant, and profits were, after all, the bottom line.

They're both wrong, Collins said. (Should he have said they were both right, as well?) Superficial contradictions are not irresolvable. He describes an attitude of "pragmatic realism," the "power of the and," that allows thoughtful companies to be true to high-minded goals (e.g., fiduciary responsibility, ethical behavior, long-term thinking) without forsaking the logical and necessary short-term strategies (being decisive, causing disruptions and being competitive, and making money).

He quotes George Merck in 1935, in what today would be called a vision statement, but then was just a man saying what his company, Merck & Company, stood for: "Medicine is for people. It is not for the profits. The profits follow."

Pragmatic realism does not mean listing both people and profits as twin bottom lines. In the case of Collins' successful companies, it does mean profits alone never seem to be the be-all, end-all of the business. Though they are important, there is always something deeper -- the joy of making things (H-P), the mission of meeting customer needs (Merck), the taste of the competition's blood in your mouth (Nike) -- that accompanies the natural appetite for short-term financial gain.

Conclusion: sell Aristotle; stock up on yin-yang.

PRESERVE THE CORE [ STIMULATE PROGRESS

Which brings us to a key insight of Built to Last -- knowing what to change and what not to.

Here Collins paused to insert daylight between his ideas and those of last month's speaker, reengineering's Michael Hammer. Reengineering à la Hammer is a cheerful call to green-grass, blue-sky, clean-sheet-of-paper, hose-down-the-stable, nothing-sacred, no-holds-barred change -- the more radical, the better.

Core ideology. Collins says some things are sacred, and should be preserved at all costs -- the core values and core purposes of your organization. The core values are what make your company your company. They are not the words that happen to appear in your four-color mission-and-vision statement. They should go deeper than that.

"How should we change?" is the wrong first question, he said. The right first question is, "What do we stand for?"

It doesn't much matter what those values are, so long as you come by them honestly. Nike's exalted value is cut-throat competitiveness. But the company makes no bones about it, and works to inculcate those values in employees and new hires.

What is important is the discipline the values impose, and the alignment of it throughout the organization. This is a make-or-break business issue: if workers can't get behind the values, Collins says that is reason for them to consider looking elsewhere.

Core purposes differ from core values, and Collins thinks they are even more important. A core value is like an a priori statement: "parallel lines do not intersect." It's as assumption that you fall back on again and again, a belief. A core purpose is what you are aiming for -- it is the greatness, as defined in your value, that your organization aspires to.

Collins cited the stated purposes of the two big mortgage-packaging entities, Fannie Mae (FEDERAL NATIONAL MORTGAGE ASSOCIATION) and Freddie Mac (Federal Home Loan Mortgage Corporation). Freddie Mac's stated mission is straightforward, if a little bleak: "We are a vehicle for channeling funds from the securities markets into the mortgage market through mortgage-backed securities programs."

Fannie Mae's purpose, by contrast, shimmers with a fervor unusual among quasi-governmental agencies: "Our charter is to strengthen the social fabric of America by further democratizing home ownership."

Where would you rather work? Or consider Walt Disney's remark: "As long as imagination is alive in the world, Disneyland will not be complete."

Home-Grown Management. Collins is not one who believes in cross-pollination an organization by bringing in outside people to lead. "Home-grown management" is one of his unshakable demands, and the reason has to do with core values. Outsiders may come in and perceive the values, and grow to share them, but at the top levels an outsider is little more than a virus. Part of the genius of the and is the possibility of growing one's own talent without breeding a litter of me-too conformists.

Beware of people trying to protect their perks by claiming them as core values. Professors love their tenure, but should tenure be a core value of a university? Collins, a known professor himself, suggests it is merely a practice, a strategy, and not a core value.

This is a good time to be very honest. If quality is not really a core value, don't say it is. (Face it, many of us do it because we have to, not because it's our religion.) A core value isn't what you ought to have; it's what you know to be true when no one is looking.

Stimulate Progress. Once the core values and core purposes are known and acknowledged, then Hammer's injunction to change everything inside out and upside down may be heeded.

Collins likes the phrase Big Hairy Audacious Goals (BHAG, pronounced bee-hag) to describe the strategies an organization needs. A BHAG is something Michael Hammer could get behind. Examples: JFK's decision to put a man on the moon in 10 years; Boeing's all-or-nothing bet that the 747 jumbo jet would fly.

A good BHAG is clear and compelling. It is not words, but a goal. And it's audacious: if it doesn't get people's juices flowing, Collins says, it ain't a BHAG.

Try a Lot of Stuff & Keep What Works. Collins and Porras discovered something they did not expect in their study. What outsiders think is visionary on he company's part is sometimes just luck. Visionary companies stumble around just as much as -- indeed, much more than -- ordinary companies. Theirs is a spirit of restless experimentation, always on the lookout for a new wrinkle, improvement, application, product. if you are willing to keep trying news things, your chances of being pleasantly surprised are much higher than if you crouch in a closet with the light off.

What people forget is the second half if this prescription: "and keep what works." Do not make your organization a museum of past failures. Get out the broom and sweep away pilots that did not lead anywhere. It is as important to prune as it is to plant.

"I believe what we call vision is something we perceive in hindsight," Collins said. "If a company is in alignment with its values and trying new strategies, it will look like it always knew where it was going -- even when it didn't."

EFFECT ALIGNMENTS [ UNDO MISALIGNMENTS

Collins observed that most organizations spend most of their strategic thinking time writing the "vision statement," with a little time beforehand to discuss the topic, and a shallow effort afterward to communicate the message down through the ranks and out to the world.

The proportions are all wrong, he said. Zero time should be spent on writing down what the core values and core purposes are. "Wordsmithing" is a pointless exercise if the meaning underlying the statement is fluff, or if it will never be put to the test of reality. What percentage of time should be spent on fixing the system so the values cannot be ignored? Try 80 percent.

Collins' fourth point, labeled Alignment, is about the work every organization must do once it knows what its values and purposes are, and what strategic changes it wishes to make.

Alignment consists of the mechanisms a company puts in place to keep the values percolating through the organization. Hanging a banner across the ceiling isn't enough. People need to see that the company means business with its values.

When a company is properly aligned, there is no phantom culture subverting the official one. Putting a suggestion box next to the Coke machine doesn't constitute an alignment toward the core value of participation. Putting up a suggestion box that is emptied daily, and responded to within 24 hours, with monthly prizes to the best suggestions submitted, is more like it.

Lots of organizations do this with rules. Say a company's core value is, above all else, entrepreneurism. Collins suggested a "15 percent rule," that requires that 15 percent of all research be on topics people choose themselves. The rule has the effect of forcing people to be inquisitive and self-directing; it creates an organization of risk-takers.

Or consider a "30 percent rule." It states that 30% of profits must be from products developed within the last 5 years. This rule has the effect of underscoring that company's primary core value, innovation.

A Graph and a Hard Place. Collins uses a 2x2 graph to illustrate the ways Alignment must occur. It must be applied to both of the primary organizational tasks, Preserving the Core and Stimulating Progress. And it must be applied both positively, by providing new leverage to achieve desired results, and correctively, by removing existing alignments that contradict core values.

Collins loves the example of Granite Rock Co., the Baldrige-winning provider of the consummate commodity product that has used ingenious alignments to make the company unmistakable for any other. What other rock quarry allows customers to stop in at 4 in the morning, and purchase late-nite asphalt via ATM card?

Granite Rock's must jarring alignment must be its short-pay provision. Clearly and largely printed on all its invoices is this offer: If there is any item on this bill you are not satisfied with, simply deduct that amount and send us the balance."

It is an outrageous guarantee -- money back for unsatisfactory slag -- and there is not an employee in the 400-person company that doesn't dread the day a short-pay can be traced to a quality failure they were responsible for. Company founder Bruce Fulper calls his a "laurel and thorn" system -- a wreath of rewards for associates who contribute to customer satisfaction, the sharp finger of doom for those who think something else is more important.

Besides short-pay, Granite Rock Co. boasts its own training facility, quality standards a hundred times more stringent than industry norms, constant benchmarking, 24-hour service and, of course, the commitment to apply for and to win the Malcolm Baldrige National Quality Award. That's a lot of alignment for a small company that sells rock.

The ultimate alignment for a company committed to empowering workers: giving them the right to fire their boss if he or she is not providing the leadership they need to satisfy customers.

In addition to installing new alignments, a company must remove old alignments that are impediments to expressing the organization's core values. Collins described a hotel that hung a plaque by the service desk promising bend-over-backward service, but was unable to let him into his room until the computer system relinquished the electronic key. Clearly, the information system had become an obstruction to the hotel's own quality goals.

The Road to Revolution. The word revolution will ignite those who are naturally open to new change; but it will put everyone else's fires out, dead out.

Collins prefers the incremental approach. He describes a psychological experiment showing the power of small changes. Imagine, he says, two sets of houses. With the first set you knock on each door and ask if they would mind putting a two-inch sticker on their porch saying, "I'm for a clean environment." Nearly everyone will agree to this. The other set of houses you ignore until the next round of the experiment, four weeks later. This time you haul giant four-by-eight lawn signs to both sets of houses, asking if people would mind posting the big signs on their lawns saying "I'm for a clean environment." As you might expect, the houses with the stickers were far more likely to go along than the houses that had not been given the sticker offer. The little allowed them to contemplate the big.

Whether you are talking about the excesses of Nazi Germany or the continuous improvements efforts at your company, nearly all change initiatives that succeed, whether they are good ideas or bad ideas, occur cumulatively, building on small changes.

A mountain disappears more easily if you remove it a grain of sand at a time, than putting your shoulder to it and trying to move it at once.