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Built to Last: Successful Habits of Visionary Companies
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Interlude-Chapter 4Chapter Summaries & Analyses
Interlude Summary: “No ‘Tyranny of the OR’ (Embrace the ‘Genius of the And’)”
Collins and Porras employ the Chinese yin/yang symbol to symbolize the inherent duality within visionary companies. These organizations do not engage in a choice between seemingly paradoxical concepts; instead, they actively pursue both in tandem. Exemplifying this approach, many visionary companies integrate idealism and profit motives, navigate market shifts while upholding core values, and allocate substantial resources to short- and long-term objectives. The distinctive feature is not an attempt to balance these conflicting notions; these companies strive to embrace both facets with equal emphasis.
Chapter 3 Summary: “More Than Profits”
Collins and Porras put forward Merck as the epitome of a company skillfully navigating the delicate balance between unwavering core ideologies and profitability. Since the 1930s, Merck has championed the altruistic ideal of contributing to humanity. This commitment materialized in actions such as distributing the cure for river blindness at the company’s expense and providing tuberculosis drugs to Japan after World War II. While these altruistic endeavors incurred short-term losses, they ultimately yielded substantial long-term gains for the company. What sets Merck apart is its possession of a robust core philosophy that extends beyond the relentless pursuit of profits. This element emerges as a cornerstone in the establishment of visionary companies. Such deeply ingrained ideologies serve as powerful motivators for the organization and its employees and often endure unchanged throughout a company’s history. Other exemplars, such as Sony and Ford, similarly adhere to or return to their core ideologies despite facing myriad challenges, and this unwavering commitment has played a pivotal role in their sustained growth and stability.
In examining 18 pairs of visionary versus comparison companies, a resounding pattern emerges: 17 of the visionary companies illustrated a more profound commitment to their core ideology when compared to their counterparts. This commitment, however, is not an exclusive pursuit of ideological goals; rather, it coexists harmoniously with the pursuit of profits. This dual commitment is exemplified by companies like HP, which places a priority on contributing to society, asserting that satisfying customers will inevitably lead to profits. Johnson & Johnson established its credo in 1943, placing the company’s first responsibility to customers, followed by employees, management, and the community, with shareholders last on the list. On the other hand, Bristol-Meyers established a pledge in 1987, but there is little evidence that this guides its business decisions. A telling contrast emerges when examining the actions of these companies in response to crises. For instance, when a customer tampered with Tylenol bottles in Chicago, Johnson & Johnson opted for a swift and comprehensive recall of all Tylenol in the United States. Conversely, Bristol-Meyers faced a similar issue in Denver a few days later yet only recalled Excedrin from the Colorado market and made no effort to alert the public. The stark disparity in their responses underscores the divergent paths that adherence to core values can take.
Boeing serves as an exemplary case of a company pushing the limits of aeronautic technology, often undertaking projects to test their engineering capabilities rather than focusing solely on projected profits. Motorola’s vision revolves around serving customers and the community by delivering superior products and services.
While visionary companies must espouse an ideology, the specific nature of the ideology is less crucial than ensuring that employees and management wholeheartedly buy into it. This ideology must be exemplified throughout the organization and serve as the bedrock for the company’s culture. Visionary companies tend to create cultures deeply rooted in their core ideology, instilling these values profoundly in their employees. The emphasis on promoting from within aligns internal management more closely with the company’s ideologies. Despite the acknowledgment that visionary companies are not flawless and may deviate from their ideologies at various points in their history, they consistently demonstrate a stronger adherence to their core values next to their comparison companies.
Collins and Porras define core ideology as comprising a company’s core values and purpose. Core values, typically numbering between three to six, are the company’s foundational beliefs that guide its actions. These values remain steadfast regardless of shifting market dynamics and must be authentic to wield influence within the company. Meanwhile, purpose denotes the reason for a company’s existence beyond the pursuit of profits. As argued by the authors, visionary companies never fully achieve their purpose, and it should be a simple, expansive, and lasting concept. Even when some companies in the sample did not explicitly detail their purpose, an implied purpose remained discernible. The authors contend that defining a company’s purpose is critical in establishing a core ideology. They argue that this process is not exclusive to companies but equally applies to workgroups and departments.
Chapter 4 Summary: “Preserve the Core / Stimulate Progress”
While core ideologies are critical in guiding visionary companies, they alone cannot define a company as visionary. Many companies grapple with differentiating core ideologies from policies, strategies, procedures, and products. Collins and Porras state, “a visionary company preserves and protects its core ideology, yet all the specific manifestations of its core ideology must be open to change and evolution” (81). For example, Wal-Mart aspires to “exceed customer expectations,” but their policy of having customer greeters at the door merely reflects this value (81). It is a practice that can change and only exists in some markets. Similarly, 3M is committed to respecting individual initiative, but their 15% policy that allows technical employees to spend 15% of their time on self-chosen products can change.
The reality for long-term companies is that almost every aspect—goals, products, culture, strategy, organization, policies, etc.—will need to change at some point. The only thing that should not change is the company’s core ideology, which should help navigate companies through these changes.
Visionary companies seek to “preserve the core and stimulate progress” (82). One of the things most visionary companies share is a drive for progress, even when the status quo is proven successful. This push for continual progress motivates employees and keeps visionary companies from stagnating. Visionary companies internalize their campaign for progress, motivated not by a push from executives but as an indelible part of company culture and expectations.
A company’s core ideology allows it to pursue multiple objectives simultaneously, providing a center of stability around which the company can grow and change. While company founders often establish core ideologies and a relentless pursuit of progress, visionary companies institutionalize these factors. They create policies, procedures, and mechanisms that maintain the core ideology while continually pursuing progress, creating a company culture and expectations that exceed the creator’s tenure. For example, Hewlett-Packard uses its core ideology to guide employee reviews and promotions. With a strict promote-from-within policy, every manager must align with the HP vision to attain their position. 3M stimulates progress by insisting that 25% of division sales should stem from products released within five years. These specific policies help companies maintain their core ideologies while seeking progress. A core ideology serves as a company guide but becomes meaningless without concrete mechanisms to preserve it.
According to Collins and Porras, companies use several methods to “preserve the core and stimulate progress” (89). These methods tend to fall into five different categories: “Big Hairy Audacious Goals (BHAGs) [...] Cult-Like Cultures [...] Try a Lot of Stuff and Keep What Works [...] Home-Grown Management [...] [and] Good Enough Never Is” (89-90).
Interlude-Chapter 4 Analysis
Collins and Porras employ the yin/yang symbol as a conceptual framework in this section, drawing from Chinese philosophy to convey seemingly opposing forces’ interconnected and complementary nature. The yin/yang symbol visually appears as two swirling half circles, one black and one white, each containing a small dot of the opposite color at its widest point. Yin, the darker half, signifies femininity, darkness, the moon, cold, and spirit, while yang, the lighter half, represents masculinity, light, the sun, warmth, and form. Both forces are interdependent, each containing a small portion of the other, and any growth in one results in a corresponding decrease. Despite their apparent contradictions, these forces are complementary and must collaborate to be effective.
Collins and Porras leverage this symbol to illustrate the guiding forces for companies. While profitability is a universal pursuit, companies focusing solely on profit and growth often struggle in the long run. A profit-centric goal makes motivating and retaining employees challenging, leading to constant training and support costs. Additionally, profit-first strategies may alienate customers, thereby impacting profits negatively. Companies that incorporate an idealistic purpose beyond financial gains often witness improved employee performance and customer satisfaction, ultimately contributing to increased profits. Like the yin/yang symbol, the collaborative approach of balancing profit and idealism proves more successful than an unbalanced, profit-only strategy. Thus, Collins and Porras present The Importance of a Core Ideology, which will become a consistent theme throughout their guide.
Examining Johnson & Johnson and Bristol-Meyers as a case study, Johnson & Johnson, since 1943, has embraced a written core ideology of placing customers first. Johnson & Johnson promotes this credo internally and externally, ensuring all employees are familiar with the credo’s meaning. In contrast, Bristol-Meyers lacked a similar ideology until 1987, and its written statement does not influence its business practices. In 1982, an unknown individual in Chicago laced bottles of Tylenol (a Johnson & Johnson product) with cyanide, killing seven people. Despite the incidents only occurring in Chicago, Johnson & Johnson issued a nationwide recall and stopped producing Tylenol. The company issued warnings to the public to ensure no further deaths. The recalls alone cost Johnson & Johnson roughly $100 million at the time and caused their share of the over-the-counter pain relief market to plummet from 35% to 8% (Rehak, Judith. “Tylenol made a Hero of Johnson & Johnson: The Recall that Started Them All.” New York Times, 23 March 2002). A few days later, a copycat tampered with Excedrin (a Bristol-Meyers product) in Denver. Bristol-Meyers recalled Excedrin only from Colorado and did not inform the public of the potential issue. Bristol-Meyer’s chairman, Richard Gelb, seemed relatively unconcerned over the issue, noting that the event “would have a negligible effect on Bristol-Meyers’ earnings” (60).
Johnson & Johnson further proved its commitment to its customers by working directly with the FDA to create tamper-proof packaging (Rehak). By November 1982, Tylenol was relaunched with a triple-sealed package and a gelatin-coated capsule, making it the first company to introduce such measures. Bristol-Meyers followed suit in 1983, when the FDA mandated manufacturers use tamper-proof packaging. Collins and Porras quote the Washington Post, which stated, “Johnson & Johnson has succeeded in portraying itself to the public as a company willing to do what’s right, regardless of cost” (60).
At the time, business experts predicted Johnson & Johnson would never recover from the tampering incident (Rehak). However, within two months, its stock price fully rebounded, and its market share rose back to 30% within a year. Johnson & Johnson’s handling of this incident turned a potentially company-ending crisis into a public relations victory (Rehak). This ties in the guide’s theme of Leadership as a Driving Factor for success, contrasting the leadership of Bristol-Meyers with Johnson & Johnson. Despite the enormous initial financial hit, Johnson & Johnson rebounded quickly and established itself in the minds of consumers as a company worthy of consumer trust. While Bristol-Meyers reported higher net income than Johnson & Johnson for the final quarter of 1982 ($88.5 million versus $794 million respectively, according to the New York Times Archive), by 1985, Bristol-Meyers’ final quarter earnings reached $117.6 million versus Johnson & Johnson’s $127 million. Despite the initial financial setback, Johnson & Johnson rebounded swiftly, rebuilding consumer trust and securing a significant market share within a year.
This incident, beyond being a landmark case in business history, illustrates the efficacy of the yin/yang principle in benefiting companies. Johnson & Johnson’s seemingly costly and potentially imprudent nationwide recall demonstrated a commitment to ideals beyond profit. Its credo emphasizes prioritizing ideals before profit, creating a harmonious relationship between profit and idealism. In the aftermath of the tampering crisis, Johnson & Johnson not only recovered financially but also solidified its status as a trustworthy company in the eyes of consumers. The stark contrast in response between Johnson & Johnson and Bristol-Meyers exemplifies how embracing seemingly conflicting forces, when effectively balanced, contributes to long-term success.
Collins and Porras present numerous instances of companies successfully integrating ideals with profitability; however, a notable gap exists in their argument as they omit counterexamples. While they showcase companies facing adverse consequences for mindlessly pursuing profit, they neglect cases where companies adhered steadfastly to their ideals, resulting in unfavorable outcomes. Although these instances could be construed as strategic losses, there are scenarios where visionary companies clung tightly to ideals, and the gamble did not yield favorable results. The brilliance of visionary companies lies not only in their resilience but also in their ability to overcome setbacks while upholding their ideals. In their portrayal of the strategic value in pursuing seemingly contradictory purposes, Collins and Porras inadvertently present an unbalanced picture, emphasizing the harmony between ideals and profitability without exploring potential pitfalls.
In conclusion, Collins and Porras intricately employ the yin/yang symbol, rooted in Chinese philosophy, to underscore the interconnected and complementary nature of seemingly opposing forces within visionary companies. This symbolic representation is a compelling framework illustrating the delicate balance needed for sustained success. The collaborative approach of balancing profit and idealism emerges as a central theme, akin to the harmonious dance of yin and yang. The case study featuring Johnson & Johnson and Bristol-Meyers exemplifies the effectiveness of this balance. Johnson & Johnson’s unwavering commitment to its core ideology, demonstrated through a costly nationwide recall, ultimately proved to be a strategic triumph, solidifying its reputation and financial recovery. However, while Collins and Porras showcase instances of successful integration of ideals with profitability, the absence of counterexamples creates an unintentional bias. Exploring potential pitfalls and acknowledging cases where clinging to ideals did not pay off would provide a more comprehensive perspective. Despite this, the essence of their argument prevails—a visionary company’s brilliance lies in navigating the intricate dance of profit and ideals, overcoming setbacks while upholding its core values.
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