BUILT

BUILT

TO

LAST

SuccessfulHabits

ofVisionaryCompanies

JamesC.Colins

JerryI.Porras

Dedication

Dedication

ToJoanneandCharlene

Contents

Contents

Cover

TitlePage

Dedication

IntroductiontothePaperbackEdition

Preface

Chapter1:TheBestoftheBest

Chapter2:ClockBuilding,NotTimeTeling

Interlude:No“TyrannyoftheOR”

Chapter3:MoreThanProfits

Chapter4:PreservetheCore/StimulateProgressChapter5:BigHairyAudaciousGoals

Chapter6:Cult-LikeCultures

Chapter7:TryaLotofStuffandKeepWhat

Works

Chapter8:Home-GrownManagement

Chapter9:GoodEnoughNeverIs

Chapter10:TheEndoftheBeginning

Chapter11:BuildingtheVision

Epilogue:FrequentlyAskedQuestions

Appendix1:ResearchIssues

Appendix2:FoundingRootsofVisionary

CompaniesandComparisonCompanies

CompaniesandComparisonCompaniesAppendix3:Tables

Appendix4:ChapterNotes

Index

Acknowledgments

AbouttheAuthors

BackAd

Author’sNote

MorePraiseforBuilttoLast

Credits

Copyright

AboutthePublisher

IntroductiontothePaperbackEdition

IntroductiontothePaperbackEditionOnMarch14,1994,weshippedthenalmanuscriptforBuilttoLasttoourpublisher.Likealauthors,wehadhopesanddreamsforthebook,butneverdaredalowthesehopestobecomepredictions.Weknewthatforeverysuccessfulbook,tenortwentyequalygood(orbeter)workslanguishinobscurity.Twoyearslater,aswewritethisintroductiontothe

paperbackedition,wendourselvessomewhatastonishedbythesuccessofthebook:morethanfortyprintingsworldwide,translationintothirteenlanguages,andbest-selerstatusinNorthAmerica,Japan,SouthAmerica,andpartsofEurope.

Therearemanywaystomeasurethesuccessofabook,butforusthequalityofourreadershipstandsatthetopofthelist.Fueledinitialybyfavorablecoverageinawiderangeofmagazinesandjournals,thebookquicklyfoundanaudienceandignitedaword-of-mouthchainreactionamongthoughtfulreaders.Andthatisakeyword:readers.Whatisthetruepriceofabook?Notthefteen-totwenty-ve-dolarcoverprice.Forabusyperson,thecoverpricepalesincomparisontothehoursrequiredtoreadanddigestabook,especialyaresearch-based,idea-drivenworklikeours.Mostpeopledon’treadthebookstheybuy,oratleastnotalofthem.

We’vebeenpleasantlysurprisednotonlybyhowmanypeoplehaveboughtthebook,butbyhowmanyhaveactualyreadit.FromCEOsandseniorexecutivestoaspiringentrepreneurs,leadersofnonprots,investors,journalists,andmanagersearlyintheircareers,busypeoplehaveinvestedinBuilttoLastwiththeirmostpreciousresource—time.

Weatributethiswidespreadreadershiptofourprimaryfactors.

First,peoplefeelinspiredbytheverynotionofbuildinganenduring,greatcompany.We’vemetexecutivesfromalovertheworldwhoaspiretocreatesomethingbiggerandmorelastingthan

worldwhoaspiretocreatesomethingbiggerandmorelastingthanthemselves—anongoinginstitutionrootedinasetoftimelesscorevalues,thatexistsforapurposebeyondjustmakingmoney,andthatstandsthetestoftimebyvirtueoftheabilitytocontinualyrenewitselffromwithin.

We’veseenthismotivationnotonlyinthosewhoshouldertheresponsibilityofstewardshipinlargeorganizations,butalso—andperhapsespecialy—inentrepreneursandleadersofsmaltomidsizedcompanies.TheexamplessetbypeoplelikeDavidPackard,GeorgeMerck,WaltDisney,MasaruIbuka,PaulGalvin,andWiliamMcKnight—theThomasJefersonsandJamesMadisonsofthebusinessworld—setahighstandardofvaluesandperformancethatmanyfeelcompeledtotrytoliveupto.Packardandhispeersdidnotbeginas

corporategiants;theybeganasentrepreneursandsmalbusinesspeople.Fromtheretheybuiltsmal,cash-strappedenterprisesintosomeoftheworld’smostenduringandsuccessfulcorporations.Oneexecutiveofasmalentrepreneurialcompanysaid,“Toknowthattheydiditgaveusconfidenceandamodeltofolow.”

Second,thoughtfulpeoplecravetime-testedfundamentals;they’retiredofthe“fadoftheyear”boom-and-bustcycleofmanagementthinking.Yes,theworldchanges—andcontinuestochangeatanacceleratedpace—butthatdoesnotmeanthatweshouldabandonthequestforfundamentalconceptsthatstandthetestoftime.Onthecontrary,weneedthemmorethanever!Certainly,wealwaysneedtosearchfornewideasandsolutions—inventionanddiscoverymovehumankindforward—butthebiggestproblemsfacingorganizationstodaystemnotfromadearthofnewmanagementideas(we’reinundatedwiththem),butprimarilyfromalackofunderstandingthebasicfundamentalsand,mostproblematic,afailuretoconsistentlyapplythosefundamentals.

Mostexecutiveswouldcontributefarmoretotheirorganizationsbygoingbacktobasicsratherthanitingoonyetanothershort-livedloveaairwiththenextatractive,wel-packagedmanagementfad.

Third,executivesatcompaniesintransitionndtheconceptsin

Third,executivesatcompaniesintransitionndtheconceptsinBuilttoLasttobehelpfulinbringingaboutproductivechangewithoutdestroyingthebedrockfoundationofagreatcompany(or,insomecases,buildingthatbedrockforthersttime).Contrarytopopularwisdom,theproperrstresponsetoachangingworldisnottoask,“Howshouldwechange?”butrathertoask,“Whatdowestandforandwhydoweexist?”Thisshouldneverchange.Andthenfeelfreetochangeeverythingelse.Putanotherway,visionarycompaniesdistinguishtheir

timelesscorevaluesandenduringpurpose(whichshouldneverchange)fromtheiroperatingpracticesandbusinessstrategies(whichshouldbechangingconstantlyinresponsetoachangingworld).Thisdistinctionhasproventobeprofoundlyusefultoorganizationsamiddramatictransformation—

defensecompanieslikeRockwelfacingtheendoftheColdWar,utilitiesliketheSouthernCompanyfacingacceleratingderegulation,tobaccocompanieslikeUSTfacinganincreasinglyhostileworld,familycompanieslikeCargilfacingtherstgenerationofnonfamilyleadership,andcompanieswithvisionaryfounderslikeAdvancedMicroDevicesandMicrosoftfacingtheneedtotranscenddependenceonthefounder.

FigureI.A

ContinuityandChangeinVisionaryCompanies

EventhevisionarycompaniesstudiedinBuilttoLastneedtocontinualyremindthemselvesofthecrucialdistinctionbetweencoreandnoncore,betweenwhatshouldneverchangeandwhatshouldbeopenforchange,betweenwhatistrulysacredandwhatisnot.Hewlet-Packardexecutives,forexample,speakfrequentlyaboutthiscrucialdistinction,helpingHPpeopleseethat“change”

inoperatingpractices,culturalnorms,andbusinessstrategiesdoesnotmeanlosingthespiritoftheHPWay.Comparingthecompanytoagyroscope,HP’s1995annualreportemphasizesthiskeyidea:

“Gyroscopeshavebeenusedforalmostacenturytoguideships,airplanes,andsatelites.Agyroscopedoesthisbycombiningthestabilityofaninnerwheelwiththefreemovementofapivotingframe.Inananalogousway,HP’senduringcharacterguidesthecompanyaswebothleadandadapttotheevolutionoftechnologyandmarkets.”Johnson&JohnsonusedtheconcepttochalengeitsentireorganizationstructureandrevampitsprocesseswhilepreservingthecoreidealsembodiedintheCredo.3Msoldoentirechunksofitscompanythatoeredlitleopportunityforinnovation—adramaticmovethatsurprisedthebusinesspress—inordertorefocusonitsenduringpurposeofsolvingunsolvedproblemsinnovatively.Indeed,ifthereisanyone“secret”toanenduringgreatcompany,itistheabilitytomanagecontinuityandchange—adisciplinethatmustbeconsciouslypracticed,evenbythemostvisionaryofcompanies.

Fourth,therearemanyvisionarycompaniesoutthere,andthey’vefoundthe

booktobeawelcomeconrmationoftheirapproachtobusiness.Thecompaniesinourstudyrepresentonlyasmalsliceofthevisionarycompanylandscape.Visionarycompaniescomeinmanypackages:largeandsmal,publicandprivate,highproleandreclusive,stand-alonecompaniesandsubsidiaries.Wel-knowncompaniesnotinouroriginalstudysuchasCoca-Cola,L.L.Bean,LeviStrauss,McDonald’s,McKinsey,andStateFarmalmostcertainlyqualifyasvisionarycompanies,andotherslikeNike—notyetoldenough—wilprobablyenterthatleague.Buttherearealsoalargenumberoflesswel-knownvisionarycompanies,manyofthem

numberoflesswel-knownvisionarycompanies,manyofthemprivateandsomewhatreclusive.Someareolder,wel-establishedcompanies,suchasCargil,EdwardD.Jones,FannieMae,GraniteRock,Molex,andTelecare.Othersareup-and-comingcompanies,suchasBonnevileInternational,Cypress,GSD&M,LandmarkCommunications,Manco,MBNA,TaylorCorporation,SunriseMedical,andWLGore.ThebusinesspresstendstorivetouratentionontheIcaruscompanies—high-prolermseitheronthewayuporthewaydown.Weregularlycomeincontactwithaverydierentgroupofcompanies—solid,payingatentiontothefundamentals,shunningthelimelight,creatingjobs,generatingwealth,andmakingacontributiontosociety.Wefeeloptimisticasweseethesecompanies—andtherearealotofthem—maketheirwayintheworld.

BUILTTOLASTINAGLOBAL,MULTICULTURALWORLD

GiventhatseventeenoftheeighteenvisionarycompanieswestudiedforBuilttoLasthavetheirheadquartersintheUnitedStates,wewereunsurehowthebasicconceptswouldplayintherestoftheworld.Sincepublicationwe’velearnedthatthecentralconceptsinBuilttoLastapplyworldwide,acrossculturesandinmulticulturalenvironments.Betweenthetwoofus,we’vetraveledtoeverycontinentexceptAntarcticadeliveringseminarsandlecturesandworkingwithcompanies.We’veworkedinawidevarietyofcountrieswithdistinctcultures,includingArgentina,Australia,Brazil,Chile,Colombia,Denmark,Finland,Germany,Holand,Israel,Italy,Mexico,NewZealand,thePhilippines,Singapore,SouthAfrica,Switzerland,Thailand,andVenezuela.

And,althoughwehavenotyettraveledextensivelyinalpartsofAsia,thebookhashadastrongreceptionthere,withtranslationsinChinese,Korean,andJapanese.

TheaspirationtobuildanenduringgreatcompanyisnotuniquelyAmerican;we’vemetclock-buildersineveryculture.

Enlightenedbusinessleadersaroundtheglobeintuitivelyunderstandtheimportanceoftimelesscorevaluesandapurpose

understandtheimportanceoftimelesscorevaluesandapurposebeyondjustmakingmoney.TheyalsoexhibitthesamerelentlessdriveforprogresswefoundinthosewhobuilttheAmericanvisionarycompanies.We’veseenBHAGsinBrazil,cult-likeculturesinScandinavia,“tryalotofstuandkeepwhatworks”strategiesinIsrael,continuousself-improvementinSouthAfrica.Andthebestorganizationseverywherepaycloseatentiontoconsistencyandalignment.

ThefactthatweprimarilystudiedU.S.-basedrmsforBuilttoLastreectsourresearchmethodologymorethantheglobalcorporatelandscape(weassembledourlistofvisionarycompaniesbysurveying700CEOsofcompaniesbasedintheUnitedStates).

Establishedandup-and-comingvisionarycompaniesexistinmanycountries—FEMSAinMexico,HuskyinCanada,OdebrechtinBrazil,SunInternationalinEngland,HondainJapan,tonameafew.InanewresearchinitiativedesignedtoreplicatetheBuilttoLastanalysisandsystematicalytesttheideasinEurope,Jerry(inconjunctionwithOCC,aEuropeanconsultingrm)hasidentiedeighteenEuropeanvisionarycompanies:ABB,BMW,Carrefour,DaimlerBenz,DeutscheBank,Ericsson,Fiat,Glaxo,ING,L’Oréal,Marks&Spencer,Nestlé,Nokia,Philips,Roche,Shel,Siemens,andUnilever.

We’vealsoseenhowtheconceptsapplytomultinationalorglobalcompaniesthathavemanycultureswithinoneorganization.

Aglobalvisionarycompanyseparatesoperatingpracticesandbusinessstrategies(whichshouldvaryfromcountrytocountry)fromcorevaluesandpurpose(whichshouldbeuniversalandenduringwithinthecompany,nomaterwhereitdoesbusiness).Avisionarycompanyexportsitscorevaluesandpurposetoalofitsoperationsineverycountry,buttailorsitspracticesandstrategiestolocalculturalnormsandmarketconditions.Forexample,Wal-Martshouldexportitscorevaluethatthecustomerisnumberonetoalofitsoperationsoverseas,butshouldnotnecessarilyexporttheWal-Martcheer(whichismerelyaculturalpracticetoreinforcethecorevalue).

Inouradvisoryworkwe’vebeenabletohelpmultinational

Inouradvisoryworkwe’vebeenabletohelpmultinationalcompaniesdiscoverandarticulateaunifying,globalcoreideology.

Inonecompanywithoperationsintwenty-eightcountries,mostoftheexecutives—acynicalandskepticalgroup—simplydidn’tbelieveitpossibletondasharedsetofcorevaluesandacommonpurposethatwouldbebothglobalandmeaningful.Throughanintenseprocessofintrospection,beginningwitheachexecutivethinkingaboutthecorevaluesheorshepersonalybringstohisorherwork,thegroupdidindeeddiscoverandarticulateasharedcoreideology.Theyalsodecideduponspecicimplementationstepstocreatealignmentandbringthecoretolifeonaconsistentbasisinaltwenty-eightcountries.Theexecutivesdidnotsetnewcorevaluesandpurpose;theydiscoveredacorethattheyalreadyhadincommonbutthathadbeenobscuredbymisalignmentsandlackofdialogue.“Forthersttimeinmyfteenyearshere,”saidoneexecutive,“Ifeellikewehaveacommonidentity.Itfeelsgoodtoknowthatmycoleagueshalfwayaroundtheglobeholdthesamefundamentalidealsandprinciples,eventhoughtheymayhaveverydierentoperationsandstrategies.Diversityisastrength,especialywhenrootedinacommonunderstandingofwhatwestandforandwhyweexist.Nowwemustmakesurethispermeatestheentireinstitutionandlastsovertime.”

Whenoperatingattheirbest(whichtheydon’talwaysdo),enduring,greatcompaniesdonotabandontheircorevaluesandhighperformancestandardswhendoingbusinessindierentcultures.AstheCEOofamorethanone-hundred-year-old,privately-held,multibiliondolarvisionarycompanyexplained:“Itmaytakeuslongertogetestablishedinanewculture,especialyaswehavedicultyndingpeoplewhotwithourvaluesystem.

TakeChinaandRussia,forexample,whereyou’lndrampantcorruptionanddishonesty.So,wemovemoreslowly,andgrowonlyasfastaswecanndpeoplewhowilupholdoutstandards.

Andwe’rewilingtoforgobusinessopportunitiesthatwouldforceustoabandonourprinciples.We’restilhereafteronehundredyears,doublinginsizeeverysixorsevenyears,whenmostofourcompetitorsfromftyyearsagodon’tevenexistanymore.Why?

competitorsfromftyyearsagodon’tevenexistanymore.Why?

Becauseofthedisciplinetonotcompromiseourstandardsforthesakeofexpediency.Ineverythingwedo,wetakethelongview.

Always.”

BUILTTOLASTOUTSIDEOFCORPORATIONS

Giventhatwelimitedouroriginalresearchtofor-protcorporations,wedidnotknowatthetimehowourndingswouldappealtopeopleoutsideofthecorporateworld.We’vecometounderstandsincepublicationthat,ultimately,thisisnotabusinessbook,butabookaboutbuildingenduring,greathumaninstitutionsofanytype.Peopleinawiderangeofnoncorporatesituationsreportthatthey’vefoundtheconceptsvaluable—fromfor-causeorganizationsliketheAmericanCancerSocietytoschooldistricts,coleges,universities,churches,teams,governments,andevenfamiliesandindividuals.

Numeroushealthcareorganizations,forexample,havefoundtheconceptofdistinguishingtheircorevaluesfromtheirpracticesandstrategiestobecriticaltomaintainingtheirsenseofsocialmissionwhileadaptingtothedramaticchangesandincreasingcompetitivenessoftheworldaroundthem.Amemberoftheboardoftrusteesatamajoruniversityusedthesameideatodistinguishthetimelesscorevalueofintelectualfreedomfromtheoperatingpracticeofacademictenure.“Thisdistinctionprovedinvaluableinhelpingmetofacilitateneededchangesinanincreasinglyarchaictenuresystem,whilenotlosingsightofaveryimportantcoreideal,”heexplained.

Theconceptof“clockbuilding”anorganizationwithastrongcult-likeculturethattranscendsdependenceontheoriginalvisionaryfoundershasaidedanumberofsocial-causeorganizations.

OnesuchentityisCityYear,acommunity-serviceprogramthatinspireshundredsofcolege-ageyouthstodedicatethemselvestoayearofcommunaleortonprojectsthatimproveAmerica’sinnercities—a“domesticPeaceCorps.”Likemanysocial-causeorganizations,CityYear’srootstracetoinspiredandvisionary

organizations,CityYear’srootstracetoinspiredandvisionaryfounderswithastrongsenseofsocialpurpose.AlanKhazei,oneofthefounders,wantedhis

missionaryzealandvisiontobecomeacharacteristicoftheorganizationitself,independentofanyindividualleader,includinghimself.Hemadetheshiftfrombeingasocialvisionarytobuildinganorganizationwithanenduringsocialpurpose—theshiftfrombeingatime-telertobeingaclock-builder.

Social-causeorganizationsoftenbegininresponsetoaspecicproblem,muchascompaniesoftenbegininresponsetoaspecicgreatideaortimelymarketopportunity.But,justasanygreatideaormarketopportunityeventualybecomesobsolete,thefoundinggoalofasocial-causeorganizationcanbemetorbecomeirrelevant.

Lookingforadeeper,moreenduringpurposethatgoesbeyondtheoriginalfoundingconceptthereforebecomesvitalyimportanttobuildingalastingorganization.

Conceptualy,weseelitledierencebetweenfor-protvisionarycompaniesandnonprotvisionaryorganizations.Bothfacetheneedtotranscenddependenceonanysingleleaderorgreatidea.

Bothdependonatimelesssetofcorevaluesandanenduringpurposebeyondjustmakingmoney.Bothneedtochangeinresponsetoachangingworld,whilesimultaneouslypreservingtheircorevaluesandpurpose.Bothbenetfromcult-likeculturesandcarefulatentiontosuccessionplanning.Bothneedmechanismsofforwardprogress,betheyBHAGs(BigHairyAudaciousGoals),experimentationandentrepreneurship,orcontinuousself-improvement.Bothneedtocreateconsistentalignmenttopreservetheircorevaluesandpurposeandtostimulateprogress.Certainly,thestructures,strategies,competitivedynamics,andeconomicsvaryfromfor-prottononprotinstitutions.Buttheessenceofwhatittakestobuildanenduring,greatinstitutiondoesnotvary.

We’vealsobeguntoseehowtheconceptsinBuilttoLastcanbeappliedatthesocietal/governmentallevel.JapanandIsrael,forexample,haveconsciouslytriedtocultivatecohesivesocietiesaroundastrongsenseofpurposeandcorevalues,mechanismsofalignment,andnationalBHAGs.AshistorianBarbaraTuchmanobservedinherbookPracticingHistory,“Withalitsproblems,

observedinherbookPracticingHistory,“Withalitsproblems,Israelhasonecommandingadvantage:asenseofpurpose.Israelismaynothaveauence..orthequietlife.Buttheyhavewhatauencetendstosmother:amotive.”This

motivedoesnotdependonthepresenceofasinglecharismaticvisionaryleader;itliesdeepinthefabricofIsraelisociety,reinforcedbypowerfulalignmentmechanismslikeuniversalmilitaryservice.AsaleadingIsraelijournalistdescribed,“Unlikemostnations,weactualyhaveanenduringpurposethateveryIsraeliknows:toprovideasecureplaceonEarthfortheJewishpeople.”

IntheUnitedStates,wehaveastrongsetofnationalcorevalues,beautifulyarticulatedintheDeclarationofIndependenceandtheGetysburgAddress,butweneedtogainbeterunderstandingofourenduringcorepurpose.WhereasthevastmajorityofIsraelicitizenscouldtelyouwhyIsraelexists,wedoubtwewouldndthesamecohesivenessinmodern-dayAmerica.ThemajorityofAmericancitizensalsoseemconfusedabouthowourtimelesscorevaluesdierfrompractices,structures,andstrategies.Isnoguncontrolacorevalueorapractice?Isarmativeactionacorevalueorastrategy?Atanationallevel,wewouldbenetfromrigorouslyapplyingtheconceptof“preservethecore/stimulateprogress”toseparatecorevaluesfrompracticesandstrategiessoastobringaboutproductivechangewhilepreservingournationalideals.

Finaly,andperhapsmostintriguing,asignicantnumberofpeoplehavereportedtousthatthey’vefoundthekeyconceptsusefulintheirpersonalandfamilylives.Manyhaveappliedtheyinandyangconceptof“preservethecore/stimulateprogress”tothefundamentalhumanissuesofself-identityandself-renewal.“WhoamI?WhatdoIstandfor?Whatismypurpose?HowdoImaintainmysenseofSelfinthischaotic,unpredictableworld?

HowdoIinfusemeaningintomylifeandwork?HowdoIremainrenewed,engaged,andstimulated?”Thesequestionschalengeusatleastasmuch,orperhapsmoreso,todayaseverbefore.Withthedemiseofthemythofjobsecurity,theacceleratingpaceofchange,andtheincreasingambiguityandcomplexityofourworld,peoplewhodependonexternalstructurestoprovidecontinuityand

whodependonexternalstructurestoprovidecontinuityandstabilityruntheveryrealriskofhavingtheirmooringsrippedaway.Theonlytrulyreliablesourceofstabilityisastronginnercoreandthewilingnesstochangeandadapteverythingexceptthatcore.Peoplecannotreliablypredictwheretheyaregoingandhowtheirliveswilunfold,especialyintoday’sunpredictableworld.

Thosewhobuiltthevisionarycompanieswiselyunderstoodthatitisbeterto

understandwhoyouarethanwhereyouaregoing—forwhereyouaregoingwilalmostcertainlychange.Itisalessonasrelevanttoourindividuallivesastoaspiringvisionarycompanies.

ONGOINGLEARNINGANDFUTUREWORK

We’velearnedmuchsincepublication,andwehavemuchmoretolearn.We’velearnedthattime-telerscanbecomeclock-builders,andwe’relearninghowtohelptime-telersmakethetransition.

We’velearnedthat,ifanything,weunderestimatedtheimportanceofalignment,andwe’relearningmuchabouthowtocreatealignmentwithinorganizations.We’velearnedthatpurpose—whenproperlyconceived—hasaprofoundeectuponanorganizationbeyondwhatcorevaluesalonecando,andthatorganizationsshouldputmoreeortintoidentifyingtheirpurpose.We’velearnedthatmergersandacquisitionsposespecialproblemsforvisionarycompanies,andwe’relearninghowtohelporganizationsthinkaboutmergersandacquisitionswithintheBuilttoLastframework.We’velearnedmuchabouthowtoapplytheideasacrossculturesandinnoncorporatesetings.We’velearnedthattheenduringgreatcompaniesofthetwenty-rstcenturywilneedtohaveradicalydierentstructures,strategies,practices,andmechanismsthaninthetwentiethcentury;yetthefundamentalconceptswepresentinBuilttoLastwilbecome,ifanything,evenmoreimportantasaframeworkwithinwhichtodesigntheorganizationofthefuture.

Wehaveaninnerdrivetolearnandteach,andthatdrivedoesnotendwiththisbook;itisonlyabeginning.Wecontinueourquesttogainnewinsights,developnewconceptsandideas,andcreate

gainnewinsights,developnewconceptsandideas,andcreateapplicationtoolsthatmakeacontribution.JimhassetupalearninglaboratoryinBoulder,Colorado,forongoingresearchandworkwithorganizations.JerrycontinuestoteachandresearchattheStanfordUniversityGraduateSchoolofBusiness,wherehehascreatedanewcourseonvisionarycompanies.Aspartofourongoingquest,wewouldenjoyhearingfromourreadersabouttheirexperiencesandobservationsinworkingwiththeBuilttoLastmaterial,ortoraisequestions,chalenges,andissuesthatweshouldconsiderinourfuturework.Wehopetohearfromyou.

JimColins

Boulder,CO

JerryPorras

Stanford,CA

Preface

Preface

WebelieveeveryCEO,manager,andentrepreneurintheworldshouldreadthisbook.Soshouldeveryboardmember,consultant,investor,journalist,businessstudent,andanyoneelseinterestedinthedistinguishingcharacteristicsoftheworld’smostenduringandsuccessfulcorporations.Wemakethisboldclaimnotbecausewewrotethisbook,butbecauseofwhatthesecompanieshavetoteach.

Wedidsomethinginresearchingandwritingthisbookthat,toourknowledge,hasneverbeendonebefore.Wetookasetoftrulyexceptionalcompaniesthathavestoodthetestofthetime—theaveragefoundingdatebeing1897—andstudiedthemfromtheirverybeginnings,throughalphasesoftheirdevelopmenttothepresentday;andwestudiedthemincomparisontoanothersetofgoodcompaniesthathadthesameshotinlife,butdidn’tatainquitethesamestature.Welookedatthemasstart-ups.Welookedatthemasmidsizecompanies.Welookedatthemaslargecompanies.Welookedatthemastheynegotiateddramaticchangesintheworldaroundthem—worldwars,depressions,revolutionarytechnologies,culturalupheavals.Andthroughoutwekeptasking,

“Whatmakesthetrulyexceptionalcompaniesdiferentfromtheothercompanies?”

Wewantedtogobeyondtheincessantbarrageofmanagementbuzzwordsandfadsoftheday.Wesetouttodiscoverthetimelessmanagementprinciplesthathaveconsistentlydistinguishedoutstandingcompanies.Alongtheway,wefoundthatmanyoftoday’s“new”or“innovative”managementmethodsrealyaren’tnewatal.Manyoftoday’sbuzzwords—employeeownership,empowerment,continuousimprovement,TQM,commonvision,sharedvalues,andothers—arerepackagedandupdatedversionsofpracticesthatdateback,insomecases,tothe1800s.

practicesthatdateback,insomecases,tothe1800s.

Yet,muchofwhatwefoundsurprisedus—evenshockedusattimes.Widelyheldmythsfelbythedozen.Traditionalframeworksbuckledandcracked.Midwaythroughtheproject,wefoundourselvesdisoriented,asevidenceewinthefaceofmanyofourownpreconceptionsandprior“knowledge.”Wehadtounlearnbeforewecouldlearn.Wehadtotossoutoldframeworksandbuildnewones,sometimesfromthegroundup.Ittooksixyears.

Butitwaswortheveryminute.

Aswelookbackonourndings,onegiantrealizationtowersabovealtheothers:Justaboutanyonecanbeakeyprotagonistinbuildinganextraordinarybusinessinstitution.Thelessonsofthesecompaniescanbelearnedandappliedbythevastmajorityofmanagersatallevels.Goneforever—atleastinoureyes—isthedebilitatingperspectivethatthetrajectoryofacompanydependsonwhetheritisledbypeopleordainedwithrareandmysteriousqualitiesthatcannotbelearnedbyothers.

Wehopeyoutakemanythingsfromthisbook.Wehopethehundredsofspecicexampleswilstimulateyoutoimmediatelytakeactioninyourownorganization.Wehopetheconceptsandframeworkswilembedthemselvesinyourmindandhelpguideyourthinking.Wehopeyoutakeawaypearlsofwisdomthatyoucanpassalongtoothers.But,aboveal,wehopeyoutakeawaycondenceandinspirationthatthelessonshereindonotjustapplyto“otherpeople.”Youcanlearnthem.Youcanapplythem.Youcanbuildavisionarycompany.

JCCandJIP

Stanford,California

March1994

Chapter1

Chapter1

TheBestoftheBest

AsIlookbackonmylife’swork,I’mprobablymostproudofhavinghelpedto

createacompanythatbyvirtueofitsvalues,practices,andsuccesshashadatremendousimpactonthewaycompaniesaremanagedaroundtheworld.AndI’mparticularlyproudthatI’mleavingbehindanongoingorganizationthatcanliveonasarolemodellongafterI’mgone.

WILLIAMR.HEWLETT,COFOUNDER,HEWLETT-PACKARD

COMPANY,19901

Ourcommitmentmustbetocontinuethevitalityofthiscompany—itsgrowthinphysicaltermsandalsoitsgrowthasaninstitution—sothatthiscompany,thisinstitution,willastthroughanother150years.Indeed,soitwillastthroughtheages.

JOHNG.SMALE,FORMERCEO,PROCTER&GAMBLE,

CELEBRATINGP&G’s150THBIRTHDAY,19862

Thisisnotabookaboutcharismaticvisionaryleaders.Itisnotaboutvisionaryproductconceptsorvisionarymarketinsights.Norevenisitaboutjusthavingacorporatevision.

Thisisabookaboutsomethingfarmoreimportant,enduring,andsubstantial.Thisisabookaboutvisionarycompanies.

substantial.Thisisabookaboutvisionarycompanies.

Whatisavisionarycompany?Visionarycompaniesarepremierinstitutions—thecrownjewels—intheirindustries,widelyadmiredbytheirpeersandhavingalongtrackrecordofmakingasignicantimpactontheworldaroundthem.Thekeypointisthatavisionarycompanyisanorganization—aninstitution.Alindividualleaders,nomaterhowcharismaticorvisionary,eventualydie;andalvisionaryproductsandservices—al“greatideas”—eventualybecomeobsolete.Indeed,entiremarketscanbecomeobsoleteanddisappear.Yetvisionarycompaniesprosperoverlongperiodsoftime,throughmultipleproductlifecyclesandmultiplegenerationsofactiveleaders.

Pauseforamomentandcomposeyourownmentallistofvisionarycompanies;trytothinkofvetotenorganizationsthatmeetthefolowingcriteria:

•Premierinstitutioninitsindustry

•Widelyadmiredbyknowledgeablebusinesspeople

•Madeanindelibleimprintontheworldinwhichwelive

•Hadmultiplegenerationsofchiefexecutives

•Beenthroughmultipleproduct(orservice)lifecycles

•Foundedbefore1950*

Examineyourlistofcompanies.Whataboutthemparticularlyimpressesyou?Noticeanycommonthemes?Whatmightexplaintheirenduringqualityandprosperity?Howmighttheybedierentfromothercompaniesthathadthesameopportunitiesinlife,butdidn’tatainthesamestature?

Inasix-yearresearchproject,wesetouttoidentifyandsystematicalyresearchthehistoricaldevelopmentofasetofvisionarycompanies,toexaminehowtheydieredfromacarefulyselectedcontrolsetofcomparisoncompanies,andtotherebydiscovertheunderlyingfactorsthataccountfortheirextraordinarylong-termposition.Thisbookpresentsthendingsofourresearch

long-termposition.Thisbookpresentsthendingsofourresearchprojectandtheirpracticalimplications.

Wewishtobeclearrightupfront:The“comparisoncompanies”

inourstudyarenotdogcompanies,noraretheyentirelyunvisionary.Indeed,theyaregoodcompanies,havingsurvivedinmostcasesaslongasthevisionarycompaniesand,asyou’lsee,havingoutperformedthegeneralstockmarket.Buttheydon’tquitematchuptotheoveralstatureofthevisionarycompaniesinourstudy.Inmostcases,youcanthinkofthevisionarycompanyasthegoldmedalistandthecomparisoncompanyasthesilverorbronzemedalist.

Wechosetheterm“visionary”companies,ratherthanjust

“successful”or“enduring”companies,toreectthefactthattheyhavedistinguishedthemselvesasaveryspecialandelitebreedofinstitutions.Theyaremorethansuccessful.Theyaremorethanenduring.Inmostcases,theyare

thebestofthebestintheirindustries,andhavebeenthatwayfordecades.Manyofthemhaveservedasrolemodels—icons,realy—forthepracticeofmanagementaroundtheworld.(Table1.1showsthecompaniesinourstudy.Wewishtobeclearthatthecompaniesinourstudyarenottheonlyvisionarycompaniesinexistence.Wewilexplaininafewpageshowwecameupwiththeseparticularcompanies.)Yetasextraordinaryastheyare,thevisionarycompaniesdonothaveperfect,unblemishedrecords.(Examineyourownlistofvisionarycompanies.Wesuspectthatmostifnotalofthemhavetakenaserioustumbleatleastonceduringtheirhistory,probablymultipletimes.)WaltDisneyfacedaseriouscashflowcrisisin1939

whichforcedittogopublic;later,intheearly1980s,thecompanynearlyceasedtoexistasanindependententityascorporateraiderseyeditsdepressedstockprice.Boeinghadseriousdicultiesinthemid-1930s,thelate1940s,andagainintheearly1970swhenitlaidooversixtythousandemployees.3Mbeganlifeasafailedmineandalmostwentoutofbusinessintheearly1900s.Hewlet-

Packardfacedseverecutbacksin1945;in1990,itwatcheditsstockdroptoapricebelowbookvalue.Sonyhadrepeatedproductfailuresduringitsrstveyearsoflife(1945–1950),andinthe

failuresduringitsrstveyearsoflife(1945–1950),andinthe1970ssawitsBetaformatlosetoVHSinthebatleformarketdominanceinVCRs.FordpostedoneofthelargestannuallossesinAmericanbusinesshistory($3.3bilioninthreeyears)intheearly1980sbeforeitbegananimpressiveturnaroundandlong-neededrevitalization.Citicorp(foundedin1812,thesameyearNapoleonmarchedtoMoscow)languishedinthelate1800s,duringthe1930sDepression,andagaininthelate1980swhenitstruggledwithitsgloballoanportfolio.IBMwasnearlybankruptin1914,thenagainin1921,andishavingtroubleagainintheearly1990s.

Table1.1

TheCompaniesinourResearchStudy

Comparison

VisionaryCompany

Company

3M

Norton

AmericanExpress

WelsFargo

McDonnel

Boeing

Douglas

Chase

Citicorp

Manhatan

Ford

GM

GeneralElectric

Westinghouse

Texas

Hewlet-Packard

Instruments

IBM

Burroughs

Bristol-Myers

Johnson&Johnson

Squibb

Howard

Marriot

Marriot

Johnson

Merck

Pfizer

Motorola

Zenith

Nordstrom

Melvile

PhilipMorris

RJRNabisco

Procter&Gamble

Colgate

Sony

Kenwood

Wal-Mart

Ames

WaltDisney

Columbia

Indeed,alofthevisionarycompaniesinourstudyfacedsetbacksandmademistakesatsomepointduringtheirlives,andsomeareexperiencingdicultyaswewritethisbook.Yet—andthisisakeypoint—visionarycompaniesdisplayaremarkableresiliency,anabilitytobouncebackfromadversity.

Asaresult,visionarycompaniesatainextraordinarylong-termperformance.Supposeyoumadeequal$1investmentsinageneral-marketstockfund,acomparisoncompanystockfund,andavisionarycompanystockfundonJanuary1,1926.3IfyoureinvestedaldividendsandmadeappropriateadjustmentsforwhenthecompaniesbecameavailableontheStockExchange(weheldcompaniesatgeneralmarketratesuntiltheyappearedonthemarket),your$1inthegeneralmarketfundwouldhavegrownto$415onDecember31,1990—notbad.Your$1investedinthegroupofcomparisoncompanieswouldhavegrownto$955—morethantwicethegeneralmarket.Butyour$1inthevisionarycompaniesstockfundwouldhavegrownto$6,356—oversixtimesthecomparisonfundandoverfteentimesthegeneralmarket.

(Chart1.Ashowscumulativestockreturnsfrom1926to1990;Chart1.Bshowstheratioofthevisionarycompaniesandcomparisoncompaniestothegeneralmarketoverthesameperiod.)

period.)

Butthevisionarycompanieshavedonemorethanjustgeneratelong-termnancialreturns;theyhavewoventhemselvesintotheveryfabricofsociety.ImaginehowdierenttheworldwouldhavelookedandfeltwithoutScotchtapeor3MPost-itnotepads,theFordModelTandMustang,theBoeing707and747,TidedetergentandIvorysoap,AmericanExpresscardsandtravelerschecks,ATM

machinespioneeredonawidescalebyCiticorp,Johnson&

JohnsonBand-AidsandTylenol,GeneralElectriclightbulbsandappliances,Hewlet-Packardcalculatorsandlaserprinters,IBM360

computersandSelectrictypewriters,MarriotHotels,anticholesterolMevacorfromMerck,Motorolacelularphonesandpagingdevices,Nordstrom’simpactoncustomerservicestandards,andSonyTrinitronTVsandportableWalkmans.Thinkofhowmanykids(andadults)grewupwithDisneyland,MickeyMouse,DonaldDuck,andSnowWhite.PictureanurbanfreewaywithoutMarlboro

cowboybilboardsorruralAmericawithoutWal-Martstores.Forbeterorworse,thesecompanieshavemadeanindelibleimprintontheworldaroundthem.

Theexcitingthing,however,istogureoutwhythesecompanies

Theexcitingthing,however,istogureoutwhythesecompanieshaveseparatedthemselvesintothespecialcategorythatweconsiderhighlyvisionary.Howdidtheybegin?Howdidtheymanagethevariousdicultstagesofcorporateevolutionfromtinystart-upstoglobalinstitutions?And,oncetheybecamelarge,whatcharacteristicsdidtheyshareincommonthatdistinguishedthemfromotherlargecompanies?Whatcanwelearnfromtheirdevelopmentthatmightproveusefultopeoplewhowouldliketocreate,build,andmaintainsuchcompanies?Weinviteyouonajourneythroughtherestofthisbooktodiscoveranswerstothesequestions.

Wededicatethesecondhalfofthischaptertodescribingourresearchprocess.Then,beginninginChapter2,wepresentourndings,whichincludeanumberofsurprisingandcounterintuitivediscoveries.Asapreviewofourndings,wepresenthereadozencommonmythsthatwereshateredduringthecourseofourresearch.

TWELVESHATTEREDMYTHS

Myth1:Ittakesagreatideatostartagreatcompany.

Reality:Startingacompanywitha“greatidea”mightbeabadidea.Fewofthevisionarycompaniesbeganlifewithagreatidea.Infact,somebeganlifewithoutanyspecicideaandafewevenbeganwithoutrightfailures.

Furthermore,regardlessofthefoundingconcept,thevisionarycompaniesweresignicantlylesslikelytohaveearlyentrepreneurialsuccessthanthecomparisoncompaniesinourstudy.Liketheparableofthetortoiseandthehare,visionarycompaniesoftengetotoaslowstart,butwinthelongrace.

Myth2:Visionarycompaniesrequiregreatandcharismaticvisionaryleaders.

Reality:Acharismaticvisionaryleaderisabsolutelynotrequiredforavisionarycompanyand,infact,canbedetrimentalto

foravisionarycompanyand,infact,canbedetrimentaltoacompany’slong-termprospects.SomeofthemostsignicantCEOsinthehistoryofvisionarycompaniesdidnottthemodelofthehigh-prole,charismaticleader—

indeed,someexplicitlyshiedawayfromthatmodel.LikethefoundersoftheUnitedStatesattheConstitutionalConvention,theyconcentratedmoreonarchitectinganenduringinstitutionthanonbeingagreatindividualleader.Theysoughttobeclockbuilders,nottimetelers.

AndtheyhavebeenmorethiswaythanCEOsatthecomparisoncompanies.

Myth3:Themostsuccessfulcompaniesexistrstandforemosttomaximizeprofits.

Reality:Contrarytobusinessschooldoctrine,“maximizingshareholderwealth”or“protmaximization”hasnotbeenthedominantdrivingforceorprimaryobjectivethroughthehistoryofthevisionarycompanies.Visionarycompaniespursueaclusterofobjectives,ofwhichmakingmoneyisonlyone—andnotnecessarilytheprimaryone.

Yes,theyseekprots,butthey’reequalyguidedbyacoreideology—corevaluesandsenseofpurposebeyondjustmakingmoney.Yet,paradoxicaly,thevisionarycompaniesmakemoremoneythanthemorepurelyprofit-drivencomparisoncompanies.

Myth4:Visionarycompaniesshareacommonsubsetof“correct”

corevalues.

Reality:Thereisno“right”setofcorevaluesforbeingavisionarycompany.Indeed,twocompaniescanhaveradicalydierentideologies,yetbothbevisionary.Corevaluesinavisionarycompanydon’tevenhavetobe“enlightened”or

“humanistic,”althoughtheyoftenare.Thecrucialvariableisnotthecontentofacompany’sideology,buthowdeeplyitbelievesitsideologyandhowconsistentlyitlives,breathes,andexpressesitinalthatitdoes.

Visionarycompaniesdonotask,“Whatshouldwevalue?”

Theyask,“Whatdoweactualyvaluedeepdowntoour

Theyask,“Whatdoweactualyvaluedeepdowntoourtoes?”

Myth5:Theonlyconstantischange.

Reality:Avisionarycompanyalmostreligiouslypreservesitscoreideology—changingitseldom,ifever.Corevaluesinavisionarycompanyformarock-solidfoundationanddonotdriftwiththetrendsandfashionsoftheday;insomecases,thecorevalueshaveremainedintactforweloveronehundredyears.Andthebasicpurposeofavisionarycompany—itsreasonforbeing—canserveasaguidingbeaconforcenturies,likeanenduringstaronthehorizon.

Yet,whilekeepingtheircoreideologiestightlyxed,visionarycompaniesdisplayapowerfuldriveforprogressthatenablesthemtochangeandadaptwithoutcompromisingtheircherishedcoreideals.

Myth6:Blue-chipcompaniesplayitsafe.

Reality:Visionarycompaniesmayappearstraitlacedandconservativetooutsiders,butthey’renotafraidtomakeboldcommitmentsto“BigHairyAudaciousGoals”

(BHAGs).Likeclimbingabigmountainorgoingtothemoon,aBHAGmaybedauntingandperhapsrisky,buttheadventure,excitement,andchalengeofitgrabspeopleinthegut,getstheirjuicesowing,andcreatesimmenseforwardmomentum.VisionarycompanieshavejudiciouslyusedBHAGstostimulateprogressandblastpastthecomparisoncompaniesatcrucialpointsinhistory.

Myth7:Visionarycompaniesaregreatplacestowork,foreveryone.

Reality:Onlythosewho“t”extremelywelwiththecoreideologyanddemandingstandardsofavisionarycompanywilnditagreatplacetowork.Ifyougotoworkatavisionarycompany,youwileithertandourish—

probablycouldn’tbehappier—oryouwillikelybeexpungedlikeavirus.It’sbinary.There’snomiddleground.It’salmostcult-like.Visionarycompaniesareso

ground.It’salmostcult-like.Visionarycompaniesaresoclearaboutwhattheystandforandwhatthey’retryingtoachievethattheysimplydon’thaveroomforthoseunwilingorunabletofittheirexactingstandards.

Myth8:Highlysuccessfulcompaniesmaketheirbestmovesbybriliantand

complexstrategicplanning.

Reality:Visionarycompaniesmakesomeoftheirbestmovesbyexperimentation,trialanderror,opportunism,and—quiteliteraly—accident.Whatlooksinretrospectlikebriliantforesightandpreplanningwasoftentheresultof“Let’sjusttryalotofstuandkeepwhatworks.”Inthissense,visionarycompaniesmimicthebiologicalevolutionofspecies.WefoundtheconceptsinCharlesDarwin’sOriginofSpeciestobemorehelpfulforreplicatingthesuccessofcertainvisionarycompaniesthananytextbookoncorporatestrategicplanning.

Myth9:CompaniesshouldhireoutsideCEOstostimulatefundamentalchange.

Reality:Inseventeenhundredyearsofcombinedlifespansacrossthevisionarycompanies,wefoundonlyfourindividualincidentsofgoingoutsideforaCEO—andthoseinonlytwocompanies.Home-grownmanagementrulesatthevisionarycompaniestoafargreaterdegreethanatthecomparisoncompanies(byafactorofsix).Timeandagain,theyhavedashedtobitstheconventionalwisdomthatsignicantchangeandfreshideascannotcomefrominsiders.

Myth10:Themostsuccessfulcompaniesfocusprimarilyonbeatingthecompetition.

Reality:Visionarycompaniesfocusprimarilyonbeatingthemselves.Successandbeatingcompetitorscomestothevisionarycompaniesnotsomuchastheendgoal,butasaresidualresultofrelentlesslyaskingthequestion“Howcanweimproveourselvestodobetertomorrowthanwedidtoday?”Andtheyhaveaskedthisquestiondayinandday

today?”Andtheyhaveaskedthisquestiondayinanddayout—asadisciplinedwayoflife—insomecasesforover150years.Nomaterhowmuchtheyachieve—nomaterhowfarinfrontoftheircompetitorstheypul—theyneverthinkthey’vedone“goodenough.”

Myth11:Youcan’thaveyourcakeandeatittoo.

Reality:Visionarycompaniesdonotbrutalizethemselveswiththe

“TyrannyoftheOR”—thepurelyrationalviewthatsaysyoucanhaveeitherAORB,butnotboth.TheyrejecthavingtomakeachoicebetweenstabilityOR

progress;cult-likeculturesORindividualautonomy;home-grownmanagersORfundamentalchange;conservativepracticesORBigHairyAudaciousGoals;makingmoneyORlivingaccordingtovaluesandpurpose.Instead,theyembracethe

“GeniusoftheAND”—theparadoxicalviewthatalowsthemtopursuebothAANDBatthesametime.

Myth12:Companiesbecomevisionaryprimarilythrough“visionstatements.”

Reality:Thevisionarycompaniesatainedtheirstaturenotsomuchbecausetheymadevisionarypronouncements(althoughtheyoftendidmakesuchpronouncements).Nordidtheyrisetogreatnessbecausetheywroteoneofthevision,values,purpose,mission,oraspirationstatementsthathavebecomepopularinmanagementtoday(althoughtheywrotesuchstatementsmorefrequentlythanthecomparisoncompaniesanddecadesbeforeitbecamefashionable).Creatingastatementcanbeahelpfulstepinbuildingavisionarycompany,butitisonlyoneofthousandsofstepsinanever-endingprocessofexpressingthefundamentalcharacteristicsweidentiedacrossthevisionarycompanies.

THERESEARCHPROJECT

Origins:WhoIstheVisionaryLeaderat3M?

In1988,webegantowrestlewiththequestionofcorporate

“vision”:Doesitactualyexist?Ifso,whatexactlyisit?Wheredoesitcomefrom?Howdoorganizationsendupdoingvisionarythings?

Visionhadreceivedmuchatentioninthepopularpressandamongmanagementthinkers,yetwefelthighlyunsatisedbywhatweread.

Foronething,theterm“vision”hadbeentossedaroundbysomanypeopleandusedinsomanydierentwaysthatitcreatedmoreconfusionthanclarication.Someviewedvisionasabouthavingacrystal-balpictureofthefuturemarketplace.Othersthoughtintermsofatechnologyorproductvision,suchastheMacintoshcomputer.Stilothersemphasizedavisionoftheorganization—values,purpose,mission,goals,imagesofanidealizedworkplace.Talkaboutamuddledmess!Nowondersomanyhard-nosedpracticalbusinesspeoplewere

highlyskepticalofthewholenotionofvision;itjustseemedso—wel—fuzzy,unclear,andimpractical.

Furthermore—andwhatbotheredusmost—theimageofsomethingcaleda“visionaryleader”(oftencharismaticandhigh-prole)lurkedinthebackgroundofnearlyaldiscussionsandwritingsaboutvision.But,weaskedourselves,if“visionaryleadership”issocriticaltothedevelopmentofextraordinaryorganizations,thenwhoisthecharismaticvisionaryleaderof3M?

Wedidn’tknow.Doyou?3Mhasbeenawidelyadmired—almostrevered—companyfordecades,yetfewpeoplecanevennameitscurrentchiefexecutive,orhispredecessor,orevenhispredecessor,andsoon.

3Misacompanythatmanywoulddescribeasvisionary,yetdoesn’tseemtohave(orhavehadinitspast)anarchetypal,high-prole,charismaticvisionaryleader.Wecheckedintothehistoryof3Mandlearnedthatithadbeenfoundedin1902.So,evenifithadavisionaryleaderinitspast,thatpersonwouldalmostcertainlyhavediedalongtimeago.(Infact,asof1994,3Mhadten

havediedalongtimeago.(Infact,asof1994,3Mhadtengenerationsofchiefexecutives.)Italsobecameclearthat3Mcouldnotpossiblytraceitssuccessprimarilytoavisionaryproductconcept,marketinsight,orluckybreak;nosuchproductorluckybreakcouldcreatenearlyonehundredyearsofcorporateperformance.

Itoccurredtousthat3Mrepresentedsomethingbeyondvisionaryleadership,visionaryproducts,visionarymarketinsights,orinspiringvisionstatements.3M,wedecided,couldbestbedescribedasavisionarycompany.

Andthuswebegantheextensiveresearchprojectonwhichthisbookisbased.Inanutshel,wehadtwoprimaryobjectivesfortheresearchproject:

1.Toidentifytheunderlyingcharacteristicsanddynamicscommontohighlyvisionarycompanies(andthatdistinguishthemfromothercompanies)andtotranslatethesendingsintoausefulconceptualframework.

2.Toeectivelycommunicatethesendingsandconceptssothattheyinuencethepracticeofmanagementandprovebenecialtopeoplewhowanttohelpcreate,build,andmaintainvisionarycompanies.

Step1:WhatCompaniesShouldWeStudy?

Stopandthinkforaminute.Supposeyouwantedtocreatealistofvisionarycompaniestostudy.Nopriorlistexistsinanyliterature;theconceptofa“visionarycompany”isnewanduntested.Howmightyougoaboutcreatingalistofcompanies?

Wewrestledwiththisquestionandconcludedthatwe,asindividuals,shouldnotconstructthelist.Wemighthavebiasesthatwouldexcessivelyfavoronecompanyoveranother.Wemightnotknowthecorporatelandscapewelenough.WemightbepartialtoCalifornia-basedortechnology-basedcompaniesbecausewe’remorefamiliarwiththem.

morefamiliarwiththem.

Tominimizeindividualbias,therefore,weelectedtosurveychiefexecutiveocersatleadingcorporationsfromawiderangeofsizes,industries,types,andgeographicallocationsandaskthemtohelpuscreatethelistofvisionarycompaniestostudy.WebelievedthatCEOs,giventheiruniquevantagepointaspractitionersatopleadingcorporations,wouldhavethemostdiscerningandseasonedjudgmentinselectingcompanies.WetrustedCEOinputmorethaninputfromacademicsbecauseCEOsareinconstanttouchwiththepracticalchalengesandrealitiesofbuildingandmanagingcompanies.LeadingCEOs,wereasoned,wouldhaveexcelentworkingknowledgeofthecompaniesintheirindustryandrelatedindustries.Wealsoreasonedthattheeectivechiefexecutivekeepsclosetabsonthecompaniesthathisorhercompanyworkswithandcompetesagainst.

InAugust1989,wesurveyedacarefulyselectedrepresentativesampleofsevenhundredCEOsfromthefolowingpopulations:

•Fortune500industrialcompanies

•Fortune500servicecompanies

•Inc.500privatecompanies

•Inc.100publiccompanies.

Toensurearepresentativesampleacrossindustries,weselectedCEOsfrom

everyindustryclassicationintheFortune500listings,bothserviceandindustrial(250fromeach).TheInc.listingsensuredadequaterepresentationfromsmalercompanies,bothpublicandprivate(wesurveyedarepresentativesampleof200

companiesacrossthesetwopopulations).WeaskedeachCEOtonominateuptovecompaniesthatheorsheperceivedtobe

“highlyvisionary.”WespecicalyaskedthattheCEOspersonalyrespondandtonotdelegatetheresponsetosomeoneelseintheirorganization.

Wereceiveda23.5percentresponseratefromtheCEOs(165

Wereceiveda23.5percentresponseratefromtheCEOs(165

cards)withanaverageof3.2companieslistedpercard.Weperformedaseriesofstatisticalanalysestoconfirmthatwereceivedarepresentativesamplefromaltargetpopulations.4Inotherwords,noonegroupofCEOsdominatedthenalsurveydata;wehadstatisticalyrepresentativeinputfromalpartsofthecountryandfromaltypesandsizesofcompanies.5

Usingthesurveydata,wecreatedalistofvisionarycompaniestostudybyidentifyingthetwentyorganizationsmostfrequentlymentionedbytheCEOs.Wetheneliminatedfromthelistcompaniesfoundedafter1950;wereasonedthatanycompanyfoundedbefore1950hadprovenitselftobemorethanthebeneciaryofasingleleaderorasinglegreatidea.Byrigorouslyapplyingthepre-1950criteria,weculedthenallisttoeighteenvisionarycompaniestostudy.Theyoungestcompaniesinourstudywerefoundedin1945andtheoldestwasfoundedin1812.Atthetimeofoursurvey,thecompaniesinourstudyaveragedninety-twoyearsofage,withanaveragefoundingdateof1897andamedianfoundingdateof1902.(SeeTable1.2forfoundingdates.)Step2:Avoidingthe“DiscoverBuildings”Trap(AComparisonGroup)

Wecouldhavesimplyputthevisionarycompaniesoinacorralbythemselves,studiedthem,andaskedthequestion“Whatcommoncharacteristicsdoweseeacrossthesecompanies?”Butthereisafundamentalawinmerelypursuinga“commoncharacteristic”analysis.

Whatwouldwendifwejustlookedforcommoncharacteristics?Justtouseanextremeexample,wewoulddiscoverthataleighteenofthecompanieshave

buildings!That’sright;wewouldndaperfect100percentcorrelationbetweenbeingavisionarycompanyandhavingbuildings.Wewouldalsondaperfect100percentcorrelationbetweenbeingavisionarycompanyandhavingdesks,andpaysystems,andboardsofdirectors,andaccountingsystems,and—wel,yougettheidea.Weagreethatit

accountingsystems,and—wel,yougettheidea.Weagreethatitwouldbeabsurdtothenconcludethatakeyfactorinbeingavisionarycompanyistohavebuildings.Indeed,alcompanieshavebuildings;sodiscoveringthat100percentofthevisionarycompanieshavebuildingstelsusnothingvaluable.

Table1.2

FoundingDates

1812Citicorp

1837Procter&Gamble

1847PhilipMorris

1850AmericanExpress

1886Johnson&Johnson

1891Merck

1892GeneralElectric

1901Nordstrom

Median:19023M

1903Ford

1911IBM

1915Boeing

1923WaltDisney

1927Marriot

1928Motorola

1938Hewlet-Packard

1945Sony

1945Wal-Mart

Pleasedon’ttakeourharpingonthispointthewrongway.We’re

Pleasedon’ttakeourharpingonthispointthewrongway.We’renottryingtobelaboranobviousconceptthat’sasclearandstraightforwardtoyouasitistous.We’reharpingonitbecausethesadfactisthatmuchbusinessresearchandwritingfalsintothe

“discoverbuildings”trap.Supposeyoustudyagroupofsuccessfulcompaniesandyoundthattheyemphasizecustomerfocus,orqualityimprovement,orempowerment;howdoyouknowthatyouhaven’tmerelydiscoveredthemanagementpracticeequivalentofhavingbuildings?Howdoyouknowthatyou’vediscoveredsomethingthatdistinguishesthesuccessfulcompaniesfromothercompanies?Youdon’tknow.Youcan’tknow—notunlessyouhaveacontrolset,acomparisongroup.

Thecriticalquestionisnot“What’scommonacrossagroupofcompanies?”Rather,thecriticalissuesare:“What’sessentialydiferentaboutthesecompanies?Whatdistinguishesonesetofcompaniesfromanother?”Wethereforeconcludedthatwecouldonlyreachourresearchobjectivesbystudyingourvisionarycompaniesincontrasttoothercompaniesthathadasimilarstartinlife.

Wesystematicalyandpainstakinglyselectedacomparisoncompanyforeachvisionarycompany(seeTable1.1earlierinthischapterforthecomparisonpairs).Weselectedthecomparisoncompaniesusingthefolowingcriteria:

•Samefoundingera.Ineachcase,welookedforacomparisoncompanyfoundedinthesameeraasthevisionarycompany.

Thecomparisoncompaniesinourstudyhadanaveragefoundingdateof1892

versus1897forthevisionarycompanies.

•Similarfoundingproductsandmarkets.Ineachcase,welookedforacomparisoncompanythatpursuedsimilarproducts,services,andmarketsinitsearlydays.However,thecomparisoncompanyneednotbeinpreciselythesameindustrylaterinitshistory;wewantedcompaniesthatstartedinthesameplace,butdidn’tnecessarilyendupinthesame

inthesameplace,butdidn’tnecessarilyendupinthesameplace.Forexample,Motorola(avisionarycompany)expandedfarbeyondconsumerelectronics,whereasZenith(Motorola’scomparisoncompany)didnot;wewantedtoseewhatguidedthesewidelydivergentoutcomes,eventhoughtheyhadverysimilarbeginnings.

•FewermentionsintheCEOsurvey.Ineachcase,welookedforacomparisoncompanythatgarneredsubstantialyfewermentionsthanthevisionarycompanyintheCEOsurvey.SincewereliedheavilyontheCEOsinourselectionofvisionarycompanies,wewantedtorelyonthesameinputinselectingourcomparisonset.

•Notadogcompany.Wedidn’twanttocomparethevisionarycompaniestototalfailuresorpoorperformers.Webelievedthataconservativecomparison(thatis,comparingtoothergoodcompanies)wouldgiveourultimatendingsmuchmorecredibilityandvalue.Ifwecomparedthevisionarycompaniestoabunchofabysmalfailures,we’dcertainlynddierences,butnothelpfuldierences.IfyoucompareOlympicchampionshipteamstohighschoolteams,you’dcertainlyseesomedierences,butwouldthosedierencesbemeaningful?Wouldtheytelyouanythingvaluable?Ofcoursenot.ButifyoucompareOlympicgoldmedalteamswithsilverorbronzemedalteamsandndsystematicdierences,thenyou’vegotsomethingcredibleanduseful.Wewantedtocomparegoldmedalteamstosilverandbronzemedalteamswheneverpossibletogiverealmeaningtoourfindings.

Step3:HistoryandEvolution

Wedecidedtoundertakethedauntingtaskofexaminingthecompaniesthroughouttheirentirehistories.Wedidn’tjustask

“Whatatributesdothesecompanieshavetoday?”Weprimarilyaskedsuchquestionsas“Howdidthesecompaniesgetstarted?

Howdidtheyevolve?Howdidtheynegotiatethepitfalsofbeingsmal,cash-strappedenterprises?Howdidtheymanagethe

smal,cash-strappedenterprises?Howdidtheymanagethetransitionfromstart-uptoestablishedcorporation?Howdidtheyhandletransitionsfromfoundertosecond-generationmanagement?

Howdidtheydealwithhistoricaleventssuchaswarsanddepressions?Howdidtheyhandletheinventionofrevolutionarynewtechnologies?”

Wepursuedthishistoricalanalysisforthreereasons.First,wewantedtogleaninsightsthatwouldbevaluablenotonlytoreadersinlargecorporations,butalsotopeopleinsmaltomidsizecompanies.Wehavepracticalexperienceandacademicknowledgeacrossthecontinuum—fromentrepreneurshipandbuildingsmalcompaniestoplannedorganizationalchangeinlargecorporations

—andwewantedtocreateknowledgeandtoolsthatwouldproveusefulfrombothoftheseperspectives.

Second,andevenmoreimportant,webelievedthatonlyanevolutionaryperspectivecouldleadtounderstandingthefundamentaldynamicsbehindvisionarycompanies.Touseananalogy,youcan’tfulyunderstandtheUnitedStateswithoutunderstandingitshistory—theRevolutionaryWar,theidealsandcompromisesoftheConstitutionalConvention,theCivilWar,theexpansionwestward,thecataclysmicnationalDepressionofthe1930s,theinuenceofJeerson,Lincoln,andRoosevelt,andmanyotherhistoricalfactors.Inourview,corporationsresemblenationsinthattheyreecttheaccumulationofpasteventsandtheshapingforceofunderlyinggeneticsthathaverootsinpriorgenerations.

HowcouldwepossiblyunderstandMercktodaywithoutexaminingtheoriginsofitsunderlyingphilosophylaiddownbyGeorgeMerckinthe1920s(“Medicineisforthepatient;notfortheprots.Theprotsfolow”)?Howcouldwepossiblyunderstand3Mtodaywithoutexaminingthefactthatitbeganlifenearlybankruptasafailedmine?HowcouldwepossiblyunderstandGeneralElectricunderthestewardshipofJackWelchwithoutexaminingGE’ssystematicleadershipdevelopmentandselectionprocessesthattracebacktotheearly1900s?HowcouldwepossiblyunderstandJohnson&Johnson’sresponsetotheTylenolpoisoningcrisisinthe1980swithoutexaminingthehistoricalroots

poisoningcrisisinthe1980swithoutexaminingthehistoricalrootsoftheJ&JCredo(pennedin1943)thatguidedthecompany’sresponsetothecrisis?Wecouldn’t.

Third,webelievedourcomparisonanalysiswouldbemuchmorepowerfulfromahistoricalperspective.Justlookingatthevisionaryversuscomparisoncompaniesincurrenttimewouldbelikemerelywatchingthelastthirtysecondsofamarathonfootrace.Sure,youcouldseewhowonthegoldmedal,butyouwouldn’tunderstandwhyheorshehadwon.Tofulyunderstandtheoutcomeofarace,youhavetoseetheentireraceandtheeventsthatleduptoit—tolookatthevariousrunnersduringtheirtraining,duringtheirpreracepreparations,duringmileone,miletwo,milethree,andsoon.Similarly,wewantedtolookbackintimetondanswerstosuchintriguingquestionsas:

•HowdidMotorolasuccessfulymovefromahumblebateryrepairbusinessintocarradios,television,semiconductors,integratedcircuits,andcelularcommunications,whileZenith

—startedatthesametimewithsimilarresources—neverbecameamajorplayerinanythingotherthanTVs?

•HowdidProcter&Gamblecontinuetothrive150yearsafteritsfounding,whilemostcompaniesareluckytosurviveeven15years?AndhowdidP&G,whichbeganlifesubstantialybehindrivalColgate,eventualyprevailasthepremierinstitutioninitsindustry?

•HowdidHewlet-PackardCompanyremainhealthyandvibrantafterBilHewletandDavePackardsteppedaside,whileTexasInstruments—onceahigh-yingdarlingofWalStreet—nearlyself-destructedafterPatHaggartysteppedaside?

•WhydidWaltDisneyCompanybecomeanAmericanicon,survivingandprosperingthroughhostiletakeoveratempts,whileColumbiaPicturesslowlylostground,neverbecameanicon,andeventualysoldouttoaJapanesecompany?

•HowdidBoeingemergefromobscurityinthecommercial

•HowdidBoeingemergefromobscurityinthecommercialaircraftindustryandunseatMcDonnelDouglasasthepremiercommercialaircraftcompanyinthe

world;whatdidBoeinghaveinthe1950sthatMcDonnelDouglaslacked?

UNCOVERINGTIMELESSPRINCIPLESCanwelegitimatelydrawconclusionsbylookingathistory?Canwelearnanythingusefulfromlookingatwhatcompaniesdidten,thirty,fty,oronehundredyearsago?Certainlytheworldhaschangeddramaticaly—

andwilcontinuetochange.Thespecicmethodsusedbythesecompaniesinthepastmaynotdirectlyapplytothefuture.Weacknowledgethis.Butthroughoutourresearchwekeptlookingforunderlying,timeless,fundamentalprinciplesandpaternsthatmightapplyacrosseras.Forexample,thespecicmethodsvisionarycompaniesuseto“preservethecoreandstimulateprogress”(akeyprinciplediscussedthroughoutthebook)wilcontinuetoevolve,buttheunderlyingprincipleitselfistimeless—

equalyvalidandessentialin1850as1900,1950,and2050.Ourgoalhasbeentousethelongrangeofcorporatehistorytogainunderstandinganddevelopconceptsandtoolsthatwilbeusefulinpreparingorganizationstobevisionaryinthetwenty-rstcenturyandbeyond.

INDEED,ifwehadtoidentifyoneaspectofthisbookthatmostseparatesitfromalpreviousmanagementbooks,wewouldpointtothefactthatwelookedatcompaniesthroughouttheirentirelifespansandindirectcomparisontoothercompanies.Thisprovedtobethekeymethodforcalingintoquestionpowerfulyentrenchedmythsanddiscerningfundamentalprinciplesthatapplyoverlongstretchesoftimeandacrossawiderangeofindustries.

Step4:CratesofData,MonthsofCoding,and“TortoiseHunting”

Oncewe’dselectedourcompaniesanddecidedonthehistoricalandcomparisonmethod,wefacedanotherdicultproblem:Preciselywhatshouldweexamineoverthehistoryofthecompanies?Shouldweexaminecorporatestrategy?Organizationstructure?Management?Culture?Values?Systems?Productlines?

Industryconditions?Sincewedidn’tknowaheadoftimewhatfactorswouldexplaintheenduringstatureofthevisionarycompanies,wecouldn’tpursueanarrowresearchfocus;wehadtogatherevidenceacrossawiderangeofdimensions.

Throughoutourresearch,wekeptinmindtheimageofCharlesDarwintaking

hisve-yearvoyageontheH.M.S.Beagle,exploringtheGalapagosIslands,andstumblingacrosshugetortoises(amongotherspecies)thatvariedfromislandtoisland.TheseunexpectedobservationsplantedaseedthatprovokedhisthinkingduringhisridehomeontheBeagleandduringhissubsequentworkinEngland.Darwinhadtheopportunitytogainnewinsightsinpartbecausehehadthegoodfortuneofunexpectedobservations.Hewasn’tlookingspecicalyforvariationsintortoises,yettheretheywere—thesebig,waddling,weird-lookingtortoiseswanderingaroundtheislandsandnottingneatlyintopriorassumptionsaboutspecies.6We,too,wantedtostumbleintoafewunexpected,weird-lookingtortoisesthatmightprovokeourthinking.

Ofcourse,wewantedtobemuchmoresystematicthanjustwanderingaroundaimlessly,hopingtorandomlybumpintoatortoiseortwo.Toensuresystematicandcomprehensivedatacolection,weemployedaframeworkbasedonatechniquecaled

“OrganizationStreamAnalysis”forcolectingandsortinginformation.7Usingthisframework,ourresearchteamgatheredandtrackedninecategoriesofinformationovertheentirehistoryofeachcompany.(SeeTableA.1inAppendix3.)Thesecategoriesencompassedvirtualyalaspectsofacorporation,includingorganization,businessstrategy,productsandservices,technology,

organization,businessstrategy,productsandservices,technology,management,ownershipstructure,culture,values,policies,andtheexternalenvironment.Aspartofthiseort,wesystematicalyanalyzedannualnancialstatementsbacktotheyear1915andmonthlystockreturnsbacktotheyear1926.Inaddition,wedidanoverviewofgeneralandbusinesshistoryintheUnitedStatesfrom1800to1990,andanoverviewofeachindustryrepresentedbythecompaniesinourstudy.

Togatherinformationforthirty-sixseparatecompaniesoveranaveragelifespanofninety-plusyears,wesourcednearlyahundredbooksandoverthreethousandindividualdocuments(articles,casestudies,archivematerials,corporatepublications,videofootage).Asaconservativeestimate,wereviewedoversixtythousandpagesofmaterial(theactualnumberisprobablyclosertoahundredthousandpages).Thedocumentsforthisprojectledthreeshoulder-heightlecabinets,fourbookshelves,andtwentymegabytesofcomputerstoragespacefornancialdataandanalyses.(TableA.2inAppendix3outlinesoursources.)Step5:HarvestingtheFruitsofourLabor

Nextcamethemostdiculttaskoftheentireproject.Wedistiledthenearlyoverwhelmingamountofinformation(muchofitqualitative)downtoafewkeyconceptslinkedtogetherinaframework—asetofconceptualhooksonwhichtohangandorganizetherichdetailandsupportingevidencefromourresearch.

Welookedforrepeatingpaternsandsoughttoidentifyunderlyingtrendsandforces;weaimedtoidentifythoseconceptsthatwouldexplainthehistoricaltrajectoryofthevisionarycompaniesandwouldprovidepracticalguidancetomanagersbuildingtheircompaniesforthetwenty-firstcentury.

Theunderlyingbackboneofourndingscomesfromcomparisonanalyses.Throughoutourwork,wekeptcomingbacktotheprimaryquestion“Whatseparatesthevisionarycompaniesfromthecomparisoncompaniesoverthelongcourseofhistory?”Asyoureadthebook,you’lndreferencetotablesinAppendix3where

readthebook,you’lndreferencetotablesinAppendix3wherewemethodicalycomparedthevisionarycompaniestothecomparisoncompaniesonagivendimension.

Wealsocombinedthisanalyticcomparisonprocesswithcreativeprocesses.Wewantedtobreakasfreeaspossiblefromtheconstrainingdogmasofbusinessschoolsandthepopularmanagementpress.Inparticular,wesoughttostimulateourthinkingwithideasthathadnothing,onthesurface,todowithbusinessandmergedthesewithobservationsfromourresearch.Wethereforereadextensivelyfromnonbusinessdisciplines:biology(especialyevolutionarytheory),genetics,psychology,socialpsychology,sociology,philosophy,politicalscience,history,andculturalanthropology.

Step6:FieldTestingandApplicationintheRealWorldThroughouttheentireresearchproject,wecontinualytestedourndingsandconceptsbythrowingthemintotheteethofhardrealityviaconsultingengagementsandboardofdirectorsresponsibilities.Atthetimeofthiswriting,wehavepersonalyappliedframeworksandtoolsbasedonourresearchatoverthirtyseparateorganizations,rangingfromyoungcompanieswithlessthan$10milioninrevenuetomultibilion-dolarFortune500

corporationsacrossawiderangeofindustries,includingthoseincomputers,healthcare,pharmaceuticals,biotechnology,construction,retailing,mailorder,

sportinggoods,electronicinstruments,semiconductors,computersoftware,movietheaterchains,environmentalengineering,chemicals,andcommercialbanking.Workingwithseniormanagement,usualyatthedirectrequestoftheCEO,wewereabletoexposeourideastosomeofthemostincisive,practical,demanding,andhard-nosedpeopleinbusiness.

This“trialbyre”providedavaluablefeedbackloopthathelpedustocontinualyimproveourconceptsaswemovedthroughtheresearch.Forexample,duringaworkingsessionatapharmaceuticalrm,anexecutiveasked,“Arethere‘right’and

pharmaceuticalrm,anexecutiveasked,“Arethere‘right’and

‘wrong’corevalues?Inotherwords,doesthecontentofcorevaluescountthemost,ordoestheauthenticityandconsistencyofcorevalues—whateverthecontent—countthemost?Isthereanyparticularsubsetofcorevaluesthatshowupacrossalvisionarycompanies?”Wethenreturnedtoourresearchdataandsystematicalyansweredthesequestions(seeChapter3),thuscompletingtheloopfromresearchtopracticeandbackagain(seeFigure1.A).Thisloopingprocessoccurredmanytimesacrossawiderangeofissuesduringtheve-yearperiodoftheresearchprojectandcontributedgreatlytothisbook.

LETTHEEVIDENCESPEAK

Alresearchprojectsinthesocialsciencessuerfrominherentlimitationsanddiculties,andoursisnoexception.Foronething,wecannotperformcontroled,repeatableexperimentswhereweholdalbutonecriticalvariableconstantandassessvariousoutcomesfromtweakingthatvariable.Wewouldlovetomakepetridishesofcorporations,butwecan’t;wehavetotakewhathistorygivesusandmakethebestofit.InAppendix1attheendofthisbook,we’vedescribedavarietyofconcerns—andourresponsestothoseconcerns—thatacriticalreadermightraiseaboutourresearchmethodology.

Figure1.A

FeedbackLoop

Nonetheless,eventakingfulaccountofthoseconcerns,thesheervolumeofinformationweexaminedcombinedwiththecontinualloopingprocessfromresearchtotheorytopracticegivesuscondencethatourconclusionsarereasonableand—perhapsmostimportant—helpfultothedevelopmentofoutstandingorganizations.WedonotclaimtohavefoundTruthwithacapitalT.Nooneinthesocialsciencescanclaimthat.Butwedoclaimthatthisresearchhasgivenusbeterunderstandingoforganizationsandbeterconceptualtoolsforbuildingoutstandingcompaniesthanwehadbefore.

Wenowturntosharethendingsofourwork.Wehopeyoudrinkdeeplyfromthisbook,forthehistoryofthesecompaniescanteachusmuch.But,atthesametime,wehopeyouthinkcriticalyandobjectivelyasyouread;wewouldratherthatyouthoughtfulyconsiderandultimatelyrejectourndingsthanthatyoublindlyandunquestioninglyacceptthem.Lettheevidencespeakforitself.

You’rethejudgeandjury.

*Weused1950asthecutofdateinthestudy.Youcouldalsouseafifty-yearminimumagecutof.

Chapter2

Chapter2

ClockBuilding,NotTimeTeling

Aboveal,therewastheabilitytobuildandbuildandbuild—

neverstopping,neverlookingback,neverfinishing—theinstitution..Inthelastanalysis,WaltDisney’sgreatestcreationwasWaltDisney[thecompany].

RICHARDSCHICKEL,THEDISNEYVERSION1

Ihaveconcentratedalalongonbuildingthefinestretailingcompanythatwepossiblycould.Period.Creatingahugepersonalfortunewasneverparticularlyagoalofmine.

SAMWALTON,FOUNDER,WAL-MART2

Imagineyoumetaremarkablepersonwhocouldlookatthesunorstarsatanytimeofdayornightandstatetheexacttimeanddate:“It’sApril23,1401,2:36A.M.,and12seconds.”Thispersonwouldbeanamazingtimeteler,andwe’dprobablyreverethatpersonfortheabilitytoteltime.Butwouldn’tthatpersonbeeven

personfortheabilitytoteltime.Butwouldn’tthatpersonbeevenmoreamazingif,insteadoftelingthetime,heorshebuiltaclockthatcouldtelthetimeforever,evenafterheorshewasdeadandgone?3

Havingagreatideaorbeingacharismaticvisionaryleaderis

“timeteling”;buildingacompanythatcanprosperfarbeyondthepresenceofanysingleleaderandthroughmultipleproductlifecyclesis“clockbuilding.”Intherstpilarofourndings—andthesubjectofthischapter—wedemonstratehowthebuildersofvisionarycompaniestendtobeclockbuilders,nottimetelers.

Theyconcentrateprimarilyonbuildinganorganization—buildingatickingclock—ratherthanonhitingamarketjustrightwithavisionaryproductideaandridingthegrowthcurveofanatractiveproductlifecycle.Andinsteadof

concentratingonacquiringtheindividualpersonalitytraitsofvisionaryleadership,theytakeanarchitecturalapproachandconcentrateonbuildingtheorganizationaltraitsofvisionarycompanies.Theprimaryoutputoftheireortsisnotthetangibleimplementationofagreatidea,theexpressionofacharismaticpersonality,thegraticationoftheirego,ortheaccumulationofpersonalwealth.Theirgreatestcreationisthecompanyitselfandwhatitstandsfor.

Wecameuponthisndingwhentheevidencefromourresearchpunchedholesintwowidelyheldanddeeplycherishedmythsthathavedominatedpopularthinkingandbusinessschooleducationforyears:themythofthegreatideaandthemythofthegreatandcharismaticleader.Inoneofthemostfascinatingandimportantconclusionsfromourresearch,wefoundthatcreatingandbuildingavisionarycompanyabsolutelydoesnotrequireeitheragreatideaoragreatandcharismaticleader.Infact,wefoundevidencethatgreatideasbroughtforthbycharismaticleadersmightbenegativelycorrelatedwithbuildingavisionarycompany.Thesesurprisingndingsforcedustolookatcorporatesuccessfromanentirelynewangleandthroughadierentlensthanwehadusedbefore.Theyalsohaveimplicationsthatareprofoundlyliberatingforcorporatemanagersandentrepreneursalike.

THEMYTHOFTHE“GREATIDEA”

OnAugust23,1937,tworecentlygraduatedengineersintheirearlytwentieswithnosubstantialbusinessexperiencemettodiscussthefoundingofanewcompany.However,theyhadnoclearideaofwhatthecompanywouldmake.*Theyonlyknewthattheywantedtostartacompanywitheachotherinthebroadlydenedeldofelectronicengineering.Theybrainstormedawiderangeofinitialproductandmarketpossibilities,buttheyhadnocompeling“greatidea”thatservedasthefoundinginspirationfortheedglingcompany.

BilHewletandDavePackarddecidedtorststartacompanyandthengureoutwhattheywouldmake.Theyjuststartedmovingforward,tryinganythingthatmightgetthemoutofthegarageandpaythelightbils.AccordingtoBilHewlet:WhenItalktobusinessschoolsoccasionaly,theprofessorofmanagementisdevastatedwhenIsaythatwedidn’thaveanyplanswhenwestarted—wewerejustopportunistic.Wedidanythingthatwouldbringinanickel.Wehadabowlingfoul-lineindicator,aclockdriveforatelescope,athingtomakeaurinalushautomaticaly,andashockmachinetomakepeopleloseweight.Herewewere,withabout$500incapital,tryingwhateversomeonethoughtwemightbe

abletodo.4

Thebowlingfoul-lineindicatordidn’tbecomeamarketrevolution.Theautomaticurinalushersandfat-reductionshockmachinesdidn’tgoanywhere,either.Infact,thecompanystumbledalongfornearlyayearbeforeitgotitsrstbigsale—eightaudioosciloscopestoWaltDisneyforworkonthemovieFantasia.Eventhen,Hewlet-Packardcontinueditsunfocusedways,sputeringandtinkeringwithavarietyofproducts,untilitgotaboostfromwarcontractsintheearly1940s.

TexasInstruments,incontrast,tracesitsrootstoahighlysuccessfulinitialconcept.TIbeganlifein1930asGeophysical

successfulinitialconcept.TIbeganlifein1930asGeophysicalService,Inc.,“therstindependentcompanytomakereectionseismographsurveysofpotentialoilelds,anditsTexaslabsdevelopedandproducedinstrumentsforsuchwork.”5TI’sfounders,unlikeHewletandPackard,formedtheircompanytoexploitaspecifictechnologicalandmarketopportunity.6TIstartedwitha

“greatidea.”HPdidnot.

NeitherdidSony.WhenMasaruIbukafoundedhiscompanyinAugustof1945,hehadnospecicproductidea.Infact,Ibukaandhisseveninitialemployeeshadabrainstormingsession—afterstartingthecompany—todecidewhatproductstomake.AccordingtoAkioMorita,whojoinedthecompanyshortlyafteritsfounding,

“Thesmalgroupsatinconference..andforweekstheytriedtogureoutwhatkindofbusinessthisnewcompanycouldenterinordertomakemoneytooperate.”7Theyconsideredawiderangeofpossibilities,fromsweetenedbean-pastesouptominiaturegolfequipmentandsliderules.8Notonlythat,Sony’srstproductatempt(asimplericecooker)failedtoworkproperlyanditsrstsignicantproduct(ataperecorder)failedinthemarketplace.Thecompanykeptitselfaliveintheearlydaysbystitchingwiresonclothtomakecrude,butselable,heatingpads.9Incomparison,Kenwood’sfounder,unlikeIbukaatSony,appearedtohaveaspeciccategoryofproductsinmind.Hechristenedhiscompanywiththename“KasugaWirelessElectricFirm”in1946and“sinceitsfoundation,”accordingtotheJapanElectronicsAlmanac,

“Kenwoodhasalwaysbeenaspecialistpioneerinaudiotechnology.”10

LikefelowlegendariesIbukaandHewlet,SamWaltonalsostartedwithoutagreatidea.Hewentintobusinesswithnothingotherthanthedesiretoworkforhimselfandalitlebitofknowledge(andalotofpassion)aboutretailing.Hedidn’twakeuponedayandsay,“IhavethisgreatideaaroundwhichI’mgoingtostartacompany.”No.Waltonstartedin1945withasingleBenFranklinfranchiseve-and-dimestoreinthesmaltownofNewport,Arkansas.“IhadnovisionofthescopeofwhatIwould

Newport,Arkansas.“IhadnovisionofthescopeofwhatIwouldstart,”WaltoncommentedinaNewYorkTimesinterview,“butIalwayshadcondencethataslongaswedidourworkwelandweregoodtoourcustomers,therewouldbenolimittous.”11

Waltonbuiltincrementaly,stepbystep,fromthatsinglestoreuntilthe“greatidea”ofruraldiscountpoppedoutasanaturalevolutionarystepalmosttwodecadesafterhestartedhiscompany.

HewroteinMadeinAmerica:

SomehowovertheyearsfolkshavegotentheimpressionthatWal-MartwassomethingthatIdreamedupoutoftheblueasamiddleagedman,andthatitwasjustthisgreatideathatturnedintoanover-nightsuccess.But[ourrstWal-Martstore]wastotalyanoutgrowthofeverythingwe’dbeendoingsince[1945]

—anothercaseofmebeingunabletoleavewelenoughalone,anotherexperiment.Andlikemostover-nightsuccesses,itwasabouttwentyyearsinthemaking.12

Inatwistofcorporateirony,AmesStores(Wal-Mart’scomparisoninourstudy),hadafour-yearheadstartoverSamWalton’scompanyinruraldiscountretailing.Infact,MiltonandIrvingGilmanfoundedAmesin1958specicalytopursuethe“greatidea”ofruraldiscountretailing.They“believedthatdiscountstoreswouldsucceedinsmaltowns”andthecompanyachieved$1

milioninsalesinitsrstyearofoperation.13(SamWaltondidn’topenhisrstruraldiscountretailstoreuntil1962;untilthen,hehadsimplyoperatedacolectionofsmal,main-streetvarietystores.)14NorwasAmestheonlyothercompanythathadaheadstartoverWalton.AccordingtoWaltonbiographerVanceTrimble,

“Otherretailerswereoutthere[in1962]tryingtodojustwhathewasdoing.Onlyhediditbeterthannearlyanyone.”15

HP,Sony,andWal-Martputalargedentinthewidelyheldmythologyofcorporateorigins—amythologythatpaintsapictureofafar-seeingentrepreneurfoundinghisorhercompanytocapitalizeonavisionaryproductideaorvisionarymarketinsight.

capitalizeonavisionaryproductideaorvisionarymarketinsight.

Thismythologyholdsthatthosewholaunchhighlysuccessfulcompaniesusualybeginrstandforemostwithabriliantidea(technology,product,marketpotential)andthenridethegrowthcurveofanatractiveproductlifecycle.Yetthismythology—ascompelingandpervasiveasitis—doesnotshowupasageneralpaterninthefoundingofthevisionarycompanies.

Indeed,fewofthevisionarycompaniesinourstudycantracetheirrootstoagreatideaorafabulousinitialproduct.J.WilardMarriothadthedesiretobeinbusinessforhimself,butnoclearideaofwhatbusinesstobein.Henalydecidedtostarthiscompanywiththeonlyviableideahecouldthinkof:takeoutafranchiselicenseandopenanA&WrootbeerstandinWashington,D.C.16Nordstromstartedasasmal,single-outletshoestoreindowntownSeatle(whenJohnNordstrom,justreturnedfromtheAlaskaGoldRush,didn’tknowwhatelsetodowithhimself).17

MerckstartedmerelyasanimporterofchemicalsfromGermany.18

Procter&Gamblestartedasasimplesoapandcandlemaker—oneofeighteensuchcompaniesinCincinnatiin1837.19MotorolabeganasastrugglingbateryeliminatorrepairbusinessforSearsradios.20PhilipMorrisbeganasasmaltobaccoretailshoponBondStreetinLondon.21

Furthermore,someofourvisionarycompaniesbeganlifelikeSony—withoutrightfailures.3Mstartedasafailedcorundummine,leaving3Minvestorsholdingstockthatfeltothebarroomexchangevalueof“twosharesforoneshotofcheapwhiskey.”22

Notknowingwhatelsetodo,thecompanybeganmakingsandpaper.3Mhadsuchapoorstartinlifethatitssecondpresidentdidnotdrawasalaryfortherstelevenyearsofhistenure.Incontrast,NortonCorporation,3M’scomparisonin

thestudy,beganlifewithinnovativeproductsinarapidlygrowingmarket,paidsteadyannualdividendsinalbutoneofitsrstfteenyearsofoperations,andmultiplieditscapitalfteenfoldduringthesametime.23

BilBoeing’srstairplanefailed(“ahandmade,clumsyseaplane

BilBoeing’srstairplanefailed(“ahandmade,clumsyseaplanecopiedfromaMartinseaplane”whichunkeditsNavytrials),andhiscompanyfacedsuchdicultyduringitsrstfewyearsofoperationsthatitenteredthefurniturebusinesstokeepitselfaloft!24DouglasAircraft,incontrast,hadsuperbinitialsuccesswithitsrstairplane.Designedtobetherstplaneinhistorytomakeacoast-to-coastnonstoptripandtoliftmoreloadthanitsownweight,DouglasturnedthedesignintoatorpedobomberwhichhesoldinquantitytotheNavy.25UnlikeBoeing,Douglasneverneededtoenterthefurniturebusinesstokeepthecompanyalive.26

WaltDisney’srstcartoonseriesAliceinCartoonLand(everheardofit?)languishedinthetheaters.DisneybiographerRichardSchickelwrotethatitwas“byandlargealimp,dulandclichériddenenterprise.Alyoucouldrealysayforitwasthatitwasafairlyordinarycomicstripsetinmotionandenlivenedbyaphotographictrick.”27ColumbiaPictures,unlikeDisney,atainedsubstantialsuccesswithitsfirsttheaterrelease.Thefilm,MoretoBePitiedThanScorned(1922),costonly$20,000andrealizedincomeof$130,000,thuslaunchingColumbiaforwardwithasizablecashcushionthatfundedthemakingoftenadditionalprotablemoviesinlessthantwoyears.28

WAITINGFOR“THEGREATIDEA”MIGHTBEABADIDEAInal,onlythreeofthevisionarycompaniesbeganlifewiththebenetofaspecic,innovative,andhighlysuccessfulinitialproductorservice—a“greatidea”:Johnson&Johnson,GeneralElectric,andFord.AndevenintheGEandFordcases,wefoundsomeslightdentsinthegreatideatheory.AtGE,Edison’sgreatideaturnedouttobeinferiortoWestinghouse’sgreatidea.Edisonpursueddirectcurrent(DC)system,whereasWestinghousepromotedthevastlysuperioralternatingcurrent(AC)system,whicheventualyprevailedintheU.S.market.29InFord’scase,contrarytopopularmythology,HenryForddidn’tcomeupwiththeideaoftheModelTandthendecidetostartacompanyaroundthatidea.Just

ModelTandthendecidetostartacompanyaroundthatidea.Justtheopposite.

FordwasabletotakefuladvantageoftheModelT

conceptbecausehealreadyhadacompanyinplaceasalaunchingpad.HefoundedtheFordMotorCompanyin1903tocapitalizeonhisautomotiveengineeringtalent—histhirdcompanyinasmanyyears—andintroducedvemodels(ModelsA,B,C,F,andK)beforehelaunchedthefamousModelTinOctoberof1908.30Infact,Fordwasoneof502rmsfoundedintheUnitedStatesbetween1900and1908tomakeautomobiles—hardlyanovelconceptatthetime.Incontrasttothevisionarycompanies,wetracedthefoundingrootsofelevencomparisoncompaniesmuchclosertothegreat-ideamodel:Ames,Burroughs,Colgate,Kenwood,McDonnelDouglas,Norton,Pzer,R.J.Reynolds,TexasInstruments,Westinghouse,andZenith.

Inotherwords,wefoundthatthevisionarycompaniesweremuchlesslikelytobeginlifewitha“greatidea”thanthecomparisoncompaniesinourstudy.Furthermore,whatevertheinitialfoundingconcept,wefoundthatthevisionarycompanieswerelesslikelytohaveearlyentrepreneurialsuccessthanthecomparisoncompanies.

Inonlythreeofeighteenpairsdidthevisionarycompanyhavegreaterinitialsuccessthanthecomparisoncompany,whereasintencases,thecomparisoncompanyhadgreaterinitialsuccessthanthevisionarycompany.Fivecaseswereindistinguishable.Inshort,wefoundanegativecorrelationbetweenearlyentrepreneurialsuccessandbecomingahighlyvisionarycompany.Thelongracegoestothetortoise,notthehare.

InAppendix2,wegiveamoredetaileddescriptionofthefoundingrootsofalthevisionaryandcomparisoncompanies.

(Eventhoughit’sinanappendix—weputittheresoasnottobreaktheflowofthetext—weencourageyoutobrowsethroughit.)Ifyouareaprospectiveentrepreneurwiththedesiretostartandbuildavisionarycompanybuthavenotyettakentheplungebecauseyoudon’thavea“greatidea,”weencourageyoutoliftfromyourshoulderstheburdenofthegreat-ideamyth.Indeed,theevidencesuggeststhatitmightbebetertonotobsessonndingagreatideabeforelaunchingacompany.Why?Becausethegreat-

greatideabeforelaunchingacompany.Why?Becausethegreat-ideaapproachshiftsyouratentionawayfromseeingthecompanyasyourultimatecreation.

THECOMPANYITSELFISTHEULTIMATECREATION

Incoursesonstrategicmanagementandentrepreneurship,businessschoolsteachtheimportanceofstartingrstandforemostwithagoodideaandwel-developedproduct/marketstrategy,andthenjumpingthroughthe“windowofopportunity”beforeitcloses.Butthepeoplewhobuiltthevisionarycompaniesoftendidn’tbehaveorthinkthatway.Incaseaftercase,theiractionsewinthefaceofthetheoriesbeingtaughtatthebusinessschools.

Thus,earlyinourproject,wehadtorejectthegreatideaorbriliantstrategyexplanationofcorporatesuccessandconsideranewview.Wehadtoputonadierentlensandlookattheworldbackward.Wehadtoshiftfromseeingthecompanyasavehiclefortheproductstoseeingtheproductsasavehicleforthecompany.

Wehadtoembracethecrucialdierencebetweentimetelingandclockbuilding.

Toquicklygraspthedierencebetweenclockbuildingandtimeteling,compareGEandWestinghouseintheirearlydays.GeorgeWestinghousewasabriliantproductvisionaryandprolificinventorwhofoundedfty-nineothercompaniesbesidesWestinghouse.31

Additionaly,hehadtheinsightthattheworldshouldfavorthesuperiorACelectricalsystemoverEdison’sDCsystem,whichiteventualydid.32ButcompareGeorgeWestinghousetoCharlesCon,GE’srstpresident.Coninventednotasingleproduct.Buthesponsoredaninnovationofgreatsignicance:theestablishmentoftheGeneralElectricResearchLab,biledas“America’srstindustrialresearchlaboratory.”33GeorgeWestinghousetoldthetime;CharlesConbuiltaclock.Westinghouse’sgreatestcreationwastheACpowersystem;Cofin’sgreatestcreationwastheGeneralElectricCompany.

Luckfavorsthepersistent.Thissimpletruthisafundamental

Luckfavorsthepersistent.Thissimpletruthisafundamentalcornerstoneofsuccessfulcompanybuilders.Thebuildersofvisionarycompanieswerehighlypersistent,livingtothemoto:Never,never,nevergiveup.Butwhattopersistwith?Theiranswer:Thecompany.Bepreparedtokil,revise,orevolveanidea(GEmovedawayfromitsoriginalDCsystemandembracedtheAC

system),butnevergiveuponthecompany.Ifyouequatethesuccessofyour

companywithsuccessofaspecicidea—asmanybusinesspeopledo—thenyou’remorelikelytogiveuponthecompanyifthatideafails;andifthatideahappenstosucceed,you’remorelikelytohaveanemotionalloveaairwiththatideaandstickwithittoolong,whenthecompanyshouldbemovingvigorouslyontootherthings.Butifyouseetheultimatecreationasthecompany,nottheexecutionofaspecicideaorcapitalizingonatimelymarketopportunity,thenyoucanpersistbeyondanyspecicidea—goodorbad—andmovetowardbecominganenduringgreatinstitution.

Forexample,HPlearnedhumilityearlyinitslife,duetoastringoffailedandonlymoderatelysuccessfulproducts.YetBilHewletandDavePackardkepttinkering,persisting,trying,andexperimentinguntiltheyguredouthowtobuildaninnovativecompanythatwouldexpresstheircorevaluesandearnasustainedreputationforgreatproducts.Trainedasengineers,theycouldhavepursuedtheirgoalbybeingengineers.Buttheydidn’t.Instead,theyquicklymadethetransitionfromdesigningproductstodesigninganorganization—creatinganenvironment—conducivetothecreationofgreatproducts.Asearlyasthemid-1950s,BilHewletdisplayedaclock-buildingperspectiveinaninternalspeech:Ourengineeringsta[has]remainedfairlystable.Thiswasbydesignratherthanbyaccident.Engineersarecreativepeople,sobeforewehiredanengineerwemadesurehewouldbeoperatinginastableandsecureclimate.Wealsomadesurethateachofourengineershadalongrangeopportunitywiththecompanyandsuitableprojectsonwhichtowork.Anotherthing,wemadecertainthatwehadadequatesupervisionsothatour

wemadecertainthatwehadadequatesupervisionsothatourengineerswouldbehappyandwouldbeproductivetothemaximumextent..[Theprocessof]engineeringisoneofourmostimportantproducts[emphasisadded]..wearegoingtoputonthebestengineeringprogramyouhaveeverseen.Ifyouthinkwehavedonewelsofar,justwaituntiltwoorthreeyearsfromnowwhenwegetalofournewlabpeopleproducingandalofthesupervisorsroling.You’lseesomerealprogressthen!34

DavePackardechoedtheclock-buildingorientationina1964

speech:“Theproblemis,howdoyoudevelopanenvironmentinwhichindividualscanbecreative?..Ibelievethatyouhavetoputagooddealofthoughttoyourorganizationalstructureinordertoprovidethisenvironment.”35In1973,anintervieweraskedPackardwhatspecicproductdecisionshe

consideredthemostimportantinthecompany’sgrowth.Packard’sresponsedidn’tincludeonesingleproductdecision.Heansweredentirelyintermsoforganizationaldecisions:developinganengineeringteam,apay-as-you-gopolicytoimposescaldiscipline,aprot-sharingprogram,personnelandmanagementpolicies,the“HPWay”philosophyofmanagement,andsoon.Inatingtwist,theinterviewertitledthearticle,“HewletPackardChairmanBuiltCompanybyDesign,CalculatorbyChance.”36

BILLHewletandDavePackard’sultimatecreationwasn’ttheaudioosciloscopeorthepocketcalculator.ItwastheHewlet-PackardCompanyandtheHPWay.

Similarly,MasaruIbuka’sgreatest“product”wasnottheWalkmanortheTrinitron;itwasSonythecompanyandwhatitstandsfor.

WaltDisney’sgreatestcreationwasnotFantasia,orSnowWhite,orevenDisneyland;itwastheWaltDisneyCompanyanditsuncanny

evenDisneyland;itwastheWaltDisneyCompanyanditsuncannyabilitytomakepeoplehappy.SamWalton’sgreatestcreationwasn’ttheWal-Martconcept;itwastheWal-MartCorporation—anorganizationthatcouldimplementretailingconceptsonalargescalebeterthananycompanyintheworld.PaulGalvin’sgeniuslaynotinbeinganengineerorinventor(hewasactualyaself-educatedbuttwice-failedbusinessmanwithnoformaltechnologytraining),37butinhiscraftingandshapingofaninnovativeengineeringorganizationthatwe’vecometocaltheMotorolaCompany.WiliamProcterandJamesGamble’smostsignicantcontributionwasnothogfatsoap,lampoils,orcandles,forthesewouldeventualybecomeobsolete;theirprimarycontributionwassomethingthatcanneverbecomeobsolete:ahighlyadaptableorganizationwitha“spiritualinheritance”38ofdeeplyingrainedcorevaluestransferredtogenerationaftergenerationofP&G

people.

Weaskyoutoconsiderthiscrucialshiftinthinking—theshifttoseeingthecompanyitselfastheultimatecreation.Ifyou’reinvolvedinbuildingandmanagingacompany,thisshifthassignicantimplicationsforhowyouspendyourtime.Itmeansspendinglessofyourtimethinkingaboutspecicproductlinesandmarketstrategies,andspendingmoreofyourtimethinkingabout

organizationdesign.ItmeansspendinglessofyourtimethinkinglikeGeorgeWestinghouse,andspendingmoreofyourtimethinkinglikeCharlesCon,DavidPackard,andPaulGalvin.Itmeansspendinglessofyourtimebeingatimeteler,andspendingmoreofyourtimebeingaclockbuilder.

Wedon’tmeantoimplythatthevisionarycompaniesneverhadsuperbproductsorgoodideas.Theycertainlydid.And,aswe’ldiscusslaterinthebook,mostofthemviewtheirproductsandservicesasmakingusefulandimportantcontributionstocustomers’

lives.Indeed,thesecompaniesdon’texistjustto“beacompany”;theyexisttodosomethinguseful.Butwesuggestthatthecontinualstreamofgreatproductsandservicesfromhighlyvisionarycompaniesstemsfromthembeingoutstandingorganizations,nottheotherwayaround.Keepinmindthatalproducts,services,and

theotherwayaround.Keepinmindthatalproducts,services,andgreatideas,nomaterhowvisionary,eventualybecomeobsolete.

Butavisionarycompanydoesnotnecessarilybecomeobsolete,notifithastheorganizationalabilitytocontinualychangeandevolvebeyondexistingproductlifecycles.(Inlaterchapters,wewildescribehowthevisionarycompaniesachievethis.)Similarly,alleaders,nomaterhowcharismaticorvisionary,eventualydie.Butavisionarycompanydoesnotnecessarilydie,notifithastheorganizationalstrengthtotranscendanyindividualleaderandremainvisionaryandvibrantdecadeafterdecadeandthroughmultiplegenerations.

Thisbringsustoasecondgreatmyth.

THEMYTHOFTHEGREATANDCHARISMATICLEADER

Whenweaskexecutivesandbusinessstudentstospeculateaboutthedistinguishingvariables—therootcauses—inthesuccessofthevisionarycompanies,manymention“greatleadership.”TheypointtoGeorgeW.Merck,SamWalton,WiliamProcter,JamesGamble,WiliamE.Boeing,R.W.Johnson,PaulGalvin,BilHewlet,DavePackard,CharlesCon,WaltDisney,J.WilardMarriot,ThomasJ.

Watson,andJohnNordstrom.Theyarguethatthesechiefexecutivesdisplayedhighlevelsofpersistence,overcamesignicantobstacles,atracteddedicated

peopletotheorganization,inuencedgroupsofpeopletowardtheachievementofgoals,andplayedkeyrolesinguidingtheircompaniesthroughcrucialepisodesintheirhistory.

But—andthisisthecrucialpoint—sodidtheircounterpartsatthecomparisoncompanies!CharlesPzer,theGilmanbrothers(Ames),WiliamColgate,DonaldDouglas,WiliamBristol,JohnMyers,CommanderEugeneF.McDonald(Zenith),PatHaggarty(TI),GeorgeWestinghouse,HarryCohn,HowardJohnson,FrankMelvile—thesepeoplealsodisplayedhighlevelsofpersistence.

Theyalsoovercamesignicantobstacles.Theyalsoatracteddedicatedpeopletotheorganization.Theyalsoinuencedgroupsofpeopletowardtheachievementofgoals.Theyalsoplayedkeyrolesinguidingtheircompaniesthroughcrucialepisodesintheir

rolesinguidingtheircompaniesthroughcrucialepisodesintheirhistory.Asystematicanalysisrevealedthatthecomparisoncompanieswerejustaslikelytohavesolid“leadership”duringtheformativeyearsasthevisionarycompanies.(SeeTableA.3inAppendix3.)

Inshort,wefoundnoevidencetosupportthehypothesisthatgreatleadershipisthedistinguishingvariableduringthecritical,formativestagesofthevisionarycompanies.Thus,asourstudyprogressed,wehadtorejectthegreat-leadertheory;itsimplydidnotadequatelyexplainthediferencesbetweenthevisionaryandcomparisoncompanies.

CharismaNotRequired

Beforewedescribewhatweseeasthecrucialdierencebetweentheearlyshapersofvisionarycompaniesversusthecomparisoncompanies(forwedothinkthereisacrucialdierence),we’dliketoshareaninterestingcorolary:Ahigh-prole,charismaticstyleisabsolutelynotrequiredtosuccessfulyshapeavisionarycompany.

Indeed,wefoundthatsomeofthemostsignicantchiefexecutivesinthehistoryofthevisionarycompaniesdidnothavethepersonalitytraitsofthearchetypalhigh-prole,charismaticvisionaryleader.

ConsiderWiliamMcKnight.Doyouknowwhoheis?Doeshestandoutinyourmindasoneofthegreatbusinessleadersofthetwentiethcentury?Canyou

describehisleadershipstyle?Haveyoureadhisbiography?Ifyou’relikemostpeople,youknowlitleornothingaboutWiliamMcKnight.Asof1993,hehadnotmadeitintoFortunemagazine’s“NationalBusinessHalofFame.”39Fewarticleshaveeverbeenwritenabouthim.Hisnamedoesn’tappearintheHoover’sHandbooksketchofthecompany’shistory.40Whenwestartedourresearch,we’reembarrassedtosay,wedidn’tevenrecognizehisname.YetthecompanyMcKnightguidedforfty-twoyears(asgeneralmanagerfrom1914to1929,chiefexecutivefrom1929to1949,andchairmanfrom1949to1966)earnedfameand

1929to1949,andchairmanfrom1949to1966)earnedfameandadmirationwithbusinesspeoplearoundtheworld;itcarriesthereverednameMinnesota,Mining,andManufacturingCompany(or3Mforshort).3Misfamous;McKnightisnot.Wesuspecthewouldhavewanteditexactlythatway.

McKnightbeganworkin1907asasimpleassistantbookkeeperandrosetocostaccountantandsalesmanagerbeforebecominggeneralmanager.Wecouldndnoevidencethathehadahighlycharismaticleadershipstyle.OfthenearlyftyreferencestoMcKnightinthecompany’sself-publishedhistory,onlyonereferstohispersonality,andthatdescribedhimas“asoft-spoken,gentleman.”41Hisbiographerdescribedhimas“agoodlistener,”

“humble,”“modest,”“slightlystooped,”“unobtrusiveandsoft-spoken,”“quiet,thoughtful,andserious.”42

McKnightisnottheonlysignicantchiefexecutiveinthehistoryofthevisionarycompanieswhobreaksthearchetypalmodelofthecharismaticvisionaryleader.MasaruIbukaofSonyhadareputationasbeingreserved,thoughtful,andintrospective.43BilHewletremindedusofafriendly,no-nonsense,mater-of-fact,down-to-earthfarmerfromIowa.Messrs.ProcterandGambleweresti,prim,proper,andreserved—evendeadpan.44BilAlen—themostsignicantCEOinBoeing’shistory—wasapragmaticlawyer,

“ratherbenigninappearancewitharathershyandinfrequentsmile.”45GeorgeW.Merckwas“theembodimentof‘Merckrestraint.’”46

We’veworkedwithquiteafewmanagerswhohavefeltfrustratedbyalthebooksandarticlesoncharismaticbusinessleadershipandwhoaskthesensiblequestion,“Whatifhigh-prolecharismaticleadershipisjustnotmystyle?”Our

response:Tryingtodevelopsuchastylemightbewastedenergy.Foronething,psychologicalevidenceindicatesthatpersonalitytraitsgetsetrelativelyearlyinlifethroughacombinationofgeneticsandexperience,andthereislitleevidencetosuggestthatbythetimeyou’reinamanagerialroleyoucandomuchtochangeyourbasicpersonalitystyle.47Foranother—andevenmoreimportant—ourresearchindicatesthatyou

another—andevenmoreimportant—ourresearchindicatesthatyoudon’tneedsuchastyleanyway.

IFyou’reahigh-prolecharismaticleader,ne.Butifyou’renot,thenthat’sne,too,foryou’reingoodcompanyrightalongwiththosethatbuiltcompanieslike3M,P&G,Sony,Boeing,HP,andMerck.Notabadcrowd.

Pleasedon’tmisunderstandourpointhere.We’renotclaimingthatthearchitectsofthesevisionarycompanieswerepoorleaders.

We’resimplypointingoutthatahigh-prole,charismaticstyleisclearlynotrequiredforbuildingavisionarycompany.(Infact,wespeculatethatahighlycharismaticstylemightshowaslightnegativecorrelationwithbuildingavisionarycompany,butthedataonstylearetoospotyandsofttomakearmstatement.)We’realsopointingout—andthisistheessentialpointofthissection—thatbothsetsofcompanieshavehadstrongenoughleadersatformativestagesthatgreatleadership,beitcharismaticorotherwise,cannotexplainthesuperiortrajectoriesofthevisionarycompaniesoverthecomparisoncompanies.

Wedonotdenythatthevisionarycompanieshavehadsuperbindividualsatoptheorganizationatcriticalstagesoftheirhistory.

Theyoftendid.Furthermore,wethinkitunlikelythatacompanycanremainhighlyvisionarywithacontinuousstringofmediocrepeopleatthetop.Infact,aswewildiscussinalaterchapter,wefoundthatthevisionarycompaniesdidabeterjobthanthecomparisoncompaniesatdevelopingandpromotinghighlycompetentmanagerialtalentfrominsidethecompany,andtheytherebyatainedgreatercontinuityofexcelenceatthetopthroughmultiplegenerations.But,aswithgreatproducts,perhapsthecontinuityofsuperbindividualsatopvisionarycompaniesstemsfromthecompaniesbeingoutstandingorganizations,nottheotherwayaround.

wayaround.

ConsiderJackWelch,thehigh-proleCEOatGeneralElectricinthe1980sandearly1990s.WecannotdenythatWelchplayedahugeroleinrevitalizingGEorthathebroughtanimmenseenergy,drive,andamagneticpersonalitywithhimtotheCEO’soce.ButobsessingonWelch’sleadershipstyledivertsusfromacentralpoint:WelchgrewupinGE;hewasaproductofGEasmuchastheotherwayaround.SomehowGEtheorganizationhadtheabilitytoatract,retain,develop,groom,andselectWelchtheleader.GE

prosperedlongbeforeWelchandwilprobablyprosperlongafterWelch.Afteral,WelchwasnottherstexcelentCEOinGE’shistory,andheprobablywilnotbethelast.Welch’srolewasnotinsignicant,butitwasonlyasmalsliceoftheentirehistoricalstoryoftheGeneralElectricCompany.TheselectionofWelchstemmedfromagoodcorporatearchitecture—anarchitecturethattracesitsrootstopeoplelikeCharlesCon,who,incontrasttoGeorgeWestinghouse,tookanarchitecturalapproachtobuildingthecompany.(WewilmorethoroughlydiscussWelchandGEinChapter8.)

ANARCHITECTURALAPPROACH:CLOCKBUILDERSATWORK

AsinthecaseofCharlesConversusGeorgeWestinghouse,wedidseeinourstudydierencesbetweenthetwogroupsofearlyshapers,butthedierencesweremoresubtlethan“greatleader”

versus“notgreatleader.”Thekeydierence,webelieve,isoneoforientation—theevidencesuggeststousthatthekeypeopleatformativestagesofthevisionarycompanieshadastrongerorganizationalorientationthaninthecomparisoncompanies,regardlessoftheirpersonalleadershipstyle.Asthestudyprogressed,infact,webecameincreasinglyuncomfortablewiththeterm“leader”andbegantoembracetheterm“architect”or“clockbuilder.”(Asecondkeydierencerelatestothetypeofclocktheybuilt—thesubjectoflaterchapters.)Thefolowingcontrastsfurtherilustratewhatwemeanbyanarchitectural,orclock-building,approach.

CiticorpVersusChase

JamesStilman,Citicorp’spresidentfrom1891to1909andchairmanto1918,concentratedonorganizationaldevelopmentinpursuitofhisgoaltobuildagreatnationalbank.48Hetransformedthebankfromanarrowparochialrminto“afulymoderncorporation.”49Heoversawthebankasitopenednewoces,

institutedadecentralizedmultidivisionalstructure,constructedapowerfulboardofdirectorscomposedofleadingCEOs,andestablishedmanagementtrainingandrecruitingprograms(institutedthreedecadesearlierthanatChase).50Citibank1812–

1970describeshowStilmansoughttoarchitectaninstitutionthatwouldthrivefarbeyondhisownlifetime:

StilmanintendedNationalCity[precursortoCiticorp]toretainitsposition[asthelargestandstrongestbankintheUnitedStates]evenafterhisdeath,andtoensurethisheledthenewbuildingwithpeoplewhosharedhisownvisionandentrepreneurialspirit,peoplewhowouldbuildanorganization.

Hewouldstepasidehimselfandletthemrunthebank.51

Stilmanwroteinaletertohismotherabouthisdecisiontostepaside,totheroleofchairman,sothatthecompanycouldmoreeasilygrowbeyondhim:

IhavebeenpreparingforthepasttwoyearstoassumeanadvisorypositionattheBankandtodeclinere-electionasitsocialhead.Iknowthisiswiseanditnotonlyrelievesmeoftheresponsibilityofdetails,butgivesmyassociatesanopportunitytomakenamesforthemselves[andlays]thefoundationforlimitlesspossibilities,greaterevenforthefuturethanwhathasbeenaccomplishedinthepast.52

AlbertWiggin,Stilman’scounterpartatChase(presidentfrom1911to1929),didnotdelegateatal.Decisive,humorless,andambitious,Wiggin’sprimaryconcernappearedtobewithhisownaggrandizement.HesatontheboardsofftyothercompaniesandranChasewithsuchastrong,centralizedcontrolinghandthatBusinessWeekwrote,“TheChaseBankisWigginandWigginistheChaseBank.”53

Wal-MartVersusAmes

NodoubtSamWaltonhadthepersonalitycharacteristicsofaamboyant,charismaticleader.Wecannothelpbutthinkofhisshimmy-shakingdownWalStreetinagrassskirtandowerleisbackedbyabandofhuladancers(tofullapromisetoemployeesforbreaking8percentprot),orhisleapinguponstorecountersandleadinghundredsofscreamingemployeesthrougharousingrenditionoftheWal-MartCheer.Yes,Waltonhadauniqueandpowerful

personality.Butsodidthousandsofotherpeoplewhodidn’tbuildaWal-Mart.

Indeed,thekeydierencebetweenSamWaltonandtheleadersatAmesisnotthathewasamorecharismaticleader,butthathewasmuchmoreofaclockbuilder—anarchitect.Byhisearlytwenties,Waltonhadpretymuchsetleduponhispersonalitystyle;hespentthebulkofhislifeinanever-endingquesttobuildanddevelopthecapabilitiesoftheWal-Martorganization,notinaquesttodevelophisleadershippersonality.54ThiswastrueeveninWalton’sowneyes,ashewroteinMadeinAmerica:

Whatnobodyrealized,includingafewofmyownmanagersatthetime,wasthatwewererealytryingfromthebeginningtobecometheverybestoperators—themostprofessionalmanagers—thatwecould.There’snoquestionthatIhavethepersonalityofapromoter..Butunderneaththatpersonality,Ihavealwayshadthesoulofanoperator,somebodywhowants

havealwayshadthesoulofanoperator,somebodywhowantstomakethingsworkwel,thenbeter,thenthebesttheypossiblycan..Iwasneverinanythingfortheshorthaul;IalwayswantedtobuildasnearetailingorganizationasIcould.55

Forexample,Waltonvaluedchange,experimentation,andconstantimprovement.Buthedidn’tjustpreachthesevalues,heinstitutedconcreteorganizationalmechanismstostimulatechangeandimprovement.Usingaconceptcaled“AStoreWithinaStore,”

Waltongavedepartmentmanagerstheauthorityandfreedomtoruneachdepartmentasifitweretheirownbusiness.56Hecreatedcashawardsandpublicrecognitionforassociateswhocontributecostsavingand/orserviceenhancementsideasthatcouldbereproducedatotherstores.Hecreated“VPI(VolumeProducingItem)Contests”toencourageassociatestoatemptcreativeexperiments.57Heinstitutedmerchandisemeetings,todiscussexperimentsthatshouldbeselectedforusethroughouttheentirechain,andSaturdaymorningmeetings,whichoftenfeaturedanindividualemployeewhotriedsomethingnovelthatworkedrealywel.Protsharingandemployeestockownershipproducedadirectincentiveforemployeestocomeupwithnewideas,sothatthewholecompanymightbenet.TipsandideasgeneratedbyassociatesgotpublishedintheWal-Martinternalmagazine.58Wal-Marteveninvestedinasatelitecommunicationssystem“tospreadalthelitledetailsaroundthe

companyassoonaspossible.”59In1985,stockanalystA.G.EdwardsdescribedthetickingWal-Martclock:

Personneloperateinanenvironmentwherechangeisencouraged.Forexample,ifa..storeassociatemakessuggestionsregarding[merchandisingorcostsavingsideas],theseideasarequicklydisseminated.Multiplyeachsuggestionbyover750storesandbyover80,000employees(whocanpotentialymakesuggestions)andthisleadstosubstantialsales

potentialymakesuggestions)andthisleadstosubstantialsalesgains,costreductionsandimprovedproductivity.60

WhereasWaltonconcentratedoncreatinganorganizationthatwouldevolveandchangeonitsown,Amesleadersdictatedalchangesfromaboveanddetailedinabooktheprecisestepsastoremanagershouldtake,leavingnoroomforinitiative.61WhereasWaltongroomedacapablesuccessortotakeoverthecompanyafterhisdeath(DavidGlass),theGilmanshadnosuchpersoninplace,thusleavingthecompanytooutsiderswhodidnotsharetheirphilosophy.62WhereasWaltonpassedalonghisclock-buildingorientationtohissuccessor,postfounderCEOsatAmesrecklesslypursueddisastrousacquisitionsinanblind,obsessivepursuitofrawgrowthforgrowth’ssake,gulpingdown388Zayrestoresinonebite.IndescribingWal-Mart’skeyingredientforfuturesuccess,DavidGlasssaid“Wal-Martassociateswilndaway”and“Ourpeoplearerelentless.”63AmesCEOofthesameerasaid,“Therealanswerandtheonlyissueismarketshare.”64

Inasadnote,a1990ForbesarticleonAmesnoted,“Co-founderHerbertGilmanhasseenhiscreationdestroyed.”65Onahappiernote,SamWaltondiedwithhiscreationintactandthebeliefthatitcouldprosperlongbeyondhim,strongerthanever.Heknewthathewouldprobablynotlivetotheyear2000,yetshortlybeforehediedin1992,hesetaudaciousgoalsforthecompanyouttotheyear2000,displayingadeepcondenceinwhatthecompanycouldachieveindependentofhispresence.66

MotorolaVersusZenith

Motorola’sfounder,PaulGalvin,dreamedrstandforemostaboutbuildingagreatandlastingcompany.67Galvin,architectofoneofthemostsuccessfultechnologycompaniesinhistory,didnothaveanengineeringbackground,but

hehiredexcelentengineers.Heencourageddissent,discussion,anddisagreement,andgave

encourageddissent,discussion,anddisagreement,andgaveindividuals“thelatitudetoshowwhattheycoulddolargelyontheirown.”68Hesetchalengesandgavepeopleimmenseresponsibilitysoastostimulatetheorganizationanditspeopletogrowandlearn,oftenbyfailuresandmistakes.69Galvin’sbiographersummarized,“Hewasnotaninventor,butabuilderwhoseblueprintswerepeople.”70Accordingtohisson,RobertW.

Galvin,“Myfatherurgedustoreachout..topeople—toalthepeople—fortheirleadershipcontribution,yestheircreativeleadershipcontribution..Earlyon,[he]wasobsessedwithmanagementsuccession.Ironicaly,hedidnotfearhisowndemise.

Hisconcernwasforthecompany[emphasisours].”71

Incontrast,Zenith’sfounder,CommanderEugeneF.McDonald,Jr.,hadnosuccessionplan,thusleavingavoidoftalentatthetopafterhisunexpecteddeathin1958.72McDonaldwasatremendouslycharismaticleaderwhomovedthecompanyforwardprimarilythroughthesheerforceofhisgiganticpersonality.

Describedas“thevolatile,opinionatedmastermindofZenith,”

McDonaldhad“colossalself-assurance..basedonaveryhighopinionofhisownjudgment.”73Heexpectedalexcepthisclosestfriendstoaddresshimas“Commander.”Abrilianttinkererandexperimenterwhopushedmanyofhisowninventionsandideas,hehadarigidatitudethatalmostcausedZenithtomissoutontelevision.74AhistoryofZenithstates:

McDonald’samboyantstylewasechoedinthecompany’sdramaticadvertisingmethodsandthisstyle,coupledwithinnovativegeniusandanabilitytosensechangesinpublictastes,meantthatformorethanthreedecades,inthepublicperceptionMcDonaldwasZenith.75

TwoandanhalfyearsafterMcDonald’sdeath,Fortunemagazinecommented:“[Zenith]isstilgrowingandreapingprotsfromthedriveandimaginationofitslatefounder.McDonald’spowerfulpersonalityremainsapalpableinuenceinthecompany.But

personalityremainsapalpableinuenceinthecompany.ButZenith’sfuturenowdependsonitsabilityandnewdrivetomeetconditionsMcDonaldneveranticipated.”76Acompetitorcommented,“Astimegoeson,ZenithwilmissMcDonaldmoreandmore.”77

GalvinandMcDonalddiedwithineighteenmonthsofeachother.78MotorolasailedsuccessfulyintonewarenasneverdreamedofbyGalvin;Zenithlanguishedand,asof1993,itneverregainedtheenergyandinnovativesparkthatithadduringMcDonald’slifetime.

WaltDisneyVersusColumbiaPictures

Quick,stopandthink:Disney.Whatcomestomind?CanyoucreateaclearimageorsetofimagesthatyouassociatewithDisney?NowdothesamethingforColumbiaPictures.Whatcomestomind?Canyouputyourngerondistinctandclearimages?Ifyou’relikemostpeople,youcanconjureupimagesofwhatDisneymeans,butyouprobablyhadtroublewithColumbiaPictures.

InthecaseofWaltDisney,itisclearthatWaltbroughtimmensepersonalimaginationandtalenttobuildingDisney.HepersonalyoriginatedmanyofDisney’sbestcreations,includingSnowWhite(theworld’srst-everful-lengthanimatedlm),thecharacterofMickeyMouse,theMickeyMouseClub,Disneyland,andEPCOT

Center.Byanymeasure,hewasasuperbtimeteler.But,evenso,incomparisontoHarryCohn—Disney’scounterpartatColumbiaPictures—Waltwasmuchmoreofaclockbuilder.

Cohn“cultivatedhisimageasatyrant,keepingaridingwhipnearhisdeskandoccasionalycrackingitforemphasis,andColumbiahadthegreatestcreativeturnoverofanymajorstudioduelargelytoCohn’smethods.”79Anobserverofhisfuneralin1958commentedthatthethirteenhundredatendees“hadnotcometobidfarewel,buttomakesurehewasactualydead.”80WecouldndnoevidenceofanyconcernforemployeesbyCohn.Norcouldwendanyevidencethathetookstepstodevelopthelong-term

anyevidencethathetookstepstodevelopthelong-termcapabilitiesordistinctself-identityofColumbiaPicturesasaninstitution.

TheevidencesuggeststhatCohncaredrstandforemostaboutbecomingamovie

mogulandwieldingimmensepersonalpowerinHolywood(hebecametherstpersoninHolywoodtoassumethetitlesofpresidentandproducer)andcaredlitleornotatalaboutthequalitiesandidentityoftheColumbiaPicturesCompanythatmightendurebeyondhislifetime.81Cohn’spersonalpurposepropeledColumbiaPicturesforwardforyears,butsuchpersonalandegocentricideologycouldnotpossiblyguideandinspireacompanyafterthefounder’sdeath.UponCohn’sdeath,thecompanyfelintolistlessdisarray,hadtoberescuedin1973,andwaseventualysoldtoCoca-Cola.

WaltEliasDisney,ontheotherhand,spentthedaybeforehediedinahospitalbedthinkingoutloudabouthowtobestdevelopDisneyWorldinFlorida.82Waltwoulddie,butDisney’sabilitytomakepeoplehappy,tobringjoytochildren,tocreatelaughterandtearswouldnotdie.Throughouthislife,WaltDisneypaidgreateratentiontodevelopinghiscompanyanditscapabilitiesthandidCohnatColumbia.Inthelate1920s,hepaidhiscreativestamorethanhepaidhimself.83Intheearly1930s,heestablishedartclassesforalanimators,instaledasmalzooonlocationtoprovidelivecreaturestohelpimprovetheirabilitytodrawanimals,inventednewanimationteamprocesses(suchasstoryboards),andcontinualyinvestedinthemostadvancedanimationtechnologies.84Inthelate1930s,heinstaledtherstgenerousbonussysteminthecartoonindustrytoatractandrewardgoodtalent.85Inthe1950s,heinstitutedemployee“YouCreateHappiness”trainingprogramsand,inthe1960s,heestablishedDisneyUniversitytoorient,train,andindoctrinateDisneyemployees.86HarryCohntooknoneofthesesteps.

Granted,Waltdidnotclockbuildaswelassomeoftheotherarchitectsinourstudy,andtheDisneylmstudiolanguishedfornearlyfteenyearsafterhisdeathasDisneyitesranaroundasking

nearlyfteenyearsafterhisdeathasDisneyitesranaroundaskingthemselves,“WhatwouldWaltdo?”87ButthefactremainsthatWalt,unlikeCohn,createdaninstitutionmuchbiggerthanhimself,aninstitutionthatcouldstildeliverthe“DisneyMagic”tokidsatDisneylanddecadesafterhisdeath.DuringthesametimeperiodthatColumbiaceasedtoexistasanindependententity,theWaltDisneyCompanymountedanepic(andultimatelysuccessful)ghttopreventahostiletakeover.TotheDisneyexecutivesandfamily,whocouldhavemadeatidymultimilion-dolarprotontheirstockhadtheraidersbeensuccessful,DisneyhadtobepreservedasanindependententitybecauseitwasDisney.IntheprefacetohisbookStormingtheMagicKingdom,asuperbaccountofthe

Disneytakeoveratempt,JohnTaylorwrote:

Toaccept[thetakeoveroer]wasunthinkable.WaltDisneyProductionswasnotjustanothercorporateentity..thatneededtoberationalizedbyliquidationofitsassetstoachievemaximumvalueforitsshareholders.NorwasDisneyjustanotherbrandname..Thecompany’sexecutivessawDisneyasaforceshapingtheimaginativelifeofchildrenaroundtheworld.ItwaswovenintotheveryfabricofAmericanculture.

Indeed,itsmission—anditdid,theybelieved,haveamissionasimportantasmakingmoneyforitsstockholders—wastocelebrateAmericanvalues.88

Disneywentoninthe1980sand1990storekindletheheritageinstaledbyWaltdecadesearlier.Incontrast,Cohn’scompanyhadlitletosaveorrekindle.NoonefeltColumbiahadtobepreservedasanindependententity;iftheshareholderscouldgetmoremoneybyselingout,thensobeit.

THEMESSAGEFORCEOS,MANAGERS,ANDENTREPRENEURS

Oneofthemostimportantstepsyoucantakeinbuildingavisionarycompanyisnotanaction,butashiftinperspective.Therewilbeplentyofaction-orientedndingsinthechaptersthat

wilbeplentyofaction-orientedndingsinthechaptersthatfolow.Buttomakegooduseofthemrequiresrstandforemostacquiringtherightframeofmind.Andthat’sthepointofthischapter.We’redoingnothinglessthanaskingyoutomakeashiftinthinkingasfundamentalasthosethatprecededtheNewtonianrevolution,theDarwinianrevolution,andthefoundingoftheUnitedStates.

PriortotheNewtonianrevolution,peopleexplainedtheworldaroundthemprimarilyintermsofaGodthatmadespecicdecisions.Achildwouldfalandbreakhisarm,anditwasanactofGod.Cropsfailed;itwasanactofGod.PeoplethoughtofanomnipotentGodwhomadeeachandeveryspeciceventhappen.

Theninthe1600speoplesaid,“No,that’snotit!WhatGoddidwastoputinplaceauniversewithcertainprinciples,andwhatweneedtodoisgureouthowthoseprincipleswork.Goddoesn’tmakealthedecisions.Hesetinplaceprocessesandprinciplesthatwouldcarryon.”89Fromthatpointon,peoplebegantolookforbasicunderlyingdynamicsandprinciplesoftheentiresystem.

That’swhattheNewtonianrevolutionwasalabout.

Similarly,theDarwinianrevolutiongaveusadramaticshiftinthinkingaboutbiologicalspeciesandnaturalhistory—ashiftinthinkingthatprovidesfruitfulanalogiestowhatwe’veseeninthevisionarycompanies.PriortotheDarwinianrevolution,peopleprimarilypresumedthatGodcreatedeachandeveryspeciesintactandforaspecicroleinthenaturalworld:PolarbearsarewhitebecauseGodcreatedthemthatway,catspurrbecauseGodcreatedthemthatway;robinshaveredbreastsbecauseGodcreatedthemthatway.Wehumanshaveagreatneedtoexplaintheworldaroundusbypresumingthatsomeoneorsomethingmusthavehaditalguredout—somethingmusthavesaid,“Weneedrobinswithredbreaststothereintheecosystem.”Butifthebiologistsareright,itdoesn’tworkthatway.Insteadofjumpingdirectlytorobinswithredbreasts(timeteling),wehaveinsteadanunderlyingprocessofevolution(thegeneticcode,DNA,geneticvariationandmutation,naturalselection)whicheventualyproducesrobinswithredbreaststhatappeartotperfectlyintheecosystem.90The

redbreaststhatappeartotperfectlyintheecosystem.Thebeautyandfunctionalityofthenaturalworldspringsfromthesuccessofitsunderlyingprocessesandintricatemechanismsinamarvelous“tickingclock.”

Likewise,we’reaskingyoutoseethesuccessofvisionarycompanies—atleastinpart—ascomingfromunderlyingprocessesandfundamentaldynamicsembeddedintheorganizationandnotprimarilytheresultofasinglegreatideaorsomegreat,al-

knowing,godlikevisionarywhomadegreatdecisions,hadgreatcharisma,andledwithgreatauthority.Ifyou’reinvolvedinbuildingandmanagingacompany,we’reaskingyoutothinklessintermsofbeingabriliantproductvisionaryorseekingthepersonalitycharacteristicsofcharismaticleadership,andtothinkmoreintermsofbeinganorganizationalvisionaryandbuildingthecharacteristicsofavisionarycompany.

Indeed,we’reaskingyoutoconsiderashiftinthinkinganalogoustotheshiftrequiredtofoundtheUnitedStatesinthe1700s.Priortothedramaticrevolutionsinpoliticalthoughtoftheseventeenthandeighteenthcenturies,theprosperityofaEuropeankingdomorcountrydependedinlargepartonthequalityoftheking(or,inthecaseofEngland,perhapsthequeen).Ifyouhada

goodking,thenyouhadagoodkingdom.Ifthekingwasagreatandwiseleader,thenthekingdommightprosperasaresult.

Nowcomparethegood-kingframeofreferencewiththeapproachtakenatthefoundingoftheUnitedStates.ThecriticalquestionattheConstitutionalConventionin1787wasnot“Whoshouldbepresident?Whoshouldleadus?Whoisthewisestamongus?Whowouldbethebestking?”No,thefoundersofthecountryconcentratedonsuchquestionsas“Whatprocessescanwecreatethatwilgiveusgoodpresidentslongafterwe’redeadandgone?

Whattypeofenduringcountrydowewanttobuild?Onwhatprinciples?Howshoulditoperate?Whatguidelinesandmechanismsshouldweconstructthatwilgiveusthekindofcountryweenvision?”

ThomasJeerson,JamesMadison,andJohnAdamswerenotcharismaticvisionaryleadersinthe“italdependsonme”mode.91

charismaticvisionaryleadersinthe“italdependsonme”mode.

No,theywereorganizationalvisionaries.Theycreatedaconstitutiontowhichtheyandalfutureleaderswouldbesubservient.Theyfocusedonbuildingacountry.Theyrejectedthegood-kingmodel.Theytookanarchitecturalapproach.Theywereclockbuilders!

Butnotice:InthecaseoftheUnitedStates,it’snotacold,mechanisticNewtonianorDarwinianclock.It’saclockbasedonhumanidealsandvalues.It’saclockbuiltonhumanneedsandaspirations.It’saclockwithaspirit.

Andthatbringsustothesecondpilarofourndings:It’snotjustbuildinganyrandomclock;it’sbuildingaparticulartypeofclock.

Althoughtheshapes,sizes,mechanisms,styles,ages,andotheratributesofthetickingclocksvaryacrossvisionarycompanies,wefoundthattheyshareanunderlyingsetoffundamentalcharacteristics.Inthechaptersthatfolow,wedescribethesecharacreristics.Fornow,theimportantthingtokeepinmindisthatonceyoumaketheshiftfromtimetelingtoclockbuilding,mostofwhat’srequiredtobuildavisionarycompanycanbelearned.Youdon’thavetositaroundwaitinguntilyou’reluckyenoughtohaveagreatidea.Youdon’thavetoacceptthefalseviewthatuntilyourcompanyhasacharismaticvisionaryleader,itcannotbecomeavisionarycompany.Thereisnomysteriousqualityorelusive

magic.

Indeed,onceyoulearntheessentials,you—andalthosearoundyou—canjustgetdowntothehardworkofmakingyourcompanyavisionarycompany.

*Theorganizingmeetingtookplacein1937;theoficialfoundingoccurredinearly1938.

Interlude

Interlude

No“TyrannyoftheOR”(Embracethe

“GeniusoftheAND”)

You’lnoticethroughouttherestofthisbookthatweusetheyin/yangsymbolfromChinesedualisticphilosophy.We’veconsciouslyselectedthissymboltorepresentakeyaspectofhighlyvisionarycompanies:Theydonotoppressthemselveswithwhatwecalthe“TyrannyoftheOR”—therationalviewthatcannoteasilyacceptparadox,thatcannotlivewithtwoseeminglycontradictoryforcesorideasatthesametime.The“TyrannyoftheOR”pushespeopletobelievethatthingsmustbeeitherAORB,butnotboth.Itmakessuchproclamationsas:

•“YoucanhavechangeORstability.”

•“YoucanbeconservativeORbold.”

•“YoucanbeconservativeORbold.”

•“YoucanhavelowcostORhighquality.”

•“YoucanhavecreativeautonomyORconsistencyandcontrol.”

•“YoucaninvestforthefutureORdowelintheshort-term.”

•“YoucanmakeprogressbymethodicalplanningORbyopportunisticgroping.”

•“YoucancreatewealthforyourshareholdersORdogoodfortheworld.”

•“Youcanbeidealistic(values-driven)ORpragmatic(prot-driven).”

Insteadofbeingoppressedbythe“TyrannyoftheOR,”highlyvisionarycompaniesliberatethemselveswiththe“GeniusoftheAND”—theabilitytoembracebothextremesofanumberofdimensionsatthesametime.InsteadofchoosingbetweenAORB,theyfigureoutawaytohavebothAANDB.

Aswemoveintotherichdetailofthenexteightchapters,you’lencounter,aswedidinourresearch,aseriesoftheseparadoxes—

apparentcontradictionsinmanyofthevisionarycompanies.Forexample,youwilencounter:

Ontheonehand:

Yet,ontheotherhand:

pragmaticpursuitof

purposebeyondprofit

AND

profit

vigorouschangeand

arelativelyfixedcoreideology

AND

movement

bold,commiting,risky

conservatismaroundthecore

AND

moves

opportunisticgroping

clearvisionandsenseofdirection

AND

andexperimentation

incrementalevolutionary

incrementalevolutionary

BigHairyAudaciousGoals

AND

progress

selectionofmanagers

selectionofmanagerssteepedinthecoreAND

thatinducechange

ideologicalcontrol

AND

operationalautonomy

abilitytochange,move,

extremelytightculture(almostcult-like)AND

andadapt

demandsforshort-term

investmentforthelong-term

AND

performance

superbdailyexecution,

philosophical,visionary,futuristic

AND

“nutsandbolts”

organizationadaptedto

organizationalignedwithacoreideologyAND

itsenvironment.

We’renottalkingaboutmerebalancehere.“Balance”impliesgoingtothemidpoint,fty-fty,halfandhalf.Avisionarycompanydoesn’tseekbalancebetweenshort-termandlong-term,forexample.Itseekstodoverywelintheshort-termandverywelinthelong-term.Avisionarycompanydoesn’tsimplybalancebetweenidealismandprotability;itseekstobehighlyidealisticandhighlyprotable.Avisionarycompanydoesn’tsimplybalancebetweenpreservingatightlyheldcoreideologyandstimulatingvigorouschangeandmovement;itdoesbothtoanextreme.Inshort,ahighlyvisionarycompanydoesn’twanttoblendyinandyangintoagray,indistinguishablecirclethatisneitherhighlyyinnorhighlyyang;itaimstobedistinctlyyinanddistinctlyyang

—bothatthesametime,althetime.

Irrational?Perhaps.Rare?Yes.Dicult?Absolutely.ButasF.

ScotFitzgeraldpointedout,“Thetestofarst-rateinteligenceistheabilitytoholdtwoopposedideasinthemindatthesametime,andstilretaintheabilitytofunction.”1Thisisexactlywhatthe

andstilretaintheabilitytofunction.”Thisisexactlywhatthevisionarycompaniesareabletodo.

Chapter3

Chapter3

MoreThanProfits

Ourbasicprincipleshaveenduredintactsinceourfoundersconceivedthem.Wedistinguishbetweencorevaluesandpractices;thecorevaluesdon’tchange,butthepracticesmight.We’vealsoremainedclearthatprofit—asimportantasitis—isnotwhytheHewlet-PackardCompanyexists;itexistsformorefundamentalreasons.

JOHNYOUNG,FORMERCEO,HEWLETT-PACKARD,19921

Weareinthebusinessofpreservingandimprovinghumanlife.Alofouractionsmustbemeasuredbyoursuccessinachievingthisgoal.

MERCK&COMPANY,INTERNALMANAGEMENTGUIDE,19892

PutingprofitsafterpeopleandproductswasmagicalatFord.

DONPETERSEN,FORMERCEO,FORD,19943

WhenMerck&Companyreacheditshundredthbirthday,itpublishedabookentitledValuesandVisions:AMerckCentury.

Noticesomething?Thetitledoesn’tevenmentionwhatMerckdoes.

MerckcouldhavetitledthebookFrom

Chemicalsto

Pharmaceuticals:AMerckCenturyorAHundredYearsofFinancialSuccessatMerck.Butitdidn’t.Itchoseinsteadtoemphasizethatithasbeenthroughoutitshistoryacompanyguidedandinspiredbyasetofideals.In1935(decadesbefore“valuesstatements”becamepopular),GeorgeMerckIarticulatedthoseidealswhenhesaid,

“[We]areworkersinindustrywhoaregenuinelyinspiredbytheidealsofadvancementofmedicalscience,andofservicetohumanity.”4In1991—fty-six

yearsandthreefulgenerationsofleadershiplater—Merck’schiefexecutiveP.RoyVagelossangthesameidealistictune:“Aboveal,let’srememberthatourbusinesssuccessmeansvictoryagainstdiseaseandhelptohumankind.”5

Withtheseidealsasabackdrop,we’renotsurprisedthatMerckelectedtodevelopandgiveawayMectizan,adrugtocure“riverblindness,”adiseasethatinfectedoveramilionpeopleintheThirdWorldwithparasiticwormsthatswarmedthroughbodytissueandeventualyintotheeyes,causingpainfulblindness.Amilioncustomersisagood-sizedmarket,exceptthatthesewerecustomerswhocouldnotaordtheproduct.Knowingthattheprojectwouldnotproducealargereturnoninvestment—ifitproducedoneatal—thecompanynonethelesswentforwardwiththehopethatsomegovernmentagenciesorotherthirdpartieswouldpurchaseanddistributetheproductonceavailable.Nosuchluck,soMerckelectedtogivethedrugawayfreetoalwhoneededit.6Merckalsoinvolveditselfdirectlyindistributioneorts—atits

it.Merckalsoinvolveditselfdirectlyindistributioneorts—atitsownexpense—toensurethatthedrugdidindeedreachthemilionsofpeopleatriskfromthedisease.

AskedwhyMerckmadetheMectizandecision,VagelospointedoutthatfailuretogoforwardwiththeproductcouldhavedemoralizedMerckscientists—scientistsworkingforacompanythatexplicitlyvieweditselfas“inthebusinessofpreservingandimprovinghumanlife.”Healsocommented:

WhenIrstwenttoJapanfteenyearsago,IwastoldbyJapanesebusinesspeoplethatitwasMerckthatbroughtstreptomycintoJapanafterWorldWarI,toeliminatetuberculosiswhichwaseatinguptheirsociety.Wedidthat.Wedidn’tmakeanymoney.Butit’snoaccidentthatMerckisthelargestAmericanpharmaceuticalcompanyinJapantoday.Thelong-termconsequencesof[suchactions]arenotalwaysclear,butsomehowIthinktheyalwayspayof.7

PRAGMATICIDEALISM(NO“TYRANNYOFTHEOR”)

DidMerck’sideals—idealsthathadconsistentlydenedthecompany’sself-identitysincethelate1920s—drivetheMectizandecision?OrdidMerckmakethedecisionforpragmaticreasons—

goodlong-termbusinessandgoodPR?Ouranswer:Both.Merck’sidealsplayedasubstantialroleinthedecisionandtheevidencesuggeststhatMerckwould

havegoneaheadwiththeprojectregardlessofwhetheritcreatedlong-termbusinessbenetsforthecompany.ButtheevidencealsosuggeststhatMerckactedontheassumptionthatsuchactsofgoodwil“somehow..alwayspayof.”

Thisisaclassicexampleofthe“GeniusoftheAND”prevailingoverthe“TyrannyoftheOR.”Merckhasdisplayedthroughoutmostofitshistorybothhighidealsandpragmaticself-interest.GeorgeMerckIexplainedthisparadoxin1950:

Iwantto..expresstheprincipleswhichweinourcompanyhaveendeavoredtoliveupto..Hereishowitsumsup:Wetry

haveendeavoredtoliveupto..Hereishowitsumsup:Wetrytorememberthatmedicineisforthepatient.Wetrynevertoforgetthatmedicineisforthepeople.Itisnotfortheprots.

Theprotsfolow,andifwehaverememberedthat,theyhaveneverfailedtoappear.Thebeterwehaverememberedit,thelargertheyhavebeen.8

Merck,infact,epitomizestheideologicalnature—thepragmaticidealism—ofhighlyvisionarycompanies.Ourresearchshowedthatafundamentalelementinthe“tickingclock”ofavisionarycompanyisacoreideology—corevaluesandsenseofpurposebeyondjustmakingmoney—thatguidesandinspirespeoplethroughouttheorganizationandremainsrelativelyxedforlongperiodsoftime.Inthischapter,wedescribe,support,andilustratethiscrucialelementthatexistsparadoxicalywiththefactthatvisionarycompaniesarealsohighlyeectiveprofit-makingenterprises.

Now,youmightbethinking:“Ofcourseit’seasyforacompanylikeMercktoproclaimandpursueinspirationalideals—Merckmakesdrugsthatdoinfactsavelives,curedisease,andrelievesuering.”Goodpoint,andweagree.Butincontrasttoitscomparisoncompany,Pzer—acompanyinthesameindustry,acompanythatalsomakesdrugsthatsavelives,curediseases,andrelievesuering—wefoundMercktohavebeenmoreideologicalydriven.

WhereasMercktitleditshistoryValuesandVisions,Pzertitleditshistory,Pzer..AnInformalHistory.WhereasMerckhasexplicitlyandprominentlyarticulatedaconsistentsetofhighidealsforfourgenerations,wefoundnoevidenceofsimilardiscussionsatPzeruntilthelate1980s.NordidwendatPzeranyincidentanalogoustotheMectizanorstreptomycindecisionsatMerck.

WhereasGeorgeMerckIexplicitlytookaparadoxicalviewofprots(“medicineisforthepatient..theprotsfolow”),JohnMcKeen,presidentatPzerduringthesameeraasGeorgeMerckI,displayedasomewhatmorelopsidedperspective:“Sofarasis

displayedasomewhatmorelopsidedperspective:“Sofarasishumanlypossible,”hesaid,“weaimtogetprotoutofeverythingwedo.”9AccordingtoanarticleinForbes,McKeenbelievedthat

“idlemoneywasasinfulynon-productiveasset.”WhileMerckhoardedcashforinvestmentinnewresearchanddrugdevelopmenteorts,McKeenlaunchedafreneticacquisitionbinge,purchasingfourteencompaniesinfouryearsanddiversifyingintosuchareasasfarmproducts,women’stoiletries,shavingproducts,andpaintpigments.Why?Tomakemoremoney,regardlessofthelineofbusiness.“Iwouldrathermake5%on$1bilioninsalesthan10%

on$300milion[inethicaldrugs],”saidMcKeen.Wedon’tmeantoquibbleoverstrategieshere(diversicationviaacquisitionversusfocusandinnovationviaR&D);buttheevidencesuggeststhatPzerduringthiseradisplayedmoreofapurelypragmaticprotorientationthanMerck.

Ofcourse,acompanylikeMerckcouldafordtohavehighideals.

Asof1925,whenGeorgeMerckItookoverfromhisfather,thecompanyalreadyhadatrackrecordofsubstantialbusinesssuccessandasizablenancialcushion.Mightitbe,therefore,thathavinghighidealsismerelyaluxuryforcompaniessuchasMerckthataresosuccessfulthattheycanaordtoproclaimanideology?No.Wefoundthathighideals—acoreideology—oftenexistedinthevisionarycompaniesnotjustwhentheyweresuccessful,butalsowhentheywerestrugglingjusttosurvive.Considerthefolowingtwoexamples:SonyatitsfoundingandFordduringthe1983

turnaroundcrisis.

WhenMasaruIbukastartedSonyamongtheruinsofadefeatedanddevastated1945Japan,herentedanabandonedtelephoneoperator’sroomintheholowremnantsofabombedandburned-outolddepartmentstoreindowntownTokyoand,withsevenemployeesand$1,600ofpersonalsavings,beganwork.10Butwhatshouldbehisrstpriorities?Whatshouldhedorstamongthedepressingruins?Generatecashow?Figureoutwhatbusinesstobein?Launchproducts?

Developcustomers?

Ibukadidindeedconcentrateonthesetasks(recalfromChapter2thefailedricecooker,sweetenedbean-pastesoup,andcrude

2thefailedricecooker,sweetenedbean-pastesoup,andcrudeheatingpads).Buthealsodidsomethingelse—somethingremarkableforanentrepreneurwrestlingwiththeproblemsofday-to-daysurvival:Hecodiedanideologyforhisnewlyfoundedcompany.OnMay7,1946,lessthantenmonthsaftermovingtoTokyo—andlongbeforeturningapositivecashow—hecreateda

“prospectus”forthecompanythatincludedthefolowingitems(thisisapartialtranslation,astheactualdocumentisquitelong):11

Ifitwerepossibletoestablishconditionswherepersonscouldbecomeunitedwitharmspiritofteamworkandexercisetotheirheart’sdesiretheirtechnologicalcapacity..thensuchanorganizationcouldbringuntoldpleasureanduntoldbenets..

Thoseoflikemindshavenaturalycometogethertoembarkontheseideals.

PURPOSESOFINCORPORATION

•Toestablishaplaceofworkwhereengineerscanfeelthejoyoftechnologicalinnovation,beawareoftheirmissiontosociety,andworktotheirheart’scontent.

•TopursuedynamicactivitiesintechnologyandproductionforthereconstructionofJapanandtheelevationofthenation’sculture.

•Toapplyadvancedtechnologytothelifeofthegeneralpublic.

MANAGEMENTGUIDELINES

•Weshaleliminateanyunfairprot-seeking,persistentlyemphasizesubstantialandessentialwork,andnotmerelypursuegrowth.

•Weshalwelcometechnicaldicultiesandfocusonhighlysophisticatedtechnicalproductsthathavegreatusefulnessinsociety,regardlessofthequantityinvolved.

society,regardlessofthequantityinvolved.

•Weshalplaceourmainemphasisonability,performance,andpersonalcharactersothateachindividualcanshowthebestinabilityandskil.

Stopandthinkaboutthisforaminute.Howmanyentrepreneurialcompaniesdoyouknowthatincludedsuchidealisticsentimentsintheirfoundingdocuments?Howmanycorporatefoundershaveyoucomeacrossthatthinkaboutsuchgrandvaluesandsenseofpurposewhensimplystrugglingtobringinenoughcashtokeepthedoorsopen?Howmanycompanieshaveyouencounteredthatarticulateaclearideologyatthestartofthecompany,yetcannotarticulateaclearideaofwhatproductstomake?(Asanaside,ifyou’reattheearlystagesinthedevelopmentofacompanyandhavebeenputingoarticulatingacorporateideologyuntilyou’veatainedbusinesssuccess,youmightpausetoconsidertheSonyexample.WefoundthatIbuka’sideologylaiddownsoearlyinthecompany’shistoryplayedanimportantroleinguidingthecompany’sevolution.)

In1976,NickLyonsobservedinhisbookTheSonyVisionthattheidealsembodiedintheprospectushave“beenaguidingforceforthecompanythesepastthirtyyears,modiedonlyslightlyas

[Sony]grewwithextraordinaryspeed.”12FortyyearsafterIbukapennedtheprospectus,SonychiefexecutiveAkioMoritarephrasedthecompany’sideologyinasimple,elegantstatement,entitledthe

“SonyPioneerSpirit”:

Sonyisapioneerandneverintendstofolowothers.Throughprogress,Sonywantstoservethewholeworld.Itshalbealwaysaseekeroftheunknown..Sonyhasaprincipleofrespectingandencouragingone’sability..andalwaystriestobringoutthebestinaperson.ThisisthevitalforceofSony.13

IncontrasttoSonystandsKenwood,Sony’scomparisoninthestudy.WeatemptedtoobtaindirectlyfromKenwoodanyandal

study.WeatemptedtoobtaindirectlyfromKenwoodanyandaldocumentsthatwoulddescribethecompany’sphilosophy,values,visions,andideals.Kenwoodrespondedthatithadnosuchdocumentsandsentmerelyasetofrecentandfairlystandardannualreports.Wetriedtoobtainexternalwritingsonthissubject,butfoundnone.PerhapsKenwoodhashadaconsistent,pervasive

ideologythat,likeSony’s,tracesbacktothemomentofthecompany’sconception,butwecouldndnoevidenceofit.

Whereaswehadnotroublelocatingnumerousbooks,articles,anddocuments—bothinternalandexternal—aboutSony’sideology,wecouldfindalmostnothingsimilarpublishedaboutKenwood.

Furthermore,wefoundsubstantialevidenceofdirecttranslationsofSony’sideologyintotangiblecharacteristicsandpractices,suchasahighlyindividualisticcultureanddecentralizedstructure(relativetootherJapanesecompanies)andproductdevelopmentpracticesthatexplicitlyeschewtraditionalmarketresearch.“Ourplanistoleadthemarketwithnewproducts,ratherthanaskthemwhatkindofproductstheywant..Insteadofdoingalotofmarketresearch,we..reneaproduct..andtrytocreateamarketforitbyeducatingandcommunicatingwiththepublic.”14Andfromtheseideologicalydriventangiblepracticescameaseriesofdecisionstolaunchproductsforwhichtherewasnoprovendemand,includingtherstmagnetictaperecorderinJapan(1950),therstal-

transistorradio(1955),therstpocket-sizedradio(1957),thersthome-usevideotaperecorder(1964),andtheSonyWalkman(1979).15

Certainly,Sonywantedsuccessfulproducts;itdidn’twanttopioneeritselfintobankruptcy.Nonetheless,theidealsofthe“SonyPioneerSpirit”tracetheirrootstotheveryearlydaysofthecompany,longbeforeitbecameaprotableventure,andhaveremainedlargelyintactasaguidingforcefornearlyhalfacentury.

Yes,Sonymadecrudeheatingpadsandsweetenedbean-pastesouptokeepitselfalive(pragmatism),butitalwaysdreamedandpushedtowardmakingpioneeringcontributions(idealism).

Nowlet’slookatacompanyattheotherendofthespectrum—anaginggiantinadesperateturnaroundcrisis.Intheearly1980s,

aginggiantinadesperateturnaroundcrisis.Intheearly1980s,FordMotorCompanyfounditselfreeling,bleedingredinkfromwoundsinictedduringtherepeatedthrashingsittookfromJapanesecompetitors.PauseforamomentandputyourselfintheshoesoftheFordseniormanagementteam—amanagementteamatopacompanysuferingfroma$3.3bilionnetloss(43percentofitsnetworth)inthreeyears.Whatshouldtheydo?Whatshouldbetheirhighest

priorities?

Naturaly,theFordteamthrewitselfintoafrenzyofemergencymeasurestostopthebleedingandkeepthecompanybreathing.Butitalsodidsomethingelse—somethingunusualforateamfacingsuchatremendouscrisis:Itpausedtoclarifyitsguidingprinciples.

AccordingtoRobertSchook(whoresearchedandwroteabookonthe1980sFordturnaround),“TheobjectivewastocreateaproclamationthatclearlystatedwhattheFordMotorCompanystoodfor.Attimesthediscussions..soundedmorelikeacolegeclassinphilosophythanabusinessmeeting.”16(WefoundnoevidencethatGeneralMotors,facingthesameindustryonslaughtandalsolosingmoney,pausedlikeForddidin1983tohavefundamentalphilosophicaldiscussions.)OutofthisprocesscameFord’s“Mission,Values,GuidingPrinciples(MVGP).”FormerFordCEODonPetersencommented:

TherewasagreatdealoftalkaboutthesequenceofthethreeP’s—people,products,andprots.Itwasdecidedthatpeopleshouldabsolutelycomerst[productssecondandprotsthird].17

Ifyou’refamiliarwithFord’shistory,youmaybeskepticalofthisordering.Don’tgetuswronghere.Wedon’tseeFordasexemplarythroughoutitsentirehistoryinlaborrelationsandproductquality.

Thebloody,brutalbrawlswithlaborinthe1930sandtheexplodingFordPintoofthe1970scertainlyleaveFordwithaspotyrecord.Nonetheless,wefoundevidencethattheFordteam’sdeliberationsaboutthe“threeP’s”reachedbackintimeto

deliberationsaboutthe“threeP’s”reachedbackintimetoreawakenanideologyespousedbyHenryFordintheearlydaysofthecompany.The1980sturnaroundteamwasn’tinventingcompletelynewideals,butwas,inpart,breathinglifebackintoonesthathadlonglaindormant.Indescribingtherelationshipbetweenthe“threeP’s”intheearlydaysofthecompany,HenryFordcommentedin1916:

Idon’tbelieveweshouldmakesuchanawfulprotonourcars.

Areasonableprotisright,butnottoomuch.Iholdthatitisbettertoselalargenumberofcarsatareasonablysmalprot..Iholdthisbecauseitenablesalarger

numberofpeopletobuyandenjoytheuseofacarandbecauseitgivesalargernumberofmenemploymentatgoodwages.ThosearethetwoaimsIhaveinlife.18

Idealisticpratle?Cynicalpronouncementstopacifythepublic?

Perhaps.ButkeepinmindthatFordtransformedtheAmericanwayoflifefor15milionfamilieswiththeaordableModelT(the

“people’scar”),inlargepartbyreducingpricesby58percentfrom1908to1916.Atthetime,Fordhadmoreordersthanitcouldlandcouldhaveraisedprices.Mr.Fordkeptloweringthemanyway,eveninthefaceofashareholdersuitagainstthepractice.19And,duringthesameera,heboldlyintroducedthe$5dayforworkerswhich,atroughlytwicethestandardindustryrate,shockedandoutragedtheindustrialworld(asdescribedbyRobertLaceyinFord):

TheWalStreetJournalaccusedHenryFordof“economicblundersifnotcrimes”whichwouldsoon“returntoplaguehimandtheindustryherepresentsaswelasorganizedsociety.”Inanaivewishforsocialimprovement,declaredthenewspaper,Fordhadinjected“spiritualprinciplesintoaeldwheretheydonotbelong”—aheinouscrime—andcaptainsofindustrylineduptocondemn“themostfoolishthingeveratemptedin

lineduptocondemn“themostfoolishthingeveratemptedintheindustrialworld.”20

Asaninterestingaside,HenryFordapparentlyembarkedupon

“themostfoolishthingeveratemptedintheindustrialworld”

partlyundertheinuenceofthehighlyidealisticphilosopherRalph

WaldoEmersonand,inparticular,hisessay

“Compensation.”21However,notbeingoppressedbythe“TyrannyoftheOR,”Fordalsoembarkedonthispathwithfulrecognitionthatworkersearning$5adaycombinedwithlowercarpriceswouldleadtogreatersalesofModelTs.Pragmatism?Idealism?

Yes.

Again,wedon’twanttopaintFordasbeinginthesameideologicalleagueasMerckandSony;ithasamuchspotierhistoricalrecordonthisdimension.ButcomparedtoGM,Fordhasbeenmuchmoreideologicalyguided.Infact,GMpresentsafascinatingcaseofhowaclock-buildingorientationaloneisnotenough.AlfredP.Sloan,chiefarchitectofGM,clearlyhadastrongclock-buildingorientation.ButSloan’sclockhadnosoul;Sloan’sclockwasacold,impersonal,inhuman,purebusiness,andtotalypragmaticclock.PeterF.Drucker,whocarefulystudiedGMandAlfredSloanforhislandmarkbookConceptoftheCorporation,summeditupthisway:

ThefailureofGMasaninstitution—forfailureitis—istoalargeextenttheresultof..anatitudethatonemightcal

“technocratic”..bestexemplifiedinAlfredP.Sloan’sownbook,MyYearswithGeneralMotors..Itfocusesexclusivelyonpolicies,businessdecisions,andstructure..Itisperhapsthemostimpersonalbookofmemoirseverwriten—andthiswasclearlyintentional.Sloan’sbook..knowsonlyonedimension:thatofmanagingabusinesssothatitcanproduceeectively,providejobs,createmarketsandsales,andgenerateprots.

Businessinthecommunity;businessasaliferatherthanalivelihood;businessasaneighbor;andbusinessasapower

livelihood;businessasaneighbor;andbusinessasapowercenter—thesearealabsentinSloan’sworld.22

InhisbookManagement:Tasks,Responsibilities,Practices,Druckeradded,“GeneralMotorshasstayedwithSloan’slegacy.AndinSloan’sterms..ithassucceededadmirably.Butithasalsofailedabysmaly.”23

COREIDEOLOGY:EXPLODINGTHEPROFITMYTH

Merck,Sony,andFordeachoeradierentsliceofageneralpatern:theexistenceofacoreideologyasaprimaryelementinthehistoricaldevelopmentofvisionarycompanies.Likethefundamentalidealsofagreatnation,church,school,oranyotherenduringinstitution,coreideologyinavisionarycompanyisasetofbasicpreceptsthatplantaxedstakeintheground:“Thisiswhoweare;thisiswhatwestandfor;thisiswhatwe’realabout.”

LiketheguidingprinciplesembodiedintheAmericanDeclarationof

Independence(“Weholdthesetruthstobeself-evident..”)andechoedeighty-sevenyearslaterintheGetysburgAddress(“a..

nation,conceivedinLiberty,anddedicatedtothepropositionthatalmenarecreatedequal”),coreideologyissofundamentaltotheinstitutionthatitchangesseldom,ifever.

Insomecases,likeSony,theideologyderivesfromthefoundingroots.Insomecases,likeMerck,itcomesfromthesecondgeneration.Inothercases,likeFord,theideologywentdormantandwasrekindledinlateryears.Butinnearlyalcases,wefoundevidenceofacoreideologythatexistednotmerelyaswordsbutasavitalshapingforce.Wewilsoonmorethoroughlydiscussthenuancesofcoreideologyanditstwocomponentparts,corevaluesandpurpose,butrstwewilturntoexploreoneofourmostintriguingfindings.

Contrarytobusinessschooldoctrine,wedidnotnd“maximizingshareholderwealth”or“protmaximization”asthedominantdrivingforceorprimaryobjectivethroughthehistoryofmostofthe

drivingforceorprimaryobjectivethroughthehistoryofmostofthevisionarycompanies.Theyhavetendedtopursueaclusterofobjectives,ofwhichmakingmoneyisonlyone—andnotnecessarilytheprimaryone.Indeed,formanyofthevisionarycompanies,businesshashistoricalybeenmorethananeconomicactivity,morethanjustawaytomakemoney.Throughthehistoryofmostofthevisionarycompanieswesawacoreideologythattranscendedpurelyeconomicconsiderations.And—thisisthekeypoint—theyhavehadcoreideologytoagreaterdegreethanthecomparisoncompaniesinourstudy.

Adetailedpair-by-pairanalysisshowedthatthevisionarycompanieshavegeneralybeenmoreideologicalydrivenandlesspurelyprot-driventhanthecomparisoncompaniesinseventeenoutofeighteenpairs.(SeeTableA.4inAppendix3.)Thisisoneoftheclearestdierenceswefoundbetweenthevisionaryandcomparisoncompanies.

Ofcourse,we’renotsayingthatthevisionarycompanieshavebeenuninterestedinprotabilityorlong-termshareholderwealth(noticethatwesaythattheyare“morethan”economicentities,not

“otherthan”).Yes,theypursueprots.And,yes,theypursuebroader,moremeaningfulideals.Protmaximizationdoesnotrule,butthevisionarycompanies

pursuetheiraimsprotably.Theydoboth.

PROFITABILITYisanecessaryconditionforexistenceandameanstomoreimportantends,butitisnottheendinitselfformanyofthevisionarycompanies.Protislikeoxygen,food,water,andbloodforthebody;theyarenotthepointoflife,butwithoutthem,thereisnolife.

Hereareafewkeyexamplesofhowthevisionarycompaniesembracedthe“GeniusoftheAND”—ideologyANDprots—toa

embracedthe“GeniusoftheAND”—ideologyANDprots—toagreaterdegreethantheircomparisoncounterpartsacrossarangeofindustriesinourstudy.

Hewlett-PackardVersusTexasInstruments

PutyourselfintheshoesofDavidPackardonMarch8,1960.Yourcompanysoldstocktothepublicforthersttimethreeyearsearlier.Theelectronicsrevolutionhaslaunchedyourcompanyintoanexplosivegrowthtrajectory.You’vebeenwrestlingwithalthechalengesofrapidgrowth,butyou’reparticularlyconcernedaboutHP’sabilitytodevelophighlycompetent,homegrownmanagerialtalent(youbelieveinapromote-from-withinpolicyasakeyelementofyourtickingclock).You’vethereforeinitiatedanHP

managementdevelopmentprogram—aprogramthatyouconsidercentraltothelong-termhealthoftheorganization—andyou’reabouttogiveakickotalktothegroupofHPpeopleresponsibleforthatprogram.YouwanttoimprintontheirmindsakeymessagetouseasaguidingthemeastheydevelopprogramstosocializeandtraingenerationaftergenerationofHPmanagers.

Whatshouldbethethemeofyourtalk?Whatmessagedoyouwantthesetrainerstoremember?

Afterashortpreliminarywelcome,Packardbeganhistalk:Iwanttodiscusswhy[emphasishis]acompanyexistsintherstplace.Inotherwords,whyarewehere?Ithinkmanypeopleassume,wrongly,thatacompanyexistssimplytomakemoney.Whilethisisanimportantresultofacompany’sexistence,wehavetogodeeperandfindtherealreasonsforourbeing.Asweinvestigatethis,weinevitablycometotheconclusionthatagroupofpeoplegettogetherandexistasaninstitutionthatwecalacompanysotheyareabletoaccomplishsomethingcolectivelythattheycouldnotaccomplishseparately—theymakea

contributiontosociety,aphrasewhichsoundstritebutisfundamental..Youcanlookaround[inthegeneralbusinessworld]andstilseepeoplewho

around[inthegeneralbusinessworld]andstilseepeoplewhoareinterestedinmoneyandnothingelse,buttheunderlyingdrivescomelargelyfromadesiretodosomethingelse—tomakeaproduct—togiveaservice—generalytodosomethingwhichisofvalue.Sowiththatinmind,letusdiscusswhytheHewlet-PackardCompanyexists..Therealreasonforourexistenceisthatweprovidesomethingwhichisunique[thatmakesacontribution].24

ThosewhoworkedwithDavidPackarddescribehismanagementstyleaspractical,no-nonsense,witha“let’srolupoursleevesandgetdowntowork”atitude.Hestudiedtobeanengineerincolege,notaphilosophyprofessor.Nonetheless,weseeDavidPackardruminatingaboutwhatwecanbestdescribeascorporateexistentialism,ponderingaboutthephilosophical,noneconomic

“reasonsforbeing”ofhiscompany.“Prot,”accordingtoPackard,

“isnottheproperendandaimofmanagement—itiswhatmakesaloftheproperendsandaimspossible.”25

DavidPackardperfectlyexempliedthe“GeniusoftheAND”byexplicitlyembracingthetensionbetweenprotandpurposebeyondprot.Ontheonehand,hemadeitcrystalclearthattheHewlet-PackardCompanyshouldbemanaged“rstandforemosttomakeacontributiontosociety”26andthat“ourmaintaskistodesign,develop,andmanufacturethenestelectronic[equipment]

fortheadvancementofscienceandthewelfareofhumanity.”27Yet,ontheotherhand,hemadeitequalyclearthat,becauseprotenablesHPtopursuethesebroaderaims,“anyonewhocannotaccept[prot]asoneofthemostimportant[objectives]ofthiscompanyhasnoplaceeithernoworinthefutureonthemanagementteamofthiscompany.”28

Furthermore,heinstitutionalizedthisview,passingitalongtoJohnYoung(HPchiefexecutivefrom1976to1992),whocommentedtousinaninterview:

Maximizingshareholderwealthhasalwaysbeenwaydownthe

Maximizingshareholderwealthhasalwaysbeenwaydownthelist.Yes,protisacornerstoneofwhatwedo—itisameasureofourcontributionandameansof

self-nancedgrowth—butithasneverbeenthepointinandofitself.Thepoint,infact,istowin,andwinningisjudgedintheeyesofthecustomerandbydoingsomethingyoucanbeproudof.Thereisasymmetryoflogicinthis.Ifweproviderealsatisfactiontorealcustomers—

wewilbeprofitable.29

IncomparingTexasInstrumentswithHewlet-Packard,wereviewedoverfortyhistoricalarticlesandcasestudiesandcouldndnotonesinglestatementthatTIexistsforreasonsbeyondmakingmoney.Suchastatementmightexist,butwefoundnoevidenceofit.Instead,TIappearedtodeneitselfalmostexclusivelyintermsofsize,growth,andprotability—butverylitleonwhatDavidPackardcaled“thewhyofbusiness.”In1949,TI’spresidentPatHaggartyissuedhis“dictum”forTI:“Weareagoodlitlecompany.Nowwemustbecomeagoodbigcompany.”30Thisobsessivefocusonsizeandgrowth—andverylitleon“thewhy”—haspersistedthroughoutTI’shistory.Wenoticed,forexample,thatalofTI’sdrivingcorporategoals,unlikeHP’s,wereorientedpurelytofinancialgrowth:TexasInstrumentsPrimaryCorporateGoals

•Hitsalesof$200milion(setin1949).31

•Hitsalesof$1bilion(setin1961).32

•Hitsalesof$3bilion(setin1966).33

•Hitsalesof$10bilion(setin1973).34

•Hitsalesof$15bilion(setin1980).35

Tobefair,wefoundsimilarnancialgoalsinafewofthevisionarycompanies,inparticularWal-Mart.ButTI,unlikemostofthevisionarycompanies—andcertainlyunlikeHP—appearedto

thevisionarycompanies—andcertainlyunlikeHP—appearedtomakenancialsalesgoalsthedrivingforceandputmuchlessemphasisonthe“why”ofital.ForTI,biggerwasbeter,period—

eveniftheproductswerelow-qualityormadenotechnicalcontribution.ForHP,biggerwasbeteronlywithinthecontextofmakingacontribution.36TI,forinstance,movedintomakingcheappocketcalculatorsand$10throwaway

digitalwatchesinanexplicit

“moreisbeter”strategyinthe1970s;confrontedwiththesamemarketopportunities,HPexplicitlychosenottogoafterthecheaplowendpreciselybecauseitoerednoopportunityfortechnicalcontribution.37

Johnson&JohnsonVersusBristol-Myers

Johnson&Johnson,likeHP,explicitlyspeaksrsttoidealsbeyondprot,andthenemphasizestheimportanceofprotwithinthecontextofthoseideals.WhenRobertW.JohnsonfoundedJohnson

&Johnsonin1886,hedidsowiththeidealisticaim“toaleviatepainanddisease.”38By1908,hehadexpandedthisintoabusinessideologythatplacedservicetocustomersandconcernforemployeesaheadofreturnstoshareholders.39FredKilmer,oneofJ&J’searlyresearchmanagers,explainedintheearly1900showthisphilosophyframedtheroleoftheresearchdepartment:Thedepartmentisnotconductedinanynarrow,commercialspirit..andnotkeptgoingforthepurposeofpayingdividendsorsolelyforthebenetofJohnson&Johnson,butwithaviewtoaidingtheprogressoftheartofhealing.40

In1935,RobertW.Johnson,Jr.,echoedthesesentimentsinaphilosophythathecaled“enlightenedself-interest,”wherein

“servicetocustomers[italicshis]comesfirst..servicetoemployeesandmanagementsecond,and..servicetostockholderslast.”41

Later(in1943),headdedservicetocommunitytothelist(stilaheadofservicetoshareholders)andcodiedtheJ&Jideologyin

aheadofservicetoshareholders)andcodiedtheJ&Jideologyin

“OurCredo,”printedonold-styleparchmentandcaptionedinthesameleteringusedintheAmericanDeclarationofIndependence.

“Whenthesethingshavebeendone,”hewrote,“thestockholdersshouldreceiveafairreturn.”42AlthoughJ&Jhasperiodicalyreviewedandslightlyrevisedthewordingofthecredosince1943,theessentialideology—thehierarchyofresponsibilitiesdescendingfromcustomersdowntoshareholdersandthe

explicitemphasisonfairreturnratherthanmaximumreturn—hasremainedconsistentthroughoutthehistoryofthecredo.43

OurCredo

WEBELIEVETHATOURFIRSTRESPONSIBILITYISTOTHE

DOCTORS,NURSES,HOSPITALS,MOTHERS,ANDALL

OTHERSWHOUSEOURPRODUCTS.OURPRODUCTSMUST

ALWAYSBEOFTHEHIGHESTQUALITY.WEMUST

CONSTANTLYSTRIVETOREDUCETHECOSTOFTHESE

PRODUCTS.OURORDERSMUSTBEPROMPTLYAND

ACCURATELYFILLED.OURDEALERSMUSTMAKEAFAIR

PROFIT.

OURSECONDRESPONSIBILITYISTOTHOSEWHOWORK

WITHUS—THEMENANDWOMENINOURPLANTSAND

OFFICES.THEYMUSTHAVEASENSEOFSECURITYINTHEIR

JOBS.WAGESMUSTBEFAIRANDADEQUATE,

MANAGEMENTJUST,HOURSREASONABLE,ANDWORKING

CONDITIONSCLEANANDORDERLY.EMPLOYEESSHOULD

HAVEANORGANIZEDSYSTEMFORSUGGESTIONSAND

COMPLAINTS.SUPERVISORSANDDEPARTMENTHEADS

MUSTBEQUALIFIEDANDFAIR-MINDED.THEREMUSTBE

OPPORTUNITYFORADVANCEMENT—FORTHOSE

QUALIFIEDANDEACHPERSONMUSTBECONSIDEREDAN

INDIVIDUALSTANDINGONHISOWNDIGNITYANDMERIT.

OURTHIRDRESPONSIBILITYISTOOURMANAGEMENT.

OURTHIRDRESPONSIBILITYISTOOURMANAGEMENT.

OUREXECUTIVESMUSTBEPERSONSOFTALENT,

EDUCATION,EXPERIENCE,ANDABILITY.THEYMUSTBE

PERSONSOFCOMMONSENSEANDFULLUNDERSTANDING.

OURFOURTHRESPONSIBILITYISTOTHECOMMUNITIESIN

WHICHWELIVE.WEMUSTBEAGOODCITIZEN—SUPPORT

GOODWORKSANDCHARITY,ANDBEAROURFAIRSHARE

OFTAXES.

WEMUSTMAINTAININGOODORDERTHEPROPERTYWE

AREPRIVILEGEDTOUSE.WEMUSTPARTICIPATEIN

PROMOTIONOFCIVICIMPROVEMENT,HEALTH,

EDUCATIONANDGOODGOVERNMENT,ANDACQUAINT

THECOMMUNITYWITHOURACTIVITIES.

OURFIFTHANDLASTRESPONSIBILITYISTOOUR

STOCKHOLDERS.BUSINESSMUSTMAKEASOUNDPROFIT.

RESERVESMUSTBECREATED,RESEARCHMUSTBECARRIED

ON,ADVENTUROUSPROGRAMSDEVELOPED,ANDMISTAKES

PAIDFOR.ADVERSETIMESMUSTBEPROVIDEDFOR,ADEQUATE

TAXESPAID,NEWMACHINESPURCHASED,NEW

PLANTSBUILT,NEWPRODUCTSLAUNCHED,ANDNEW

SALESPLANSDEVELOPED.WEMUSTEXPERIMENTWITH

NEWIDEAS.

WHENTHESETHINGSHAVEBEENDONETHESTOCKHOLDER

SHOULDRECEIVEAFAIRRETURN.WEAREDETERMINED

WITHTHEHELPOFGOD’SGRACE,TOFULFILLTHESE

OBLIGATIONSTOTHEBESTOFOURABILITY.

Thisisthetextoftheoriginal1943CredoaspennedbyR.W.

Johnson,Jr.

Intheearly1980s,chiefexecutiveJimBurke(whoestimatedthathespentfuly40percentofhistimeasCEOcommunicatingthecredothroughoutthecompany)44describedtheinterplaybetween

credothroughoutthecompany)describedtheinterplaybetweenthecredoandprofits:

Alofourmanagementisgearedtoprotonaday-to-daybasis.

That’spartofthebusinessofbeinginbusiness.Buttoooften,inthisandotherbusinesses,peopleareinclinedtothink,“We’dbetterdothisbecauseifwedon’t,it’sgoingtoshowupontheguresovertheshort-term.”Thisdocument[theCredo]alowsthemtosay,“Waitaminute.Idon’thavetodothat.”Themanagementhastoldmethatthey’re..interestedinmeoperatingunderthissetofprinciples,soIwon’t.45

AtBristol-Myers,wefoundamuchlessideologicalyguidedcompanythanatJohnson&Johnson.WhereasJ&Jformalizedandpublisheditscredointheearly1940sandhadaclearsenseofitsideologydatingbacktotheearly1900s,wefoundnoevidencewhatsoeverthatBristol-Myershadanythinganalogoustothe

credountil1987,whenitpublishedthe“Bristol-MyersPledge”(whichlookssuspiciouslylikeaparaphrasedversionoftheJ&JCredo).

Nordidwendanyevidencethatthepledge,oncestated,becameanywherenearaspervasiveaguidingdocumentinBristol-Myers.

WhereasJ&Jemployeesspokeexplicitlyaboutthelinkbetweenthecredoandkeydecisions,wefoundnosimilarcommentsbyBristol-Myersemployees.46

TheHarvardBusinessSchooldedicatedanentirecasestudytohowJ&Jtranslatedthecredointoaction—inorganizationstructure,internalplanningprocesses,compensationsystems,strategicbusinessdecisions,andasatangibleguideintimesofcrisis.Forexample,J&Jusedthecredoasthebasisforitsresponsetothe1982Tylenolcrisis,whenthedeathsofsevenpeopleintheChicagoarearevealedthatsomeone—notanemployee—hadtamperedwithTylenolbotles,lacingthemwithcyanide.J&JimmediatelyremovedalTylenolcapsulesfromtheentireU.S.market—eventhoughthedeathsoccurredonlyintheChicagoarea—atanestimatedcostof$100milionandmountedatwenty-ve-hundred-

estimatedcostof$100milionandmountedatwenty-ve-hundred-personcommunicationeorttoalertthepublicanddealwiththeproblem.TheWashingtonPostwroteofthecrisisthat“Johnson&

Johnsonhassucceededinportrayingitselftothepublicasacompanywilingtodowhat’sright,regardlessofcost.”47

WithindaysoftheTylenolcrisis,Bristol-Myersfacedanalmostidenticalproblem:ExcedrintabletshadbeentamperedwithintheDenverarea.InsteadofrecalingaltabletsfromtheentireU.S.

market—asJ&Jhaddone—Bristol-MyersrecaledtabletsonlyfromColoradoanddidnotlaunchacampaigntoalertthepublic.Bristol-Myers’chairmanRichardGelb,whodescribedhimselfas“acautiousmanagerwholikestocountthingsdowntothelastbean,”wasquicktoemphasizeinDun’sBusinessMonththattheExcedrinincidentwould“haveanegligibleeectonBristol-Myers’

earnings.”48J&Jhadacodiedideologyinplacethatguideditsresponsetothecrisis(forbeterorworse),whereastheevidencesuggeststhatBristol-Myerslackedasimilarguidepost.

BoeingVersusMcDonnelDouglas

ToafargreaterdegreethanMcDonnelDouglas,Boeinghasmadekeystrategicdecisionsinitshistoryasmuchoutofanidealizedviewofitsself-identityasoutofstrategicpragmatism.Inparticular,Boeinghasalonghistoryoftakinghugegamblestobuildbiggerandmoreadvancedaircraft.Thesegambleshavepaido,makingBoeingahighlyprotablecompany(moreprotablethanMcDonnelDouglas)—pragmaticdecisionsindeed.ButtheevidencesuggeststhatBoeinghasnotbeenfundamentalyaboutprot,long-runorotherwise.49Boeinghasbeenaboutpioneeringaviation—

aboutbuildingbig,fast,advanced,beter-performingaircraft;aboutpushingtheenvelopeofaviationtechnology;aboutadventure,challenge,achievement,andcontribution;abouthavingtheRightStu.Boeingcan’tpursuethesepurposeswithoutprots;butprotisnotthe“why”ofital—anymorethanChuckYeagertestpilotedjetsjustforthemoney.BilAlen(chiefexecutivefrom1945to

jetsjustforthemoney.BilAlen(chiefexecutivefrom1945to1968)commentedonthepurposesofworkatBoeing:Boeingisalwaysreachingouttotomorrow.Thiscanonlybeaccomplishedbypeoplewholive,breathe,eatandsleepwhattheyaredoing..[Iam]associatedwithalargegroupofknowledgeable,dedicated[people]whoeat,breathe,andsleeptheworldofaeronautics..Man’sobjectiveshouldbeopportunityforgreateraccomplishmentandgreaterservice.Thegreatestpleasurelifehastooeristhesatisfactionthatowsfrom...participatinginadicultandconstructiveundertaking.50

Take,forexample,Boeing’sdecisiontomakethe747.Sure,Boeinghadeconomicmotives;butitalsohadnonnancialmotives.

Boeingbuiltthe747asmuchbecauseofitsself-identityasbecauseofitsdesireforprots—becauseitbelieveditshouldbeontheleadingedgeofairtransportation,period.Whydothe747?

“Becausewe’reBoeing!”WhenBoeingdirectorCrawfordGreenwaltaskedamemberofseniormanagementabouttheprojectedreturnoninvestmentoftheproposed747,themanagertoldhimthatthey’drunsomestudies,butcouldn’trecaltheresults.InLegendandLegacy,RobertSerlingwrites:“Greenwaltjustputhisheaddownonthetableandmutered,‘MyGod,theseguysdon’tevenknowwhatthereturn-on-investmentwilbeonthisthing.’”51

MotorolaVersusZenith

MotorolafounderPaulGalvinviewedprotabilityasanecessarymeanstopursuethecompany’sobjectives,butnottheultimateaim.Yes,hecontinualypushedhisengineerstodrivecostsdownwhileimprovingqualitysoastoprovideaprotablebasisforthecompany.Andyes,hebelievedthatabusinesspersonneededtomakeaprotinordertogetsatisfactionfromhisorhereorts.Butheneverletprotbecometheprimary,overridingobjectiveofthe

heneverletprotbecometheprimary,overridingobjectiveofthecompany—nordidhethinkitshouldbecomesoforanycompany.52Duringthe1930sDepression,Motorola—thenayoung,strugglingcompany—confrontedthecommonindustrypracticeofmisrepresentingcompanynancialhealthandproductbenetstodistributors.Pressuredtodothesame,PaulGalvinrespondedthathedidn’tcareaboutindustrypractices.“Telthemthetruth,”hesaid,“rstbecauseitistherightthingtodoandsecondthey’lndoutanyway.”53Galvin’sresponsedisplaysonceagainthedualnature—thepragmatic-idealism—ofmanyofthevisionarycompaniesinourstudy.Theyarenotpurelyidealistic;noraretheypurelypragmatic.Theyareboth.

VISIONARYcompanieslikeMotoroladon’tseeitasachoicebetweenlivingtotheirvaluesorbeingpragmatic;theyseeitasachalengetondpragmaticsolutionsandbehaveconsistentwiththeircorevalues.

Furthermore,PaulGalvininstitutionalizedthisparadoxicalperspectiveatMotorolaasaguidingforceforfuturegenerations.In1991,RobertW.Galvin(Paul’ssonandsuccessor),wroteaseriesofessaystoemployeesabout“whoandwhyweare.”Inthirty-oneessays,hediscussedtheimportanceofcreativity,renewal,totalcustomersatisfaction,quality,ethics,innovation,andsimilartopics;notoncedidhewriteaboutmaximizingprots,nordidheimplythiswastheunderlyingpurpose—the“why”ofital.54Consistentwiththeabove,Motorola’socialstatementofpurpose(containedinaninternalpublicationcaled“ForWhichWeStand:AStatementofPurpose,Principles,andEthics”)tiedprotandbroaderpurposetogether,withthepursuitofadequateprot(versusmaximumprofit)inthesupportingrole:

ThepurposeofMotorolaistohonorablyservethecommunitybyprovidingproductsandservicesofsuperiorqualityatafairpricetoourcustomers;todothissoastoearnanadequateprotwhichisrequiredfortheenterprisetogrow,

andbysodoingprovidetheopportunityforouremployeesandshareholderstoachievetheirreasonablepersonalobjectives.

[emphasisours]55

AtZenith,incontrast,founderCommanderEugeneF.McDonalddidnotpassalonganenduringideologytothecompany.Zenith’spurposeduringMcDonald’seraappearstohavebeenprimarilyaboutbeingatoyandplatformforitsfounder.AfterMcDonald’sdeath,thecompanylanguishedwithlitleguidanceorinspirationofanykind,anddefaultedtoaclassicprots-onlyperspective.InreviewingarticlesonMotorolaandZenith,wenoticedthatthearticlesonMotorolaconstantlyemphasized“intangible”aspectsofthecompany—itsinformality,egalitarianism,technologicaldrive,andoptimisticever-forwardfeeling—whereasthearticlesonZenithafterMcDonald’sdeathputmoreemphasisonnancialcondition,marketshare,andotherpurelynancialitems.WefoundnodocumentsimilartoMotorola’s“ForWhichWeStand”atZenith.Infact,wefoundnoevidenceofanysignicantideologybeyondthequestforincreasedmarketshareandprotmaximizationinZenithafterMcDonald’sdeathin1958.

MarriottVersusHowardJohnson

MarriotCorporation,likeMotorolaandHP,explicitlyembracedtheparadoxofpragmaticidealism.Whenaskedifhe’dfoundedMarriotCorporationtomakeamiliondolarsortobuildanempire,J.WilardMarriot,Sr.,responded:

No,notatal.Ijusthadthreegeneralideasinmind,alequalyimportant.Onewastorenderafriendlyservicetoourguests.

important.Onewastorenderafriendlyservicetoourguests.

Thesecondwastoprovidequalityfoodatafairprice.ThethirdwastoworkashardasIcould,dayandnight,tomakeaprot.

..Iwantedtoreaptherewardsofgrowth:jobsformoreemployees,moneytotakecareofmyfamilyandtocontributetogoodcauses.56..Theservicebusinessisveryrewarding.Itmakesabigcontributiontosociety.Agoodmealawayfromhome,agoodbed,friendlytreatment..It’simportanttomakepeopleawayfromhomefeelthatthey’reamongfriendsandarerealywanted.57

And,asintheexamplespreviouslycited,Marriotinstitutionalizedthisperspectivesothatitwouldremainalivelongafterhisdeath.HeinitiatedelaborateemployeescreeningandindoctrinationprocessestoreinforcetheideologyofemployeesasnumberoneandcustomersasguestsandcreatedmanagementdevelopmentprogramstoensurethecontinualavailabilityofMarriot-indoctrinatedmanagement.Hecarefulygroomedhissuccessorandson,J.WilardMarriot,Jr.,notonlyforthenutsandboltsofrunningthecorporation,butalsotocarryonitsvalues.A1991articlecommented:“Withacertainsolemnity,Marriotexecutivesfolowthe‘GuidepoststoManagement’thatJ.Wilardputinaletertohissonwhenhebecameexecutive-vicepresidentin1964.”58Wefoundacopyofthatlengthyleterandnoticedremarkablesimilaritybetweenthoseguidepostsandthoseespousedbyhissontwodecadeslater(seebelow).

Consistentwiththeguidingprincipleslaiddowninthecompanyyearsagobyhisfather,Marriot,Jr.,commentedthatthemotivatingfactorinthecompany“isnotthemoney,”butratherthesenseofprideandaccomplishmentthatcomesfromdoingitsworkrealywel.61Hepointedoutthatbytakingsuperbcareofemployeesandprovidingoutstandingcustomervalue(treatthemasguests),

“atractive”(not“maximum”)shareholderreturnswilfolowasanaturalresult.62

1964J.WilardMarriot,Sr.59

1984J.WilardMarriot,Jr.60

Peopleare#1—theirdevelopment,

Weareinthepeoplebusiness..teach

loyalty,interest,teamspirit.[Their

themandhelpthemandcareabout

development]

is

your

prime

them.Givethemafairshake.Give

responsibility....Seethegoodin

themskils;helpthemsucceed;make

peopleandtrytodevelopthose

winnersoutofthem.

qualities.

Delegateandholdaccountablefor

Getgoodpeopleandexpectthemto

results.If..anemployeeisobviously

perform.Terminatethemquicklyand

incapableofthejob,ndajobhecan

fairlyifyoumakethewrongchoice.

doorterminatenow.Don’twait.

Manageyourtime..makeevery

Workhard,buthavefun.It’sfuntodo

minuteonthejobcount..Keepasense

thingsandgetthingsdone.Thekeyis

ofhumor.Makethebusinessfunfor

tokeepthatgoing.

youandothers.

AlthoughtheevidencesuggeststhatHowardJohnson,Sr.,alsohadanideology(withemphasisonconsistencyandquality),wefoundnoevidencethathepassedthisideologyalongtohisson(andsuccessor)ortootherwiseinstilhisidealsintothecompanyasanenduringsetofprinciples.Thereisnorecordofideologicalcoachingfromrstgenerationtosecond;noristhereanyrecordofthedeliberatedevelopmentofideologicalscreeningandindoctrinationprocesseslikeMarriot’s.Bythemid-1970s,HowardJohnson,Jr.,wasactivelyrunningthecompanywithaone-sided,purelynancialfocus(salesgrowthandreturnoninvestment)withlitleornoemphasisoncustomersoremployees.Accordingtothreeseparatearticles(twoinBusinessWeekandoneinForbes),HowardJohnsonhadsqueezedcaptiveturnpikecustomerswithhighpricesforblandfood,shoddyaccommodations,andslow,sulenservice.63Johnson,Jr.,eventualysoldthecompanytoa

sulenservice.Johnson,Jr.,eventualysoldthecompanytoaBritishinvestorforaheftyeighteentimesearnings.64

PhilipMorrisVersusR.J.Reynolds

AtPhilipMorris(relativetoR.J.Reynolds),wefoundevidenceofthecompanyframingitsworkwithinthecontextofanideologyratherthanjustmaximizingshareholderwealth.RossMilhiser,vicechairmanofPhilipMorrisin1979,said:

Ilovecigaretes.It’soneofthethingsthatmakesliferealyworthliving..Cigaretessupplysomedesire,some[aspect]ofthefundamentalhumanequation.Thehumanequationisalwaystryingtobalanceitself,andcigaretesplaysomepartinthat.65

Ideologyorself-delusion?MerelygoodPR?It’simpossibletotel.

ButwesawinPhilipMorrisanespritdecorpsandsenseofcommonpurposethatwesimplydidnotseeoverthelastthirtyyearsatR.J.Reynolds.PhilipMorrisexecutiveshaveappearedfarmorepassionateabouttheircigaretesthantheexecutivesatR.J.

Reynolds.PhilipMorrisexecutivesexpressmuchmoredeanceintheirprosmokingideology,whereastheRJRfolksafterabout1960

didnotseemtocaremuchabouttheproductsexceptasawaytomakemoney.AccordingtoR.J.Reynolds’chairmanin1971,ifthecompanycouldmakemore

moneyforshareholdersbygetingoutofcigaretes,thenne;unlikeMilhiser,hehadnoideologicalalegiancetotobacco.66

ThePhilipMorrisexecutives,incontrast,framedtheghtovercigaretesinalmostself-righteousmoralovertones:Wehavearighttosmoke;it’samateroffreedomofchoice.Don’ttakeawayourcigaretes.Don’ttreadonme!InourreviewofarticlesonPhilipMorris,wenoticednumerousphotosofexecutivestakingarebeliouspose—cigaretesinhand—glaringintothecamerawithamannerthatconveys“Don’teventhinkofaskingmetoputdown

mannerthatconveys“Don’teventhinkofaskingmetoputdownthiscigarete!”AFortunemagazinearticlenoted:Analmostdeantsmokingculturepermeatestheexecutiveoors,whosedenizensyankfromthepocketsip-topboxes...

lightup..andthentosstheirpacksonthedeskortableforaltosee.67

It’sasiftheyactualyseethemselvesasthelone,ercelyindependentcowboydepictedintheiral-pervasiveMarlborobilboards.Anex-PhilipMorrisemployeedescribedworkingatPhilipMorrisas“thecultofsmoking”andtoldusthatthecompanyforceduponherandherco-workersboxesofcigaretestotakehomewiththeirpaychecks.APhilipMorrisboardmembertoldus(whilengeringaboxoflter-tips),“IrealylovebeingontheboardofPhilipMorris.It’sarealygreatcompany;Imeanagreatcompany.It’slikebeingpartofsomethingrealyspecial—it’sacompanythatstandsforsomethingandbeingpartofitissomethingyoucanrealybeproudof.”68AForbesarticlesaidofPhilipMorrischairmanJosephCulmanin1971:

Agoodmanypeopleresent[Culman]forhisaggressivedefenseofcigaretesmoking.Insteadofapologizingforcigaretes,[he]

pointstothe“benecialeectsofsmoking”intheareaofmentalhealth.69

Pleasedon’tmisinterpretus;wedon’tseePhilipMorrisasworkingaltruisticalyforthegoodofhumankind.TheideologyatPhilipMorrisrelatesprimarilytopersonalfreedomofchoice,individualinitiativeandhardwork,merit-basedopportunity,winning,andcontinuousself-improvement—earningthepridethatcomesfromsimplydoingbusinessextraordinarilywelandeverbeterforitsownsake.MichaelMiles,whobecamePhilipMorrischiefexecutivein1991andwhomFortunemagazinedescribedas

“abusinessjunkie..pragmatic,ruthless,focused..cold-

“abusinessjunkie..pragmatic,ruthless,focused..cold-blooded,”70who“thinksaboutbusinesseveryminuteofhislife,”71

commented:“Iseenothingmoralywrongwiththe[tobacco]

business..Iseenothingwrongwithselingpeopleproductstheydon’tneed.”72Thesearenotparticularly“soft”or“humanistic”

values.Andcigaretes,afteral,don’tcureriverblindness.

But—andthismaysurpriseyou(itsurprisedus)—wefoundthatPhilipMorrisshareswithMerckanespritdecorpsthatislinkedtoastrongcoreideology.Tobesure,PhilipMorris’ideologydiersdramaticalyfromMerck’s,butbothcompaniesstandabovetheircomparisonsinthestudyintheextenttowhichtheyareideologicalyguided.Alongthiskeydimension,PhilipMorrishashadmoreincommonwithMerckoverthepastfortyyears73thanithashadincommonwithR.J.Reynolds,andMerckhashadmoreincommonwithPhilipMorristhanithashadincommonwithPfizer.

ISTHEREA“RIGHT”IDEOLOGY?

ThefactthatbothMerckandPhilipMorris—companiesatoppositeendsofthespectrumintermsofwhattheirproductsdotopeople

—showupasvisionarycompaniesguidedbystrong,yetradicalydierentideologies,raisessomeinterestingquestions.Istherea

“right”coreideologyforbeingavisionarycompany?Doesthecontentoftheideologymater?Arethereanycommonelementsorprevalentpaternsacrossthecoreideologiesinthevisionarycompanies?

WecompiledinTable3.1thecoreideologiesofthevisionarycompaniesinourstudyandfoundthat,althoughcertainthemesshowupinanumberofthevisionarycompanies(suchascontribution,integrity,respectfortheindividualemployee,servicetothecustomer,beingonthecreativeorleadingedge,orresponsibilitytothecommunity),nosingleitemshowsupconsistentlyacrossalthevisionarycompanies.

•Somecompanies,suchasJohnson&JohnsonandWal-Mart,

•Somecompanies,suchasJohnson&JohnsonandWal-Mart,madetheircustomerscentraltotheirideology;others,suchasSonyandFord,didnot.

•Somecompanies,suchasHPandMarriot,madeconcernfortheiremployeescentraltotheirideologies;others,suchasNordstromandDisney,didnot.

•Somecompanies,suchasFordandDisney,madetheirproductsorservicescentraltotheircoreideology;others,suchasIBMandCiticorp,didnot.

•Somecompanies,suchasSonyandBoeing,madeaudaciousrisktakingcentraltotheirideology;others,suchasHPandNordstrom,didnot.

•Somecompanies,suchasMotorolaand3M,madeinnovationcentraltotheirideology;others,suchasP&GandAmericanExpress,didnot.

INshort,wedidnotndanyspecicideologicalcontentessentialtobeingavisionarycompany.Ourresearchindicatesthattheauthenticityoftheideologyandtheextenttowhichacompanyatainsconsistentalignmentwiththeideologycountsmorethanthecontentoftheideology.

Inotherwords,itdoesn’tmaterwhetherornotyoulikeoragreewiththePhilipMorrisideology—notunlessyouworkforPhilipMorris.NordoesitmaterwhetheroutsidersagreewithMerck’sideology,orMarriot’s,orMotorola’s,orDisney’s,orHP’s.Weconcludedthatthecriticalissueisnotwhetheracompanyhasthe

“right”coreideologyora“likable”coreideologybutratherwhetherithasacoreideology—likableornot—thatgivesguidanceandinspirationtopeopleinsidethatcompany.

Table3.1

CoreIdeologiesintheVisionaryCompanies

3M74

•Innovation;“Thoushaltnotkil

anewproductidea”

•Absoluteintegrity

•Respectforindividualinitiative

andpersonalgrowth

•Toleranceforhonestmistakes

•Productqualityandreliability

•“Ourrealbusinessissolving

problems”

AmericanExpress75

•Heroiccustomerservice

•Worldwidereliabilityof

services

•Encouragementofindividual

initiative

Boeing76

•Beingontheleadingedgeof

aeronautics;beingpioneers

•Tacklinghugechalengesand

risks

•Productsafetyandquality

•Integrityandethicalbusiness

•To“eat,breathe,andsleepthe

worldofaeronautics”

•Expansionism—ofsize,of

Citicorp77

servicesoered,ofgeographic

presence

•Beingoutfront—suchas

biggest,best,mostinnovative,

mostprofitable

•

Autonomy

and

entrepreneurship

(via

decentralization)

•Meritocracy

•Aggressivenessandself-

confidence

Ford78

•Peopleasthesourceofour

strength

•Productsasthe“endresultof

oureforts”(weareaboutcars)

•Protsasanecessarymeans

andmeasureforoursuccess

•Basichonestyandintegrity

(NOTE:Thisistheorderfrom

1980sFordMVGPdocument.At

dierentpointsinFord’shistory,

theorderhasvaried.)

•Improvingthequalityoflife

GeneralElectric79

through

technologyand

innovation

•Interdependentbalancebetween

responsibility

tocustomers,

employees,

society,

and

shareholders(noclearhierarchy)

•Individualresponsibilityand

opportunity

•Honestyandintegrity

•Technicalcontributiontoelds

inwhichweparticipate(“We

Hewlet-Packard80

existasacorporationtomakea

contribution”)

•RespectandopportunityforHP

people,

includingthe

opportunitytoshareinthe

successoftheenterprise

•Contributionandresponsibility

tothecommunitiesinwhichwe

operate

•AordablequalityforHP

customers

•Protandgrowthasameansto

makealoftheothervaluesand

objectivespossible

IBM81

•Givefulconsiderationtothe

individualemployee

•Spendalotoftimemaking

•Spendalotoftimemakingcustomershappy

•Gothelastmiletodothings

right;seeksuperiorityinalwe

undertake

Johnson&Johnson82

•Thecompanyexists“to

aleviatepainanddisease”

•“Wehaveahierarchyof

responsibilities:customersrst,

employeessecond,societyat

largethird,andshareholders

fourth”

(see

the

credo

reproducedelsewhereinthis

book)

•Individualopportunityand

rewardbasedonmerit

•Decentralization=Creativity

=Productivity

•Friendlyservice&excelent

value(customersareguests);

Marriot83

“makepeopleawayfromhome

feelthatthey’reamongfriends

andrealywanted”

•Peoplearenumber1—treat

themwel,expectalot,andthe

restwilfolow

•Workhard,yetkeepitfun

•Continualself-improvement

•Overcomingadversitytobuild

character

•“Weareinthebusinessof

preserving

andimproving

Merck84

humanlife.Alofouractions

mustbemeasuredbyoursuccess

inachievingthisgoal.”

•Honestyandintegrity

•Corporatesocialresponsibility

•Science-basedinnovation,not

imitation

•Unequivocalexcelenceinal

aspectsofthecompany

•Prot,butprotfromwork

thatbenefitshumanity

•Thecompanyexists“to

honorablyservethecommunity

Motorola85

byprovidingproductsand

servicesofsuperiorqualityata

fairprice”

•Continuousself-renewal

•Tappingthe“latentcreative

powerwithinus”

•Continualimprovementinal

thatthecompanydoes—inideas,

inquality,incustomer

satisfaction

•Treateachemployeewith

dignity,asanindividual

•Honesty,integrity,andethicsin

alaspectsofbusiness

Nordstrom86

•Servicetothecustomerabove

alelse

•Hardworkandproductivity

•Continuousimprovement,

neverbeingsatisfied

•Excelenceinreputation,being

partofsomethingspecial

•Therighttopersonalfreedom

ofchoice(tosmoke,tobuy

PhilipMorris87

whateveronewants)isworth

defending

•Winning—beingthebestand

beatingothers

•

Encouraging

individual

initiative

•Opportunitytoachievebased

onmerit,notgender,race,or

class

•Hardworkandcontinuousself-

improvement

Procter&Gamble88

•Productexcelence

•Continuousself-improvement

•Honestyandfairness

•Respectandconcernforthe

individual

•Toexperiencethesheerjoythat

comesfromtheadvancement,

Sony89

application,andinnovationof

technologythatbenetsthe

generalpublic

•ToelevatetheJapaneseculture

andnationalstatus

•Beingapioneer—notfolowing

others,butdoingtheimpossible

•Respectingandencouraging

eachindividual’sabilityand

creativity

•“Weexisttoprovidevalueto

ourcustomers”—tomaketheir

Wal-Mart90

livesbetervialowerpricesand

greaterselection;alelseis

secondary

•Swimupstream,buck

conventionalwisdom

•Beinpartnershipwith

employees

•

Work

with

passion,

•

Work

with

passion,

commitment,andenthusiasm

•Runlean

•Pursueever-highergoals

WaltDisney91

•Nocynicismalowed

•Fanaticalatentionto

consistencyanddetail

•Continuousprogressvia

creativity,

dreams,

and

imagination

•Fanaticalcontroland

preservationofDisney’s“magic”

image

•“Tobringhappinessto

milions”

andtocelebrate,

nurture,

and

promulgate

“wholesomeAmericanvalues.”

*Thistablepresentsthemosthistoricalyconsistentideologyforeachofthevisionarycompaniesinourstudy.Wedidnotmerelyparaphrasethecompany’smostrecentvalues,mission,vision,orpurposestatement(ifithadone)andweneverreliedononlyonesource;welookedforhistoricalconsistencythroughmultiplegenerationsofchiefexecutives.

WordsorDeeds?

Howcanwebesurethatthecoreideologiesofhighlyvisionarycompaniesrepresentmorethanjustabunchofnice-soundingplatitudes—wordswithnobite,wordsmeantmerelytopacify,manipulate,ormislead?Wehavetwoanswers.First,social

manipulate,ormislead?Wehavetwoanswers.First,socialpsychologyresearchstronglyindicatesthatwhenpeoplepubliclyespouseaparticularpointofview,theybecomemuchmorelikelytobehaveconsistentwiththatpointofvieweveniftheydidnotpreviouslyholdthatpointofview.92Inotherwords,theveryactofstatingacoreideology(whichthevisionarycompanieshavedonetoafargreaterdegreethanthecomparisoncompanies)inuencesbehaviortowardconsistencywiththatideology.

Second—andmoreimportant—thevisionarycompaniesdon’tmerelydeclareanideology;theyalsotakestepstomaketheideologypervasivethroughouttheorganizationandtranscendanyindividualleader.Aswe’ldescribeinsubsequentchapters:

•Thevisionarycompaniesmorethoroughlyindoctrinateemployeesintoacoreideologythanthecomparisoncompanies,creatingculturessostrongthattheyarealmostcult-likearoundtheideology.

•Thevisionarycompaniesmorecarefulynurtureandselectseniormanagementbasedontwithacoreideologythanthecomparisoncompanies.

•Thevisionarycompaniesatainmoreconsistentalignmentwithacoreideology—insuchaspectsasgoals,strategy,tactics,andorganizationdesign—thanthecomparisoncompanies.

Certainly,thevisionarycompanieshavenotalwaysfounditeasytomaintainandlivetotheirideologies.JackWelchofGEdescribedthedicultyoflivingwiththetensionbetweenpragmatismandidealism,orwhathecals“numbersandvalues”:Numbersandvalues.Wedon’thavethenalanswerhere—atleastIdon’t.Peoplewhomakethenumbersandshareourvaluesgoonwardandupward.Peoplewhomissthenumbersandshareourvaluesgetasecondchance.Peoplewithnovaluesandnonumbers—easycal.Theproblemiswiththosewho

andnonumbers—easycal.Theproblemiswiththosewhomakethenumbersbutdon’tsharethevalues..Wetrytopersuadethem;wewrestlewiththem;weagonizeoverthesepeople.93

Infact,wedidnotndthatthevisionarycompanieshavealwaysbeenperfectexemplarsoftheirideologies.GE,forexample,hadanumberofethicalandlegaltransgressionsinthe1950sand1960s,includingcolusioninascandalous

bid-riggingschemewithseveralutilitycompaniesin1955.In1991,P&GresortedtoaninsidiouseforttoseizeCincinnatiphonerecordsinanatempttotrackdown(andpresumablypunish)internalsourceswhospoketoaWalStreetJournalreporter94—aclearbreachofitsownhighlytoutedvalueof“respectfortheindividual.”EvenJohnson&Johnson,withitsfamouscredo,hasstruggledattimestokeepitsideologyaliveandoperatingasashapingforce.In1979,thirty-sixyearsafterRobertW.Johnsonwrotethecredo,J&Jputitselfthroughanextensivesoul-searchprocesswithrespecttothecredo.Accordingtothen-chiefexecutiveJimBurke:

PeoplelikemypredecessorsbelievedintheCredowithapassion,buttheoperatingmanagers[in1979]werenotuniversalycommitedtoit..SoIcaledameetingofsome20

keyexecutivesandchalengedthem.Isaid,“Here’stheCredo.Ifwe’renotgoingtolivebyit,let’stearitothewal..Weeitheroughttocommittoitorgetridofit.”..Bytheendofthesession,themanagershadgainedagreatdealofunderstandingaboutandenthusiasmforthebeliefsintheCredo.Subsequently,

[we]metwithsmalgroupsofJ&JmanagersalovertheworldtochalengetheCredo.95

Thevisionarycompanieshavenotalwaysbeenperfect.But,astheJ&JCredorededicationeortandtheGEagonyovernumbersandvaluesilustrate,thevisionarycompanies,ingeneral,haveplacedgreatemphasisonhavingacoreideologyandhaveputmucheort

greatemphasisonhavingacoreideologyandhaveputmucheortintopreservingthecoreideologyasavitalshapingforce.And—

againthekeypoint—theyhavedonesomorethanthecomparisoncompaniesinourstudy.

GUIDELINESFORCEOS,MANAGERS,ANDENTREPRENEURS

Akeystepinbuildingavisionarycompanyistoarticulateacoreideology.Drawinguponwhatwesawinthevisionarycompanies,we’vecreatedapracticaltwo-partdenitionofcoreideology.

Companieswe’veworkedwithhavefoundthisdenitiontobeausefulguidefor

setingtheirownideologies.

CoreIdeology=CoreValues+Purpose

CoreValues=Theorganization’sessentialandenduringtenets—asmalsetofgeneralguiding

principles;nottobeconfusedwithspecicculturaloroperatingpractices;nottobecompromisedfornancialgainorshort-termexpediency.

Purpose=Theorganization’sfundamentalreasonsforexistencebeyondjustmakingmoney—a

perpetualguidingstaronthehorizon;nottobeconfusedwithspecicgoalsorbusiness

strategies.

CoreValues

Corevaluesaretheorganization’sessentialandenduringtenets,nottobecompromisedfornancialgainorshort-termexpediency.

ThomasJ.Watson,Jr.,formerIBMchiefexecutive,commentedontheroleofcorevalues(whathecalsbeliefs)inhis1963bookletABusinessandItsBeliefs:

Ibelievetherealdierencebetweensuccessandfailureinacorporationcanveryoftenbetracedtothequestionofhowweltheorganizationbringsoutthegreatenergiesandtalentsofitspeople.Whatdoesitdotohelpthesepeoplendcommoncausewitheachother?..Andhowcanitsustainthiscommoncauseandsenseofdirectionthroughthemanychangeswhichtakeplacefromonegenerationtoanother?..[Ithinktheanswerlies]inthepowerofwhatwecalbeliefsandtheappealthesebeliefshaveforitspeople..Irmlybelievethatanyorganization,inordertosurviveandachievesuccess,musthaveasoundsetofbeliefsonwhichitpremisesalitspoliciesandactions.Next,Ibelievethatthemostimportantsinglefactorincorporatesuccessisfaithfuladherencetothosebeliefs..Beliefsmustalwayscomebeforepolicies,practices,andgoals.Thelatermustalwaysbealterediftheyareseentoviolatefundamentalbeliefs.[emphasisours]96

Inmostcases,acorevaluecanbeboileddowntoapiercingsimplicitythatprovidessubstantialguidance.NoticehowSamWaltoncapturedtheessenceofWal-Mart’snumberonevalue:“[Weput]thecustomeraheadofeverythingelse..Ifyou’renotservingthecustomer,orsupportingthefolkswhodo,thenwedon’tneedyou.”97NoticehowJamesGamblesimplyandelegantlystatedP&G’scorevalueofproductqualityandhonestbusiness:“Whenyoucannotmakepuregoodsoffulweight,gotosomethingelsethatishonest,evenifitisbreakingstone.”98NoticehowJohnYoung,formerHPchiefexecutive,capturedthesimplicityoftheHPWay:

formerHPchiefexecutive,capturedthesimplicityoftheHPWay:

“TheHPWaybasicalymeansrespectandconcernfortheindividual;itsays‘Dountoothersasyouwouldhavethemdountoyou.’That’srealywhatit’salabout.”99Thecorevaluecanbestatedanumberofdierentways,yetitremainssimple,clear,straightforward,andpowerful.

Visionarycompaniestendtohaveonlyafewcorevalues,usualybetweenthreeandsix.Infact,wefoundnoneofthevisionarycompaniestohavemorethansixcorevalues,andmosthaveless.

And,indeed,weshouldexpectthis,foronlyafewvaluescanbetrulycore—valuessofundamentalanddeeplyheldthattheywilchangeorbecompromisedseldom,ifever.

Thishasimportantimplicationsforarticulatingcorevaluesinyourownorganization.Ifyoulistmorethanveorsixvalues,youmightnotbecapturingthosethataretrulycore.Ifyouhaveastatementofcorporatevalues,orareintheprocessofcreatingone,youmightaskyourself:“Whichofthesevalueswouldwestrivetolivetoforahundredyearsregardlessofchangesintheexternalenvironment—eveniftheenvironmentceasedtorewardusforhavingthesevalues,orperhapsevenpenalizedus?Conversely,whichvalueswouldwebewilingtochangeordiscardiftheenvironmentnolongerfavoredthem?”Thesequestionscanhelpyouidentifywhichvaluesareauthenticalycore.

Averyimportantpoint:Westronglyencourageyounottofalintothetrapofusingthecorevaluesfromthevisionarycompanies(listedinTable3.1)asasourceforcorevaluesinyourownorganization.Coreideologydoesnotcomefrommimickingthevaluesofothercompanies—evenhighlyvisionary

companies;itdoesnotcomefromfolowingthedictatesofoutsiders;itdoesnotcomefromreadingmanagementbooks;anditdoesnotcomefromasterileintelectualexerciseof“calculating”whatvalueswouldbemostpragmatic,mostpopular,ormostprotable.Whenarticulatingandcodifyingcoreideology,thekeystepistocapturewhatisauthenticalybelieved,notwhatothercompaniessetastheirvaluesorwhattheoutsideworldthinkstheideologyshouldbe.

be.It’simportanttounderstandthatcoreideologyexistsasaninternalelement,largelyindependentoftheexternalenvironment.

Touseananalogy,thefoundersoftheUnitedStatesdidn’tinstilthecoreideologyoffreedomandequalitybecausetheenvironmentdictatedit,nordidtheyexpectthecountrytoeverabandonthosebasicidealsinresponsetoenvironmentalconditions.Theyenvisionedfreedomandequalityastimelessidealsindependentoftheenvironment(“Weholdthesetruthstobeself-evident..”)—

idealstoalwaysworktoward,providingguidanceandinspirationtoalfuturegenerations.Thesameholdstrueinvisionarycompanies.

INavisionarycompany,thecorevaluesneednorationalorexternaljustication.Nordotheyswaywiththetrendsandfadsoftheday.Norevendotheyshiftinresponsetochangingmarketconditions.

RobertW.Johnson,Jr.didn’twritethecredobecauseofaconceptualtheorythatlinkedcredoswithprofitsorbecausehereaditinabooksomewhere.Hewrotethecredobecausethecompanyembodieddeeplyheldbeliefsthathewantedtopreserve.GeorgeMerckIdeeplybelievedthatmedicineisforthepatient,andhewantedeveryMerckpersontosharethatbelief.ThomasJ.Watson,Jr.describedIBM’scorevaluesas“bonedeep”inhisfather:“Asfarashewasconcerned,thosevaluesweretherulesoflife—tobepreservedatalcosts,tobecommendedtoothers,andtobefolowedconscientiouslyinone’sbusinesslife.”100

DavidPackardandBilHewletdidn’t“plan”theHPWayorHP’s

“WHYofbusiness”;theysimplyhelddeepconvictionsaboutthewayabusinessshouldbebuiltandtooktangiblestepstoarticulateanddisseminatetheseconvictionssotheycouldbepreservedandactedupon.Andtheyheldthesebeliefsindependentofthecurrent

actedupon.Andtheyheldthesebeliefsindependentofthecurrentmanagementfashionsoftheday.InsiftingthroughtheHewlet-

PackardCompanyarchives,wecameacrossthefolowingstatementmadebyDavidPackard:

[In1949],Iatendedameetingofbusinessleaders.Isuggestedatthemeetingthatmanagementpeoplehadaresponsibilitybeyondthatofmakingaprotfortheirstockholders.Isaidthatwe..hadaresponsibilitytoouremployeestorecognizetheirdignityashumanbeings,andtoassurethattheyshouldshareinthesuccesswhichtheirworkmadepossible.Ipointedout,also,thatwehadaresponsibilitytoourcustomers,andtothecommunityatlarge,aswel.Iwassurprisedandshockedthatnotasinglepersonatthatmeetingagreedwithme.Whiletheywerereasonablypoliteintheirdisagreement,itwasquiteevidenttheyrmlybelievedIwasnotoneofthem,andobviouslynotqualifiedtomanageanimportantenterprise.101

Hewlet,Packard,Merck,Johnson,andWatsondidn’tsitdownandask“Whatbusinessvalueswouldmaximizeourwealth?”or

“Whatphilosophywouldlookniceprintedonglossypaper?”or

“Whatbeliefswouldpleasethenancialcommunity?”No!Theyarticulatedwhatwasinsidethem—whatwasintheirgut,whatwasbonedeep.Itwasasnaturaltothemasbreathing.It’snotwhattheybelievedasmuchashowdeeplytheybelievedit(andhowconsistentlytheirorganizationslivedit).Again,thekeywordisauthenticity.Noarticialavors.Noaddedsweeteners.Just100

percentgenuineauthenticity.

Purpose

Purposeisthesetoffundamentalreasonsforacompany’sexistencebeyondjustmakingmoney.VisionarycompaniesgetatpurposebyaskingquestionssimilartothoseposedbyDavidPackardearlierinthischapter.(“Iwanttodiscusswhyacompanyexistsinthefirst

thischapter.(“Iwanttodiscusswhyacompanyexistsinthefirstplace.Inotherwords,whyarewehere?Ithinkmanypeopleassume,wrongly,thatacompanyexistssimplytomakemoney.

Whilethisisanimportantresultofacompany’sexistence,wehavetogodeeperandfindtherealreasonsforourbeing.”)Purposeneednotbewholyunique.It’sentirelypossiblethattwocompaniescouldhaveaverysimilarpurpose,justasit’sentirelypossiblethattwocompaniescanbothsharearock-solidbeliefinavaluelikeintegrity.Theprimaryroleofpurposeistoguideandinspire,notnecessarilytodierentiate.Forexample,manycompaniescouldshareHP’spurposeofmakingacontributiontosocietyviaelectronicequipmentfortheadvancementofscienceandthewelfareofhumanity.Thequestionis,wouldtheyholditasdeeplyandliveitasconsistentlyasHP?Aswithcorevalues,thekeyisauthenticity,notuniqueness.

Whenproperlyconceived,purposeisbroad,fundamental,andenduring;agoodpurposeshouldservetoguideandinspiretheorganizationforyears,perhapsacenturyormore.RoyVagelos—

lookingonehundredyearsintothefuture—describedtheenduringroleofpurposeatMerck&Company:

Imaginethatalofusweresuddenlytransportedtotheyear2091.Much[ofourstrategyandmethods]wouldhavebeenchangedbydevelopmentswecannotanticipate.ButnomaterwhatchangesmighthaveoccurredintheCompany,Iknowwewouldndonethinghadremainedthesame—andthethingthatmatersmost:the..spiritofMerckpeople..Acenturyfromnow,Ibelievewewouldfeelthesameespritdecorps..Ibelievethis,aboveal,becauseMerck’sdedicationtoghtingdisease,relievingsuering,andhelpingpeopleisarighteouscause—onethatinspirespeopletodreamofdoinggreatthings.

Itisatimelesscause,anditwilleadMerckpeopletogreatachievementsduringthenexthundredyears.102

Indeed,avisionarycompanycontinualypursuesbutneverfuly

Indeed,avisionarycompanycontinualypursuesbutneverfulyachievesorcompletesitspurpose—likechasingtheearth’shorizonorpursuingaguidingstar.WaltDisneycapturedtheenduring,never-completednatureofpurposewhenhecommented:Disneylandwilneverbecompleted,aslongasthereisimaginationleftintheworld.103

Boeingcanneverbedonepushingtheenvelopeinaerospacetechnology;theworldwilalwaysneedacorporateChuckYeager.

HPcanneverreachapointwhereitsays,“Therearenomorecontributionswecanmake.”GEcannevercompletethetaskofimprovingthequalityoflifethroughtechnologyandinnovation.

Marriotcanevolve—fromA&WRootBeerstands,tofoodchains,toairlinecatering,tohotels,andtowho-knows-whatinthetwenty-rstcentury—yetneveroutgrowthefundamentaltaskof“makingpeopleawayfromhomefeelthatthey’reamongfriendsandrealywanted.”

Motorolacanevolve—frombateryeliminatorsforhomeradios,tocarradios,tohometelevision,tosemiconductors,tointegratedcircuits,tocelularcommunications,tosatelitesystems,andtowho-knows-whatinthetwenty-rstcentury—yetneveroutgrowitsfundamentalquestto“honorablyservethecommunitybyprovidingproductsandservicesofsuperiorqualityatafairprice.”

Disneycanevolve—fromrinky-dinkcartoons,toful-lengthanimatedmovies,totheMickeyMouseclub,toDisneyland,tobox-ocehits,toEuroDisney,andtowho-knows-whatinthetwenty-rstcentury—yetneveroutgrowthecoretaskof“bringinghappinesstomilions.”

Sonycanevolve—fromricecookersandcrudeheatingpads,totaperecorders,totransistorradios,toTrinitroncolorTVs,toVCRs,totheWalkman,toroboticssystems,andtowho-knows-whatinthetwenty-rstcentury—yetnevernishpursuingitscorepurposeofexperiencingthesheerjoyofappliedtechnologicalinnovationthatbringsabout“untoldpleasureanduntoldbenets...andthe

bringsabout“untoldpleasureanduntoldbenets...andtheelevationofthe[Japanese]culture.”

Inshort,avisionarycompanycan,andusualydoes,evolveintoexcitingnewbusinessareas,yetremainguidedbyitscorepurpose.

Asanimplicationofthis,ifyou’rethinkingaboutpurposeforyourownorganization,weencourageyoutonotsimplywriteaspecicdescriptionofyourproductlinesorcustomersegments(“WeexisttomakeXproductsforYcustomers”).Forexample,“Weexisttomakecartoonsforkids”wouldhavebeenaterriblepurposestatementforDisney,neithercompelingnorexibleenoughtolastonehundredyears.But“touseourimaginationtobringhappinesstomilions”caneasilylastonehundredyearsasacompelingpurpose.The

importantstepistogetatthedeeper,morefundamentalreasonsfortheorganization’sexistence.Aneectivewaytogetatpurposeistoposethequestion“Whynotjustshutthisorganizationdown,cashout,andselotheassets?”andtopushforananswerthatwouldbeequalyvalidbothnowandonehundredyearsintothefuture.

Wewanttobeclear:Wedidnotndanexplicitandformalstatementofpurposeinalofourvisionarycompanies.Wesometimesfoundpurposetobemoreimplicitlyorinformalystated.Nonetheless,becausepurposedierssucientlyfromcorevalues(whichwesawexplicitlyinaleighteencases)initsroleandavor—andbecausethirteencompaniesinourstudydidmakepurposelikestatements(eitherformal/explicitorinformal/implicit)atsomepointintheirhistory—it’susefultoidentifypurposeasaspecicanddistinctcomponentofcoreideology.104We’vefoundthatmostcompaniesbenetfromarticulatingbothcorevaluesandpurposeintheircoreideology,andweencourageyoutodothesame.

ASpecialNotetoNon-CEOs

Althoughwe’vewritenthischapterfromtheperspectiveoftheoveralcorporation,we’vefoundthesameideascanapplyto

overalcorporation,we’vefoundthesameideascanapplytomanagersatallevelsofanorganization.There’sabsolutelynoreasonwhyyoucan’tarticulateacoreideologyforyourownworkgroup,department,ordivision.Ifyourcompanyhasastrongoverallcorporateideology,thenyourgroup-levelideologywilnaturalybeconstrainedbythatideology—particularlythecorevalues.Butyoucanstilhaveyourownavorofideology,andcertainlyyoucanarticulateapurposeforyourownsuborganization.Whatisitsreasonforbeing?Whatwouldbelostifitceasedtoexist?

Andifyourcompanydoesn’thaveanoveralcorporateideology,youcanstilsetoneatyourlevel—andyou’lprobablyhavemorefreedomtodoso.Justbecausetheoveralcompanylacksaclearideologydoesn’tmeanyourgroupshouldn’thaveone!

Furthermore,youcanplayakeyroleinpushingyourcompanytoarticulateitsideologybysetingoneatyourownlevelandletingitserveasarolemodel.We’veseensubgroupsincompaniesexertagreatdealofpressureontheoveral

corporationbybeingrolemodelsfromwithin.

ASpecialNotetoEntrepreneursandSmalBusinessManagers

Notalofthevisionarycompaniesbeganlifewithawel-

articulatedcoreideology.Afewdid.RobertW.Johnson,forexample,hadasenseofJ&J’spurposefromthemomentheconceivedthecompany(“toaleviatepainanddisease”).105SodidMasaruIbukaofSonywhenhewrotethecompany’s1946

prospectus.Butothers,likeHPandMotorola,didn’tpindowntheirideologyuntilafterthecompanyhadsolidlypassedtheinitialstart-upphase,oftenadecadeorsoafterfounding(butusualybeforetheybecamebigcompanies).Intheearlystages,mostvisionarycompaniesjusttriedtogetothegroundandmakeagoofitandtheirideologybecameclearonlyasthecompanyevolved.Soifyouhaven’tyetarticulatedacoreideologybecauseyou’vebeeninthe

haven’tyetarticulatedacoreideologybecauseyou’vebeeninthethroesoflaunchingacompany,that’sokay.Buttheearlier,thebeter.Infact,ifyou’vemadetimetoreadthisbook,thenweencourageyoutosetasidethetimetoarticulateyourideologynow.

Chapter4

Chapter4

PreservetheCore/StimulateProgress

PaulGalvinurgedustokeepmovingforward,tobeinmotionformotion’ssake..Heurgedcontinuousrenewal..Changeuntoitselfisessential.But,takenalone:itislimited.Yes,renewalischange.Itcalsfor“dodiferently.”Itiswilingtoreplaceandredo.Butitalsocherishestheprovenbasics.1

ROBERTW.GALVIN,FORMERCEO,MOTOROLA,1991

Itistheconsistencyofprinciple..thatgivesusdirection..

[Certainprinciples]havebeencharacteristicsofP&Geversinceourfoundingin1837.WhileProcter&Gambleisorientedtoprogressandgrowth,itisvitalthatemployeesunderstandthatthecompanyisnotonlyconcernedwithresults,buthowtheresultsareobtained.2

EDHARNESS,FORMERPRESIDENT,PROCTER&GAMBLE,1971

Inthepreviouschapter,wepresentedcoreideologyasanessentialcomponentofavisionarycompany.Butcoreideologyalone,asimportantasitis,doesnot—indeedcannot—makeavisionarycompany.Acompanycanhavetheworld’smostdeeplycherishedandmeaningfulcoreideology,butifitjustsitsstilorrefusestochange,theworldwilpassitby.AsSamWaltonpointedout:“Youcan’tjustkeepdoingwhatworksonetime,becauseeverythingaroundyouisalwayschanging.Tosucceed,youhavetostayoutinfrontofthatchange.”3Similarly,ThomasJ.Watson,Jr.,embeddedahugecaveatinhisbookletABusinessandItsBeliefs:Ifanorganizationistomeetthechalengesofachangingworld,itmustbepreparedtochangeeverythingaboutitselfexcept[itsbasic]beliefsasitmovesthroughcorporatelife..Theonlysacredcowinanorganizationshouldbeitsbasicphilosophyofdoingbusiness.[emphasisours]4

WebelieveIBMbegantoloseitsstatureasavisionarycompanyinthelate1980sandearly1990sinpartbecauseitlostsightofWatson’sincisivecaveat.NowhereinIBM’s“threebasicbeliefs”*doweseeanythingaboutwhiteshirts,bluesuits,specicpolicies,specicprocedures,organizationalhierarchies,mainframecomputers—orcomputersatal,forthatmater.Bluesuitsandwhite

shirtsarenotcorevalues.Mainframecomputersarenotcorevalues.Specicpolicies,procedures,andpracticesarenotcorevalues.IBMshouldhavemuchmorevigorouslychangedeverythingaboutitselfexceptitscorevalues.Instead,itstucktoolongtostrategicandoperatingpracticesandculturalmanifestationsofthecorevalues.

We’vefoundthatcompaniesgetintotroublebyconfusingcoreideologywithspecic,noncorepractices.Byconfusingcore

ideologywithspecic,noncorepractices.Byconfusingcoreideologywithnoncorepractices,companiescanclingtoolongtononcoreitems—thingsthatshouldbechangedinorderforthecompanytoadaptandmoveforward.Thisbringsustoacrucialpoint:Avisionarycompanycarefulypreservesandprotectsitscoreideology,yetalthespecicmanifestationsofitscoreideologymustbeopenforchangeandevolution.Forexample:

•HP’s“Respectandconcernforindividualemployees”isapermanent,unchangingpartofitscoreideology;servingfruitanddoughnutstoalemployeesattenA.M.eachdayisanoncorepracticethatcanchange.

•Wal-Mart’s“Exceedcustomerexpectations”isapermanent,unchangingpartofitscoreideology;customergreetersatthefrontdoorisanoncorepracticethatcanchange.

•Boeing’s“Beingontheleadingedgeofaviation;beingpioneers”isapermanent,unchangingpartofitscoreideology;commitmenttobuildingjumbojetsispartofanoncorestrategythatcanchange.

•3M’s“Respectforindividualinitiative”isapermanent,unchangingpartofitscoreideology;the15percentrule(wheretechnicalemployeescanspend15percentoftheirtimeonprojectsoftheirchoosing)isanoncorepracticethatcanchange.

•Nordstrom’s“Servicetothecustomerabovealelse”isapermanent,unchangingpartofitscoreideology;regionalgeographicfocus,pianoplayersinthelobby,andoverstockedinventorymanagementarenon-corepracticesthatcanchange.

•Merck’s“Weareinthebusinessofpreservingandimprovinghumanlife”isapermanent,unchangingpartofitscoreideology;itscommitmenttoresearch

targetedatspecicdiseasesispartofanoncorestrategythatcanchange.

Itisabsolutelyessentialtonotconfusecoreideologywithculture,

Itisabsolutelyessentialtonotconfusecoreideologywithculture,strategy,tactics,operations,policies,orothernoncorepractices.

Overtime,culturalnormsmustchange;strategymustchange;productlinesmustchange;goalsmustchange;competenciesmustchange;administrativepoliciesmustchange;organizationstructuremustchange;rewardsystemsmustchange.Ultimately,theonlythingacompanyshouldnotchangeovertimeisitscoreideology—

thatis,ifitwantstobeavisionarycompany.

Thisbringsustothecentralconceptofthisbook:theunderlyingdynamicof“Preservethecoreandstimulateprogress”that’stheessenceofavisionarycompany.Thisisabriefchaptertointroducethisfundamentalconceptandtopresentanorganizingframeworkthatprovidesabackdropforthedozensofdetailedstoriesandspecificexamplesthatfiltheremainingsixchapters.

DRIVEFORPROGRESS

Coreideologyinavisionarycompanyworkshandinhandwitharelentlessdriveforprogressthatimpelschangeandforwardmovementinalthatisnotpartofthecoreideology.Thedriveforprogressarisesfromadeephumanurge—toexplore,tocreate,todiscover,toachieve,tochange,toimprove.Thedriveforprogressisnotasterile,intelectualrecognitionthat“progressishealthyinachangingworld”orthat“healthyorganizationsshouldchangeandimprove”orthat“weshouldhavegoals”;rather,it’sadeep,inner,compulsive—almostprimal—drive.

ItisthetypeofdrivethatledSamWaltontospendtimeduringthelastpreciousfewdaysofhislifediscussingsalesguresfortheweekwithalocalstoremanagerwhodroppedbyhishospitalroom—adrivesharedbyJ.WilardMarriot,wholivedbythemoto“Keeponbeingconstructive,anddoingconstructivethings,untilit’stimetodie..makeeverydaycount,totheveryend.”5

ItisthedrivethatmotivatedCiticorptosetthegoaltobecomethemost

pervasivenancialinstitutionintheworldwhenitwasstilsmalenoughthatsuchanaudaciousgoalwouldseemludicrous,ifnotfoolhardy.ItisthetypeofdrivethatledWalt

ludicrous,ifnotfoolhardy.ItisthetypeofdrivethatledWaltDisneytobetitsreputationonDisneylandwithnomarketdatatoindicatedemandforsuchawilddream.ItisthetypeofdrivethatimpeledFordtostakeitsfutureontheaudaciousgoal“todemocratizetheautomobile”andtherebyleaveanindelibleimprintontheworld.

ItisthetypeofdrivethatspurredMotorolatolivebythemoto

“Beinmotionformotion’ssake!”andpropeledthecompanyfrombateryeliminatorsandcarradiostotelevisions,microprocessors,celularcommunications,satelitescirclingtheearth,andpursuitofthedaunting“sixsigma”qualitystandard(only3.4defectspermilion).RobertGalvinusedtheterm“renewal”todescribeMotorola’sinnerdriveforprogress:

Renewalisthedrivingthrustofthiscompany.LiteralythedayaftermyfatherfoundedthecompanytoproduceBBateryEliminatorsin1928,hehadtocommencethesearchforareplacementproductbecausetheEliminatorwaspredictablyobsoletein1930.Heneverstoppedrenewing.Norhavewe..

Onlythoseinculturedwithanelusiveideaofrenewal,whichobligesaproliferationofnew,creativeideas..andanunstintingdedicationtocommitingtotheriskandpromiseofthoseunchartableideas,wilthrive.6

Itisthedriveforprogressthatpushed3Mtocontinualyexperimentandsolveproblemsthatothercompanieshadnotyetevenrecognizedasproblems,resultinginsuchpervasiveinnovationsaswaterproofsandpaper,Scotchtape,andPost-itnotes.

ItcompeledProcter&Gambletoadoptprot-sharingandstockownershipprogramsinthe1880s,longbeforesuchstepsbecamefashionable,andurgedSonytoproveitpossibletocommercializetransistor-basedproductsintheearly1950s,whennoothercompanieshaddoneso.ItisthedrivethatledBoeingtoundertakesomeoftheboldestgamblesinbusinesshistory,includingthedecisiontobuildtheB-747inspiteofhighlyuncertainmarketdemand—adrivearticulatedbyWiliamE.Boeingduringtheearly

demand—adrivearticulatedbyWiliamE.Boeingduringtheearlydays,ofthecompany:

Itbehoovesno-onetodismissanynovelideawiththestatementthatit“can’tbedone.”Ourjobistokeepeverlastinglyatresearchandexperiment,toadaptourlaboratoriestoproductionassoonaspracticable,toletnonewimprovementinflyingandflyingequipmentpassusby.7

Indeed,thedriveforprogressisneversatisedwiththestatusquo,evenwhenthestatusquoisworkingwel.Likeapersistentandincurableitch,thedriveforprogressinahighlyvisionarycompanycanneverbesatisedunderanyconditions,evenifthecompanysucceedsenormously:“Wecanalwaysdobeter;wecanalwaysgofurther;wecanalwaysndnewpossibilities.”AsHenryFordsaid,“Youhavegottokeepdoingandgoing.”8

AnInternalDrive

Likecoreideology,thedriveforprogressisaninternalforce.Thedriveforprogressdoesn’twaitfortheexternalworldtosay“It’stimetochange”or“It’stimetoimprove”or“It’stimetoinventsomethingnew.”No,likethedriveinsideagreatartistorprolicinventor,itissimplythere,pushingoutwardandonward.Youdon’tcreateDisneyland,buildthe747,pursuesix-sigmaquality,invent3MPost-itnotes,instituteemployeestockownershipinthe1880s,ormeetwithastoremanageronyourdeathbedbecausetheoutsideenvironmentdemandsit.Thesethingsariseoutofaninnerurgeforprogress.Inavisionarycompany,thedrivetogofurther,todobeter,tocreatenewpossibilitiesneedsnoexternaljustification.

Throughthedriveforprogress,ahighlyvisionarycompanydisplaysapowerfulmixofself-condencecombinedwithself-criticism.Self-condencealowsavisionarycompanytosetaudaciousgoalsandmakeboldanddaringmoves,sometimesyinginthefaceofindustryconventionalwisdomorstrategicprudence;it

inthefaceofindustryconventionalwisdomorstrategicprudence;itsimplyneveroccurstoahighlyvisionarycompanythatitcan’tbeattheodds,achievegreatthings,andbecomesomethingtrulyextraordinary.Self-criticism,ontheotherhand,pushesforself-inducedchangeandimprovementbeforetheoutsideworldimposestheneedforchangeandimprovement;avisionarycompany

therebybecomesitsownharshestcritic.Assuch,thedriveforprogresspushesfromwithinforcontinualchangeandforwardmovementineverythingthatisnotpartofthecoreideology.

Noticetheruthlessself-imposeddisciplinecapturedinBruceNordstrom’sresponsetotheadulationthecompanyhadatainedforitscustomerservicestandards:“Wedon’twanttotalkaboutourservice.We’renotasgoodasourreputation.Itisaveryfragilething.Youjusthavetodoiteverytime,everyday.”9NoticetheinnerdrivedescribedbyaHewlet-Packardmarketingmanagerwhoneverlethispeoplerestontheirlaurels:We’reproudofoursuccesses,andwecelebratethem.Buttherealexcitementcomesinguringouthowwecandoevenbeterinthefuture.It’sanever-endingprocessofseeinghowfarwecango.There’snoultimatenishlinewherewecansay

“we’vearrived.”Ineverwantustobesatisedwithoursuccess,forthat’swhenwe’lbegintodecline.10

PRESERVETHECOREANDSTIMULATEPROGRESS

Noticethedynamicinterplaybetweencoreideologyandthedriveforprogress:

CoreIdeology

DriveforProgress

Urgescontinualchange(new

Providescontinuityand

directions,newmethods,new

stability.

strategies,andsoon).

Impels

constantmovement

Plantsarelativelyfixedstake

(towardgoals,improvement,

intheground.

anenvisionedform,andso

on).

Limits

possibilities

and

Expandsthenumberand

directionsforthecompany(to

varietyofpossibilitiesthatthe

thoseconsistentwiththe

companycanconsider.

contentoftheideology).

Hasclearcontent(“Thisisour

Canbecontent-free(“Any

coreideologyandwewilnot

progressisgood,aslongasit

breachit”).

isconsistentwithourcore”).

Expressingthedrivefor

Instalingacoreideologyis,

progresscanleadtodramatic,

byitsverynature,a

radical,

andrevolutionary

conservativeact.

change.

Theinterplaybetweencoreandprogressisoneofthemostimportantndingsfromourwork.Inthespiritofthe“GeniusoftheAND,”avisionarycompanydoesnotseekmerebalancebetweencoreandprogress;itseekstobebothhighlyideologicalandhighlyprogressiveatthesametime,althetime.Indeed,coreideologyandthedriveforprogressexisttogetherinavisionarycompanylikeyinandyangofChinesedualisticphilosophy;eachelementenables,complements,andreinforcestheother:

•Thecoreideologyenablesprogressbyprovidingabaseofcontinuityaroundwhichavisionarycompanycanevolve,experiment,andchange.Bybeingclearaboutwhatiscore(andthereforerelativelyxed),acompanycanmoreeasilyseekvariationandmovementinalthatisnotcore.

•Thedriveforprogressenablesthecoreideology,forwithout

•Thedriveforprogressenablesthecoreideology,forwithoutcontinualchangeandforwardmovement,thecompany—thecarrierofthecore—wilfalbehindinanever-changingworldandceasetobestrong,orperhapseventoexist.

Althoughthecoreideologyanddriveforprogressusualytracetheirrootstospecicindividuals,ahighlyvisionarycompanyinstitutionalizesthem—weavingthemintotheveryfabricoftheorganization.Theseelementsdonotexistsolelyasaprevailingethosor“culture.”Ahighlyvisionarycompanydoesnotsimplyhavesomevaguesetofintentionsorpassionatezealaroundcoreandprogress.Tobesure,ahighlyvisionarycompanydoeshavethese,butitalsohasconcrete,tangiblemechanismstopreservethecoreideologyandtostimulateprogress.

WaltDisneydidn’tleaveitscoreideologyuptochance;itcreatedDisney

Universityandrequiredeverysingleemployeetoatend

“DisneyTraditions”seminars.Hewlet-Packarddidn’tjusttalkabouttheHPWay;itinstitutedareligiouspromote-from-withinpolicyandtranslateditsphilosophyintothecategoriesusedforemployeereviewsandpromotions,makingitnearlyimpossibleforanyonetobecomeaseniorexecutivewithouttingtightlyintotheHPWay.

Marriotdidn’tjusttalkaboutitscorevalues;itinstitutedrigorousemployeescreeningmechanisms,indoctrinationprocesses,andelaboratecustomerfeedbackloops.Nordstromdidn’tjustphilosophizeaboutfanaticalcustomerservice;itcreatedacultofservicereinforcedbytangiblerewardsandpenalties—“Nordies”

whoservethecustomerwelbecomewel-paidheroes,andthosewhotreatcustomerspoorlygetspitrightoutofthecompany.

Motoroladidn’tjustpreachquality;itcommitedtoadauntingsix-sigmaqualitygoalandpursuedtheBaldrigeQualityAward.

GeneralElectricdidn’tjustponticateabouttheimportanceofcontinuoustechnologicalinnovationintheearly1900s;itcreatedoneoftheworld’srstindustrialR&Dlaboratories.Boeingdidn’tjustdreamaboutbeingontheleadingedgeofaviation;itmadebold,irreversiblecommitmentstoaudaciousprojectslikethe

bold,irreversiblecommitmentstoaudaciousprojectsliketheBoeing747,inwhichfailurecouldhaveliteralykiledthecompany.Procter&Gambledidn’tjustthinkself-imposedprogresswasagoodidea;itinstaledastructurethatpitedP&Gproductlinesinercecompetitionwitheachother,thususinginstitutionalizedinternalcompetitionasapowerfulmechanismtostimulateprogress.3Mdidn’tjustpaylipservicetoencouragementofindividualinitiativeandinnovation;itdecentralized,gaveresearchers15percentoftheirtimetopursueanyprojectoftheirliking,createdaninternalventurecapitalfund,andinstitutedarulethat25percentofeachdivision’sannualsalesshouldcomefromproductsintroducedinthepreviousfiveyears.

Tangible.Concrete.Specic.Solid.Lookinsideavisionarycompanyandyou’lseeaticking,bonging,humming,buzzing,whirring,clicking,clateringclock.You’lseetangiblemanifestationsofitscoreideologyanddriveforprogress

everywhere.

INTENTIONSarealneandgood,butitisthetranslationofthoseintentionsintoconcreteitems—mechanismswithteeth

—thatcanmakethedierencebetweenbecomingavisionarycompanyorforeverremainingawannabe.

We’vefoundthatorganizationsoftenhavegreatintentionsandinspiringvisionsforthemselves,buttheydon’ttakethecrucialstepoftranslatingtheirintentionsintoconcreteitems.Evenworse,theyoftentolerateorganizationcharacteristics,strategies,andtacticsthataremisalignedwiththeiradmirableintentions,whichcreatesconfusionandcynicism.Thegearsandmechanismsofthetickingclockdonotgrindagainsteachotherbutratherworkinconcert—inalignmentwitheachother—topreservethecoreandstimulateprogress.Thebuildersofvisionarycompaniesseekalignmentinstrategies,intactics,inorganizationsystems,instructure,in

strategies,intactics,inorganizationsystems,instructure,inincentivesystems,inbuildinglayout,injobdesign—ineverything.

KEYCONCEPTSFORCEOS,MANAGERS,ANDENTREPRENEURS

Inworkingwithpracticingmanagers,we’vefounditusefultocapturealofthekeyideasfromourndingsintoanoveralframeworkthatmanagerscanuseasaconceptualguidefordiagnosinganddesigningtheirownorganization.

Ourframework,showninFigure4.A,hastwolayers.Thetoplayeroftheframeworkcontainselementsdiscussedinearlierchapters:aclock-buildingorientation(Chapter2),theyin/yangsymbol(No“TyrannyoftheOR”),coreideology(Chapter3),andthedriveforprogress(describedearlierinthischapter).Youcanthinkofthetoplayerasasetofguidingintangiblesthatarenecessaryrequirementstobecomeavisionarycompany.However,asimportantastheyare,theseintangibleelementsalonearenotsuficientforbecomingavisionarycompany.Tobecomeavisionarycompanyrequirestranslatingtheseintangiblesdownintothesecondlayeroftheframework,andthisiswheremostcompaniesjustfailtomakethegrade.

Figure4.A

Figure4.A

ConceptualFramework

IFyouareinvolvedinbuildingandmanaginganorganization,thesinglemostimportantpointtotakeawayfromthisbookisthecriticalimportanceofcreatingtangiblemechanismsalignedtopreservethecoreandstimulateprogress.Thisistheessenceofclockbuilding.

Indeed,ifwehadtodistiloursix-yearresearchprojectintoonekeyconceptthatconveysthemostinformationaboutwhatittakestobuildavisionarycompany,wewoulddrawthefolowingicon,whichwilappearatopaloftheremainingchapters:Inthechaptersthatfolow,wewildescribethespecicmethodsofpreservingthecoreandstimulatingprogressthatdistinguishedthevisionarycompaniesfromthecomparisoncompanies,cappedbyaconcludingchapteronalignment.Theyfalintofivecategories:

•BigHairyAudaciousGoals(BHAGs):Commitmenttochalenging,audacious—andoftenrisky—goalsandprojectstowardwhichavisionarycompanychannelsitseorts(stimulatesprogress).

•Cult-likeCultures:Greatplacestoworkonlyforthosewho

•Cult-likeCultures:Greatplacestoworkonlyforthosewhobuyintothecoreideology;thosewhodon’ttwiththeideologyareejectedlikeavirus(preservesthecore).

•TryaLotofStuandKeepWhatWorks:Highlevelsofactionandexperimentation—oftenunplannedandundirected—thatproducenewandunexpectedpathsofprogressandenablesvisionarycompaniestomimicthebiologicalevolutionofspecies(stimulatesprogress).

•Home-grownManagement:Promotionfromwithin,bringingtoseniorlevelsonlythosewho’vespentsignicanttimesteepedinthecoreideologyofthecompany(preservesthecore).

•GoodEnoughNeverIs:Acontinualprocessofrelentlessself-improvementwiththeaimofdoingbeterandbeter,foreverintothefuture(stimulatesprogress).

Wewilprovideexamples,anecdotes,andsystematicevidencetosupportandilustrateeachofthesemethods.Asyoureadeachofthesechapters,weencourageyoutouseouroveralframeworkasaguidefordiagnosingyourownorganization:

•Hasitmadetheshiftinperspectivefromtimetelingtoclockbuilding?

•Does,itrejectthe“TyrannyoftheOR”andembracethe

“GeniusoftheAND”?

•Doesithaveacoreideology—corevaluesandpurposebeyondjustmakingmoney?

•Doesithaveadriveforprogress—analmostprimalurgeforchangeandforwardmovementinalthatisnotpartofthecoreideology?

•Doesitpreservethecoreandstimulateprogressthroughtangiblepractices,suchasBigHairyAudaciousGoals,homegrownmanagement,andtheothersdescribedthroughouttheremainderofthisbook?

remainderofthisbook?

•Istheorganizationinalignment,sothatpeoplereceiveaconsistentsetofsignalstoreinforcebehaviorthatsupportsthecoreideologyandachievesdesiredprogress?

Whenyounishreadingthenextsixchapters,youshouldhaveasizablementallistofspecic,tangiblethingsthatmightmakesenseforyoutoimplementin

yourownorganizationtomakeitmorevisionary.Itdoesn’tmaterwhetheryou’reaCEO,manager,individualcontributor,orentrepreneur.Youcanputtheseideastowork.

*IBM’sthreebasicbeliefsare:Givefulconsiderationtotheindividualemployee,spendalotoftimemakingcustomershappy,andgothelastmiletodothingsright.

Chapter5

Chapter5

BigHairyAudaciousGoals

Farbetertodaremightythings,towinglorioustriumphs,eventhoughcheckeredbyfailure,thantotakerankwiththosepoorspiritswhoneitherenjoymuchnorsufermuch,becausetheyliveinthegraytwilightthatknowsnotvictory,nordefeat.

THEODOREROOSEVELT,18991

Weworkedfuriously[torealizeourgoals].Becausewedidn’thavefear,wecoulddosomethingdrastic.

MASARUIBUKA,FOUNDER,SONYCORPORATION,19912

OfalthethingsI’vedone,themostvitaliscoordinatingthe

OfalthethingsI’vedone,themostvitaliscoordinatingthetalentsofthosewhoworkforusandpointingthemtowardacertaingoal.

WALTERELIASDISNEY,FOUNDER,WALTDISNEYCOMPANY,19543

PutyourselfintheshoesofBoeing’smanagementteamin1952.

Yourengineershavetheideatobuildalargejetaircraftforthecommercialmarket.Yourcompanyhasvirtualynopresenceinthecommercialmarketandyourearliercommercialatemptshavebeenfailures.You’vebeenbuildingaircraftprimarilyforthemilitary(B-17FlyingFortress,B-29Superfortress,B-52jetbomber)andfour-fthsofyourbusinesscomesfromonecustomer—theAirForce.4Furthermore,yoursalesforcereportsthatcommercialairlinesinboththeUnitedStatesandEuropehaveexpressedlitleinterestintheideaofacommercialjetfromBoeing.Theairlineshaveananti-Boeingbias—a“theybuildgreatbombers,period”

atitude.Nootheraircraftcompanyhasprovedthatthereisacommercialmarketforjetaircraft.RivalDouglasAircraftbelievesthatpropeler-drivenplaneswilcontinuetodominatethecommercialmarket.Yourcompanystilhasmemories

ofthepainfullayosfromfty-onethousandemployeesdowntoseventy-vehundredaftertheendofWorldWarI.5And,fortheclincher,youestimatethatitwilcostaboutthreetimesyouraverageannualafter-taxprotforthepastveyears—roughlyaquarterofyourentirecorporatenetworth—todevelopaprototypeforthejet.6

(Fortunately,youbelievethatyoucouldalsooerthisjetaircrafttothemilitaryasafuelingplaneforthemilitary,butyoustilneedtogamblethe$15milionofyourownmoneytodeveloptheprototype.)7

Whatshouldyoudo?

Ifyou’reBoeing’smanagement,youdefytheoddsandcommitto

Ifyou’reBoeing’smanagement,youdefytheoddsandcommittotheaudaciousgoalofestablishingyourselfasamajorplayerinthecommercialaircraftindustry.Youbuildthejet.Youcalitthe707.

Andyoubringthecommercialworldintothejetage.

Incontrast,DouglasAircraft(latertobecomeMcDonnelDouglas,Boeing’scomparisoncounterpartinourstudy)madetheexplicitdecisiontostickwithpistonpropelersandtakeacautiouswait-and-seeapproachtocommercialjetaircraft.8DouglaswaitedandsawBoeingyrightpastandseizedominantcontrolofthecommercialmarket.Evenaslateas1957—theyear,accordingtoBusinessWeek,thattheairlines“felalovereachotherintheirrushtoreplacepistonplanes”9—Douglasstildidnothaveajetreadyformarket.Finaly,in1958,DouglasintroducedtheDC-8,butnevercaughtuptoBoeing.

Perhapsyou’rethinking,“ButmightBoeinghavejustbeenlucky?

Boeinglookssmartinretrospect,butitcouldjustaseasilyhavebeenwrong.”Goodpoint.Andwewouldbeinclinedtoagree,exceptforonething:Boeinghasalongandconsistenthistoryofcommitingitselftobig,audaciouschalenges.Lookingasfarbackastheearly1930s,weseethisboldcommitmentbehavioratBoeingwhenitsetthegoalofbecomingamajorforceinthemilitaryaircraftmarketandgambleditsfutureontheP-26militaryplaneandthen“betthepot”ontheB-17FlyingFortress.10

Nordidthispaternendinthe1950swiththe707.Duringthedevelopmentof

the727intheearly1960s,Boeingturnedthedemandsofapotentialcustomer(EasternAirlines)intoaclear,precise—andnearlyimpossible—chalengeforitsengineers:Buildajetthatcouldlandonrunway4-22atLaGuardiaAirport(only4,860feetlong—muchtooshortforanyexistingpassengerjet)andbeabletoynonstopfromNewYorktoMiamiandbewideenoughforsix-abreastseatingandhaveacapacityof131

passengersandmeetBoeing’shighstandardsofindestructibility.

Boeing’sengineersmadeasignicantbreakthrough—the727—

largelybecausetheyweregivennootherchoice.11

Incontrast,DouglasAircraftwasslowtorespondanddidn’t

Incontrast,DouglasAircraftwasslowtorespondanddidn’tintroducetheDC-9untiltwoyearsafterthe727,putingitevenfurtherbehindBoeinginthecommercialjetmarket.Andbythen,Boeinghadanevenbetershort-rangejet,the737,indevelopment.

Theoreticaly,DouglascouldhaverisentotheEasternAirlineschalengejustasquicklyasBoeing,butitdidn’t.(Asanaside,Boeing’soriginalmarket-sizeestimateforthe727wasthreehundredairplanes.Iteventualysoldovereighteenhundred,andthe727becametheshort-rangeworkhorsefortheairlineindustry.)In1965,Boeingmadeoneoftheboldestmovesinbusinesshistory:thedecisiontogoforwardwiththe747jumbojet,adecisionthatnearlykiledthecompany.Atthedecisiveboardofdirectorsmeeting,BoeingChairmanWiliamAlenrespondedtothecommentbyaboardmemberthat“ifthe[747]programisn’tpanningout,wecanalwaysbackout.”

“Backout?”stienedAlen.“IftheBoeingCompanysayswewilbuildthisairplane,wewilbuilditevenifittakestheresourcesoftheentirecompany!”

Indeed,asithadwiththeP-26,B-17,707,and727,Boeingbecameirreversiblycommitedtothe747—nancialy,psychologicaly,publicly.Duringthe747development,aBoeingvisitorcommented,“Youknow,Mr.Alen,[Boeinghas]alotridingonthatplane.Whatwouldyoudoiftherstairplanecrashedontakeo?”Afteralongpause,Alenreplied,“I’drathertalkaboutsomethingpleasant—likeanuclearwar.”12

Again,aswiththeDC-8andDC-9,rivalMcDonnelDouglaswasslowtocommittoajumbojetprojectandfelintoyetanotherroundofcatch-upwithBoeing.TheDC-10,McDonnelDouglas’sresponse,neveratainedthesamemarketpositionasthe747.

BHAGS:APOWERFULMECHANISMTOSTIMULATEPROGRESS

BoeingCorporationisanexcelentexampleofhowhighlyvisionarycompaniesoftenuseboldmissions—orwhatweprefertocalBHAGs(pronouncedbee-hags,shortfor“BigHairyAudacious

BHAGs(pronouncedbee-hags,shortfor“BigHairyAudaciousGoals”)—asaparticularlypowerfulmechanismtostimulateprogress.ABHAGisnottheonlypowerfulmechanismforstimulatingprogress,nordoalthevisionarycompaniesuseitextensively(some,like3MandHP,prefertorelyprimarilyonothermechanismstostimulateprogress,aswe’ldiscussinlaterchapters).Nonetheless,wefoundmoreevidenceofthispowerfulmechanisminthevisionarycompaniesandlessevidenceofitinthecomparisoncompaniesinfourteenoutofeighteencases.InthreecaseswefoundthevisionarycompanyandcomparisoncompanytobeindistinguishablefromeachotherwithrespecttoBHAGs.Inonecase,wefoundmoreevidencefortheuseofBHAGsinthecomparisoncompany.(SeeTableA.5inAppendix3.)Alcompanieshavegoals.Butthereisadierencebetweenmerelyhavingagoalandbecomingcommitedtoahuge,dauntingchalenge—likeabigmountaintoclimb.Thinkofthemoonmissioninthe1960s.PresidentKennedyandhisadviserscouldhavegoneointoaconferenceroomanddraftedsomethinglike

“Let’sbeefupourspaceprogram,”orsomeothersuchvacuousstatement.Themostoptimisticscienticassessmentofthemoonmission’schancesforsuccessin1961wasfty-ftyandmostexpertswere,infact,morepessimistic.13Yet,nonetheless,Congressagreed(tothetuneofanimmediate$549milionandbilionsmoreinthefolowingveyears)withKennedy’sproclamationonMay25,1961,“thatthisNationshouldcommititselftoachievingthegoal,beforethisdecadeisout,oflandingamanonthemoonandreturninghimsafelytoearth.”14Giventheodds,suchaboldcommitmentwas,atthetime,outrageous.Butthat’spartofwhatmadeitsuchapowerfulmechanismforgetingtheUnitedStates,stilgroggyfromthe1950sandtheEisenhowerera,movingvigorouslyforward.

AClear—andCompeling—Goal

Likethemoonmission,atrueBHAGisclearandcompelingandservesasaunifyingfocalpointofeort—oftencreatingimmense

servesasaunifyingfocalpointofeort—oftencreatingimmenseteamspirit.Ithasaclearnishline,sotheorganizationcanknowwhenithasachievedthegoal;peopleliketoshootforfinishlines.

ABHAGengagespeople—itreachesoutandgrabstheminthegut.Itistangible,energizing,highlyfocused.People“getit”rightaway;ittakeslitleornoexplanation.

Themoonmissiondidn’tneedacommiteetospendendlesshourswordsmithingthegoalintoaverbose,meaningless,impossible-to-remember“missionstatement.”No,thegoalitself—

themountaintoclimb—wassoeasytograsp,socompelinginitsownright,thatitcouldbesaidonehundreddierentways,yeteasilyunderstoodbyeveryone.WhenanexpeditionsetsouttoclimbMountEverest,itdoesn’tneedathree-page,convoluted

“missionstatement”toexplainwhatMountEverestis.Thinkaboutyourownorganization.Doyouhaveverbosestatementsoatingaround,yetnostimulatingboldgoalswiththecompelingclarityofthemoonmission,climbingMountEverest,orthecorporateBHAGsinthischapter?Mostcorporatestatementswe’veseendolitletoprovokeforwardmovement(althoughsomedohelptopreservethecore).Tostimulateprogress,however,weencourageyoutothinkbeyondthetraditionalcorporatestatementandconsiderthepowerfulmechanismofaBHAG.

ReectingonthechalengesfacingacompanylikeGeneralElectric,CEOJackWelchstatedthattherststep—beforealothersteps—isforthecompanyto“deneitsdestinyinbroadbutclearterms.Youneedanoverarchingmessage,somethingbig,butsimpleandunderstandable.”15Likewhat?GEcameupwiththefolowing:

“Tobecome#1or#2ineverymarketweserveandrevolutionizethiscompanytohavethespeedandagilityofasmalenterprise.”16

EmployeesthroughoutGEfulyunderstood—andremembered—theBHAG.NowcomparethecompelingclarityofGE’sBHAGwiththe

BHAG.NowcomparethecompelingclarityofGE’sBHAGwiththedicult-to-understand,hard-to-remember“visionstatement”

articulatedbyWestinghousein1989:

GeneralElectric17

Westinghouse18

Become#1or#2inevery

TotalQuality

marketweserveand

MarketLeadership

revolutionizethiscompany

TechnologyDriven

tohavethespeedandagility

Global

ofasmalenterprise.

FocusedGrowth

Diversified

ThepointhereisnotthatGEhadthe“right”goalandWestinghousehadthe“wrong”goal.ThepointisthatGE’sgoalwasclear,compeling,andmorelikelytostimulateprogress,likethemoonmission.WhetheracompanyhastherightBHAGorwhethertheBHAGgetspeoplegoingintherightdirectionarenotirrelevantquestions,buttheymisstheessentialpoint.Indeed,theessentialpointofaBHAGisbetercapturedinsuchquestionsas:“Doesitstimulateforwardprogress?Doesitcreatemomentum?Doesitgetpeoplegoing?Doesitget

people’sjuicesowing?Dotheynditstimulating,exciting,adventurous?Aretheywilingtothrowtheircreativetalentsandhumanenergiesintoit?”(NOTE:Thisdoesn’tmeanthatavisionarycompanypursuesanyrandomBHAGthatoccurstoit.Anequalyimportantquestionis,“Doesittwithourcoreideology?”Moreonthisattheendofthechapter.)Take,forexample,thecaseofPhilipMorrisversusR.J.Reynolds.

In1961,R.J.Reynoldshadthelargestmarketshare(almost35

percent),greatestsize,andhighestprotabilityinthetobaccoindustry.PhilipMorris,ontheotherhand,wasasixth-placealso-

industry.PhilipMorris,ontheotherhand,wasasixth-placealso-ranwithlessthan10percentmarketshare.19ButPhilipMorrishadtwothingsgoingforitthatR.J.Reynoldsdidn’t.First,andcertainlynottobediscounted,PhilipMorrishadrecentlyrepositionedalitle-knownwomen’scigaretecaledMarlboroasageneralmarketcigaretewithacowboymascotthatwouldprovetobeahugesuccess.Andsecond,PhilipMorrishadsomethingtoshootfor.

Comingfrombehind,PhilipMorrissettheaudaciousgoalforitselfofbecomingtheGeneralMotorsofthetobaccoindustry.20

(Backinthe1960s,becoming“theGeneralMotorsoftheindustry”

meantbecomingthedominantworldwideplayer.)PhilipMorristhencommiteditselftothisgoalandrosefromsixthtofth,fromfthtofourth,andsoonuntilitblastedlongtimeleaderR.J.

Reynoldsoutofrstplace.Duringthissametimeperiod,R.J.

Reynoldsdisplayedastodgy,good-old-boy,clubbyatmosphereandnoclear,drivingambitionforitselfotherthantoatainagoodreturnforshareholders.

Ofcourse,PhilipMorrishaditeasierthanR.J.Reynolds:It’smuchmoremotivatingtocomefrombehindandtoppleindustrygiants—

likeDavidversusGoliath—thantosimplyhangontonumberone.

It’sexcitingtobatleGoliath!It’sevenmoreexcitingtobeathim.

Butthefactremainsthatofthevealso-rantobaccocompaniesinthe1960s,onlyone—PhilipMorris—setandatainedtheambitiousgoalofknockingGoliathonhisrearandbecomingtheGMoftheindustry.Toseriouslyentertainsuchambitionsasthedistantsixth-placeplayerinanindustrydominatedbyentrenchedplayersdoesnotsuggesttimidity.Indeed,folowingtherationalmodelsofstrategicplanning,itwouldsuggestarrogantstupidity,notfarsightedwisdom.We’vesometimesusedthePhilipMorrissituation(disguisedsoastonotgiveawaythepunchline)withMBAstudentswelschooledinstrategicplanning.Almostnoneofthemthinkthecompanyshouldgoforthebigcigar;asonestudentputit,“Theydon’thavetherightstrategicassetsandcompetencies;theyshouldsticktotheirniche.”Certainly,PhilipMorriscouldhavebeenwrong,longforgoten,andwewouldn’tbewritingaboutitinthisbook.But,equalycertain,hadPhilipMorristimidlyheldtoits

thisbook.But,equalycertain,hadPhilipMorristimidlyheldtoitsindustrynicheandnotchalengedGoliath,wewouldn’tbewritingabouttheminthisbook,either.

ASinthePhilipMorriscase,BHAGsarebold,falinginthegrayareawherereasonandprudencemightsay“Thisisunreasonable,”butthedriveforprogresssays,“Webelievewecandoitnonetheless.”Again,thesearen’tjust“goals”;theseareBigHairyAudaciousGoals.

Anotherexample,in1907,HenryFord,aforty-three-year-oldbusinessman,stimulatedhiscompanyforwardwithanastoundingBHAG:“Todemocratizetheautomobile.”Fordproclaimed:

[To]buildamotorcarforthegreatmultitude....Itwilbesolowinpricethatnomanmakingagoodsalarywilbeunabletoownone—andenjoywithhisfamilytheblessingofhoursofpleasureinGod’sgreatopenspaces....everybodywilbeabletoaordone,andeveryonewilhaveone.Thehorsewilhavedisappearedfromourhighways,theautomobilewilbetakenforgranted.21

AtthetimeofthisBHAG,Fordwasmerelyoneofoverthirtycompaniesalclamoringforasliceoftheemergingautomobilemarket.Nocompanyhadyetestablisheditselfasaclearleaderinthechaosoftheyoungindustry,andFordhadonlyabout15

percentofthemarket.ThisoutrageousambitioninspiredtheentireForddesign

teamtoworkataferociouspacetiltenoreleveneverynight.22Atonepoint,CharlesSorenson,amemberofthatteam,remembered,“Mr.FordandI[once]workedaboutforty-twohourswithoutletup.”23

hourswithoutletup.”

Duringthisperiodoftime,GeneralMotors(Ford’scomparisoninthestudy)watcheditsmarketshareerodefrom20to10percentwhileFordrosetothenumberonepositionintheindustry.

Ironicaly,however,onceFordhadachieveditsbighairygoalofdemocratizingtheautomobile,itdidn’tsetanewBHAG,becamecomplacent,andwatchedGMsetandachievetheequalyaudaciousgoalofovercomingFord.WeshouldemphasizeherethataBHAG

onlyhelpsanorganizationaslongasithasnotyetbeenachieved.

Fordsueredfromwhatwecalthe“we’vearrived”syndrome—acomplacentlethargythatcanariseonceacompanyhasachievedoneBHAGanddoesnotreplaceitwithanother.(Asanaside,ifyourorganizationhasaBHAG,youmightwanttothinkaboutwhat’snextbeforeyoucompletethecurrentone.Also,ifyoundyourorganizationisinastateofmalaise,youmightaskyourselfifyouoncehadaBHAG—eitherimplicitorexplicit—thatyou’veatainedandnotreplacedwithanewone.)

Let’slookatanotherexampleofaudacityinayoung,smalcompany.Inthelate1950s,TokyoTsushinKogyo(arelativelysmalcompany,largelyunknownoutsideofitshomecountry)tookthecostlystepofdiscardingitsoriginalnameinfavorofanewone:SonyCorporation.Thecompany’sbankobjectedtotheidea:“It’stakenyoutenyearssincethecompany’sfoundingtomakethenameTokyoTsushinKogyowidelyknowninthetrade.Afteralthistime,whatdoyoumeanbyproposingsuchanonsensicalchange?”Sony’sAkioMoritarespondedsimplythatitwouldenablethecompanytoexpandworldwide,whereasthepriornamecouldnotbeeasilypronouncedinforeignlands.24

You’reprobablythinkingthatsuchamovedoesnotrepresentsomethingparticularlyaudacious;afteral,mostsmaltomidsizecompanieseventualylooktooverseasmarkets.Andit’snotthatbigofadealtochangeacorporatenamefromTokyoTsushinKogyotoSony.ButlookcloselyatthereasonAkioMoritagaveforthismove,forthereinliesanimmenseBHAG:

AlthoughourcompanywasstilsmalandwesawJapanasquitealargeandpotentialyactivemarket...itbecameobvioustomethatifwedidnotsetoursightsonmarketingabroad,wewouldnotgrowintothekindofcompanyIbukaandIhadenvisioned.Wewantedtochangetheimage[aroundtheworld]

ofJapaneseproductsaspoorinquality.25

Inthe1950s,“MadeinJapan”meant“cheap,junky,poorquality.”Inreadingthroughmaterialsonthecompany,weconcludedthatSonynotonlywantedtobesuccessfulinitsownright,buttobecomethecompanybestknownforchangingtheimageofJapaneseconsumerproductsasbeingpoorquality.26

Havinglessthanathousandemployeesandnooverseaspresencetospeakof,thiswasanontrivialambition.

Thisisn’ttherstexampleofaBHAGinSony’shistory.In1952,forexample,itsentitslimitedengineeringstainpursuitofaseeminglyimpossiblegoal:tomakea“pocketable”radio—aradiothatcouldtinashirtpocketandcouldtherebybecomeapervasiveproductworldwide.27Inthe1990s,wetakesuchminiaturizationforgranted,butintheearly1950s,radiosdependedonvacuumtubes.Tobuildsuchaminiatureradiorequiredlongperiodsofpainstakingtrialanderrorandsignicantinnovation.Nocompanyintheworldhadyetsuccessfulyappliedtransistortechnologytoaconsumerradio.28

“Let’sworkonatransistorradio,whateverthedicultieswemayface,”proclaimedMasaruIbuka.“Iamsurewecanproducetransistorsforradios.”

WhenIbukatoldanoutsideadviserabouttheboldidea,theadviserresponded:“Transistorradio?Areyousure?EveninAmericatransistorsareusedonlyfordefensepurposeswheremoneyisnoobject.Evenifyoucomeoutwithaconsumerproductusingtransistors,whocouldaordtobuysuchamachinewithsuchexpensivedevices?”

“That’swhatpeoplethink,”respondedIbuka.“Peoplearesaying

“That’swhatpeoplethink,”respondedIbuka.“Peoplearesayingthattransistorswon’tbecommercialyviable....Thiswilmakethebusinessalthemoreinteresting.”29Infact,Sonyengineersreveledintheideaofdoingsomethingdeemedbyoutsidersasfoolhardy—perhapsevenimpossible—forsuchasmalcompany.

Sonymadethepocketableradioandfulleditsdreamofcreatingaproductthatbecamepervasiveworldwide.(Asanoutgrowthofthiseort,oneofSony’sscientistsmadebreakthroughsinthedevelopmentoftransistorsthateventualyledtoaNobelPrize.)30

Wal-MarthashadasimilarpaternofaudaciousBHAGs,beginningasfarbackasSamWalton’srstve-and-dimestorein1945,forwhichhisrstgoalwasto“makemylitleNewportstorethebest,mostprotablevarietystoreinArkansaswithinveyears.”31Toachievethisgoalrequiredmorethantriplingthesalesvolumefrom$72,000peryearto$250,000peryear.Thestoreatainedthisgoal,becomingthebiggest,mostprotablestoreinArkansasandinthesurroundingfivestates.32

Waltoncontinuedtosetsimilarlyaudaciousgoalsforhisorganization,decadeafterdecade.In1977,hesettheBigHairyAudaciousGoalofbecominga$1bilioncompanyinfouryears(amorethandoublingofthecompany’ssize).33Wal-Martdidn’tstopthere,however,continuingtosetboldnewtargetsforitself.In1990,forexample,SamWaltonsetanewtarget:todoublethenumberofstoresandincreasethesalesvolumepersquarefootby60percentbytheyear2000.34Afterpublishingthisexampleinanarticle,wereceivedthefolowingleterfromaproudWal-Martdirector:

January10,1992

YouarecorrectthatSamWaltonarticulatedatargettodoublethenumberofstoresandincreasethedolarvolumepersquarefootby60%bythefiscalyear2000.

Themoreimportantpoint—andwhatwasmissed—isthathe

Themoreimportantpoint—andwhatwasmissed—isthathedidsetaspecictargetof$125bilion!Atthetime,thelargestretailerintheworldhadreached$30bilion.FortheyearendingJanuary1991,Wal-Martreached$32.6bilionandbecamethelargestretailerintheUnitedStatesandtheworld.

Theonlycorporationanywherewhichhasatainedavolumeapproaching$125bilionisGeneralMotors.

IhavebeenadirectorofWal-MartStoressince1980andhavecompletecondencethatthetargetsetbySamWaltonwilbeatained.Ifsomeonethoughthis

originaltargetsetin1977wasaudacious,heorshemustbefrightenedbythepresenttarget.

Sincerely,

RobertKahn

CertifiedManagementConsultant&

Wal-MartDirector

Now,that’saBHAG!

CommitmentandRisk

It’snotjustthepresenceofagoalthatstimulatesprogress,itisalsothelevelofcommitmenttothegoal.Indeed,agoalcannotbeclassiedasaBHAGwithoutahighlevelofcommitmenttothegoal.Doingthe747,forexample,wouldbeanicegoal,maybeevenanaudaciousgoal.Butthecommitmentto“buildthisairplaneevenifittakestheresourcesoftheentirecompany!”turnsitintoaful-edgedBHAG.And,infact,Boeingsueredterriblyintheearly1970sassalesofthe“BigBird”grewmoreslowlythanexpected.

Duringthethree-yearperiodfrom1969to1971,Boeinglaidoatotalofeighty-sixthousandpeople,roughly60percentofitsworkforce.35Duringthosedicultdays,someoneplacedabilboardnearInterstate5inSeatlewhichread:

Wilthelastperson

leavingSeattlepleaseturn

outthelights?

Wealknownowthatthe747becametheagshipjumbojetoftheairlineindustry,butthedecisionlooksmuchdierentfromtheperspectiveofthelate1960s.Yet—andthisisthekeypoint—

Boeingwaswilingtomaketheboldmoveinthefaceoftherisks.

AsinBoeing’scase,therisksdonotalwayscomewithoutpain.

Stayinginthecomfortzonedoeslitletostimulateprogress.

WeseeasimilarpaternatWaltDisneyCompany,whichhasstimulatedprogressthroughoutitshistorybymakingbold—andoftenrisky—commitmentstoaudaciousprojects.In1934,WaltDisneyaimedtodosomethingneverbeforedoneinthemovieindustry:createasuccessfulful-lengthanimatedfeaturelm.IncreatingSnowWhite,Disneyinvestedmostofthecompany’sresourcesanddeedthoseintheindustrythatcaledit“Disney’sFoly.”Afteral,whowouldwanttoseeaful-lengthfeaturecartoon?Twodecadeslater,afterastringofful-lengthanimatedlms,includingPinocchio,Fantasia,andBambi,Disneymadeyetanotherriskycommitmenttooneof“Walt’sscrewyideas”:tobuildaradicalynewkindofamusementpark,latertobecomeknowntoalofusasDisneyland.Inthe1960s,Disneyrepeatedtheprocessagain,withacommitmenttofullWalt’sdyingdream:EPCOT

centerinFlorida.36Walt’sbrother,Roy,carriedthecommitmentthrough,accordingtoMichaelEisner:

Hevirtualygavehislifetofullhisbrother’sdreamofbuildingWaltDisneyWorld.Hegaveuphismuchdeserved

buildingWaltDisneyWorld.Hegaveuphismuchdeservedretirement,infusedtheparkthroughoutwithDisneyquality,andsawtheprojectthroughtocompletion,personalycutingtheribbononopeningday.Hediedwithintwomonthsofthatmomentousevent.37

ColumbiaPictures,incontrast,didverylitlethatwasbold,visionary,orrisky.ItproducedB-grademoviesduringthe1930sand1940s.Duringthe1950sand1960s,itmadesomegoodlms,butwasapparentlyunwilingtomakecommitingmovesintothefuture.WhileDisneywaspushingforwardintoEPCOT,Columbiawasbeingrunbypeoplewhosawthemselves“rst,last,andalways...asinvestors,notmanagers.”38AndwhereasColumbiawaseventualyacquiredintheearly1980s,Disneycameroaringbackafteritdefeatedasetofhostileraidersandpursuednewboldadventures,suchasJapanDisneyandEuroDisney.

IBM,likeDisney,puledaheadofrivalBurroughsatcriticaljuncturesinitshistoryviathemechanismoftangible—and,attimes,risky—commitmentstoaudaciousgoals.Inparticular,wepointtoIBM’sBHAGtoreshapethecomputerindustryintheearly1960s.ToatainthisBHAG,IBMputitselfatriskby

makinganal-

or-nothinginvestmentinanewcomputercaledtheIBM360.Atthetime,the360wasthelargestprivatelynancedcommercialprojecteverundertaken;itrequiredmoreresourcesthantheUnitedStatesspentontheManhatanProjecttodeveloptherstatomicbomb.Fortunemagazinecaledthe360“IBM’s$5,000,000,000

gamble...perhapstheriskiestbusinessjudgmentofrecenttimes.”

Duringthe360introduction,IBMbuiltupnearly$600milionofwork-in-processinventoryandalmostneededemergencyloanstomeetpayrol.

Furthermore,the360wouldmakeobsoletemostofIBM’sexistingproductlines.Uponpublicannouncementofthe360,demandforIBM’sexistingproductsdriedupandthecompanyfounditselfcommitedtoalongleapacrossadeepcanyonwithnogoingback.

Ifthe360failed,then,wel,itwouldn’tbeapretysight.WroteFortune,“ItwasroughlyasthoughGeneralMotorshaddecidedto

Fortune,“ItwasroughlyasthoughGeneralMotorshaddecidedtoscrapitsexistingmakesandmodelsandoerintheirplaceonenewlineofcarscoveringtheentirespectrumofdemand,witharadicalyredesignedengineandanexoticfuel.”39TomWatson,Jr.,wrote:

Therewasn’tgoingtobemuchroomforerror.Itwasthebiggest,riskiestdecisionIevermade,andIagonizedaboutitforweeks,butdeepdownIbelievedtherewasnothingIBM

couldn’tdo.40

Ironicaly,Burroughs(IBM’scomparisoninthestudy)hadatechnologicalleadoverIBMincomputers.However,whenthetimecametomakeaboldcommitmenttocomputers,Burroughstooktheconservativeapproach,choosinginsteadtoconcentrateonolderlinesofaccountingmachines.LikeDouglasAircraftrelativetoBoeing,BurroughsthenwatchedasIBMseizedcontrolofthemarket.IndescribingthisphaseinBurroughs’history,RayMacDonald(Burroughs’presidentatthetime),explained,“From1964to1966ourmajoreortwastobringprotabilityup.Therestraintsonourcomputerprogramwere

temporaryandwerecausedonlybythefactthatweneededtoimmediatelyimproveearnings.”41

Again,asdiscussedinthechapteroncoreideology,weseethathighlyvisionarybehavioroccurswhenthecompanydoesnotviewbusinessasultimatelyaboutmaximizingprotability.IBMhadtobenumberoneandgoforthe360notjusttomakemoney,butbecauseitwasIBM.But,ofcourse,IBMwasn’talwaysIBM.

Backin1924,theComputingTabulatingRecordingCompany(CTR)wasnotmuchmorethananyofahundredotherfairlyaveragemidsizecompaniestryingtomakeagoofit.Infact,ithadbeennearlybankruptthreeyearspriorandonlysurvivedthe1921

recessionthroughheavyborrowing.42Itprimarilysoldtimeclocksandweighingscales,andonlyhadfty-twosalesmenwhometquota.43ButThomasJ.Watson,Sr.,hadnointerestinseeingCTR

quota.ButThomasJ.Watson,Sr.,hadnointerestinseeingCTR

remainanaveragecompany.Hewantedthecompanytoraiseitssights,tobecomemore—muchmore—thanthedrearylitleComputingTabulatingRecordingCompany.Hewantedittoembarkonthepathofbecomingatrulygreatcompanyofglobalstature,sohechangedthecompany’sname.Todaywethinknothingofthename“InternationalBusinessMachines”;butbackin1924,itseemedalmostludicrous.InthewordsofThomasJ.

Watson,Jr.:

Fathercamehomefromwork,gavemotherahug,andproudlyannouncedthattheComputingTabulatingRecordingCompany,henceforthwouldbeknownbythegrandnameInternationalBusinessMachines.Istoodinthedoorwayofthelivingroomthinking,“Thatlitleoutt?”DadmusthavehadinmindtheIBMofthefuture.Theoneheactualyranwasstilfulofcigar-chompingguysselingcofeegrindersandbutcherscales.44

Anamechangeperseisn’tparticularlyaudacious.ButproclaimingitselftobetheInternationalBusinessMachinesCorporationin1924—andtomeanit—representssheeraudacity.

(Fortherecord,Burroughsremainedthe“BurroughsAddingMachineCompany”until1953.WedoubtthatthisnamehadthesameimpactonBurroughsemployees’senseoftheirfutureasthenameInternationalBusinessMachineshadoveratIBM.)EvenhighlyconservativeProcter&GamblehasperiodicalyusedboldBHAGs.In1919,forexample,P&Gsetthegoaltoreachapointwhereitcouldprovidesteadyemploymentforitsworkersbyrevolutionizingthedistributionsystem,bypassingwholesalers,andgoingstraighttoretailers.(Wholesalersorderedlargequantitiesandthen,likeasnakedigestingalargemeal,wouldliedormantformonths,thusforcingP&Gintohire-and-reswingsofhighandslackdemand.)AccordingtoOscarSchisgalinEyesonTomorrow:TheEvolutionofProcter&Gamble,theinternaldebateonthegoalwentasfolows:45

“Wewouldneedtoincreasethenumberofaccountsfrom20,000toover400,000,”complainedtheaccountants.“Doyourealizewhatthatwildotoouraccountingcosts?”

“We’dhavetoopenhundredsofwarehousesaroundthecountry,”thedistributionteampointedout.“We’dhavetohiretruckingcompaniesalovertheUnitedStatestodelivertotheretailstores.”

“WilthewholesalersbecomesofuriouswhentheirP&G

businessistakenawaythatthey’lstarttoboycotandrefusetoselanythingtostoresthatdealdirectlywithP&G?”askedsomemanagers.“Thatcouldruinus.”

“HowcanP&GpossiblybuildasalesstalargeenoughtovisiteverylitlegrocerystoreinAmerica?”askedthesalespeople.

“ThesalesdivisionwouldhavetobebiggerthantheU.S.

Army!”

RichardDeupree,P&Gpresidentatthetime,believedinP&G’sabilitytoovercometheodds,andhesawthegoalofsteadyemploymentasworththerisks.(HiscondencewaspartlybasedonasuccessfulexperimentaleorttogodirectlytoretailersinNewEngland.)P&Gwentforwardwiththeideaandguredouthowtomakeitwork.By1923,P&Ghadachieveditsgoal.Anewspaperarticleannounced:

OnAugust1,1923,astatementofmorethanusualinteresttotheworldoflaborandindustrywasannouncedbyProcter&

GambleCompany.ThiswasaguaranteeofsteadyemploymenttotheemployeesofthecompanyinplantsandoficeslocatedinthirtycitiesintheUnitedStates.Thisepoch-makingannouncementmeantthatforthersttimeinAmericanindustry,thethousandsofemployeesofoneofthecountry’slargestcorporationswereassuredofsteadyemploymenttheyearround,regardlessofseasonaldepressionsinbusiness.46

Indescribingsuchcommitments,Deupreeexplained:Weliketotrytheimpracticalandimpossibleandproveittobebothpracticalandpossible—ifit’stherightthingtodointherstplace....Youdosomethingyouthinkisright.Ifitclicks,yougiveitaride.Ifyouhit,mortgagethefarmandgoforbroke.47

Colgate,incontrast,showedmuchlessself-initiativethanP&G

throughoutitshistoryinlaunchingnew,audacious,orinnovativeprojects.Aswiththepathstraighttoretailers,ColgatefounditselftimeandagainonestepbehindP&G,inareactivefolow-the-leadermode.(WewilmorethoroughlydiscusstheP&G/Colgatecontrastinlaterchapters.)

The“HubrisFactor”

Oneofourresearchassistantsobservedthathighlyvisionarycompaniesseemtohaveself-condenceborderingonhubris(thedictionarydeneshubrisas“overbearingpride,condence,orarrogance”).Wecametocalthisthe“hubrisfactor.”Inmythologicalterms,youmightthinkofitastauntingthegods.

TosetBigHairyAudaciousGoalsrequiresacertainlevelofunreasonablecondence.It’snotreasonabletocommittotheBoeing707or747.TheIBM360wasnotprudent,norwasithumbleforamidsizebutcher-scaleselertoproclaimitselftobetheInternationalBusinessMachinesCorporation.It’snotcautioustocreateDisneyland.It’snotmodesttodeclare,“Wewildemocratizetheautomobile.”ItwasalmostfoolhardyforPhilipMorris—astheruntchildofthetobaccoindustry—totakeonR.J.Reynolds.It’salmostabsurdtoproclaimasasmalcompanythegoalofbecomingthecompanythatchangestheworldwideimageofJapaneseproductsasbeingofpoorquality.

Thereinliesoneofthemaddeningparadoxesbehindthevisionary

Thereinliesoneofthemaddeningparadoxesbehindthevisionarycompanies.

THEBHAGslookedmoreaudacioustooutsidersthantoinsiders.Thevisionarycompaniesdidn’tseetheiraudacityastauntingthegods.Itsimplyneveroccurredtothemthattheycouldn’tdowhattheysetouttodo.

Let’smakeananalogytomountainclimbing.Imaginewatchingarockclimberscaleacliwithoutarope;ifshefals,shedies.Totheuninformedspectator,theclimberlooksboldandrisk-seeking,ifnotfoolhardy.Butsupposethatclimberisonaclimbthattoherappearseminentlydoable,welwithinherrangeofability.Fromtheclimber’sperspective,shehasnodoubtsthat,withpropertrainingandconcentration,shecanmaketheclimb.Toher,theclimbisnottoorisky.Itdoesstimulatehertoknowthatifshefals,shedies;butshehascondenceinherability.ThehighlyvisionarycompaniesinsetingboldBHAGsaremuchlikethatclimber.

THEGOAL,NOTTHELEADER(CLOCKBUILDING,NOTTIME

TELLING)

Wewishtoemphasizethatthekeymechanismatworkhereisnotcharismaticleadership.Returningtothemoonmissionexample,wecannotdenythatJohnF.Kennedyhadacharismaticleadershipstyle,norcanwedenythathedeservesmuchofthecreditforseriouslyproposingtheimaginativeandboldgoalofgoingtothemoonandbackbeforetheendofthedecade.Nonetheless,Kennedy’sleadershipstylewasnottheprimarymechanismatworkforstimulatingprogress.Kennedydiedin1963;hewasnolongerpresenttourge,prod,inspire—to“lead”tothemoon.AfterKennedy’sdeath,didthemoonmissionbecomeanylessinspiring?

Diditgrindtoahalt?Didgoingtothemoonceasetoprovidea

Diditgrindtoahalt?Didgoingtothemoonceasetoprovideasenseofnationalmomentum?Ofcoursenot!Thebeautyofthemoonmission,oncelaunched,wasitsabilitytostimulateprogressregardlessofwhoeverhappenedtobepresident.WasitanylessexcitingtolandonthemoonwithRichardNixoninocethanJohnF.Kennedy?No.Thegoalitselfbecamethemotivatingmechanism.

Let’sreturnforamomenttoourleterfromRobertKahn,theWal-Martdirector.HewrotetheleteronJanuary10,1992—thesametimethatSamWaltonwasin

thenalmonthsofhisbatlewithbonecancer,whichendedhislifeonApril5,1992.Nonetheless,evenwithWalton’srapidlydeterioratinghealth,Kahnexpressed

“completeconfidence”thatWal-Martwouldmeetthegoal.WhetherWal-Martwilbecomea$125bilioncompanybytheyear2000

remainstobeseenaswewritethesewords,butthegoalstilexists

—pulingthecompanyforwardlikeamagnet—evenwithoutthecharismaticleadershipofSamWalton.BysetingsuchanaudaciousBHAG,Waltonleftbehindapowerfulmechanismforstimulatingprogress.Thegoaltranscendedtheleader.

ThegoalalsotranscendedtheleaderatBoeing.Certainly,WiliamAlenplayedakeyroleingetingthecompanycommitedtothe747,butthegoalitselfbecamethestimulusforvigorousmovement,notWiliamAlen.Infact,T.A.Wilson,WiliamAlen’ssuccessor,becameBoeing’spresidentandchiefexecutiveocerin1968,withthe747stilindevelopmentandthecompanyyettofacethenearlyfataltaskofsurvivingtheinitialslowsalesofthebigbird.BoeingdidnotgrindtoahaltorbecomelethargicafterAlen’sretirement,notwiththeverysurvivalofthecompanyatstake,andcertainlynotwiththemostamazingcommercialairplaneinhistoryyettobeborn.KeepinmindthatBoeingusedthismechanismforstimulatingprogresslongbeforeWiliamAlen(theP-26,theB-17,andothers)andlongafterthetenureofWiliamAlen(thecompletionofthe747,andthenthe757and767).TherepeatedcommitmenttoBHAGshasbeenakeymechanism—partofthe

“tickingclock”—atBoeingthrough(sofar)sixgenerationsofleadership.

leadership.

Incontrast,McDonnelDouglas’lackofforwardprogressrelativetoBoeingcanbetracedinlargeparttothepersonalleadershipstyleofJamesMcDonnel.BusinessWeekrananarticleonMcDonnelDouglasin1978entitled“WhereManagementStyleSetsStrategy,”whereinitdetailedhow“Mr.Mac’s”styleof“measuringeveryriskcarefuly,beinghighlyconservative...produce[s]astrategywithoutdebatingitaroundthetable.”48AtBoeing,audaciouscommitmentstobold,daringprojectsbecameacharacteristicoftheinstitution—regardlessoftheleaderincharge.

AtMcDonnelDouglas,therisk-averse,stick-in-the-mudapproachtocommercialaircraftwasacharacteristicoftheindividualleaderincharge.Again,weseeclockbuildingatBoeingandtimetelingatMcDonnelDouglas(andnotevengoodtimeteling,atthat).

SonyalsomadetheuseofBHAGsaninstitutionalizedhabit—awayoflife.NickLyons,whodelvedintotheinnerworkingsofSony’smanagementprocessesforhisbookTheSonyVision,wrote:

“Target.AwordIheardrepeatedoverandover—inEnglish—

[insideSony].”49Dr.MakatoKikuchi,Sony’sdirectorofresearchinthemid-1970s,describedtoLyonstheimportanceofthisembeddedprocess(paraphrased):

ThoughitiswidelyrumoredthatSonyspendsavastlygreaterproportionofgrosssalesonresearchthanotherrms,thisissimplynotso....ThedierencebetweenoureortsandthoseofotherJapanesecompaniesliesnotintheleveloftechnology,orthequalityoftheengineers,orevenintheamountofmoneybudgetedfordevelopment(about5%ofsales).Themaindierenceliesin...theestablishmentofmission-orientedresearchandpropertargets.Manyothercompaniesgivetheirresearchersfulfreedom.Wedon’t;wendanaim,averyrealandcleartargetandthenestablishthenecessarytaskforcestogetthejobdone.Ibukataughtusthat,oncethecommitmenttogoaheadismade,nevergiveup.ThispervadesaltheresearchanddevelopmentworkatSony.50

BHAGsandthe“PostheroicLeaderStal”

Corporationsregularlyfacethedilemmaofhowtomaintainmomentumafterthedepartureofhighlyenergeticleaders(oftenfounders).Wesawthis“postheroicleaderstal”atanumberofcomparisoncompaniesinourstudy:Burroughs(afterBoyer),ChaseManhatan(afterRockefeler),Columbia(afterCohn),HowardJohnson(afterJohnson,Sr.),Melvile(afterMelvile),TI(afterHaggarty),Westinghouse(afterGeorgeWestinghouse),andZenith(afterMacDonald).Wedidn’tseethispaternasmuchinthevisionarycompanies—onlytwoclearcasesstandout:WaltDisney(afterWaltDisney)andFordMotor(afterHenryFord,Sr.).Thevisionarycompaniesoerapartialsolution:CreateBHAGsthattakealifeoftheirownandtherebyactasastimulusthroughmultiplegenerationsofleadership.(Ifyouareasoon-to-retirechiefexecutive,weencourageyoutotake

ahardlookatthislesson.DoesyourcompanyhaveaBHAGtowhichitiscommitedandthatwilprovidemomentumlongafteryou’regone?And,evenmoreimportant,doesithavetheabilitytocontinualysetboldnewgoalsforitselflongintothefuture?)

InexaminingCiticorp,forexample,wenoticedthatthecompanycontinualyusedbold,audaciousgoalstomoveitselfforwardthroughmultiplegenerationsofleadership.Inthe1890s,CityBank(asCiticorpwasthennamed)wasanunspectacularregionalbankwithonlyapresident,acashier,andahandfulofemployees.YetpresidentJamesStilmansetthealmostludicrous(butcertainlystimulating)aim“tobecomeagreatnationalbank.”51Anancialjournalistwrotein1891:

[He]dreamsofagreatnationalbank,andthinkshecanmakeoneoftheCityBank.Itiswhatheistryingtodo,itiswhatoccupieshismind,andanimateshisactions.Heisrunninghisbanknottowarddividends,buttowardsanideal...tomakeitgreatindomesticandininternationalnance:thatisthedreamofJamesStilman.”52

AlthoughwecancertainlytracetheconceptionofthisBHAGtoStilmanhimself,ittookalifeofitsownandpropeledthecompanyforwardlongintofuturegenerations.FrankVanderlip,Stilman’ssuccessoraspresident,wrotein1915(aquarterofacenturyafterStilman’s“dream”andsixyearsafterStilmanmovedtoParisinretirement):

Iamperfectlycondentthatitisopentoustobecomethemostpowerful,themostserviceable,themostfar-reachingworldfinancialinstitutionthathaseverbeen.53

Aboldgoalindeed,especialyforabankthatayearearlierhadonly“eightvicepresidents,tenjuniorocers,andfewerthanvehundredotheremployees...atasinglelocationonWalStreet.”54

Then,inthenextgeneration,CharlesMitchelechoedthesamego-forwardtuneina1922speechtoemployees:“Weareonourwaytobiggerthings.TheNationalCityBank’sfutureisbrighterthanithaseverbeen...Wearegetingreadynowtogofulspeedahead.”55Going“fulspeedahead”—inpursuitofthegreatambitionsrstdreamedinthelate1880s—CityBankgrewfrom$352miliontotalassetsin1914to$2.6bilionofassetsin1929,anaverageannual

growthrateofover35percent.

CityBank,likemostbanks,struggledthroughthe1930s,butafterWorldWarIitewforward—throughvefurthergenerationsofleadership—withheightenedenergytowardStilmanandVanderlip’sambitionofbecoming“themostfarreachingnancialinstitutiontherehaseverbeen.”GeorgeMoore(presidentfrom1959to1967)soundedalotlikehispredecessorsofhalfacenturyearlierwhenhesaid:

Around1960...[wedecidedthat]wewouldseektoperformeveryusefulfinancialservice,anywhereintheworld.56

Notetheconsistencyacrossthegenerations.Yes,eachgenerationhadachiefexecutive.Andyes,theoriginalCiticorpdreamtracesbacktoanoriginalarchitect.Butthegoalitselftranscendedthatarchitect,andthepredispositiontogofortheaudaciousbecameanembeddedpaternintheinstitution.

ChaseManhatan(Citicorp’scomparisoninthestudy)hadsimilarambitionsand,infact,thetwobanksviedwitheachotherasercerivals.Throughoutthetwentiethcentury,CiticorpandChasewereevenlymatched,racingsidebyside.Duringthe1960s,thetwobanksbatledwitheachotherforend-of-yearrst-placehonorsintermsofassetsandfrom1954to1969theyranalmostdeadeven.57

Notuntil1968,infact,didCiticorppulaheadofChaseforgood,eventualyreachingtwicethesizeofChase.WeacknowledgethatCiticorpstumbledinthelate1980sandearly1990s.ButsodidChase,andtheyhadalotofcompany,asanumberofcommercialbankshadhardtimesinthe1980s.

Yet,evenwiththeirsimilarities,therewasasignicantdierencebetweenCiticorpandChaseinthetoneandstrategiessupportingtheirambitiousgoals—adierencethatperhapsexplainsinparttheirdierenttrajectoriesafter1968.DavidRockefelerbecamepresidentofChasein1960,andthegoaltobeatCitibankwasviewedmoreasRockefeler’sgoalthanChase’sgoal.

TheCiticorpchiefexecutives,unlikethoseatChase,usedprimarilyorganizational(clock-building)strategiesintheirstewardshipofthebanktowarditsgoals.Stilmanconcentratedonmanagementsuccessionandorganizationstructure.Vanderlipcommentedthat“theonelimitationthatIcansee,liesinthequalityofmanagement”andheputmostofhiseortintoorganizationdesignandinitiatedamanagementdevelopmentprogram.58GeorgeMoorefocusedrstand

foremostonmaking

“Citicorpaninstitution”builtlargelyaroundproceduresfornding,training,andpromotingpersonnel.“Withoutthecapablepeopletheseproceduresdeveloped,”hewrote,“noneofourgoalswouldhavebeenatainable.”59Chase,incontrast,concentratedprimarily

havebeenatainable.”Chase,incontrast,concentratedprimarilyonmarketandproductstrategies(timeteling)ratherthanclock-buildingstrategies.

LikeBoeingandCiticorp,MotorolapresentsanexcelentexampleofBHAGsaspartofamultigenerationaltickingclock.FounderPaulGalvinoftenusedBHAGstopushhisengineerstodotheimpossible.WhenMotorolamovedintothetelevisionmarketinthelate1940s,forexample,GalvinsetachalengingBHAGforthetelevisiongroup:toprotablyselonehundredthousandTVsinthefirstyearatapriceof$179.95.

“Ournewplanthasn’tnearlythecapacityforthatkindofproduction,”exclaimedoneofhismanagers.“We’lneverselthatquantity;thatwouldmakeourindustrypositionthirdorfourth,andthebestwe’veeverbeeninhomeradioisseventhoreighth,”

complainedanother.“We’renotevensurewecanbreak$200[incost],”saidaproductionengineer.

“We’lselthem,”Galvinresponded.“Idon’twanttoseeanymorecostsheetsuntilyouprovidemewithaprotatthatpriceandthatvolume.We’lworkourselvesintoit.”60

Motoroladidindeedrisetofourthinthetelevisionindustrywithintheyear.Butevenmoreimportant,GalvininstiledaninstitutionaldriveforprogressthatresultedinarepeatingpaternofBHAGswithinthecompany.IngroominghissonfortheCEO

job,hecontinualyemphasizedtheimportanceof“keepingthecompanymoving”andthatvigorousmovementinanydirectionisbeterthansitingstil;alwayshavesomethingtoshootfor,headvised.61

Decadesafterhisdeathin1959,Galvin’scompanystilusesBHAGs,includingthegoalofbecomingamajorforceinadvancedelectronics,thegoalofataining

six-sigmaqualityperformanceandthegoalofwinningtheMalcolmBaldrigeQualityAward.Galvin’ssonandsuccessorusedtheword“renewal”tocapturetheideaofcontinualtransformations,often(althoughnotexclusively)atainedthroughcommitmentstoaudaciousprojects.BobGalvinthenpassedalongtothenextgenerationofleadershiptheimperative

passedalongtothenextgenerationofleadershiptheimperativethat“attimeswemustengageinanactoffaiththatkeythingsaredoablethatarenotprovable.”62

ThesamelitlecompanythatbeganlifedoingB-bateryeliminatorrepairsforSearsradiosandmakingjerry-builtcarradioshascontinualypropeleditselfforwardviaboldgoalsandreinventeditselfoverandoveragain,farbeyondthelifeofitsfounder.ThatsamelitlecompanyhasmovedfarfromradiosandTVs.ThatsamecompanyeventualycreatedthepowerfulM68000

microprocessorsthatAppleComputerselectedasthebrainsoftheMacintoshComputeronwhichwe’rewritingthisbook.And,aswewritetheseverywords,thatsamecompanymovesforwardwiththebiggestBHAGofitslifetodate:thetaskoflaunchingIridium,a$3.4bilioncommercialgambletakeninjointventurewithothercompaniestocreateaworldwidesatelitesystemthatwouldalowphonecalsbetweenanytwopointsonearth.63

Zenith,likeMotorola,didhaveafewBHAGsinitsearlyhistory:thegoaltomakeFMradioapervasivereality,earlycommitmenttobeamajorplayerintelevisions,andanexpensivebetonpayTV.

But—andthisisthecrucialpoint—Zenith,unlikeMotorola,didnotdisplayanorganizationalpropensityforsetingbold,audaciousgoalsafterthedeathofitsfounderin1958.Bytheearly1970s,

“innatecautiousness”pervadedZenith,asdescribedbyitscontrolerin1974:

It’shardtoexplainwhyadecisionismadenottodosomething.

Thereareanumberofreasonsbehindit—includinginnatecautiousness.Foronething,we’vealwayshadourhandsfulwith[ourcurrentmarkets]andwe’vealwaystendedtostickwithwhatappearedtobethebiggestpayoandwhatweknewhowtodobest....Wedidn’tfeelwecouldcompete...inthose[new]marketsunlesswewerewilingtosacricesomeofourmargin,andwewere

unwilingtodothat.WearebasicalyaU.S.companyandlikelytostaythatway.64

ZenithchiefexecutiveJohnNevinechoedthesameviewintalkingaboutthecompany’sslowmoveintonewtechnologies,likesolid-stateelectronics:“IthinkyoualsohavetosaythatZenithhasbeenmorecautiousthansomeofitscompetitorsinbringinginnovationstomarket...Wearenowinvolvedinanextraordinaryeorttobring[solid-state]tomarket,butweareindoubtastowhetheritwilcometofruition.”

Zenith’sCommanderMcDonald,unlikeMotorola’sPaulGalvin,didnotleavebehindacompanywiththeabilitytocontinualyreinventitselfwithboldgoals.CommanderMcDonaldwasagreatleader—agreattimeteler—buthediedalongtimeago.PaulGalvin’scompany,ontheotherhand,livesandthrivesthirty-veyearsafterhisdeath.Galvinbuiltaclock.

GUIDELINESFORCEOS,MANAGERS,ANDENTREPRENEURS

Althoughwe’vewritenthischapterprimarilyfromacorporateperspective,BHAGscanbeappliedtostimulateprogressatanylevelofanorganization.IndividualproductlinemanagersatP&G

frequentlysetBHAGsfortheirbrands.NordstromsystematicalysetsBHAGsalupanddownthecompany—fromregions,tostores,todepartments,toindividualsalespeople.3Mproductchampionsthriveonovercomingalodds,skeptics,andnaysayerstoprovethattheirquirkyinventionscanmakeitinthemarket.AnorganizationcanhaveanynumberofBHAGs.ItdoesnotneedtolimititselftoonlyoneBHAGatatime;SonyandBoeing,forinstance,usualypursuedmultipleBHAGssimultaneously,oftenatdierentlevelsofthecorporation.

BHAGsareparticularlywelsuitedtoentrepreneursandsmalcompanies.RecalSamWaltonandhisgoaltomakehisrstdimestorethemostsuccessfulinArkansaswithinveyears.RecalSony’sgoaltomakea“pocketableradio”initsearlyyears.OrTomWatson,Sr.’sgoaltotransformhistinyone-buildingcompanyintoInternationalBusinessMachinesCorporation.Indeed,mostentrepreneurshaveabuilt-inBHAG:Tojustgetothegroundand

entrepreneurshaveabuilt-inBHAG:Tojustgetothegroundandreachapointwheresurvivalisnolongerinquestionishugeandaudaciousformoststart-ups.

We’vecoveredmostofthekeypointsaboutBHAGsaswe’vemovedthroughthetextofthischapter.Hereareafewkeytake-awaypointsyoumightwanttokeepinmindasyouconsiderBHAGsforyourownorganization:

•ABHAGshouldbesoclearandcompelingthatitrequireslitleornoexplanation.Remember,aBHAGisagoal—likeclimbingamountainorgoingtomoon—nota“statement.”Ifitdoesn’tgetpeople’sjuicesgoing,thenit’sjustnotaBHAG.

•ABHAGshouldfalweloutsidethecomfortzone.Peopleintheorganizationshouldhavereasontobelievetheycanpulito,yetitshouldrequireheroiceortandperhapsevenalitleluck—aswiththeIBM360andBoeing707.

•ABHAGshouldbesoboldandexcitinginitsownrightthatitwouldcontinuetostimulateprogresseveniftheorganization’sleadersdisappearedbeforeithadbeencompleted—ashappenedatCitibankandWal-Mart.

•ABHAGhastheinherentdangerthat,onceachieved,anorganizationcanstalanddriftinthe“we’vearrived”

syndrome,ashappenedatFordinthe1920s.Acompanyshouldbepreparedtopreventthisbyhavingfolow-onBHAGs.ItshouldalsocomplementBHAGswiththeothermethodsofstimulatingprogress.

•Finaly,andmostimportantofal,aBHAGshouldbeconsistentwithacompany’scoreideology.

PreservetheCoreandStimulateProgress

BHAGsalonedonotmakeavisionarycompany.Indeed,progressalone—nomaterwhatthemechanismusedtostimulateprogress—

doesnotmakeavisionarycompany.Acompanyshouldbecareful

doesnotmakeavisionarycompany.AcompanyshouldbecarefultopreserveitscorewhilepursuingBHAGs.

Forexample,the747wasanincrediblyriskyventurebutalongtheway,Boeingmaintaineditscorevalueofproductsafetyandappliedthemostconservativesafetystandards,testing,andanalysisevertoacommercialaircraft.Nomaterwhatthenancialpressures,WaltDisneypreserveditscorevalueoffanaticalatentiontodetailwhileworkingonSnowWhite,Disneyland,andDisneyWorld.Merck,inkeepingwithitscorevalueofimagination,soughtpreeminenceprimarilybycreatingnewbreakthroughinnovations,notbycreatingme-tooproducts.JackWelchatGEmadeitclearthatatainingnumberoneornumbertwoinamarketattheexpenseofintegritywouldbeunacceptable.Citicorpcontinualyreinforceditsbeliefinmeritocracyandinternalentrepreneurshipthroughoutitsexpansivequesttobecomethe“mostfar-reachingworldnancialinstitutionthathaseverbeen.”Motorolaneverabandoneditsbasicbeliefinthedignityofandrespectfortheindividualthroughoutalofitsbig,hairy,self-selectedchalenges.

Furthermore,thevisionarycompaniesdidn’tlaunchblindlytowardanyrandomBHAG,butonlytowardthosethatreinforcedtheircoreideologiesandreectedtheirself-concept.NoticethelinkbetweencoreandBHAGinthefolowinglist:

BHAG(s)to

Coreto

Stimulate

Preserve

Progress

Beingonthe

leadingedge

Betthepot

ofaviation;

(Boeing)ontheB-17,

being

707,747.

pioneers;

risk-taking

Seek

Committoa

superiorityin

$5bilion

alwe

gambleon

undertake;

(IBM)

the360;

Spendalotof

meetthe

timemaking

emerging

customers

needsofour

happy.

customers.

Weareabout

cars—

“Democratize

especialy

(Ford)

the

carsforthe

automobile.”

average

person.

Tappingthe

“latent

Inventaway

creative

tosel

powerwithin

100,000TVs

us”;self-

at$179.95;

renewal;

Atainsix-

continual

(Motorola)

sigma

improvement;

quality;win

honorably

theBaldridge

servethe

Award;

community

launch

viagreat

Iridium.

products.

SlayGoliath

Winning—

andbecome

beingthebest

thefront-

andbeating

runnerinthe

others;

(Philip

tobacco

Personal

Morris)

industry,

freedomof

despitethe

despitethe

choiceis

socialforces

worth

against

defending.

smoking.

Changethe

Elevationof

worldwide

theJapanese

imageof

cultureand

Japanese

national

(Sony)

productsas

status;beinga

poorquality;

pioneer,

createa

doingthe

pocketable

impossible.

transistor

radio.

“Bring

happinessto

Build

milions”;

Disneyland—

fanatical

andbuildit

atentionto

(Disney)toourimage,

detail;

notindustry

creativity,

standards.

dreams,

imagination.

Preserving

and

Becomethe

improving

preeminent

humanlife;

drugmaker

medicineis

worldwide,

forthe

(Merck)

viamassive

patient,not

R&Dand

forthe

newproducts

newproducts

profits;

thatcure

imagination

disease.

and

innovation.

RevolutionizingtherailroadbusinesswouldcertainlyhavebeenaBHAGforFordin1909;butFordwasn’taboutrailroads,itwasaboutcars.Creatingthecheapestradiosinhistory,regardlessofqualityorinnovation,wouldcertainlyhavebeenaBHAGforSonyin1950,butitwouldn’thavetwithSony’sself-imageaspioneersofinnovationandkeyplayersinthetaskofelevatingJapan’sstatusintheworld.ReinventingitselfentirelyawayfromthetobaccoindustryaftertheSurgeonGeneral’sreportswouldcertainlyhavebeenaBHAGforPhilipMorrisinthe1960s,buthowwouldithavetwiththecompany’sself-conceptionasthedeant,ercelyindependent,free-thinking,free-choosing,individualisticMarlborocowboy?Itwouldn’t.

Yes,anyBHAGexcitingtopeopleinsideyourcompanywouldstimulatechangeandmovement.ButtheBHAGsshouldalsobeapowerfulstatementaboutthecompany’sideology.Infact,BHAGscanhelptoreinforceoneofthekeysetsof

mechanismsforpreservingthecoreideology:acult-likeculture,thesubjectofournextchapter.Todefytheodds,totakeonbighairychalenges—

especialyifrootedinanideology—doesmuchtomakepeoplefeelthattheybelongtosomethingspecial,elite,diferent,beter.

Wereturnonceagaintoakeyaspectofavisionarycompany:thepowerfulinterplaybetweencoreideologyandthedriveforprogresswhichexisttogetherliketheyinandyangofChinesedualisticphilosophy.Eachelementcomplementsandreinforcestheother.Indeed,thecoreideologyenablesprogressbyprovidingabaseofcontinuityfromwhichavisionarycompanycanlaunchthecorporateequivalentofthemoonmission;likewise,progressenablesthecoreideology,forwithoutchangeandmovementforward,thecompanywileventualyceasetobeviable.Again,it’s

forward,thecompanywileventualyceasetobeviable.Again,it’snoteithercoreorprogress.It’snotevenanicebalancebetweencoreandprogressbutrathertwopowerfulelements,inextricablylinkedandbothworkingatfulforcetotheultimatebenetoftheinstitution.AGEemployeeeloquentlydescribedthedynamicinterplaybetweencoreandprogresswhilediscussingthecompany’sBHAGto“become#1or#2ineverymarketweserveandrevolutionizethiscompanytohavethespeedandagilityofasmalenterprise”:

“GE...Webringgoodthingstolife.”Mostwouldn’tadmitit,buteveryoneatGEgetschilswhentheyhearthatjingle.Thesimple,cornyphrasecaptureshowtheyfeelaboutthecompany.

...Itmeansjobsandgrowthfortheeconomy,qualityandserviceforthecustomer,benetsandtrainingfortheemployee,andchalengeandsatisfactionfortheindividual.Itmeansintegrity,honesty,andloyaltyatallevels.Andwithoutthisreservoirofvaluesandcommitment,Welchcouldnothavepuledofhisrevolution.[emphasishers]65

Chapter6

Chapter6

Cult-LikeCultures

Now,Iwantyoutoraiseyourrighthand—andrememberwhatwesayatWal-Mart,thatapromisewemakeisapromisewekeep—andIwantyoutorepeatafterme:Fromthisdayforward,Isolemnlypromiseanddeclarethateverytimeacustomercomeswithintenfeetofme,Iwilsmile,lookhimintheeye,andgreethim.SohelpmeSam.

SAMWALTON,TOOVERONEHUNDREDTHOUSANDWAL-MART

ASSOCIATESVIATVSATELLITELINK-UP,MID-1980S1

IBMisrealygoodatmotivatingitspeople;IseethatthroughAnne.[She]mightbebrainwashedbysomepeople’sstandards,butit’sagoodbrainwashing.Theyrealydoinstilaloyaltyanddrivetowork.

SPOUSEOFIBMEMPLOYEE,19852

SowhydoyouwanttoworkatNordstrom?”theinterviewerasks.

“Becausemyfriend,Laura,telsmeit’sthebestplaceshe’severworked,”Robertresponds.“Shegushesabouttheexcitementofworkingwiththeverybest—beingpartoftheeliteoftheelite.

She’salmostamissionaryforyoufolks.VeryproudtocalherselfaNordstromemployee.Andshe’sbeenrewardedwel.Laurastartedinthestockroomeightyearsagoandnowshegetstomanageanentirestore;she’sonlytwenty-nine.3Shetoldmethatpeopleheremakealotmorethansalespeopleatotherstores,andthatthebestsalespeopleworkingonthefloorcanmakeover$80,000ayear.”*4

“Yes,it’struethatyoucanmakemoremoneyherethanworkingatotherdepartmentstores.Oursalespeoplegeneralymakealmostdoublethenationalaverageforretailsalesclerks—andafewmakealotmorethanthat.5Butyouknow,ofcourse,noteveryonehaswhatittakestorealymakeithereasamemberoftheNordstromcorporatefamily,”explainstheinterviewer.“We’re

selective,andalotdon’tmakeit.Youproveyourselfateverylevel,oryouleave.”6

“Yes.I’veheardthat50percentofnewhiresaregoneafteroneyear.”7

“Somethinglikethat.Thosewhodon’tlikethepressureandthehardwork,andwhodon’tbuyintooursystemandvalues,they’regone.Butifyouhavethedrive,initiative,and—abovealelse—theabilitytoproduceandservethecustomer,thenyou’ldowel.8ThekeyquestioniswhetherNordstromisrightforyou.Ifnot,you’lprobablyhateithere,failmiserably,andleave.”9

“WhatpositionswouldIbeeligiblefor?”

“Thesameaseveryothernewhire—youstartatthebotom,workingthestockroomandthesalesfloor.”

“ButIhaveabachelor’sdegree,PhiBetaKappa,fromUniversity

“ButIhaveabachelor’sdegree,PhiBetaKappa,fromUniversityofWashington.Othercompanieswilletmebeginasamanagementtrainee.”

“Nothere.Everybodystartsatthebotom.Mr.Bruce,Mr.Jim,andMr.John—thethreeNordstrombrothersthatmakeupthechairman’soce—theyalstartedontheoor.Mr.Brucelikestoremindusthatheandhisbrotherswerealraisedsitingonashoesalesstoolinfrontofthecustomer;it’saliteralandgurativeposturethatwealkeepinmind.10Yougetalotofoperationalfreedomhere;noonewilbedirectingyoureverymove,andyou’reonlylimitedbyyourabilitytoperform(withintheboundsoftheNordstromway,ofcourse).Butifyou’renotwilingtodowhateverittakestomakeacustomerhappy—topersonalydeliverasuittohishotelroom,getdownonyourkneestotashoe,forceyourselftosmilewhenacustomerisarealjerk—thenyoujustdon’tbelonghere,period.Nobodytelsyoutobeacustomerservicehero;it’sjustsortofexpected.”11

RoberttookthejobatNordstrom,excitedattheprospectofjoiningsomethingspecial,thriledtobeattheplacetowork.Hewasproudtoreceivepersonalizedprofessionalbusinesscards,ratherthananametag.12ThehandoutdepictingNordstrom’s

“CompanyStructure”asanupsidedownpyramidmadehimfeelevenmoreimportant.13

HealsoreceivedacopyofNordstrom’semployeehandbook,whichconsistedofasingleve-by-eight-inchcardandread,initsentirety:14

WELCOMETONORDSTROM

We’regladtohaveyouwithourCompany.

Ournumberonegoalistoprovide

outstandingcustomerservice.

Setbothyourpersonalandprofessionalgoalshigh.

Wehavegreatconfidenceinyourabilitytoachievethem.

NordstromRules:

Rule#1:Useyourgood

judgmentinalsituations.

Therewilbenoadditionalrules.

Pleasefeelfreetoaskyourdepartmentmanager,storemanagerordivisiongeneralmanager

anyquestionatanytime.

Duringhisrstfewmonths,Robertbecameimmersedintheworldofadedicated“Nordie,”asmanyemployeescaledthemselves.15Hefoundthathespentmostofhistimeatthestore,atNordiefunctions,orsocializingwithotherNordies;theybecamehissupportgroup.16Hehearddozensofstoriesaboutheroiccustomerservice:theNordiewhoironedanew-boughtshirtforacustomerwhoneededitforameetingthatafternoon;theNordiewhocheerfulygiftwrappedproductsacustomerboughtatMacy’s;theNordiewhowarmedcustomers’carsinwinterwhilethecustomersnishedshopping;theNordiewhopersonalyknitashawlforanelderlycustomerwhoneededoneofaspeciallengththatwouldn’tgetcaughtinthespokesofherwheelchair;theNordiewhomadealast-minutedeliveryofpartyclothestoafrantichostess;andeventheNordiewhorefundedmoneyforasetoftirechains—althoughNordstromdoesn’tseltirechains.17Helearnedaboutthenotescaled“heroics”thatNordstromsalespeoplewroteabouteachother,andthatwereused—alongwithcustomerletersandemployeethank-younotestocustomers—todeterminewhichstoresshouldreceivemonthlyprizesforthebestservice.18

Hismanagerexplainedabouttheal-importantcustomerleters:

“Customerletersarerealimportantaroundhere.Younever,everwanttogetabadone;that’sarealsin.Butgoodonescanleadyoutobecomea‘CustomerServiceAlStar.’YouthinkPhiBetaKappawasabigdeal,buttobecomeaCustomerServiceAlStar,nowthat’sarealybigdeal.YougetapersonalhandshakefromoneoftheNordstrombrothers,yourpicturegoesonthewal,andyouget

theNordstrombrothers,yourpicturegoesonthewal,andyougetprizesanddiscounts.Itmakesyouthetopofthetop.19Andifyoubecomeaproductivitywinner,youbecomeaPaceseter,completewithnewbusinesscardssodesignatedand33percentmerchandisediscounts.20OnlyourverytoppeoplebecomePaceseters.”

“HowdoIbecomeaPaceseter?”Robertasked.

“Simple.Yousetveryhighsalesgoals,andthenyouexceedthem,”21sheexplained.Thensheasked,“Bytheway,whatareyoursalesgoalsfortoday?”22

Salesgoals.Productivity.Achievement.Robertnoticed

“reminders”postedonthewalsintheemployeebackrooms:

“Makeadailytodolist!”or“Listgoals,setpriorities!”23or“Don’tletusdown!”or“Beatopdogpaceseter;Goforthemilkbones!”24

HelearnedquicklyaboutthealimportantSPH(salesperhour)calculation.“IfyouexceedyourtargetSPH,you’lgetatenpercentcommissiononnetsales,”hismanagerexplained.“Ifnot,you’ljustgetyourbasehourlywagerate.AndifyouhaveahighSPH,you’lgettoworkmoreatractivehoursandhavebeteroddsofbeingpromoted.YoucantrackyourSPHoncomputerprintoutswekeepinthebackoce.WelistaltheSPHsinrankorder,soyoucankeeptrackandmakesureyou’renotfalingbehind.YourSPHwilalsoappearonyourpaystub.”25

Attheendofhisrstpayperiod,employeesgatheredaroundabuletinboardinthebackroomonwhichwaspostedarankingofSPHbyemployeenumber;afewhaddroppedbelowaredlinemarkedonthepaper.26Robertquicklyunderstoodthatheshoulddoalthathecouldtoavoidfalingbehind.Hewokeuponenightinacoldsweatfromavividnightmareofwalkingintothebackroomandseeinghisnameatthebotomofthelist.Heworkedfuriouslyduringthedaytonotbeleftbehindbyhispeers.27

Soonaftertherstpayperiod,Robertnoticedthatoneofthesalespeopleinhisareahadleftworkearly.“Where’sJohn?”heasked.

asked.

“Senthomefortheday...penalizedforgetingirritatedwithacustomer,”saidBil,afelowsalespersonwhohadwonarecentSmileContestandtherebygothispictureonthewal.28“It’skindoflikebeingsenttoyourroomwithoutdinner.He’lbebacktomorrow,butthey’lbewatchinghimcloselyforafewweeks.”29

Atagetwenty-six,Bilwasalreadyave-yearNordstromveteran,aPaceseter,andanAlStar.Bilclearlyhadthatrare“whatittakes”qualitytothriveatNordstrom.“WhenpeopleshopatNordstrom,theydeservethebestatitude,”heexplained.“Ialwayshavemysmile,foranybody,everybody.”30BildressedalmostexclusivelyinNordstromclothesand,inadditiontotheSmileContest,he’dalsowona“WhoLookstheMostNordstromContest”31theprioryear.HebaskedinthegloryofpublicpraiseonedayasthestoremanagerreadaloudaleteraboutBilfromasatisedcustomer—totheapplauseandcheersoffelowemployees.

BillovedhisjobatNordstrom,alwaysquicktopointout,

“WhereelsecouldIgetpaidsowelandhavesomuchautonomy?

NordstromisoneoftherstplacesI’veeverfeltlikeIrealybelongtosomethingspecial.Sure,Iworkrealyhard,butIliketoworkhard.Noonetelsmewhattodo,andIfeelIcangoasfarasmydedicationwiltakeme.Ifeellikeanentrepreneur.”32

Bilhadearliermoved—alongwithoverahundredotherNordstrompeople—fromNordstromstoresontheWestCoasttooneofitsnewstoreopeningsontheEastCoast.33“Wewouldn’twantnon-Nordiestoopenanewstore,evenifit’salthewayacrossthecountry,”heexplained.Hedescribedtheexcitementofopeningday:“Employeeswereclapping.Customerscameinandtheywereclapping,too.Therewassomuchenergyandadrenalineowing—itwasanemotional‘lookwhatI’mpartof’atmospherethatmadeyoufeelrealyspecial.”34

BilwasagreatNordierolemodelforRobert.HetoldRobertabouthowheatendedaNordstrommotivationalseminar,wherehelearnedtowriteupbeat“armations,”whichherepeatedover

helearnedtowriteupbeat“armations,”whichherepeatedoverandovertohimself:“IfeelproudtobeaPaceseter.”Bilhadthegoalofbecomingastoremanager,sohechantedtohimselfthearmation“IenjoybeingastoremanageratNordstrom...IenjoybeingastoremanageratNordstrom...IenjoybeingastoremanageratNordstrom.”35

BilexplainedthatbeingaNordstrommanagerwouldbetoughanddemanding.Hedescribedhowstoremanagersmustpubliclydeclaretheirsalesgoalsat

quarterlymeetings.“Mr.John,hesometimeswearsasweaterwithagiantNonthefrontandstirsupthecrowd.Thensomeoneunveilsthesalestargetforeachstoresetbyasecretcommitee.I’veheardthatthosemanagerswhosetgoalsbelowthosesetbythesecretcommiteegetbooed;thosewhosetgoalshigherthanthecommiteegetcheered.”36

BilwasalsoagreatsourceofinformationandguidanceabouttheNordstromWay.“Beverycarefulabouttalkingtooutsiders,”Bilcautioned.“Thecompany’sverysensitiveaboutitsprivacyandlikestokeeptightcontrolonwhatinformationgoestotheoutsideworld.Thatcomesfromtheverytop.Howwedothingsaroundhereisnotanybodyelse’sbusiness.”37

“Bytheway,”Bilaskedastheywereclosingupshoplateoneevening,“didyouknowthatwehada‘secretshopper’inheretoday?”

“Awhat?”

“Asecretshopper.That’saNordstromemployeewhopretendstobeacustomer—secretly—andchecksonyourdemeanorandservice.

Shecamebyyoutoday.Ithinkyoudidne,butwatchthefrown.

Youhaveatendencytofrownwhenyou’reworkinghard.Justremembertosmile;don’tfrown.Afrowncanbeablackmarkinyourfile.”38

“Rulenumbertwo,”Robertthoughttohimself.“Don’tfrown,behappy.”

Overthefolowingsixmonths,RobertfoundhimselfincreasinglyuncomfortableatNordstrom.Whenhefoundhimselfataseven

uncomfortableatNordstrom.WhenhefoundhimselfatasevenA.M.departmentmeetingwithNordieschanting“We’renumberone!”and“WewanttodoitforNordstrom!”39hethoughtbacktotheopeningparagraphofthewrite-uponNordstrominTheBest100CompaniestoWorkforinAmerica,whichsaid,“Ifyoudon’tliketoworkinagung-hoatmospherewherepeoplearealwaysrevvedup,thenthisisnottheplaceforyou.”40Hefoundhimselfdoingokay—neverfalingtothebotomoftheSPHlistings—but,telingly,notgreat.He’dneverreceivedahandshakefromMr.JimorMr.JohnorMr.Bruce.HehadnotbecomeaPaceseteroranAlStar,andfearedthathewouldonceagainfrownforasecretshopperorthathemightgetanegativecustomerleter.And

worstofal,hewasbeingleftbehindbythosewhowerejustmuchmoreNordstromthanhe.TheyhadtherightNordstromstu;hedidn’t.

Hejustdidn’tfit.

RobertquitelevenmonthsintohiscareeratNordstrom.Ayearlater,however,hewasthrivingasadepartmentmanageratanotherstore.“Nordstromwasagreatexperience,butitwasn’tforme,”heexplained.“Iknowsomeofmyfriendsareincrediblyhappythere;theyrealyloveit.Andthere’snodoubtaboutit—Nordstrom’sarealygreatcompany.ButIfitbeterhere.”

“EJECTEDLIKEAVIRUS!”

Whenwebeganourresearchproject,wespeculatedthatourevidencewouldshowthevisionarycompaniestobegreatplacestowork(oratleastbeterplacestoworkthanthecomparisoncompanies).However,wedidn’tndthistobethecase—atleastnotforeveryone.RecalhowwelBilandLauratandourishedatNordstrom;forthem,itwasatrulygreatplacetowork.ButnoticehowRobertjustcouldn’tfulybuyin;forhim,Nordstromwasnotagreatplacetowork.Nordstromisonlyagreatplacetoworkforthosetrulydedicated—andwelsuitedto—theNordstromway.

Thesameistrueformanyoftheothervisionarycompaniesthatwestudied.Ifyou’renotwilingtoenthusiasticalyadopttheHP

westudied.Ifyou’renotwilingtoenthusiasticalyadopttheHP

Way,thenyousimplydon’tbelongatHP.Ifyou’renotcomfortablebuyingintoWal-Mart’sfanaticaldedicationtoitscustomers,thenyoudon’tbelongatWal-Mart.Ifyou’renotwilingtobe

“Procterized,”thenyoudon’tbelongatProcter&Gamble.Ifyoudon’twanttojoininthecrusadeforquality(evenifyouhappentoworkinthecafeteria),thenyoudon’tbelongatMotorolaandyoucertainlycan’tbecomeatrue“Motorolan.”41Ifyouquestiontherightofindividualstomaketheirowndecisionsaboutwhattobuy(suchascigaretes),thenyoudon’tbelongatPhilipMorris.Ifyou’renotcomfortablewiththeMormon-inuenced,clean-living,dedication-to-serviceatmosphereatMarriot,thenyou’dbeterstayaway.Ifyoucan’tembracetheideaof“wholesomeness”and

“magic”and“Pixiedust,”andmakeyourselfintoa“clean-cutzealot,”42thenyou’dprobablyhateworkingatDisneyland.

Welearnedthatyoudon’tneedtocreatea“soft”or“comfortable”

environmenttobuildavisionarycompany.Wefoundthatthevisionarycompaniestendtobemoredemandingoftheirpeoplethanothercompanies,bothintermsofperformanceandcongruencewiththeideology.

“VISIONARY,”welearned,doesnotmeansoftandundisciplined.Quitethecontrary.Becausethevisionarycompanieshavesuchclarityaboutwhotheyare,whatthey’realabout,andwhatthey’retryingtoachieve,theytendtonothavemuchroomforpeopleunwilingorunsuitedtotheirdemandingstandards.

Duringaresearchteammeeting,oneofourresearchassistantsmadetheobservation,“Joiningthesecompaniesremindsmeofjoininganextremelytight-knitgrouporsociety.Andifyoudon’tt,you’dbeternotjoin.Ifyou’rewilingtorealybuyinand

t,you’dbeternotjoin.Ifyou’rewilingtorealybuyinanddedicateyourselftowhatthecompanystandsfor,thenyou’lbeverysatisedandproductive—probablycouldn’tbehappier.Ifnot,however,you’lprobablyounder,feelmiserableandout-of-place,andeventualyleave—ejectedlikeavirus.It’sbinary:You’reeitherinoryou’reout,andthereseemstobenomiddleground.It’salmostcult-like.”

Theobservationrangtrueenoughthatwedecidedtoexaminetheliteratureoncultsandseeifthevisionarycompanieshaveindeedhadmorecharacteristicsincommonwithcultsthanthecomparisoncompanies.Wefoundnouniversalyaccepteddenitionofcultintheliterature;themostcommondenitionisthatacultisabodyofpersonscharacterizedbygreatorexcessivedevotiontosomeperson,idea,orthing(whichcertainlydescribesmanyofthevisionarycompanies).Nordidwendanyuniversalyacceptedchecklistofwhatseparatescultsfromnoncults.Wedid,however,ndsomecommonthemes,andinparticularwefoundfourcommoncharacteristicsofcultsthatthevisionarycompaniesdisplaytoagreaterdegreethanthecomparisoncompanies.43

•Ferventlyheldideology(discussedearlierinourchapteroncoreideology)

•Indoctrination

•Tightnessoffit

•Elitism

LookatNordstromversusMelvile.Noticetheheavy-dutyindoctrinationprocessesatNordstrom,beginningwiththeinterviewandcontinuingwithNordiecustomerserviceheroicstories,remindersonthewals,chantingarmations,andcheering.NoticehowNordstromgetsitsemployeestowriteheroicstoriesaboutotheremployeesandengagespeersandimmediatesupervisorsintheindoctrinationprocess.(Acommonpracticeofcultsistoactivelyengagerecruitsinthesocializingofothersintothecult.)

activelyengagerecruitsinthesocializingofothersintothecult.)Noticehowthecompanyseekstohireyoungpeople,moldthemintotheNordstromwayfromearlyintheircareers,andpromoteonlythosewhocloselyreectthecoreideology.NoticehowNordstromimposesaseveretightnessoft—employeesthatttheNordstromwayreceivelotsofpositivereinforcement(pay,awards,recognition)—andthosewhodon’ttgetnegativereinforcement(being“leftbehind,”penalties,blackmarks).NoticehowNordstromdrawsclearboundariesbetweenwhois“inside”andwhois“outside”theorganization,andhowitportraysbeing

“inside”asbeingpartofsomethingspecialandelite—again,acommonpracticeofcults.Indeed,theveryterm“Nordie”hasacultishfeeltoit.WefoundnoevidencethatMelvilecultivatedandmaintainedthroughitshistoryanywherenearsuchclearandconsistentuseofpracticeslikethese.

Nordstrompresentsanexcelentexampleofwhatwecametocal

“cultism”—aseriesofpracticesthatcreateanalmostcult-likeenvironmentaroundthecoreideologyinhighlyvisionarycompanies.Thesepracticestendtovigorouslyscreenoutthosewhodonottwiththeideology(eitherbeforehiringorearlyintheircareers).Theyalsoinstilanintensesenseofloyaltyandinuencethebehaviorofthoseremaininginsidethecompanytobecongruentwiththecoreideology,consistentovertime,andcarriedoutzealously.

Pleasedon’tmisunderstandourpointhere.We’renotsayingthatvisionarycompaniesarecults.We’resayingthattheyaremorecultlike,withoutactualybeingcults.Theterms“cultism”and“cultlike”canconjureupavarietyofnegativeimagesandconnotations;theyaremuchstrongerwordsthan“culture.”

Buttomerelysaythatvisionarycompanieshaveaculturetelsusnothingneworinteresting.Alcompanieshaveaculture!Weobservedsomethingmuchstrongerthanjust“culture”atwork.“Cultism”and“cult-like”

aredescriptive—notpejorativeorprescriptive—termstocaptureasetofpracticesthatwesawmoreconsistentlyinthevisionarycompaniesthanthecomparisoncompanies.We’resayingthatthesecharacteristicsplayakeyroleinpreservingthecoreideology.

characteristicsplayakeyroleinpreservingthecoreideology.

Ananalysisofthevisionaryversuscomparisoncompaniesrevealedthefolowing(seeTableA.6intheAppendix3):

•Inelevenoutofeighteenpairs,theevidenceshowsstrongerindoctrinationintoacoreideologythroughthehistoryofthevisionarycompanythanthecomparisoncompany.*

•Inthirteenoutofeighteenpairs,theevidenceshowsgreatertightnessoftthroughthehistoryofthevisionarycompanythaninthecomparisoncompany—peopletendtoeithertwelwiththecompanyanditsideologyortendtonottatal(“buyinorgetout”).

•Inthirteenoutofeighteenpairs,theevidenceshowsgreaterelitism(asenseofbelongingtosomethingspecialandsuperior)throughthehistoryofthevisionarycompany.

•Summingupacrossalthreedimensions(indoctrination,tightnessoft,andelitism),thevisionarycompanieshaveshowngreatercultismthroughhistorythanthecomparisoncompaniesinfourteenoutofeighteenpairs(fourpairsareindistinguishable).

Thefolowingthreeexamples—IBM,Disney,andProcter&

Gamble—showthesecharacteristicsatworkinthedevelopmentofvisionarycompanies.

IBM’SRISETOGREATNESS

ThomasJ.Watson,Jr.,formerIBMchiefexecutive,describedtheenvironment

atIBMduringitsrisetonationalprominenceinthersthalfofthetwentiethcenturyasa“cult-likeatmosphere.”44

Thisatmospheretracesbackto1914,whenWatson’sfather(ThomasJ.Watson,Sr.)becamechiefexecutiveofthesmal,strugglingcompany,andconsciouslysetabouttocreateanorganizationofdedicatedzealots.*Watsonplasteredthewalwith

organizationofdedicatedzealots.Watsonplasteredthewalwithslogans:“Timelostistimegoneforever”;“Thereisnosuchthingasstandingstil”;“Wemustneverfeelsatised”;“Weselservice”;“Acompanyisknownbythemenitkeeps.”Heinstitutedstrictrulesofpersonalconduct—herequiredsalespeopletobewelgroomedandweardarkbusinesssuits,encouragedmarriage(marriedpeople,inhisview,workedharderandweremoreloyalbecausetheyhadtoprovideforafamily),discouragedsmoking,andforbadealcohol.

Heinstitutedtrainingprogramstosystematicalyindoctrinatenewhiresintothecorporatephilosophy,soughttohireyoungandimpressionablepeople,andadheredtoastrictpromote-from-withinpractice.Later,hecreatedIBM-managedcountryclubstoencourageIBMerstosocializeprimarilywithotherIBMers,nottheoutsideworld.45

SimilartoNordstrom,IBMsoughttocreateaheroicmythologyaboutemployeeswhobestexempliedthecorporateideologyandplacedtheirnamesandpictures—alongwithstoriesoftheirheroicdeeds—incompanypublications.Afewexemplarsevenhadcorporatesongscomposedintheirhonor!46And,alsolikeNordstrom,IBMemphasizedtheimportanceofindividualeortandinitiativewithinthecontextofthecolectiveefort.

Bythe1930s,IBMhadfulyinstitutionalizeditsindoctrinationprocessandcreatedaful-edged“schoolhouse”thatitusedtosocializeandtrainfutureocersofthecompany.InFather,Son&

Co.,Watson,Jr.,wrote:

Everythingabouttheschoolwasmeanttoinspireloyalty,enthusiasm,andhighideals,whichIBMheldoutasthewaytoachievesuccess.Thefrontdoorhad[IBM’subiquitous]moto

“THINK”writenoveritintwofoothighleters.Justinsidewasagranite

staircasethatwassupposedtoputstudentsinanaspiringframeofmindastheysteppeduptotheday’sclasses.47

Veteranemployeesin“regulationIBMclothes”taughttheclassesandemphasizedIBMvalues.Eachmorning,surroundedbyposters

andemphasizedIBMvalues.Eachmorning,surroundedbyposterswithcorporatemotosandslogans,studentswouldriseandsingIBMsongsoutofthesongbookSongsoftheIBM,whichincluded

“TheStar-SpangledBanner”and,onthefacingpage,IBM’sownanthem,“EverOnward.”48IBMerssangsuchlyricsas:49

MarchonwithI.B.M.

Workhandinhand,

Stoutheartedmengoforth,

Ineveryland.

AlthoughIBMeventualyevolvedbeyondsingingcorporatesongs,itretaineditsintenselyvalues-orientedtrainingandsocializationprocesses.NewlyhiredIBMersalwayslearnedthe“threebasicbeliefs”(describedinanearlierchapter)andexperiencedtrainingclassesthatemphasizedcompanyphilosophyaswelasskils.

IBMerslearnedlanguageuniquetotheculture(“IBM-speak”)andwereexpectedataltimestodisplayIBMprofessionalism.In1979,IBMcompletedatwenty-six-acre“ManagementDevelopmentCenter”that,inIBM’sownwords,“mightpassforamonasticretreat

—untilyoufindyourselfinitsbusyclassrooms.”50

IBM’sproleinthe1985editionofThe100BestCompaniestoWorkFordescribedIBMasacompanythat“hasinstitutionalizeditsbeliefsthewayachurchdoes....Theresultisacompanyledwithardentbelievers.(Ifyou’renotardent,youmaynotbecomfortable.)...SomehavecomparedjoiningIBMwithjoiningareligiousorderorgoingintothemilitary....IfyouunderstandtheMarines,youunderstandIBM....Youmustbewilingtogiveupsomeofyour

individualidentitytosurvive.”51A1982WalStreetJournalarticlenotedthattheIBMculture“issopervasivethat,asonenine-year[former]employeeputit,‘leavingthecompanywaslikeemigrating.’”52

Indeed,throughoutitshistory(atleasttothetimeofthisbook),IBMimposedaseveretightnessoftwithitsideology.FormerIBM

IBMimposedaseveretightnessoftwithitsideology.FormerIBM

marketingvicepresidentBuckRodgersexplainedinhisbookTheIBMWay:

IBMbeginsimbuingitsemployeeswithits...philosophyevenbeforethey’rehired,attheveryrstinterview.Tosome,theword“imbuing”connotesbrainwashing,butIdon’tthinkthere’sanythingnegative...inwhatisdone.Basicaly,anyonewhowantstoworkforIBMistold:“Lookthisishowwedobusiness.

...Wehavesomeveryspecicideasaboutwhatthatmeans—

andifyouworkforuswe’lteachyouhowtotreatcustomers.Ifouratitudeaboutcustomersandserviceisincompatiblewithyours,we’lpartways—andthequickerthebeter.”53

Elitismalsoranthroughouttheentirehistoryofthecompany.

Beginningin1914,longbeforethecompanyhadanynationalstature,Watson,Sr.,soughttoinstiltheperspectivethatthecompanywasasuperiorandspecialplacetowork.“Youcannotbeasuccessinanybusiness,”heexhorted,“withoutbelievingthatitisthegreatestbusinessintheworld.”54(AndrecalfromtheBHAG

chapterhowhetangiblybutressedthiselitistatitudebychangingthenameofthecompanyfromthedreary-soundingComputerTabulatingRecordingCompanytoTheInternationalBusinessMachinesCorporation.)In1989,three-quartersofacenturyafterWatson,Sr.,initiatedthecompany’sself-conceptassomethingeliteandspecial,Watson,Jr.,camefulcircletothesamethemeinanessayforaseventy-fthanniversarypublicationentitledIBM:ASpecialCompany:

Ifwebelievethatwe’reworkingforjustanothercompany,thenwe’regoingto

belikeanothercompany.WehavegottohaveaconceptthatIBMisspecial.Onceyougetthatconcept,it’sveryeasytogivetheamountofdrivetoworktowardmakingitcontinuetobetrue.55

YoumightbewonderingwhetherIBM’scult-likeatmosphereandtightadherencetoitsthreebasicbeliefscontributedtoIBM’sdicultiesintheearly1990s.WascultismaprimarycauseofIBM’sdicultytoadapttothedramaticchangesinthecomputerindustry?Uponcloseinspection,theevidencedoesnotsupportthisview.IBMwasstronglycult-likeinthe1920s,yetwasabletoadapttothedramaticshifttoautomatedaccountingprocedures.IBMwasincrediblycult-likeinthe1930s,yetwasabletoadapttothedemandsoftheDepressionwithoutasinglelayo.IBMmaintaineditscult-likecultureinthe1950sand1960s,yetwasabletoadapttotheriseofcomputers,perhapsthemostdramaticshiftinIBM’shistory.IBMstilhadacultishfeelintheearly1980s,yet—unlikeanyotherold-linecomputercompany—adaptedtothepersonalcomputerrevolutionandestablisheditselfasamajorplayer.Ifanything,IBM’scult-likeculture—itsfanaticalpreservationofitscorevalues—declinedasthecompanyheadedtowardtrouble.

IBMataineditsgreatestsuccess—anddisplayeditsgreatestabilitytoadapttoachangingworld—duringthesameerathatitdisplayeditsstrongestcult-likeculture.

Furthermore,Burroughs(IBM’scomparison)displayedlitleofthecultismwesawinthehistoryofIBM.IthadnoBurroughsindoctrinationcenterto“imbue”employeeswithcorporatevalues.

WefoundnoindicationthatBurroughssoughttoimposeseveretightnessoftaroundacentralideology,nordidweseeanyevidencethatBurroughssawitselfaseliteandspecialintheschemeofAmericanenterprise.IBMgaveitselfaclearself-identity,howevercult-like.Burroughsdidnot.AndIBMconsistentlypuledaheadofBurroughsatcriticaljuncturesintheevolutionoftheindustry,eventhoughBurroughshadabeterearlystartinlife.

THEMAGICOFWALTDISNEY

LikeIBMandNordstrom,theWaltDisneyCompanyhasmadeextensiveuseofindoctrination,tightnessoft,andelitismaskeypartsofpreservingitscoreideology.

Disneyrequireseverysingleemployee—nomaterwhatlevelorposition—toatendnewemployeeorientation(alsoknownas

“DisneyTraditions”)taughtbythefacultyofDisneyUniversity,thecompany’sowninternalsocializationandtrainingorganization.56

Disneydesignedthecoursesothat“newmembersoftheDisneyteamcanbeintroducedtoourtraditions,philosophies,organization,andthewaywedobusiness.”57

Disneypaysparticularatentiontothoroughlyscreenandsocializehourlyworkersintoitsthemeparks.Potentialrecruits—eventhosebeinghiredtosweeptheoor—mustpassatleasttwoscreeningsbydierentinterviewers.58(Inthe1960s,Disneyrequiredalapplicantstotakeanextensivepersonalitytest.)59Menwithfacialhairandwomenwithdanglingearringsorheavymakeupneednotapply;Disneyenforcesastrictgroomingcode.60(In1991,membersoftheDisneylandstawentonstriketoprotestthegroomingcode;Disneyredthestrikeleaderandkepttheruleintact.)61Evenasfarbackasthe1960s,Disneylandimposedstricttightness-of-tguidelinesinhiring,asRichardSchickeldescribedparkemployeesinhis1967bookTheDisneyVersion:

[They]presentaratherstandardizedappearance.Thegirlsaregeneralyblonde,blue-eyedandself-eacing,allookingasiftheysteppedoutofanadforCaliforniasportswearandareheadingforsuburbanmotherhood.Theboys...areoutdoorsy,Al-Americantypes,thekindofvacuouslypleasantladyourmotherwasalwaystelingyoutoimitate.62

AlnewhiresatDisneylandexperienceamultidaytrainingprogramwheretheyquicklylearnanewlanguage:

Employeesare“castmembers.”

Customersare“guests.”

Acrowdisan“audience.”

Aworkshiftisa“performance.”

Ajobisa“part.”

Ajobdescriptionisa“script.”

Auniformisa“costume.”

Thepersonneldepartmentis“casting.”

Beingondutyis“onstage.”

Beingofdutyis“backstage.”

ThespeciallanguagereinforcestheframeofmindDisneyimposesviacarefulyscriptedorientationseminarsdeliveredbywel-

practiced“trainers”whodrilnewcastmemberswithquestionsaboutDisneycharacters,history,andmythology,andwhoconstantlyreinforcetheunderlyingideology:TRAINER:Whatbusinessarewein?EverybodyknowsMcDonald’smakeshamburgers.WhatdoesDisneymake?

NEWHIRE:Itmakespeoplehappy.

TRAINER:Yes,exactly!Itmakespeoplehappy.Itdoesn’tmaterwhotheyare,whatlanguagetheyspeak,whattheydo,wheretheycomefrom,whatcolortheyare,oranythingelse.We’reheretomake’emhappy....

Nobody’sbeenhiredforajob.Everybody’sbeencastforaroleinourshow.63

Theorientationseminarstakeplaceinspecialydesignedtrainingrooms,plasteredwithpicturesoffounderWaltDisneyandhismost

rooms,plasteredwithpicturesoffounderWaltDisneyandhismostfamouscharacters(suchasMickeyMouse,SnowWhiteandtheSevenDwarfs).Theyaim,inthewordsofaTomPetersGroupvideo,“tocreatetheilusionthatWalthimselfispresentintheroom,welcomingthenewhirestohispersonaldomain.TheobjectistomakethesenewemployeesfeellikepartnerswiththePark’sfounder.”64EmployeesreadfromtheUniversityTextbooks,whichhaveincludedsuchexhortationsas:“AtDisneylandwegettired,butneverbored,andevenifit’saroughday,weappearhappy.You’vegottohaveanhonestsmile.It’sgottocomefromwithin....Ifnothingelsehelps,rememberthatyougetpaidforsmiling.”65

Afterin-classorientation,eachnewcastmemberdoublesupwithanexperiencedpeerwhofurthersocializeshimorherintothenuancesofthespecicjob.Throughout,Disneyenforcesstrictcodesofbehaviorandconduct,demandingthatthecastmemberquicklysandoanypersonalityquirksthatdonotttheirspecicscript.66

Trainingmagazineobserved:“AtDisneythereisnosuchthingasanunplannedmomentfornewhires.TherstdaysfolowingtheDisneyorientationprogramareledwithcostume(uniform)tings,scriptrehearsals(training)andmeetingfelowcastmembers.Anditisalascarefulyorchestratedandthought-outasanyperformancestagedforthemeparkguests.”67

Disney’sfanaticalpreservationofitsself-imageandideologyhasshownitselfmostclearlyinthethemeparks,butitalsoextendsfarbeyondthethemeparks.AlemployeesinthecompanymustatendaDisneyTraditionsorientationseminar.AStanfordMBAwhospentasummeratDisneydoingnancialanalysis,strategicplanning,andothersimilarwork,described:

IrecognizedthemagicofWalt’svisiononmyrstdayattheWaltDisneyCompany....AtDisneyUniversity,throughvideosand“pixiedust,”WaltsharedhisdreamsandthemagicofDisney’s“world.”DisneyarchivestreasureWalt’shistoryforcastmemberstoenjoy.Afterorientation,IstoppedatthecornerofMickeyAvenueandDopeyDrive—Ifeltthemagic,the

MickeyAvenueandDopeyDrive—Ifeltthemagic,thesentimentality,thehistory.IbelievedinWalt’sdreamandsharedthisbeliefwithothersintheorganization.68

Noemployeeanywhereinthecompanycouldcynicalyoragrantlydenouncetheidealof“wholesomeness”andsurvive.69

CompanypublicationsconstantlyemphasizethatDisneyis

“special,”“dierent,”“unique,”“magical.”Eventhecompany’sannualreportstoshareholdershavebeenpepperedwithsuchtermsandphrasesas“dreams,”“fun,”“excitement,”“joy,”“imagination,”

and“magicistheessenceofDisney.”70

Disneyshroudsmuchofitsinnerworkingsinsecrecy,whichfurthercontributes

toasenseofmysteryandelitism—onlythosedeeponthe“inside”gettopeekbehindthecurtaintoseethemechanicsofthe“magic.”Nooneexceptspeciccastmembers(whoaresworntosecrecy),forexample,canobservethetrainingofcharactersatDisneyland.WriterswhocoverDisneyhaveencounteredercelyprotectivegatekeeperstothesecretsoftheMagicKingdom.“Disneyisastrangelyclosedcorporation,”wroteoneauthor.“It[has]alevelofcontrolingparanoiaIhadneverencounteredinmyyearsofwritingaboutAmericanbusiness.”71

Disney’sintensivescreeningandindoctrinationofemployees,itsobsessionwithsecrecyandcontrol,anditscarefulcultivationofamythologyandimageassomethingspecial—andimportant—tothelivesofchildrenaroundtheworld,alhelptocreateacultishfolowingthatextendseventoitscustomers.AloyalDisneycustomeroncenoticedaslightlydiscoloredDisneycharacterdolataretailstoreandseethed,“IfUncleWaltsawthat,he’dbeashamed.”72

Indeed,whenexaminingDisney,itcanbehardtokeepinmindthatitisacorporation,notasocialorreligiousmovement.JoeFowlerwroteinhisbookPrinceoftheMagicKingdom:Thisisnotacorporatehistory.Itisahistoryofadeeplyhumanstruggleoverideas,values,andhopesforwhichmenand

struggleoverideas,values,andhopesforwhichmenandwomenwerewilingtogivethemselvesover,valuesattimessoevanescentthatsomepeoplecoulddismissthemassily,valuessodeepthatothersbecamestudentsofthem,dedicatedtheircareerstomakingthemcomealive,becameenragedandembiteredwhentheyseemedtobeviolated,andturnedpoeticandinspiredintheirdefense.Thisiswhatisimpressiveaboutthename“Disney”:nooneisneutral....WaltDisneywasageniusoracharlatan,ahypocriteoranexemplar,asnake-oilsalesmanorabelovedfatherfiguretogenerationsofchildren.73

Thecompany’scult-likeculturedoes,infact,tracetofounderWaltDisney,whosawtherelationshipbetweenhimselfandemployeesaslikethatbetweenfatherandchildren.74HeexpectedcompletededicationfromDisneyemployees,andhedemandedunblemishedloyaltytothecompanyanditsvalues.Adedicatedand

—aboveal—loyalDisneyitecouldmakehonestmistakesandbegivenasecond(andoften,third,fourth,andfth)chance.75Buttobreachthesacredideologyortodisplaydisloyalty...wel,theseweresins,punishablebyimmediateand

unceremonioustermination.AccordingtoMarcEliot’sbiographyWaltDisney,

“Whensomeonedid,onoccasion,slipinWalt’spresenceanduseafour-leterwordinmixedcompany,theresultwasalwaysimmediatedismissal,nomaterwhattypeofprofessionalinconveniencethefiringcaused.”76WhenDisneyanimatorswentonstrikein1941,Waltfeltbetrayedbyhisworkersandsawtheunionnotsomuchasaneconomicforcebutasanintrusionintohiscarefulycontroled“family”ofloyalDisneyites.77

WalthadaragefororderandcontrolthathetranslatedintotangiblepracticestomaintaintheessenceofDisney.Thepersonalgroomingcode,therecruitingandtrainingprocesses,thefanaticalatentiontothetiniestdetailsofphysicallayout,theconcernwithsecrecy,theexactingrulesaboutpreservingtheintegrityandsanctityofeachDisneycharacter—thesealtracetheirrootstoWalt’squesttokeeptheDisneyCompanycompletelywithinthe

Walt’squesttokeeptheDisneyCompanycompletelywithintheboundsofitscoreideology.WaltdescribedtherootsoftheDisneylandprocesses:

TherstyearIleasedouttheparkingconcession,broughtintheusualsecurityguards—thingslikethat.ButIsoonrealizedmymistake.Icouldn’thaveoutsidehelpandstilgetovermyideaofhospitality.Sonowwerecruitandtraineveryoneofouremployees.Itelthesecurityocers,forinstance,thattheyarenevertoconsiderthemselvescops.Theyaretheretohelppeople....Onceyougetthepolicygoing,itgrows.78

Andgrowitdid.EventhoughthecompanylanguishedafterWalt’sdeath,itneverlostitscoreideology,dueinlargeparttothetangibleprocesseslaidinplacebeforehedied.AndwhenMichaelEisnerandtheNewDisneyTeamtookoverin1984,thecore—

carefulypreserved—formedthebedrockofDisney’sresurgenceinthefolowingdecade.

ColumbiaPictures,incontrast,hadneitheracoreideologynoranycorepreservationmechanismsinplaceafterCohn’sdeathin1958.Waltdidn’tbuildaperfectlytickingclock,buthedidhaveacoreideology,andhedidclock-buildmechanisms(howevercultish)topreservethecoreideology.Colindidnot.DisneyeventualyreboundedafterWalt’sdeathasanindependentinstitutionbuiltonhislegacy;ColumbiaPicturesceasedtoexistasanindependent

company.

COMPLETEIMMERSIONATPROCTER&GAMBLE

Throughoutmostofitshistory,Procter&Gamblehaspreserveditscoreideologythroughextensiveuseofindoctrination,tightnessoft,andelitism.P&Ghaslong-standingpracticesofcarefulyscreeningpotentialnewhires,hiringyoungpeopleforentry-leveljobs,rigorouslymoldingthemintoP&Gwaysofthoughtandbehavior,spitingoutthemists,andmakingmiddleandtopslotsavailableonlytoloyalP&Gerswhogrewupinsidethecompany.

availableonlytoloyalP&Gerswhogrewupinsidethecompany.

The100BestCompaniestoWorkforinAmericastates:CompetitiontogetintoP&Gistough....Recruits,whentheysignon,mayfeeltheyhavejoinedaninstitution,ratherthanacompany....NooneevercomesintoP&Gatamiddleortop-managementlevelwhohasgarneredhisorherexperienceatanothercompany.Itjustdoesn’thappen.Thisisanup-through-the-rankscompanywithavengeance.79...ThereisaP&Gwayofdoingthings,andifyoudon’tmasteritoratleastfeelcomfortablewithit,you’renotgoingtobehappyhere,nottospeakofbeingsuccessful.80

Indoctrinationprocessesarebothformalandinformal.P&G

inductsnewemployeesintothecompanywithtrainingandorientationsessionsandexpectsthemtoreaditsocialbiographyEyesonTomorrow(alsoknowntoinsidersas“TheBook”),whichdescribesthecompanyas“anintegralpartofthenation’shistory”

with“aspiritualinheritance”and“unchangingcharacter...that

[has]remainedsolidlybasedontheprinciple,theethics,themoralssooftenpronouncedbythefounders[and]hasbecomealastingheritage.”81Internalcompanypublications,talksbyexecutives,andformalorientationmaterialsstressP&G’shistory,values,andtraditions.82Employeescannotmissseeingthe

“IvorydaleMemorial”overlookingtheIvorydaleplant—alife-sizemarblesculptureofWiliamCooperProcter,grandsonofcofounderWiliamProcter,stridingforwardfromtheinscribedwords:“Helivedalifeofnoblesimplicity,believinginGodandtheinherentworthinessofhisfelowmen.”83

Newhires—especialythoseinbrandmanagement(thecentralfunctionofthecompany)—immediatelyndnearlyaloftheirtimeoccupiedbyworkingorsocializingwithothermembersof“thefamily,”fromwhomtheyfurtherlearnaboutthevaluesandpracticesofP&G.Thecompany’srelativelyisolatedlocationinaP&G-dominatedcity(Cincinnati)furtherreinforcesthesenseof

P&G-dominatedcity(Cincinnati)furtherreinforcesthesenseofcompleteimmersionintothecompany.“Yougotoastrangetown,worktogetheralday,writememosalnight,andseeeachotheronweekends,”describedoneP&Galum.84P&GersareexpectedtosocializeprimarilywithotherP&Gers,belongtothesameclubs,atendsimilarchurches,andliveinthesameneighborhoods.85

P&Ghasalonghistoricaltrackrecordofpaternalisticandprogressiveemployeepayandbenetprograms,whichbinditspeoplecloselytothecompany.86

•In1887,P&Gintroducedaprot-sharingplanforworkers,makingittheoldestprot-sharingplanincontinuousoperationinAmericanindustry.

•In1892,P&Gintroducedanemployeestockownershipplan,oneofthefirstinindustrialhistory.

•In1915,P&Gintroducedacomprehensivesickness-disability-retirement-life-insuranceplan—again,oneoftherstcompaniestodoso.

Thecompanyhasusedtheseprogramsnotonlyasameansofrewardingemployees,butalsoasmechanismstoinuencebehavior,gaincommitment,andensuretightnessoft.AP&G

publicationdescribedhowitusedtheearlyprofit-sharingplan:

[WiliamCooperProcter]concludedthatworkerswhoshowedindierencetotheneedforgreaterworkeortshouldbedeprivedoftheirshareofprots—thattheirsharesshouldbeturnedovertothosewhocared.Sohesetupfourclassications

—basedonthedegreeofaworker’scooperationasdecidedbymanagement.Thathelpedconsiderably[toensuretheproperatitude]!87

Byencouragingemployeestopurchasesharesintheemployee

Byencouragingemployeestopurchasesharesintheemployeestockownershipprogram,thecompanygarneredahighlevelofpsychologicalcommitment.Afteral,whatbeterwaytogain“buyin”totheorganizationthantohaveemployeesliteralybuyinwithsomeoftheirownhard-earnedincome?In1903,tofurtherreinforcethisbuy-inprocess,P&Grestricteditsprot-sharingprogramonlytothosewilingtomakeasignicantstockpurchasecommitment:

Protsharingwould[henceforth]betieddirectlytoemployeeownershipofP&Gcommonstock.Tobeeligibleforprotsharing,anemployeehadtobuystockequivalentatcurrentvaluetohisannualwage[emphasisours],butcouldspreadpaymentoverseveralyearswithaminimumpaymentoffourpercentofhisannualwage.Atthesametime,theCompanycontributed12percentoftheemployee’sannualwagetowardpurchaseofthatstock.88

By1915,fuly61percentofemployeeshadboughtintothestockprogram—andtherebyboughtfulpsychologicalmembershipinP&G.Throughoutitshistory,P&Ghasusedamyriadoftangiblemechanismstoenforcedesiredbehavior,rangingfromstrongdresscodesandocelayoutsthatalowlitleprivacytoP&G’sfamous

“one-pagememo”*thatmandatesconsistencyincommunicationstyle.

P&G’stightnessoftappliesacrossthecompany,atallocations,inalcountries,andinalworldcultures.Anex-employeewhojoinedP&GdirectlyoutofbusinessschooltoworkinEuropeandAsiacommented:“Procter’scultureextendstoalcornersoftheglobe.Whengoingoverseas,itwasmadeverycleartomethatImustrstandforemostadapttotheP&Gculture,andsecondarilyadapttothenationalculture.BelongingtoP&Gislikebelongingtoanationuntoitself.”89Atacompanymeetingin1986,chiefexecutiveJohnSmaleechoedasimilartheme:

Procter&Gamblepeoplealovertheworldshareacommonbond.Inspiteofculturalandindividualdierences,wespeakthesamelanguage.WhenImeetwithProcter&Gamblepeople

—whethertheyareinSalesinBoston,ProductDevelopmentattheIvorydaleTechnicalCenter,ortheManagementCommiteeinRome—IfeelIamtalkingtothesamekindofpeople.PeopleIknow.PeopleItrust.Procter&Gamblepeople.90

LikeNordstrom,IBM,andDisney,Procter&Gamblehasdisplayedanintensepenchantforsecrecyandcontrolofinformation.

Managersroutinelyadmonish,scold,orpenalizeemployeesforworkingonairplanes,usingluggageIDcardsthatrevealthemasP&Gemployees,andfortalkingaboutbusinessinpublicplaces.

The1991managementstockoptionplanstipulatesthatiftherecipientoftheoptionsdisclosesunauthorizedinformationaboutP&Gtotheoutsideworld,theoptionswilberevoked.91

Thecompany’ssecretivenaturereinforcesanelitismcultivatedthroughoutmuchofitshistory.P&Gpeoplefeelproudtobepartofanorganizationthatdescribesitselfas“special,”“great,”“excelent,”

“moral,”“self-disciplined,”fulof“thebestpeople,”“aninstitution,”and“uniqueamongtheworld’sbusinessorganizations.”92Indescribingaparticularlydicultproject,aP&G

managercommented:“IftherewasonecharacteristicIsawdemonstratedbyeveryone[throughouttheproject]itwastheprideinbeingthebest.”93

ThecontrastbetweenP&GandColgateisnotasstarkasbetweenNordstromandMelvile,IBMandBurroughs,orDisneyandColumbia.Foronething,upuntiltheearly1900s,ColgateplacedgreatemphasisonapaternalisticculturebuiltaroundtheColgatefamilyvalues.94Nonetheless,thereisadierence,particularlyoverthepastsixtyyears.WefoundnoevidencethatColgateimposesthesamerigorousscreeningortightness-of-tcriteriauponnewhires.

Nordidwendanyevidenceofthesamelevelofindoctrinationintothe“character”ofP&Gandtheguidingprincipleslaiddownby

intothe“character”ofP&Gandtheguidingprincipleslaiddownbyitsfounders.WhereasP&Ghasalwaysdeneditselfintermsofitsowncoreideologyanddeepheritage—constantlyemphasizingitsspecialnessanduniqueness—ColgatehasincreasinglydeneditselfinrelationtoP&G.Procterhascontinualyreinforcedasenseofbeingtheeliteoftheelite;Colgatehascometoseeitselfas“secondtoProcter”andonaquesttobecome“anotherP&G.”95

THEMESSAGEFORCEOS,MANAGERS,ANDENTREPRENEURS

Youmightndyourselfsomewhatuncomfortablewiththendingsinthischapter.Wesharesomeofthatdiscomfort,andwewishtobeclearthatwe’recertainlynotadvocating(orevendescribing)theextremeJimJones,DavidKoresh,orReverendSunMyungMoontypeofsituation.Itisimportanttounderstandthat,unlikemanyreligioussectsorsocialmovementswhichoftenrevolvearoundacharismaticcultleader(a“cultofpersonality”),visionarycompaniestendtobecult-likearoundtheirideologies.Notice,forexample,howNordstromcreatedazealousandfanaticalreverenceforitscorevalues,shapingapowerfulmythologyaboutthecustomerserviceheroicsofitsemployees,ratherthandemandingslavishreverenceforanindividualleader.Disney’szealousprotectionofitsvaluestranscendedWaltandremainedlargelyintactdecadesafterhisdeath.P&Gremainedtightlydedicatedtoitsprinciplesforover150years,throughninegenerationsoftopmanagement.Cultismaroundanindividualpersonalityistimeteling;creatinganenvironmentthatreinforcesdedicationtoanenduringcoreideologyisclockbuilding.

THEpointofthischapterisnotthatyoushouldsetouttocreateacultofpersonality.That’sthelastthingyoushoulddo.

Rather,thepointistobuildanorganizationthatferventlypreservesitscoreideologyinspecic,concreteways.Thevisionarycompaniestranslatetheirideologiesintotangiblemechanismsalignedtosendaconsistentsetofreinforcingsignals.Theyindoctrinatepeople,imposetightnessoft,andcreateasenseofbelongingtosomethingspecialthroughsuchpractical,concreteitemsas:

•Orientationandongoingtrainingprogramsthathaveideologicalaswelaspracticalcontent,teachingsuchthingsasvalues,norms,history,andtradition

•Internal“universities”andtrainingcenters

•On-the-jobsocializationbypeersandimmediatesupervisors.

•Rigorousup-through-the-rankspolicies—hiringyoung,promotingfromwithin,andshapingtheemployee’smind-setfromayoungage

•Exposuretoapervasivemythologyof“heroicdeeds”andcorporateexemplars(forexample,customerheroicsleters,marblestatues)

•Uniquelanguageandterminology(suchas“castmembers,”

“Motorolans”)thatreinforceaframeofreferenceandthesenseofbelongingtoaspecial,elitegroup

•Corporatesongs,cheers,armations,orpledgesthatreinforcepsychologicalcommitment

•Tightscreeningprocesses,eitherduringhiringorwithinthefirstfewyears

•Incentiveandadvancementcriteriaexplicitlylinkedtotwiththecorporateideology

•Awards,contests,andpublicrecognitionthatrewardthosewhodisplaygreatefortconsistentwiththeideology.Tangibleandvisiblepenaltiesforthosewhobreakideologicalboundaries

•Toleranceforhonestmistakesthatdonotbreachthe

•Toleranceforhonestmistakesthatdonotbreachthecompany’sideology(“non-sins”);severepenaltiesorterminationforbreachingtheideology(“sins”)

•“Buy-in”mechanisms(financial,timeinvestment)

•Celebrationsthatreinforcesuccesses,belonging,andspecialness

•Plantandoficelayoutthatreinforcesnormsandideals

•Constantverbalandwritenemphasisoncorporatevalues,heritage,andthesenseofbeingpartofsomethingspecialPreservetheCoreANDStimulateProgress

Atthispoint,youmightthinking:Butisn’tatight,cult-likeculturedangerous?Doesitleadtogroup-thinkandstagnation?Doesitdriveawaytalentedpeople?Doesitstiecreativityanddiversity?

Doesitinhibitchange?Ouranswer:Yes,acult-likeculturecanbedangerousandlimitingifnotcomplementedwiththeothersideoftheyin-yang.Cult-likecultures,whichpreservethecore,mustbecounterweightedwithahugedoseofstimulatingprogress.Inavisionarycompany,theygohandinhand,eachside

reinforcingtheother.

Acult-likeculturecanactualyenhanceacompany’sabilitytopursueBigHairyAudaciousGoals,preciselybecauseitcreatesthatsenseofbeingpartofaneliteorganizationthatcanaccomplishjustaboutanything.IBM’scultishsenseofitselfcontributedgreatlytoitsabilitytogambleontheIBM360.Disney’scult-likebeliefinitsspecialroleintheworldenhanceditsabilitytolaunchsuchradicalBHAGsasDisneylandandEPCOTcenter.WithoutBoeing’sdedicationtobeinganorganizationofpeoplewho“live,breathe,eatandsleepwhattheyaredoing,”itcouldnothavesuccessfulylaunchedthe707and747projects.WithoutSony’salmostfanaticalbeliefthatitwasauniqueorganizationwithaspecialroletoplayintheworld,itcouldnothavetakenitsboldstepswithtransistorsinthe1950s.Merck’scult-likededicationtoitsideologygaveitspeopleasensethattheywerepartofsomethingmorethanjust

peopleasensethattheywerepartofsomethingmorethanjustanothercorporation—anditislargelyoutofthissensethattheywereinspiredtoputforththeeortrequiredtoestablishMerckasthepreeminentpharmaceuticalcompanyintheworld.

Furthermore,it’simportanttounderstandthatyoucanhaveacult-likecultureofinnovation,oracult-likecultureofcompetition,oracult-likecultureofchange.Youcanevenhaveacult-likecultureofzaniness.Wethinkthat’sexactlywhatexecutivesatWal-MartdothroughsuchactionsasleadingthousandsofscreamingassociatesintheWal-Martcheer:“GiveMeaW!GiveMeanA!GiveMeanL!GiveMeaSquiggly!(Employeestwistandsquiggletheirhips.)GivemeanM!GiveMeanA!GiveMeanR!GiveMeaT!

What’sthatspel?Wal-Mart!What’sthatspel?Wal-Mart!Who’snumberone?THECUSTOMER!”96

Cult-liketightnessanddiversitycanalsoworkhandinhand.

Someofthemostcult-likevisionarycompanieshavereceivedaccoladesasbeingthebestmajorcorporationsforwomenandminorities.Merck,forexample,hasalongtrackrecordofprogressiveequalopportunityprograms.AtMerck,diversityisaformofprogressthatnicelycomplementsitsdeeplycherishedcore.

Youcanbeanycolor,size,shape,orgenderatMerck—justaslongasyou

believeinwhatthecompanystandsfor.

IDEOLOGICALCONTROL/OPERATIONALAUTONOMY

Inaclassicexampleofthe“GeniusoftheAND”prevailingoverthe

“TyrannyoftheOR,”visionarycompaniesimposetightideologicalcontrolandsimultaneouslyprovidewideoperatingautonomythatencouragesindividualinitiative.Infact,aswewildiscussinthenextchapter,wefoundthatthevisionarycompaniesweresignicantlymoredecentralizedandgrantedgreateroperationalautonomythanthecomparisoncompaniesasageneralpatern,eventhoughtheyhavebeenmuchmorecult-like.97Ideologicalcontrolpreservesthecorewhileoperationalautonomystimulatesprogress.

RecaltheNordstromone-pageemployeehandbookdescribedatthebeginningofthischapter.Noticehow,ontheonehand,thecompanyconstrictsbehaviortothatconsistentwiththeNordstromideology.Yet,ontheotherhand,itgrantsimmenseoperatingdiscretion.WhenaskedduringavisittoaStanfordBusinessSchoolclasshowaNordstromclerkwouldhandleacustomeratemptingtoreturnadressthathadobviouslybeenworn,JimNordstromreplied:

Idon’tknow.That’sanhonestanswer.ButIdohaveahighlevelofcondencethatitwouldbehandledinsuchawaythatthecustomerwouldfeelweltreatedandserved.Whetherthatwouldinvolvetakingthedressbackwoulddependonthespecicsituation,andwewanttogiveeachclerkalotoflatitudeinguringoutwhattodo.Weviewourpeopleassalesprofessionals.Theydon’tneed

rules.Theyneedbasicguideposts,butnotrules.YoucandoanythingyouneedtoatNordstromtogetthejobdone,justsolongasyouliveuptoourbasicvaluesandstandards.98

NordstromremindsusoftheUnitedStatesMarineCorps—tight,controled,anddisciplined,withlitleroomforthosewhowilnot

controled,anddisciplined,withlitleroomforthosewhowilnotorcannotconformtotheideology.Yet,paradoxicaly,thosewithoutindividualinitiativeandentrepreneurialinstinctswiljustuslikelyfailatNordstromasthosewhodonotsharetheideologicaltenets.Thesameholdsatotherideologicalytightvisionarycompanieslike3M,J&J,Merck,HP,andWal-Mart.

Thisndinghasmassivepracticalimplications.Itmeansthatcompaniesseekingan“empowered”ordecentralizedworkenvironmentshouldrstandforemostimposeatightideology,screenandindoctrinatepeopleintothatideology,ejecttheviruses,andgivethosewhoremainthetremendoussenseofresponsibilitythatcomeswithmembershipinaneliteorganization.Itmeansgetingtherightactorsonthestage,putingthemintherightframeofmind,andthengivingthemthefreedomtoadlibastheyseet.

Itmeans,inshort,understandingthatcult-liketightnessaroundanideologyactualyenablesacompanytoturnpeopleloosetoexperiment,change,adapt,and—aboveal—toact.

*“Robert”—atypicalNordstromnewhire—isacompositecharacter,buttheexperiencedescribedisauthentic.WecreatedadescriptionofRobert’sexperiencebasedoninterviewswithemployeesandex-employees,transcriptnotesfromaninterviewwithco-chairmanJimNordstrom,companydocuments,bookexcerpts,andarticles.

*Wefoundthatthevisionarycompaniesputmoreemphasisonemployeetrainingingeneral.Notjustideologicalorientation,butalsoskilsandprofessionaldevelopmenttraining.Wewilreturntothispointinalaterchapter.

*NOTE:foranexcelentaccountofIBM’searlyhistory,seeRobertSobel,IBM:ColossusinTransition(NewYork:TrumanTaleyBooks,1981).

*Almemosaresupposedtobekepttoonepage,plusexhibits.MostP&Gersconformtothisrule,althoughsomeP&Gershaveinfactseenmemoslongerthanonepage.

Chapter7

Chapter7

TryaLotofStuffandKeepWhatWorks

Tomyimaginationitisfarmoresatisfactorytolookat[wel-

adaptedspecies]notasspecialyendowedorcreatedinstincts,butassmalconsequencesofonegenerallawleadingtotheadvancementofalorganicbeings—namely,multiply,vary,letthestrongestliveandtheweakestdie.

CHARLESDARWIN,ORIGINOFSPECIES,18591

Ourcompanyhas,indeed,stumbledontosomeofitsnewproducts.

Butneverforgetthatyoucanonlystumbleifyou’removing.

RICHARDP.CARLTON,FORMERCEO,3MCORPORATION,19502

Failureisourmostimportantproduct.

R.W.JOHNSON,JR.,FORMERCEO,JOHNSON&JOHNSON,19543

Inexaminingthehistoryofthevisionarycompanies,wewerestruckbyhowoftentheymadesomeoftheirbestmovesnotbydetailedstrategicplanning,butratherbyexperimentation,trialanderror,opportunism,and—quiteliteraly—accident.Whatlooksinhindsightlikeabriliantstrategywasoftentheresidualresultofopportunisticexperimentationand“purposefulaccidents.”ConsiderthefolowingexamplesatJohnson&Johnson,Marriot,andAmericanExpress.

Johnson&Johnson’sAccidentalMoveinto

ConsumerProducts

In1890,Johnson&Johnson—thenprimarilyasupplierofantisepticgauzeandmedicalplasters—receivedaleterfromaphysicianwhocomplainedaboutpatientskinirritationfromcertainmedicatedplasters.FredKilmer,thecompany’sdirectorofresearch,quicklyrespondedbysendingapacketofsoothingItaliantalctoapplyontheskin.Hethenconvincedthecompanytoincludeasmalcanoftalcaspartofthestandardpackagewithcertainproducts.

Tothecompany’ssurprise,customerssoonbeganaskingtobuymoreofthetalcdirectly.J&Jrespondedbycreatingaseparateproductcaled“Johnson’sToiletandBabyPowder,”whichbecameafamoushouseholdstaplearoundmuchoftheworld.

AccordingtoJ&J’sownocialhistory,“theJohnsonsgotintothebabypowderbusinessquitebyaccident.”4Evenmoresignicant,thecompanytherebytookatinyincrementalstepthateventualymushroomedintoasignicantstrategicshiftintoconsumerproducts—an“accident”whicheventualygrewtobecome44

percentofJ&J’srevenues—andasimportanttoitsgrowthasmedicalsuppliesandpharmaceuticalproducts.5

Later,J&Jstumbleduponanotherfamousproductbyaccident.In1920,companyemployeeEarleDicksoncreatedaready-to-usebandage—madeofsurgicaltapewithsmalpiecesofgauzeanda

bandage—madeofsurgicaltapewithsmalpiecesofgauzeandaspecialcoveringsoitwouldnotsticktotheskin—forhiswifewhohadaknackforcutingherselfwithkitchenknives.Whenhementionedhisinventiontothemarketingpeople,theydecidedtoexperimentwiththeproductonthemarket.Eventualy,afteraslowstartandanever-endingprocessoftinkering,Band-Aidproductsbecamethebiggestselingcategoryinthecompany’shistoryandfurthersolidiedJ&J’s“accidental”strategicmoveintoconsumerproducts.6

Marriott’sOpportunisticStepintoAirportServicesIn1937—tenyearsafteropeninghisrstrootbeerstand—J.

WilardMarriothadbuiltachainofnineprotablerestaurantsstaedbytwohundredzealousemployeestrainedinthecompany’smeticulousmethodsofcustomerservice.Marriotclearlyhadasystemthatworked.Withplanstodoublethenumberofrestaurantsoverthenextthreeyears,thefutureprospectsoftheemergingcompanyneverlookedbrighter.J.Wilardandhismanagementteamwouldcertainlyataingreatsuccess—and,justascertain,havetheirhandsful—iftheysimplyfocusedonexecutingtherestaurantexpansionplan.

ButwhattodoabouttheoddemergingsituationatMarriotshopnumbereight?LocatednearHooverAirportinWashington,D.C.,numbereighthadatractedanentirelydierentclientelethanotherMarriotshops:Passengersontheirwaytocatchaightbeganpurchasingmealsandsnackswhichtheystuedinpockets,

paperbags,andcarry-onluggage.“Welhowaboutthat,”saidMarriotduringaninspectionvisittonumbereight.“Cominginhereandbuyingthingstoeatontheplane?”7

“Everyday,”hisstoremanagerexplained,“wegetafewmoreofthem.”

Marriotponderedthesituationovernight,accordingtoRobertO’BrianinthebookMarriot.Theverynextday,hepaidavisittoEasternAirTransportandcreatedanewbusinessarrangement

EasternAirTransportandcreatedanewbusinessarrangementwherebyshopnumbereightwoulddeliverprepackagedboxlunchesdirectlyontothetarmacinabrightorangetruckwithMarriot’slogoandleteringontheside.Withinafewmonths,theserviceexpandedtoAmericanAirlinesandcateredtwenty-twoightsperday.Marriotsoonputaful-timemanagerinchargeoftheemergingbusiness,withthemissiontofulydevelopitatHooverandexpandittootherairports.AirportservicesevolvedfromtheseedofthatunexpectedopportunitytobecomeamajorbusinessforMarriotCorporation,eventualyreachingmorethanahundredseparateairports.8

Marriotcouldhaveboggeddowninlongmeetingsandstrategicanalysestodecidewhattodo.TheunusualclienteleatnumbereightpresentedMarriotwithanoddvariationtoitstraditionalcustomerbase.Thecompanycouldhaveignoredit,butchoseinsteadtoexperiment—toactualytestandseeifthis“oddvariation”mightprovetobeafavorablevariation.Marriotmadeanincrementalshiftincorporatestrategybyquick,vigorousactiontakentoseizeuponastrokeofunexpectedgoodluck.Thesteplooksbriliantinretrospect,butinrealitywassimplytheresultofanopportunisticexperimentthathappenedtoworkout.

AmericanExpress’sUnintendedEvolutioninto

FinancialandTravelServices

AmericanExpressbeganlifein1850asaregionalfreightexpressbusiness(essentialythenineteenth-centuryequivalentoftheUnitedParcelService).In1882,thecompanytookasmal,incrementalstepthatturnedouttobethegenesisofadramaticstrategicshift.

Duetotheincreasinglypopularpostalmoneyorder,AmericanExpressfaceddecliningdemandforitscash-shippingservices(similartoanarmoredcar

service).Inresponse,AmExcreateditsownmoneyorder.The“ExpressMoneyOrder”becameanunexpectedsuccess—11,959ofthemsoldduringtherstsixweeks.

AmExaggressivelyseizedtheopportunityandbeganselingthe

AmExaggressivelyseizedtheopportunityandbeganselingtheproductnotonlyatitsownoces,butalsoatrailroadstationsandgeneralstores,andtherebybegan—unwitingly—totransformitselfintoafinancialservicescompany.9

Adecadelater,in1892,AmericanExpresspresidentJ.C.FargotookaEuropeanvacation,wherehefounditdiculttotranslatehisletersofcreditintocash—aproblem(andthereforeanopportunity)whichimpeledafurthershiftinthecompany’strajectory.InhisbookAmericanExpress1850–1950,AldenHatchwrote:

Onhisreturn,[Fargo]stalkedthroughthecorridorsof65

Broadwaywithmorethanhisusualpreoccupation....Hewalkedrightpasthisownoficetothatof[employeeMarcelus]

Berry.“Berry,”hesaid,omitingasalutationandgoingstraighttothepoint,“Ihadalotoftroublecashingmyletersofcredit.

ThemomentIgotothebeatentracktheywerenomoreusethansomuchwetwrappingpaper.IfthepresidentofAmericanExpresshasthatsortoftrouble,justthinkwhatordinarytravelersface.Somethinghasgottobedoneaboutit.”10

Berrydidindeeddosomethingaboutit.Hecreatedanelegantsolutionwhichrequiredsimplyasignatureuponpurchaseandacountersignatureuponredemption,whicheventualybecameknownaroundtheworldastheubiquitous“AmericanExpressTravelersCheque.”Themechanicsofthetraveler’scheckgaveAmericanExpressanunexpectedbonus:Duetolostchecksanddelays,thecompanysoldmoreordersthanitredeemedeachmonth,whichcreatedacashcushion.AccordingtoJonFriedmanandJohnMeehaninHouseofCards:

Unintentionaly,AmExhadinventedthe‘float.’...Amere$750

atthebeginning,theoatwouldeventualytop$4bilionby1990,generating

$200milioninrevenue.Thecompanyhadvirtualy[andaccidentaly]createdanewinternational

virtualy[andaccidentaly]createdanewinternationalcurrency.11

Inwhatstartedasjustanotherincremental,opportunisticstep,thetraveler’scheckfurtherevolvedAmericanExpresstowardnancialservices.AmExdidn’tplantobecomeanancialservicescompany.

Nonetheless,itbecameone.

Thetraveler’scheckalsocontributedtothecompany’scompletelyunintentionalevolutionintoatravelservicescompany.Infact,presidentJ.C.Fargoissuedaclear,unambiguousdictumthatAmericanExpresswasnotgoingintothetravel/tourismbusiness:

“Wewantitdistinctlykeptinmindataltimesandinalplacesandbyalthecompany’sforces,thatthiscompanyisnotanddoesnotintendgoingintothetouring[travelservices]business

[emphasisours].”12

InspiteofFargo’sdictum,that’sexactlywhatAmExdid.Thecompanyhaddevelopedapaternofsolvingcustomerproblemsandquicklyexploitingopportunities—animpulseguidedbyitscoreideologyofheroiccustomerservice—thatcouldnotbeeasilysuppressed,evenbytheCEO.SoonafterthecompanyopeneditsrstEuropeantraveler’scheckoceinParisin1895,anentrepreneurialemployeenamedWiliamDalibabeganexpandingthecompany’sactivitiesinresponsetotheneedsofAmericantravelersthatalwayscrammedtheParisoceclamoringforcheckcashing,mailservices,travelschedules,tickets,advice,andsoon.

Dalibahadtobecarefulandlow-prole,ofcourse,soasnottoraisetheireofJ.C.Fargo.Sohemovedincrementaly,experimentingwithticketwindowstoselberthsonsteamships.

Usinghissuccessfulexperimentasafootinthedoor,Dalibaconvincedthecompanytoopena“TravelDepartment”andbeganselingtraintickets,packagedtours,andarangeoftravelservices.13

By1912,AmExhad“rmlyestablisheditselfasagreattravelorganization,thoughevenyetitdidnotadmitthefact[emphasisours].”14Bytheearly1920s,Daliba’sexperimentshadturnedtravel-relatedservicesintothesecondmostimportantstrategic

travel-relatedservicesintothesecondmostimportantstrategicpilarofthecompany,behindfinancialservices.

Thus,throughaseriesofincrementalsteps—mostofthemopportunisticandcertainlynotpartofanygrandplan—AmericanExpresshadevolvedintosomethingentirelydierentfromitsoriginalfoundingconceptasafreightexpressbusiness.

CORPORATIONSASEVOLVINGSPECIES

WhatshouldwemakeoftheseexamplesfromJ&J,Marriot,andAmericanExpress?Wemightbetemptedtojustignorethemasweirdaberrations,buttheyweren’ttheonlysuchexampleswefound.BilHewlettoldusthatHP“neverplannedmorethantwoorthreeyearsout”duringthepivotal1960s.15Nordidthecompanyhaveanygrandplaninmindwhenmakingitswatershedstrategicmoveintothecomputerbusiness.Quitetheopposite.In1965,HPdesigneditsrstsmalcomputersimplytoaddpowertoitslineofinstrumentsproducts.16ExplainedformerchiefexecutiveJohnYoung:

Itwasbasicalyanunderthebenchthing.Wedidn’tevencalitacomputer.Wecaleditan“instrumentcontroler.”Althoughweknewcomputerswouldbeimportantinthefuture,wewantedtomaintainourreputationasaninstrumentcompanyanddidnotwanttobeknownasacomputercompany.17

Similarly,Motorolainitialyenteredtheeldofadvancedelectronics(transistors,semiconductors,integratedcircuits)simplyasanaturaloutgrowthofitssmalPhoenixlaboratorysetupin1949todevelopafewelectroniccomponentsforuseinthecompany’stelevisionsandradios.18Onlylater,in1955,didMotorolamakeaconsciousstrategicchoicetomoveintotheelectronicsbusiness—andthatsimplybecausethecompanycouldnotaordtobuildanadvancedplantunlessitsoldsomeoftheoutputtooutsidecustomers.

outputtooutsidecustomers.

WecouldgoonwithexamplesfromCiticorp,PhilipMorris,GE,Sony,and

others.Don’tgetuswrong.We’renotsayingthatthesecompaniesneverhadplans.Butweweresurprisedtondsomanyexamplesofkeymovesbythevisionarycompaniesthatcameaboutbysomeprocessotherthanplanning.Nordotheseexamplesmerelyrepresentrandomluck.No,wefoundsomethingelseatwork.

Theseprovocativeexamplesledustoasecondtypeofprogress(therstwasBHAGs)stimulatedbythevisionarycompaniestoagreaterdegreethanthecomparisoncompanies:evolutionaryprogress.Theword“evolutionary”describesthistypeofprogressbecauseitcloselyresembleshoworganicspeciesevolveandadapttotheirnaturalenvironments.EvolutionaryprogressdiersfromBHAGprogressintwokeyways.First,whereasBHAGprogressinvolvesclearandunambiguousgoals(“We’regoingtoclimbthatmountain”),evolutionaryprogressinvolvesambiguity(“Bytryinglotsofdierentapproaches,we’reboundtostumbleontosomethingthatworks;wejustdon’tknowaheadoftimewhatitwilbe”).Second,whereasBHAGprogressinvolvesbolddiscontinuousleaps,evolutionaryprogressusualybeginswithsmallincrementalstepsormutations,oftenintheformofquicklyseizingunexpectedopportunitiesthateventualygrowintomajor—

andoftenunanticipated—strategicshifts.

Whyleadintothetopicofevolutionaryprogresswithexamplesofunplannedstrategies?Becauseevolutionaryprogressisunplannedprogress.Indeed,ifwelookedatspeciesinthenaturalworldthroughthelensofstrategicplanning,wemighteasilyconcludethattheyweretheresultofwel-executedplans:They’resoweladapted,theymusthavebeencreatedexactlythatwayaspartofabriliantoveralstrategicplan.Howelsecouldweexplainthem?

But,fromtheperspectiveofmodernbiology,suchaconclusionwouldbedeadwrong.AftertheDarwinianrevolution,biologistscametounderstandthatspecieswerenotdirectlycreatedinaspecicpreplannedform;theyevolved.Notonlythat,theyevolvedbyaprocesswithremarkablesimilaritytohowsomeofour

byaprocesswithremarkablesimilaritytohowsomeofourvisionarycompaniesbecameweladaptedtotheirenvironments.

Darwin’sTheoryofEvolutionAppliedtoVisionaryCompanies

Thecentralconceptofevolutionarytheory—andCharlesDarwin’sgreatinsight—isthatspeciesevolvebyaprocessofundirectedvariation(“randomgeneticmutation”)andnaturalselection.

Throughgeneticvariation,aspeciesatains“goodchances”thatsomeofitsmemberswilbewelsuitedtothedemandsoftheenvironment.Astheenvironmentshifts,thegeneticvariationsthatbestttheenvironmenttendtoget“selected”(thatis,thewel-

suitedvariationstendtosurviveandthepoorlysuitedtendtoperish—that’swhatDarwinmeantby“survivalofthetest”).Theselected(surviving)variationsthenhavegreaterrepresentationinthegenepoolandthespecieswilevolveinthatdirection.InDarwin’sownwords:“Multiply,vary,letthestrongestlive,andtheweakestdie.”*

Nowconsideracompany—say,AmericanExpress—asanalogoustoaspecies.Bytheearlytwentiethcentury,AmericanExpressfounditstraditionalfreightbusinessundersiege.Governmentregulatorserodedthecompany’smonopolisticratestructureandin1913theU.S.PostOcebeganacompetingparcel-postsystem.

Protsfel50percent.19Thenin1918theU.S.governmentnationalizedalfreightexpressbusinesses,creatingacataclysmicindustrychange.20Mostfreightcompaniesdisappearedasthegovernmentsnatchedawaytheircorebusiness.ButforAmericanExpress,itsexperimentsinnancialandtravelservices(describedearlier)provedtobefavorable—albeitunplanned—variationsthatwerebetersuitedtothechangedenvironmentthanitstraditionalfreightbusiness.Thesevariationswerethenselectedasthepathtoevolvebeyonditstraditional—andnowobsolete—lineofbusinessandonwhichtobaseitsfutureprosperity.21

WEliketodescribetheevolutionaryprocessas“branchingandpruning.”Theideaissimple:Ifyouaddenoughbranchestoatree(variation)andinteligentlyprunethedeadwood(selection),thenyou’llikelyevolveintoacolectionofhealthybrancheswelpositionedtoprosperinanever-changingenvironment.

Tothisday,Johnson&Johnsonconsciouslyencouragesbranchingandpruning.Ittrieslotsofnewthings,keepsthosethatwork,andquicklydiscardsthosethatdon’t.Itstimulatesvariationbyfosteringahighlydecentralizedenvironmentthat

encouragesindividualinitiativeandalowspeopletoexperimentwithnewideas.Atthesametime,J&Jimposesrigorousselectioncriteria.OnlythoseexperimentsthatprovetobeprotableandthattwithJ&J’scoreideologygettoremaininthecompany’sportfolioofbusinesses.

Withhisoft-repeatedstatement“Failureisourmostimportantproduct,”R.W.JohnsonJr.,understoodthatcompaniesmustacceptfailedexperimentsaspartofevolutionaryprogress.And,infact,J&Jhashadanumberofprominentfailuresto“pruneaway”

initshistory,includingaforayintokolastimulants(madefromsherryandkolanutextract)andcoloredcastsforchildrenthat“metanearlydemisewhenthepurefooddyesturnedbedlinensintoasymphonyofcolorsandhospitallaundriesintobedlam.”22Ithasalsohadmorerecentfailedventuresinheartvalves,kidneydialysisequipment,andibuprofenpainrelievers.23FailuresatJ&Jhavebeenanessentialpricetopayincreatingahealthybranchingtreewithinthecontextofitscoreideology.Inspiteofthesesetbacks,thecompanyhasneverpostedalossinits107-yearhistory.J&J’snancialsuccessmakesthecompanylooktooutsiderslikeitwasalmappedoutbyastrategicgenius.Inreality,J&J’shistoryisledwithfavorableaccidents,trialanderror,andperiodicfailures.

ledwithfavorableaccidents,trialanderror,andperiodicfailures.

SummedupchiefexecutiveRalphLarsenin1992:“Growthisagambler’sgame.”24

Similarly,Wal-Mart’sphenomenalsuccessinthe1970sand1980scanbeterbeunderstoodbyanevolutionaryperspectivethanacreationistperspective.Infact,thefolksatWal-MarthavealwaysbeensomewhatamusedbytheprimaryexplanationofWal-Mart’ssuccessfrequentlytaughtinmicroeconomicstextbooksandMBAstrategicplanningcourses.AsJimWaltonsummedup:WealsnickeredatsomewriterswhoviewedDad[SamWalton]asagrandstrategistwhointuitivelydevelopedcomplexplansandimplementedthemwithprecision.Dadthrivedonchange,andnodecisionwaseversacred.25

Indeed,thetoolstaughtinmostcorporatestrategycoursesuterlyfailtocapturehowthecompany’sstrategiccompetitiveadvantagecametobe—howWal-Martatainedits“briliant”systeminthefirstplace.TheWal-Martsystemcameinto

beingnotprimarilybyastrategicplanformulatedbyeconomicgenius,butlargelybyanevolutionaryprocessofvariationandselection:“Multiply,vary,letthestrongest[experiments]win,andtheweakestdie.”26That’sexactlywhatWal-MartmadeahabitofdoingfromthetimeSamWaltonopenedhisrststorein1945.Wal-Martlookslikeithadbriliantforesight,justasitlookslikeaspecieswaspreplannedandcreated.AsaWal-Martexecutivedescribed:“Welivebythemoto,

‘Doit.Fixit.Tryit.’Ifyoutrysomethinganditworks,youkeepit.

Ifitdoesn’twork,youfixitortrysomethingelse.”27

Wal-Mart’sfamouspeoplegreeters,forexample,didnotcomefromanygrandplanorstrategy.AstoremanagerinCrowley,Louisiana,washavingtroublewithshoplifting,sohetriedanexperiment:Heputafriendlyoldergentlemanbythefrontdoorto

“greet”peopleontheirwayinandout.The“peoplegreeter”madehonestpeoplefeelwelcome:“Hi!Howareya?Gladyou’rehere.Ifthere’sanythingIcantelyouaboutourstore,justletmeknow.”At

there’sanythingIcantelyouaboutourstore,justletmeknow.”Atthesametime,thegreetersentamessagetopotentialshopliftersthatsomeonewouldseethemiftheytriedtowalkoutwithstolenmerchandise.NooneatWal-Mart—includingSamWalton—hadconceivedofanythinglikethegreeterconceptbeforetheCrowleymanagerputitinplace.Nonetheless,thisoddexperimentprovedeectiveandeventualybecamestandardpracticeacrossthecompanyandacompetitiveadvantageforWal-Mart.

UsingWal-Martasanexample,wecanrephraseDarwin’squoteatthebeginningofthechaptersoitmightreadlikethis:Itmightbefarmoresatisfactorytolookatwel-adaptedvisionarycompaniesnotprimarilyastheresultofbriliantforesightandstrategicplanning,butlargelyasconsequencesofabasicprocess—namely,tryalotofexperiments,seizeopportunities,keepthosethatworkwel(consistentwiththecoreideology),andfixordiscardthosethatdon’t.

Ofcourse,weshouldbecarefulaboutmakingawholesaleanalogyfrombiologytobusiness.Wedonotthinkalvisionarycompanyadaptationandprogresscomesfromanundirectedevolutionaryprocess.Certainlyitwouldbeinaccuratetoviewcorporationsasexactlylikebiologicalspecies.

Foronething,companiesdoinfacthavetheabilitytosetgoalsandplan.Speciesdonot.Andcertainlyourvisionarycompaniesdosetgoalsandmakeplans—evenWal-Mart,whichhassimultaneouslypursuedbothBHAGsandevolutionaryprogressthroughoutitshistory.ItusesBHAGstodeneamountaintoclimb,andusesevolutiontoinventawaytothetop.JackWelchatGeneralElectricembracedthisparadoxicalmixtureofgoalsandevolutioninamanagementidealabeled“planfulopportunism,”asdescribedbyTichyandShermaninControlYourOwnDestinyorSomeoneElseWil:

Insteadofdirectingabusinessaccordingtoadetailed...

Insteadofdirectingabusinessaccordingtoadetailed...

strategicplan,Welchbelievedinsetingonlyafewclear,overarchinggoals.Then,onanadhocbasis,hispeoplewerefreetoseizeanyopportunitiestheysawtofurtherthosegoals...

.[Planfulopportunism]crystalizedinhismind...afterhereadJohannesvonMoltke,anineteenthcenturyPrussiangeneralinuencedbytherenownedmilitarytheoristKarlvonClausewitz[who]arguedthatdetailedplansusualyfail,becausecircumstancesinevitablychange.28

Foranotherthing,theprocessofvariationandselectioninhumanorganizationsdiersfromapurelyDarwinianprocessinthenaturalworld.Darwinianselectionwithspeciesisnaturalselection—anentirelyunconsciousprocesswherebythevariationsthatbesttwiththeenvironmentsurviveandtheweakestvariationsperish.Inotherwords,speciesinthenaturalworlddonotconsciouslychoosewhatvariationstoselect;theenvironmentselects.Humanorganizations,ontheotherhand,canmakeconsciousselections.

Furthermore,evolutioninthenaturalworldhasnogoalorideologyotherthansheersurvivalofthespecies.Visionarycompanies,ontheotherhand,stimulateevolutionaryprogresstowarddesiredendswithinthecontextofacoreideology—aprocesswecalpurposefulevolution.

Ofcourse,alcompaniesevolvetosomedegree.Evolution

“happens”whetherwepurposefulystimulateitornot.Therealworldisfulofchanceeventsthataectthetrajectoryoflife.Ithappenstoindividualpeople.Ithappenstoorganizations.Ithappenstoentireeconomicsystems.But—andthis

isthecrucialpoint—visionarycompaniesmoreaggressivelyharnessthepowerofevolution.Thisbringsustothekeypointofthechapter:IFwelunderstoodandconsciouslyharnessed,evolutionaryprocessescanbeapowerfulwaytostimulateprogress.Andthat’sexactlywhatthevisionarycompanieshavedonetoa

greaterdegreethanthecomparisoncompanies.

Ofcourse,purposefulevolutionisnottheonlytypeofprogressstimulatedbyvisionarycompanies,nordoalofthemuseitextensively.Some,suchasBoeing,IBM,andDisney,havereliedmoreheavilyonBHAGstimulatedprogress.(Afteral,itwouldbediculttobuildanincrementalBoeing747!)Others,suchasMerck,Nordstrom,andPhilipMorris,havereliedmoreoncontinuousself-improvement,asshowninalaterchapter.

Nonetheless,wherevertheyfalalongthecontinuum,thevisionarycompanieshaveharnessedthepowerofevolutiontoagreaterdegreethanthecomparisoncompaniesinfteenoutofeighteencomparativecases.(SeeTableA.7inAppendix3.)3M:“THEMUTATIONMACHINEFROMMINNESOTA”*ANDHOW

ITBLEWAWAYNORTON

DuringourinterviewwithBilHewletofHP,weaskedhimifthereisanycompanythathegreatlyadmiredandsawasarolemodel.Herespondedwithouthesitation:“3M!Nodoubtaboutit.

Youneverknowwhatthey’regoingtocomeupwithnext.Thebeautyofitisthattheyprobablydon’tknowwhatthey’regoingtocomeupwithnext,either.Buteventhoughyoucanneverpredictwhatexactlythecompanywildo,youknowthatitwilcontinuetobesuccessful.”WeagreewithHewlet.Indeed,ifwehadtobetourlivesonthecontinuedsuccessandadaptabilityofanysinglecompanyinourstudyoverthenextftytoonehundredyears,wewouldplacethatbeton3M.

Thegreatirony,ofcourse,isthat3Mbeganlifeasafailure—abigmistake.Dealtanearlylethalblowwhenitsinitialconcepttominecorundumfailed(seeAppendix2),thetinycompanytriedformonthstocomeupwithsomething—anything—thatmightproveviable.AccordingtoVirginiaTuckinherbook,BrandoftheTartan

—The3MStory:

TheboardofdirectorsmeteveryweekduringthecoldNovemberof1904,seekingasolution.Thefoundersweredeterminednottogiveup[onthecompany].Fortunatelytheiremployeesfeltthesameway.Everyoneoeredsomepersonalsacrifice[includingsomeworkingforfree]tokeepthecompanygoing.29

Finaly,theboardagreedtothesuggestionbyoneofitsinvestorsthat3Mshouldshiftawayfromminingandbecomeamanufacturerofsandpaperandgrindingwheels.(Whatelsecoulditdowithalthatunusable,low-gradegritcomingoutofitsfailedmine?)So,outofdesperationmorethancarefulplanning,3Mgaveupminingandmadeastrategicshifttoabrasives.

EnterWiliamMcKnight

From1907to1914,thecompanystruggledwithqualityproblems,lowmargins,excessinventory,andcashowcrises.Butunderthequietanddeliberateurgingsofabookishyoungaccountant-turned-sales-managernamedWiliamMcKnight,thecompanybegantinkeringandexperimentingwithproductimprovementsthatkeptthecompanyviable—justbarely.

In1914,thecompanypromotedMcKnight,stilinhistwenties,togeneralmanager.Aninstinctiveclockbuilder,McKnightquicklysetasideave-by-eleven-footcornerstorageroom,invested$500forasinkandgluebathforexperimentsandtesting,andtherebycreated3M’srst“laboratory.”30Aftermonthsofexperimentationwithanarticialmineral,3Mintroducedanewandhighlysuccessfulclothabrasive,caled“Three-M-Ite”31—aproductthatpropeled3Mtoitsrst-everdividendandwasstillistedin3M’sproductdirectoryseventy-fiveyearsafteritsinvention.32

Althoughshyandunobtrusiveontheoutside,McKnightcarriedwithinaninsatiablecuriosityandunrelentingdriveforprogress,

withinaninsatiablecuriosityandunrelentingdriveforprogress,frequentlyworkingsevendaysaweektofurtherthecauseofthefledgling3MCorporationandalwayslookingfornewopportunitiesthatthecompanymightpursue.33Forexample,inJanuary1920,McKnightopenedanunusualleterthatread:

Pleasesendsamplesofeverymineralgritsizeyouuseinmanufacturing

sandpaper[to]FrancisG.Okie,Manufacturerofprintinginks,bronzepowders,andgoldinkliquids,Philadelphia.34

3Mdidn’tselrawmaterials,sotherewasnobusinesstotransact.

ButMcKnight—curiositypiquedandontheprowlforinterestingnewideasthatmightmovethecompanyforward—askedasimplequestion:“WhydoesMr.Okiewantthesesamples?”35

3Mtherebystumbledintooneofthemostimportantproductsinitshistory,forMr.Okiehadinventedarevolutionarywaterproofsandpaperthatwouldproveimmenselyusefultoautomobilemanufacturersandrepaintshopsaroundtheworld.(Asanaside,Okiehadrequestedsamplesfromnumerousmineralandsandpapercompanies,butnone—except3M—hadbotheredtoaskwhyhewantedthesamples.)3Mquicklyacquiredrightstothetechnologyandbeganseling“Wetodry”brandsandpaper.

Butthat’snotal3Macquired.Indeed,Wetodrywasn’teventhemostvaluablepartofthetransaction.McKnight—theconsummateclockbuilderwhoalwaysfocusedonbuildingtheorganization—

didn’tjustsignanagreementwithOkieandthankhim.Hehiredhim!OkieclosedhisshopinPhiladelphia,movedtoSt.Paul,andbecameakeyplayerindevelopingnewinventionsat3Muntilhisretirementnineteenyearslater.36

“BRANCHINGANDPRUNING”AT3M

3M’snear-fatalearlydayshadmadeabigimpressiononMcKnight.

Hethereforewanted3Mtohaveenoughinternalvariationto

Hethereforewanted3Mtohaveenoughinternalvariationtoprotectitself:

Oureggswerealinonebasketatthebeginning[thefailedmine]....Bydiversifyingproducts...itwasunlikelyatradewarwouldhitthemalatonce[and]atleastpartofourbusinesswouldalwaysbeprofitable.37

But,ashishiringofOkieilustrates,McKnightdidnotwanttheevolutionandexpansionofthecompanytodependonlyonhimself.Hewantedtocreateanorganizationthatwouldcontinualyself-mutatefromwithin,impeledforward

byemployeesexercisingtheirindividualinitiative.McKnight’sapproachwascapturedinphrasesthatwouldbechantedoftenby3Mersthroughoutitshistory:38

“Listentoanyonewithanoriginalidea,nomaterhowabsurditmightsoundatfirst.”

“Encourage;don’tnitpick.Letpeoplerunwithanidea.”

“Hiregoodpeople,andleavethemalone.”

“Ifyouputfencesaroundpeople,yougetsheep.Givepeopletheroomtheyneed.”

“Encourageexperimentaldoodling.”

“Giveitatry—andquick!”

McKnightintuitivelyunderstoodthatencouragingindividualinitiativewouldproducetherawmaterialofevolutionaryprogress

—undirectedvariation.Healsounderstoodthatnotalsuchvariationwouldprovefavorable:

Mistakeswilbemade[bygivingpeoplethefreedomandencouragementtoactautonomously],but...themistakesheorshemakesarenotasseriousinthelongrunasthemistakesmanagementwilmakeifitisdictatorialandundertakestotelthoseunderitsauthorityexactlyhowtheymustdotheirjob.

Managementthatisdestructivelycriticalwhenmistakesaremadekilsinitiativeandit’sessentialthatwehavemanypeoplewithinitiativeifwearetocontinuetogrow.39

Infact,3M’srstatemptatself-mutationbeyondsandpaper—aforayintoautomobilewaxandpolishintroducedin1924—provedtobeacostlymistake,andthecompanyeventualydiscontinuedtheline.40

Butitssecondmutationprovedwildlysuccessful.Workinginthegive-it-a-tryatmospherecreatedbyMcKnight,ayoung3M

employeenamedDickDrewvisitedacustomersite—anautopaintshop—andoverheardaviolentexplosionofparticularlyvividprofanity.Two-toneautopaintjobshadbecomepopular,buttheimprovisedgluesandadhesivetapesseparatingthetwocolorsfailedtomaskproperly,leavingbehinduglyblotchesandunevenlines.

“Can’tanyonegiveussomethingthatwilwork?”yowledthepaintman,stormingacrossthepaintshop.

“Wecan!”respondedthe3Mvisitor.“I’lbetwecanadaptsomethingatourlabtomakefoolproofmaskingtape.”41

Drewdiscovered,however,that3Mhadnosuchreadilyadaptableproductinthelab.So,likeanytrue3Mer,heinventedone:3M

maskingtape.Inresponsetoanopportunitydisguisedasaproblem

—aprocesstoberepeatedthousandsoftimes—3Mhadnalymadeitsrstincrementalshiftawayfromsandpaper.Fiveyearslater,inresponsetocompaniesthathadcontacted3Mlookingforawaterproofpackagingtape,Drewbuiltonthemaskingtapetechnologyandinventedaproductdestinedtobecomeahousehold

technologyandinventedaproductdestinedtobecomeahouseholditemworldwide:Scotchcelophanetape.

Scotchtapewasn’tplanned.Nooneat3Mhadanyideain1920

that3Mwouldenterthetapebusiness,andcertainlynooneexpectedthatitwouldbecomethemostimportantproductlineinthecompanybythemid-1930s.ScotchwasanaturaloutgrowthoftheorganizationalclimateMcKnightcreated,nottheresultofabriliantstrategicplan.

EvenmoreimportantthanScotchtapeitself,however,wasthefactthat3MinstitutionalizedtheevolutionaryprocessthatledtoScotchtape.RichardP.Carlton,directorofresearchandlaterpresidentof3M,codiedthestrategyof“variationandselection”in3M’stechnicalguidancemanualasearlyas1925:

[We]mustpossessatwo-stedgeneratingandtesting[process]

forideas....Everyideaevolvedshouldhaveachancetoproveitsworth,andthisistruefortworeasons:1)ifitisgood,wewantit;2)ifitisnotgood,wewilhavepurchasedourinsuranceandpeaceofmindwhenwehaveproveditimpractical.42

Figure7.A

Figure7.A

ABranchingEvolutionaryTreeat3M

ProductEvolutionfromScotchliteReectiveSheetingTechnology

ProductEvolutionfromScotchliteReectiveSheetingTechnologyasofthemid-1970s,asdepictedby3Mcorporationinitsocialhistory.46

Carltonalsoaddedtwootherkeycriteriaforevaluatingandselectingideas—criteriabasedon3M’scoreideology.First,foranideatobeselected,ithadtobebasicalynew;3Monlywantedtoselectinnovativeideas.Second,ithadtomeetademonstrablehumanneed—tosolvearealproblem.Innovationthatdidn’t“turnintoproductsandprocessesthatsomeonesomewherewilnduseful”wouldbeofnointerestto3M.43

Interestingly,however,3Mdidnotselectinnovationsbasedstrictlyonmarketsize.Withmotoeslike“Makealitle,selalitle”and

“Takesmalsteps,”443Munderstoodthatbigthingsoftenevolvefromlitlethings;butsinceyoucan’ttelaheadoftimewhichlitlethingswilturnintobigthings,youhavetotrylotsoflitlethings,keeptheonesthatworkanddiscardtheonesthatdon’t.Operating

“onasimpleprinciplethatnomarket,noendproductissosmalastobescorned,”453Madoptedapolicyofalowingpeopletosprouttiny“twigs”inresponsetoproblemsandideas.Mosttwigswouldn’tgrowintoanything.Butanytimeatwigshowedpromise,3Mwouldalowittogrowintoafulbranch—orperhapsevenaful-edgedtree.Thisbranchingapproachbecamesoconsciousat3Mthatitsometimesexplicitlydepicteditsproductfamiliesin

“branchingtree”form(Figure7.Apresentsanexample.)Thebeautyofthe3MstoryisthatthecompanytranscendedMcKnight,Okie,Drew,Carlton,andaltheotheroriginalindividualsfromtheearlydaysof3M.Theycreatedacompany—amutationmachine—thatwouldcontinuetoevolveindependentofwhoeverhappenedtobechiefexecutive.Although3M’sleaderscouldneverpredictwherethecompanywouldgointhefuture,theyhadlitledoubtthatitwouldgofar.Itbecameaticking,whirring,clicking,clateringclockwithamyriadoftangiblemechanismswelalignedtostimulatecontinualevolutionaryprogress.

Forexample:

MechanismstoStimulateProgressat3M

Tostimulate

“15percentrule”—along-standing

unplanned

traditionthatencouragestechnical

experimentationand

peopletospendupto15percentof

variationthatmight

theirtimeonprojectsoftheirown

turnintosuccessful,

choosingandinitiative.47

albeitunexpected,

innovations.

Tostimulate

“25percentrule”—eachdivisionis

continuousnew

expectedtogenerate25percentof

productdevelopment

annualsalesfromnewproductsand

(in1988,forexample,

servicesintroducedintheprevious

32percentof3M’s

fiveyears.(Uppedto30percentand

$10.6bilioncame

shortenedtothepreviousfouryears,

fromnewproducts

beginningin1993.)48

introducedintheprior

fiveyears).49

“GoldenStep”award,grantedto

thoseresponsibleforsuccessfulnew

Tostimulateinternal

businessventuresoriginatedwithin

entrepreneurshipand

3M.50

risktaking.

“GenesisGrants”—internalventure

capitalfundthatdistributesparcelsof

Tosupportinternal

upto$50,000forresearchersto

entrepreneurshipand

developprototypesandmarket

testingofnewideas.

tests.51

Technologysharingawards,granted

tothosewhodevelopanew

Tostimulateinternal

technologyandsuccessfulyshareit

disseminationof

withotherdivisions.52

technologyandideas.

“CarltonSociety”—atechnicalhonor

Tostimulatethe

“CarltonSociety”—atechnicalhonor

societywhosemembersarechosenin

Tostimulatethe

recognitionfortheiroutstandingand

developmentofnew

originaltechnicalcontributions

technologiesand

within3M.53

innovation.

“Ownbusiness”opportunities—

3Merswhosuccessfulychampiona

newproductthengettheopportunity

Tostimulateinternal

torunitashisorherownproject,

entrepreneurship.

department,ordivision(depending

onsaleslevelsofproduct).54

Tostimulate

“Dualladder”careertrackthatalows

innovationbyalowing

technicalandprofessionalpeopleto

topprofessionaland

moveupwithoutsacrificingtheir

technicalpeopleto

researchorprofessionalinterests.55

“advance”without

havingtoswitchtoa

managerialtrack.

Newproductforums,whereal

Tostimulatenewideas

divisionssharetheirlatestproducts.56

acrossdivisions.

Technicalforums,where3Mpeople

Tostimulatecross-

presenttechnicalpapersand

fertilizationofideas,

exchangenewideasandfindings

technology,and

witheachother.57

innovation.

Tostimulate

innovationvia

customerproblems

“Problem-solvingmissions”—smal

thataretheseedsof

hitteamssentouttocustomersitesin

newopportunities,

responsetospecific,idiosyncratic

perpetualyreplicating

customerproblems.58

theprocessbywhich

customerproblems.

theprocessbywhich

3Mstumbledonto

maskingtapeinthe

1920s.

Tospeedproduct

“HighImpactPrograms”—each

developmentand

divisionselectsonetothreepriority

marketintroduction

productstogettomarketwithina

cycles,whichthereby

short,specifiedtimeframe.59

increasesevolutionary

“variationand

selection”cycles.

Smal,autonomousdivisionsand

units—42productdivisionsin1990,

Tostimulateindividual

eachwithaverageannualsalesof

initiativebypromoting

about$200milion;plants—median

a“smalcompany

size115people—arespreadacross

withinabigcompany”

fortystates,mostlyinsmaltowns.60

feel.

Tostimulateasenseof

Earlyuseofprofitsharing

individualinvestment

(introducedtokeyemployeesin

intheoveralfinancial

1916,expandedtoalmostal

successofthe

employeesin1937).61

company,andthereby

stimulateindividual

efortandinitiative.

Propeledbythesemechanisms,3Mhadbranchedintooversixtythousand

productsandoverfortyseparateproductdivisionsby1990.Thesespannedsuchwide-rangingcategoriesasroonggranules,reectivehighwaysigns,videorecordingtape,overheadprojectionsystems,computerstoragedisketes,bioelectronicears,and3MPost-itnotes.

Indeed,theubiquitousPost-itnotespresentjustonemoreexampleof3Mlivingaccordingtothephilosophythatyouoftengettowhereyou’regoingbystumbling,butyoucanonlystumbleifyou’removing.Post-itcoinventorArtFrydescribed:

Onedayin1974,whileIwassinginginchurchchoir,Ihadoneofthosecreativemoments.TomakeiteasiertondthesongsweweregoingtosingateachSunday’sservice,Iusedtomarktheplaceswithlitleslipsofpaper[buttheywoulduteroutatjustthewrongtime,leavingmefrantic].Ithought,“Gee,ifIhadalitleadhesiveonthesebookmarks,thatwouldbejusttheticket,”soIdecidedtocheckinto...SpenceSilver’sadhesive.62

Usingthe15percentruleandfolowingtheprincipleof

“experimentaldoodling,”SpenceSilverhadinventedtheaberrantadhesivebyjustexperimentinginthelab—mixingcertainchemicalstogether“justtoseewhatwouldhappen.”Heexplained:ThekeytothePost-itTMadhesivewasdoingtheexperiment.IfIhadfactoreditoutbeforehand,andthoughtaboutit,Iwouldn’thavedonetheexperiment.IfIhadrealyseriouslycrackedthebooksandgonethroughtheliterature,Iwouldhavestopped.

Theliteraturewasfulofexamplesthatsaidyoucan’tdothis.63

Reectingonthissomewhatchaoticprocess,3MexecutiveGeoreyNicholsonpointedoutthat“alotofthethings[thatledtothePost-it]wereaccidental.”ButhadArtFrynotbeeninanenvironmentwherepeopleweredoodlingaroundwithweirdadhesivesontheir15percenttime,hewouldnothavecomeupwiththeproduct.Furthermore,hadFryandSilverbeeninanenvironmentthatdiscouragedpersistence—had3Mforbiddenthemfromcontinuingtoworkontheircrazyideawheninitialmarketsurveysindicatedthattheproductwouldfail—3MPost-itnoteswouldn’texistasacommercialproduct.64Andthatispreciselythepoint—indeed,thekeypointfrom3M:

ALTHOUGHtheinventionofthePost-itnotemighthavebeensomewhataccidental,thecreationofthe3M

environmentthataloweditwasanythingbutanaccident.

TheStarkContrastatNorton

Foundedonagoodconcept,Norton—unlike3M—mademoneyfromthestartand,byitsfteenthbirthday,hadmultiplieditsinvestorcapitalfteen-fold(seeAppendix2).While3Mwasghtingsimplytosurviveduringtheperiod1902to1914,Nortonbecametheindustryleaderinbondedabrasivesandproducedsuperbnancialreturnsyearafteryear.65In1914,Nortonwasfulytentimesthesizeandsignicantlymoreprotablethanthestruggling3Mcompany.

Yet,despiteitsvastlysuperiorearlylife,Nortonfailedtokeeppacewith3M’s“perpetualmotionmachine.”663MgradualyovertookandeventualyfarsurpassedNortoninbothsizeandprofitability:

SizeComparison

3M

Norton

Ratio:3M/Norton

1914Revenues($000):

264

2,734

.10

1929Revenues($000):

5,500

20,300

.27

1943Revenues($000):

47,200

131,300

.36

1956Revenues($000):

330,807

165,200

2.00

1966Revenues($000):

1,152,630310,472

3.71

1976Revenues($000):

3,514,259749,655

4.69

1986Revenues($000):

8,602,0001,107,100

7.77

1990Revenues($000):

13,021,000NortonAcquiredNortonAcquired

ProfitabilityComparison

ReturnonAssets,1962–86:

34.36%

17.72%

1.94

ReturnonEquity,1962–86:

23.22%

11.25%

2.06

ReturnonSales,1962–86:

20.27%

9.42%

2.15

Howdidthishappen?HowdidNortonloseitsseeminglyinsurmountableleadoverthefailedminefromMinnesota?

Nortonrstlaidthegroundworkforitsdeclinerelativeto3M

duringtheperiod1914to1945.While3Minstaledmanagementpracticesthatencouragedindividualinitiativeandexperimentation,Nortoncreatednoexplicitpracticesormechanismswhatsoevertostimulateexperimentationandunplannedevolution.While3Mhadarelentlessdriveforprogressandimpulseforactivity(“Giveitatry,andquick!”),Nortonbecameahighlycentralizedandbureaucraticrmcharacterizedby“routinizationandstagnation.”67

While3MseizedopportunitiesthatledtowaterproofsandpaperandScotchtape,Nortonhadanexplicitpolicynottoencouragepursuitofnewopportunitiesoutsideofitstraditionalproductlines.68In1928,85percentofNortonsalesand90percentofprotscamefromCharlesNorton’sgrindingwheelline,rstintroducedaquarterofacenturyearlier.69AsaNortonresearchscientistdescribed:

Althoughwewouldplaywiththeideaofdoingresearchonnew,radicalydi

erentproducts,almostalwork...involved..

.makingbetergrindingwheels...Youcouldworkonanythingyouwantedaslongasitwasroundandhadaholeinit.

[emphasisours]70

Duringthelate1940sand1950s,3Mpuledahead,nevertolookback.While3Mdecentralizedandinstaledmechanismstostimulatecontinuedevolutionaryprogress,Nortonremainedcentralizedandconcentratedprimarilyoncostcutingand

centralizedandconcentratedprimarilyoncostcutingandeficiency.71While3Mbranchedintosevenseparateproductdivisionsby1948,withlessthan30percentofrevenuescomingfromabrasives,Nortonstilderivednearly100percentofitsrevenuesfromitstraditionalabrasivesline.72While3M’sScotchproductfamilygeneratedhighcashowusedtofundthedevelopmentofexcitingnewtechnologieslikeScotchlitereectivesheetingandThermo-faxcopyingtechnology,Norton’sabrasivesproductsfacedamaturemarketwithslowinggrowth,overcapacity,pricecuting,anddecliningmargins.

Inthelate1950s,Nortonmadeafewfeebleatemptstobranchawayfromthematuringabrasivesindustry,butmostofthesewerethwartedbylackofresourcesandinstitutionalencouragement.

Interestingly,Nortontriedatonepointtofolow3M’sleadintoadhesives,introducingacelophanetapein1957(twenty-sevenyearsafter3M!).But3M’sScotchbrandprovedtooentrenchedand,accordingtoaNortonsalesmanager,“Wenevergotsobloodyinourentirelives[ascompetingagainstScotch].”73

By1962,3MhadatainedoverthreetimestherevenuesandnearlytwicetheprotmarginsofNorton.Furthermore,whereas3Mhadawidearrayofatractivebusinessunits—stablecashgeneratorslikeadhesives,highgrowthbusinesseslikeScotchguardfabricprotectorandmagneticrecordingtapes,andemergingmarketslikemicrolmandfax—Nortonstilderivedover75

percentofitssalesfromitsold-lineabrasivesbusiness.74Evenmoreimportant,3M’smutationmachinewasclickingintofulgear,ensuringthatitwouldcontinuetostumbleintothousandsofnewopportunitieslongintothefuture.Norton,incontrast,hadgroundtoavirtualstandstil(2percentsalesgrowth,0

percentprotgrowth)withnosignicantdriveforprogressortangiblemechanismstostimulateprogress.WroteCharlesW.Cheapeinhiswel-researchedhistoricalaccountofNorton:Bythe1960s,managementwaslargelyacaretakeroperationtomaintainexistingmodestprotlevelsandthepossibilityof

maintainexistingmodestprotlevelsandthepossibilityof

[selingthecompany].75

Finaly,inresponsetodecliningstockmultiplesrelativeto3M

andCarborundum,Nortondecidedtomakeaconcertedeorttodiversifyandprogress—like3M.76Unlike3M,however,Nortonelectedtoatainthisarrayprimarilybycorporatestrategicplanninganddiversicationbyacquisition—insteadofbyevolution.Infact,NortonbecameoneoftherstmajorclientsandadedicateddiscipleoftheBostonConsultingGroup(BCG)andits“portfoliomanagement”techniques.*Insteadofinstalingmechanismstostimulateinternalprogress,Nortonsoughtsimplytobuyprogress.

AsForbesmagazinedescribed,“Nortonrunsitsoperationsthewaymostinvestorsruntheirportfolios.”77

Indeed,oneofthegreatironiesincomparing3MandNortoncomesinthefactthat3Mhasconsistentlyhada“portfolio”ofbusinessunitsthatwouldbetheenvyofanystrategicplanningconsultingrm.3M’sportfoliolooksbeautifulyplanned(justasspecieslookperfectlycreated),butitactualycameaboutlargelybyanundirectedevolutionaryprocessofvariationandselection.3M

presentsyetanotherclassicexampleofhowacreationiststrategicplanningperspectivecansoeasilyconfusethe“why”and“how.”

IFwemapped3M’sportfolioofbusinessunitsonastrategicplanningmatrix,wecouldeasilyseewhythecompanyissosuccessful(“Lookatalthosecashcowsandstrategicstars!”),butthematrixwoulduterlyfailtocapturehowthisportfoliocametobeinthefirstplace.

Throughoutthe1970sand1980s,3Mcontinuedtoevolveintonew—andoftenunexpected—arenasbyencouragingindividual

new—andoftenunexpected—arenasbyencouragingindividualinitiative.Norton,incontrast,reliedprimarilyonstudiesandplanningmodelshandeddownfromitsconsultants.78While3M

continuedtostimulateprogressbyalowingpeoplelikeSpenceSilvertocreatenewmarketsinpartby“accidents,notcalculations,”79Norton’spresidentproclaimedthat“planningmustbecomeawayoflife.”80While3Mencouraged“scienticplayfulness,”Norton’smanagementdescribeditsstrategicmethodas

“It’salderivedfrommilitaryplanning.”81While3Mdiversiedprimarilybyselectingthebestincrementalopportunitiesthatemergedfromitsfruitfulandself-stimulatedresearcheforts,Nortonprimarilyemphasizedwholesaleacquisitions,“because[internal]

technologyandresearchresourcesoferedlimitedopportunity.”82

Finaly,in1990,3Msailedontotop$13bilioninsalesandhundredsofinnovativenewproductintroductions.Norton,incontrast,founditselfthetargetofanunfriendlytakeoverbidandceasedtoexistasanindependententity.

LESSONSFORCEOS,MANAGERS,ANDENTREPRENEURS

Using3Masablueprintforevolutionaryprogressatitsbest,herearevebasiclessonsforstimulatingevolutionaryprogressinavisionarycompany.

1.“Giveitatry—andquick!”For3M,unlikeNorton,themodusoperandibecame:Whenindoubt,vary,change,solvetheproblem,seizetheopportunity,experiment,trysomethingnew(consistent,ofcourse,withthecoreideology)—evenifyoucan’tpredictpreciselyhowthingswilturnout.Dosomething.Ifonethingfails,tryanother.Fix.Try.Do.Adjust.

Move.Act.Nomaterwhat,don’tsitstil.Vigorousaction—

especialyinresponsetounexpectedopportunitiesorspeciccustomerproblems—createsvariation.HadMcKnightnotaskedwhyOkiesenthiscrypticleterrequestinggritsamples,orhadDickDrewnotimpulsivelypromisedasolutionfortwo-tonepaintjobs,orhadSpenceSilvernotdonethe

two-tonepaintjobs,orhadSpenceSilvernotdonetheexperimentthattextbookssaidcouldnotwork,orhadArtFrynottriedtosolvehischurchchoirbook

problem—andsoonforathousandsuch“ifs”—then3Mwouldn’tbeavisionarycompany.

2.“Acceptthatmistakeswilbemade.”Sinceyoucan’ttelaheadoftimewhichvariationswilprovetobefavorable,youhavetoacceptmistakesandfailuresasanintegralpartoftheevolutionaryprocess.Had3MnailedOkieandDrewtothewal(orredthem)forthefailedcarwaxbusiness,then3M

probablywouldn’thaveinventedScotchtape.RememberDarwin’skeyphrase:“Multiply,vary,letthestrongestlive,andtheweakestdie.”Inordertohavehealthyevolution,youhavetotryenoughexperiments(multiply)ofdierenttypes(vary),keeptheonesthatwork(letthestrongestlive),anddiscardtheonesthatdon’t(lettheweakestdie).Inotherwords,youcannothaveavibrantself-mutatingsystem—youcannothavea3M—withoutlotsoffailedexperiments.Asformer3MCEOLewisLehrputit:“Thesecret,ifthereisone,istodumptheopsassoonastheyarerecognized....Buteventheopsarevaluableincertainways....Youcanlearnfromsuccess,butyouhavetoworkatit;it’saloteasiertolearnfromafailure.”83KeepinmindJ&J’sparadoxicalperspective,describedearlierinthechapter,thatfailuresandmistakeshavebeenanessentialpricetopayincreatingahealthybranchingtreethathasnotoncepostedalossin107

years.Atthesametime,keepinmindalessonfromthechapteroncult-likecultures:Avisionarycompanytoleratesmistakes,butnot“sins,”thatis,breachesofthecoreideology.

3.“Takesmalsteps.”Ofcourse,it’seasiertotoleratefailedexperimentswhentheyarejustthat—experiments,notmassivecorporatefailures.Keepinmindthatsmalincrementalstepscanformthebasisofsignicantstrategicshifts.McKnight’ssimpleanswertoOkieledtowaterproofsandpaper,openingalargemarketintheautoindustry,leadingtoDickDrew’smaskingtapeandthentoScotch

leadingtoDickDrew’smaskingtapeandthentoScotchcelophanetape,whichspawnedrecordingtape,andsoon.Ifyouwanttocreateamajorstrategicshiftinacompany,youmighttrybecomingan“incrementalrevolutionary”andharnessingthepowerofsmal,visiblesuccessestoinuenceoveralcorporatestrategy.Indeed,ifyourealywanttodosomethingrevolutionary,itmightbebesttoasksimplyforpermissionto“doanexperiment.”RecalAmerican

Express’sincrementalstepsinnancialservicesthateventualybecametheprimarystrategicpilarofthecompany,andhowWiliamDalibausedsmalexperimentstoincrementalyrevolutionizethecompanyintotravelservices.Keepinmindtheimageof

“twigsandbranches.”Orconsidertheimageof“seedsandfruit”usedbyMasaruIbukaatSonytoconveytheconceptofsmal,idiosyncraticproblemsasthestartingpointofgreatbigopportunities.84*

4.“Givepeopletheroomtheyneed.”3MprovidedgreateroperationalautonomyandmaintainedamoredecentralizedstructurethanNorton—akeystepthatenabledunplannedvariation.Whenyougivepeoplealotofroomtoact,youcan’tpredictpreciselywhatthey’ldo—andthisisgood.3M

hadnoideawhatSilver,Fry,andNicholsenwoulddowiththeir15percent“discretionarytime.”Infact,thevisionarycompaniesdecentralizedmoreandprovidedgreateroperationalautonomythanthecomparisoncompaniesintwelveoutofeighteencases.(Fivewereindistinguishable.)Tothislesson,we’daddacorolary:Alowpeopletobepersistent.AlthoughthePost-itclanhadtroubleconvincingother3Mersthattheirweirdstickylitlenoteshadmerit,nooneevertoldthemtostopworkingonit.

5.Mechanisms—buildthattickingclock!Thebeautyofthe3M

storyisthatMcKnight,Carlton,andotherstranslatedthepreviousfourpointsintotangiblemechanismsworkinginalignmenttostimulateevolutionaryprogress—astepNortonnevertook.Lookbackatthelistofmechanismsat3M.Noticehowconcretetheyare.Noticehowtheysendaconsistentset

howconcretetheyare.Noticehowtheysendaconsistentsetofreinforcingsignals.Noticehowtheyhaveteeth.Ifyou’readivisionmanager,youdamnedwelbetermeetthe30

percentnewproductgoal.Ifyouwanttobecomeatechnicalheroat3M,you’dbetershareyourtechnologyaroundthecompany.IfyouwanttoreceiveaGoldenFootAwardandbecomeanentrepreneurialhero,you’vegottocreateasuccessfulnewventurewithactualproducts,satisedcustomers,andprotablesales.Goodintentionsalonesimplywon’tcutit.3Mdoesn’tjustthrowabunchofsmartpeopleinapotandhopethatsomethingwilhappen.3Mlightsahotfireunderthepotandstirsvigorously!

Wendthatmanagersoftenunderestimatetheimportanceofthisfthlessonandfailtotranslatetheirintentionsintotangiblemechanisms.Theyerroneouslythinkthatiftheyjustsettheright“leadershiptone,”peoplewilexperimentandtrynewthings.No!Ittakesmorethanthat.Itrequiresputinginplaceitemsthatwilcontinualystimulateandreinforceevolutionarybehavior.Tick,bong,click,whirr!

WhatNottoDo

Wealsofoundanumberofcaseswherethecomparisoncompaniesactivelysuppressedevolutionaryprogressatcriticalstagesintheirhistory—lessonsofwhatnottodo.

ChaseManhatan.RuledbyanobsessivelycontrolingDavidRockefelerduringthe1960sand1970s,ChaseManhatan(knownas“David’sBank”)becameafear-ledenvironmentwheremanagersspentmostoftheirtimeinmeetings—notonmakingdecisionsandtakingaction.Chasemanagerslivedwiththementality,“Whew!OnemoredaygoneandI’mnotintrouble.”

Eveninthelate1980s,manyseniormanagersatthebankwouldn’ttrynewideasbecause“Davidmightnotlikeit.”85Incontrast,Citibankduringthesameerawasa“looselystructuredcorporationfueledbyachaotickindofcreativity...acorporatesurvivalofthe

fueledbyachaotickindofcreativity...acorporatesurvivalofthetest”amonghighlytalentedpeoplewelrewardedforchampioninginnovativeideas.86

Burroughs.Duringthecriticalearlystagesofthecomputerindustry,BurroughspresidentRayW.Macdonaldstiedindividualinitiative.Hedroveawaynearlyaltalentedpeoplewhohadapenchantforexperimentationandpubliclyhumiliatedmanagersforfailuresandmistakes.Aman“who[had]toprovehe’sthebosseveryday,”Macdonaldcentralizedalpoweranddecisionsinhimself—makingtheproductmanagers“almostadirectextensionofhisoce.”Insteadofviewingcustomerproblemsasopportunitiesforevolution(like3Mdid),Macdonaldpridedhimselfonkeepingcustomers“sulenbutnotrebelious.”EventhoughBurroughshadatechnicalleadoverIBMincomputersintheearly1960s,Macdonaldinhibitedhismanagersfromseizingoneofthebiggestbusinessopportunitiesofthecentury.87

TexasInstruments.Duringthe1950sand1960s,TexasInstrumentsatainedwel

-deservedacclaimasahighlyinnovativecompanyundertheguidanceofchiefexecutivePatrickHaggerty,whocreatedanenvironmentwhereideasandinnovationsbubbledupfromthelowestlevelsofthecompany.88However,Haggerty’ssuccessors,MarkShepardandFredBucy,reversedthisapproachandinstitutedatop-down,autocraticapproachthatobliteratedTI’sentrepreneurialculturethroughfearandintimidation.Iftheysawsomethinginapresentationtheydidn’tlike,they’dinterruptbysaying,“That’sbulshit!Ifthat’salyouhavetosay,wedon’twanttohearit.”They’dyel,poundtables,andthrowobjectsacrosstheroom.Asanex-TImanagerdescribed:“[ShepardandBucy]don’thavefaithintheirpeople....Lowermanagerslostagreatdealofauthority.Muchoftheircontrol[was]shiftedintoheadquarters.

Proposedproductsweredenedandredenedthereadinnitum.

Eventualy,youwerejustgivenaproductthatwasasquarepegandtoldtotitintotheroundholeofthemarket.”89Duringthelate1970sand1980s,TIlostitspositionasoneofthemostrespectedcompaniesinAmericaandsueredsignicantlosses,whileHP

companiesinAmericaandsueredsignicantlosses,whileHP

continuedtobewidelyadmiredandhighlyprofitable.

STICKTOTHEKNITTING?STICKTOTHECORE!

Intheir1982bookInSearchofExcelence,PetersandWatermancounseled“SticktotheKniting,”meaning,intheirwords,“theoddsforexcelentperformanceseemstronglytofavorthosecompaniesthatstayreasonablyclosetothebusinessestheyknow.”90Onthesurface,suchapreceptdoesnotsquarewiththeevolutionaryperspectivewe’vepresentedinthischapter.Indeed,if3Mhaddeneditsknitingasminingorsandpaper,then3Mwouldn’tbewhatitistoday—norwouldwehavethosefabulousPost-ittapeagsthathavehelpeduskeeporganizedwhilewritingthisbook.

Fromourstandpoint,thankgoodness3Mdidn’tsticktoitskniting!

Furthermore,Nortonstuckmuchclosertoitsknitingthan3M—andjustlookattheresults.Zenith,too,stuckmuchclosertoitskniting(televisionandradio)thanMotorola—rightintodecline.J&Jhadnoconsumergoodsexperiencewhenitbeganselingbabypowder.

Marriothadnobackgroundinhotelswhenitbranchedintothatbusiness.HPhadnoexpertiseinthecomputerbusinessinthe1960swhenitlauncheditsrstcomputerproduct.DisneyhadnoknowledgeofthethemeparkbusinesswhenitcreatedDisneyland.

IBMhadnobackgroundinelectronicswhenitmovedintocomputers.Boeinghadvirtualynoexperienceinthecommercialaircraftbusinesswhenitdidthe707.HadAmericanExpressstucktoitskniting(freightexpress),itprobablywouldn’texisttoday.

We’renotsayingthatevolutionaryprogressequalswantondiversication,oreventhatafocusedbusinessstrategyisnecessarilybad.Wal-Mart,forexample,hasthusfarremainedresolutelyfocusedononeindustry—discountretailing—whilesimultaneouslystimulatingevolutionwithinthatnarrowfocus.Norarewesayingthattheconceptof“sticktothekniting”makesnosense.Therealquestionis:Whatisthe“kniting”inavisionarycompany?Ouranswer:Itscoreideology.

PreservetheCore/StimulateProgressTothevelessonsjustgivenwemustthereforeaddasixth:Neverforgettopreservethecorewhilestimulatingevolutionaryprogress.

Keepinmindthatevolutioninvolvesbothvariationandselection.

Inavisionarycompany,like3M,selectioninvolvestwokeyquestions.Therstissimplypragmatic:Doesitwork?Butjustasimportantisthesecondquestion:Doesitfitwithourcoreideology?

SincethetimeofWiliamMcKnight,3Mhassoughttocreateinnovativesolutionstorealhumanproblems—that’swhatthecompanyisalabout.Variationsat3Mmustbenew,useful,andreliable(keyelementsof3M’scoreideology)inordertostandagoodchanceofbeingselected.Certainlynooneat3MwouldstopSpenceSilverfromspendinghis15percentexperimentaldoodlingtimeonhisbizarregluethatdidn’tglue.But,equalyimportant,3M

didn’tselectthemutantadhesiveuntilSilvermarriedittoArtFry’schurchchoirproblem,demonstratedtoother3MersthattheweirdlitlePost-itnoteswereuseful,andprovedthattheycouldbeproducedwith3Mqualityandreliability.Youcan’twina“GenesisGrant”todevelopame-tooproductat3M.Youdon’tbecomeamemberoftheCarltonSocietywithoutanoriginaltechnical

contribution.You’lneversurviveasadivisionmanagerifyourproductsproveconsistentlyunreliableincustomerhands.3M

stimulatesprogresswithawesomevigorfora$13bilioncompany,butjustastenaciouslypreservesitscoreideology.

Similarly,ifaWal-Martexperimentdoesn’taddvaluetocustomers,itwilnotbeselected.IfaJ&Jbranchgrowscontrarytothecredo,itwilbeprunedaway.IfazealousmarketingmanageratHewlet-Packardtriestolaunchamutantnewbusinessthatmakesnotechnicalcontribution,heorshewilfindlitlesupport.IfaMarriotopportunitywouldcausethecompanytoveerwildlyfromitspurposeof“makingpeopleawayfromhomefeelthatthey’reamongfriendsandrealywanted,”itwillookinsteadforotheropportunities.IfaSony“seed”leadsonlytotechnicalymundaneorlow-quality“fruit,”thecompanywilsowotherseeds.

mundaneorlow-quality“fruit,”thecompanywilsowotherseeds.

Coreideologyservesasabondingglueandguidingforcethatholdsavisionarycompanytogetherwhileitmutatesandevolves.

Foralitsmutations,far-ungenterprises,andsmaldivisions,wefoundaremarkablecohesionat3M.Indeed,3Mersbondtotheircompanywiththesamealmostcult-likededicationwesawatP&G,Disney,andNordstrom.ThesameholdstrueforHP,Motorola,andWal-Mart—threecompaniesthatrival3Masself-mutationmachines,yetclingtenaciouslytotheircoreideologies.

Likethegeneticcodeinthenaturalworld,whichremainsxedwhilespeciesvaryandevolve,coreideologyinavisionarycompanyremainsunchangedthroughoutalitsmutations.Indeed,itistheverypresenceofthesexed,guidingidealsthatgivesavisionarycompanysomethingextrathatevolvingspeciesinthenaturalworldcanneverhave:apurposeandaspirit.InthewordsofWiliamMcKnightreectingonhissixty-ve-yearrelationshipwith3Manditsideals:

Itispropertoemphasizehowmuchwedependoneachother

[andoursharedvalues].Ourchalenge,whilestressingthisimportantlessonofhumanity,liesinmaintaining,atthesametime,aproperrespectfortheindividual....TocontinueourprogressandservicetoAmericaandtheworld,weneedahealthyappreciationforthosewhoexercise...theoptionforexcelence,permitingthecreationofsomethingforalofus,enrichingliveswithnew

ideasandproducts.Thebestandhardestworkisdoneinthespiritofadventureandchalenge.91

*Foramoredetaileddiscussionofevolutionarytheory,wehighlyrecommendreadingbooksbyStephenJ.Gould,especialyHen’sTeethandHorse’sToesandThePanda’sThumb,andbooksbyRichardDawkins,especialyTheBlindWatchmaker.

*3M’soficialnameisMinnesotaMiningandManufacturingCompany.

*Thisinvolvedcategorizingofbusinessesunitsintoamatrixof“cashcows,”“stars,”

“questionmarks,”and“dogs,”basedonmarketshareandmarketgrowth.Usingthis

“questionmarks,”and“dogs,”basedonmarketshareandmarketgrowth.Usingthiscategorization,acompanywouldmakeinvestments,acquisitions,anddivestitures.

*RichardDawkinsdoesabeautifuljobofdescribingincrementalismasapotentevolutionaryforceinChapter3ofTheBlindWatchmaker(NewYork:Norton,1986).

Chapter8

Chapter8

Home-GrownManagement

Fromnowon,[choosingmysuccessor)isthemostimportantdecisionI’lmake.Itoccupiesaconsiderableamountofthoughtalmosteveryday.

JACKWELCH,CEO,GENERALELECTRIC,SPEAKINGABOUT

SUCCESSIONPLANNINGIN1991—NINEYEARSBEFOREHIS

ANTICIPATEDRETIREMENT.1

Oneresponsibility[we]consideredparamountisseeingtothecontinuityofcapableseniorleadership.Wehavealwaysstriventohaveprovenbackupcandidatesavailable,employedtransitiontrainingprogramstobestpreparetheprimecandidates,andbeenveryopenabout[successionplanning]..Webelievethatcontinuityisimmenselyvaluable.

ROBERTW.GALVIN,FORMERTEAMMEMBEROFTHECHIEF

EXECUTIVEOFFICE,MOTOROLACORPORATION,19912

In1981,JackWelchbecamechiefexecutiveoftheGeneralElectricCompany.Adecadelater,hehadbecomelegendaryinhisowntime,“widelyacknowledged,”accordingtoFortunemagazine,“astheleadingmasterofcorporatechangeinourtime.”3ToreadthemyriadofarticlesonWelch’srevolution,wemightbetemptedtopicturehimasasaviorridinginonawhitehorsetorescueaseverelytroubledcompanythathadnotchangedsignicantlysincetheinventionofelectricity.IfwedidnotknowWelch’sbackgroundorGE’shistory,wemightbeluredintothinkingthathemusthavebeenbroughtinfromtheoutsideas“newblood”toshakeupalumbering,complacentbehemoth.

Nothingcouldbefurtherfromthetruth.

Foronething,WelchwaspureGEhome-grownstock,havingjoinedthecompanydirectlyoutofgraduateschoolonemonthbeforehistwenty-fthbirthday.Itwashisrstful-timejob,andheworkedatGEfortwentyconsecutive

yearsbeforebecomingchiefexecutive.4Likeeverysingleoneofhispredecessors,Welchcamefromdeepinsidethecompany.

NordidWelchinheritagrosslymismanagedcompany.Quitetheopposite.Welch’simmediatepredecessor,ReginaldJones,retiredas

“themostadmiredbusinessleaderinAmerica.”5AsurveyofhispeersinU.S.NewsandWorldReportfoundJonestobe“themostinuentialpersoninbusinesstoday”—notonce,buttwice,in1979

and1980.SimilarsurveysintheWalStreetJournalandFortunemagazinealsolistedJonesatthetop,andaGaluppolnamedJonesCEOoftheYearin1980.6Innancialterms,suchasprotgrowth,returnonequity,returnonsales,andreturnonassets,GE

performedaswelunderJones’seight-yeartenureasduringWelch’sfirsteightyears.7

Furthermore,WelchisnottherstchangeagentormanagementinnovatorinGE’spanoplyofchiefexecutives.UnderGerardSwope(1922–1939),GEmoveddramaticalyintohomeappliances.Swopealsointroducedtheideaof“enlightenedmanagement”—newatthe

alsointroducedtheideaof“enlightenedmanagement”—newatthetimetoGE—withbalancedresponsibilitiestoemployees,shareholders,andcustomers.8UnderRalphCordiner(1950–1963)andhisslogan“Goforit,”GEexplodedintoavastarrayofnewarenas—atwentyfoldincreaseinthenumberofmarketsegmentsserved.9Cordinerradicalyrestructuredanddecentralizedthecompany,institutedmanagementbyobjective(oneoftherstcompaniesinAmericatodoso),createdCrotonvile(GE’snow-famousmanagementtrainingandindoctrinationcenter),andwrotetheinuentialbookNewFrontiersforProfessionalManagers.10

FredBorch’stenure(1964–1972)was“atimeofcreativeferment”

andawilingnesstomakebold,riskyinvestmentsinsuchareasasjetaircraftenginesandcomputers.11ReginaldJones(1973–1980)becamealeaderinchangingtherelationshipbetweenbusinessandgovernment.

Indeed,WelchcomesfromalongheritageofmanagerialexcelenceatopGE.

Usingpretaxreturnonequity(ROE)asabasicbenchmarkofnancialperformance,GEunderWelch’spredecessorsperformedaswelonaveragesince1915asGEduringWelch’srstdecadeinoce—26.29percentforWelchand28.29

percentforhispredecessors.12Infact,whenwerankedGEchiefexecutiveerasbyreturn,theWelcheracameinfifthplaceoutofseven.(EverysingleGEchiefexecutive,includingWelch,outperformedrivalWestinghouseinROEduringtheirtenure.)Ofcourse,astraightROEcalculationdoesn’ttakeintoaccounttheupsanddownsofindustrycycles,wars,depressions,andthelike.Sowealsorank-orderedGEchiefexecutiveerasintermsofaverageannualcumulativestockreturnsrelativetothemarketandWestinghouse.13Onthisbasis,wefoundWelchinsecondandfth*

place,respectively,relativetohispredecessors.Anexcelentperformance,butnotthebestinGEhistory.(SeeTableA.9inAppendix3.)

ThisisnowaydetractsfromWelch’simmenseachievements.HeranksasoneofthemosteectivechiefexecutiveocersinAmericanbusinesshistory.But—andthisisthecrucialpoint—sodo

Americanbusinesshistory.But—andthisisthecrucialpoint—sodohispredecessors.WelchchangedGE.Sodidhispredecessors.WelchoutperformedhiscounterpartsatWestinghouse.Sodidhispredecessors.Welchbecamewidelyadmiredbyhispeers—a

“managementguru”ofhisage.Sodidhispredecessors.WelchlaidthegroundworkforthefutureprosperityofGE.Sodidhispredecessors.WerespectWelchforhisremarkabletrackrecord.ButwerespectGEevenmoreforitsremarkabletrackrecordofcontinuityintopmanagementexcelenceoverthecourseofahundredyears.

TOhaveaWelch-caliberCEOisimpressive.TohaveacenturyofWelch-caliberCEOsalgrownfrominside—wel,thatisonekeyreasonwhyGEisavisionarycompany.

Infact,theentireselectionprocessthatresultedinWelchbecomingCEOwastraditionalGEatitsbest.WelchisasmuchareectionofGE’sheritageasheisachangeagentforGE’sfuture.AslongtimeGEconsultantNoelTichyandFortunemagazineeditorStratfordShermandescribedinControlYourOwn

DestinyorSomeoneElseWil:†

Themanagement-successionprocessthatplacedvenerableGeneralElectricinWelch’shandsexempliesthebestandmostvitalaspectsoftheoldGEculture.[PriorCEOReginald]Jonesspentyearsselectinghimfromagroupofcandidatessohighlyqualiedthatalmostalofthemendedupheadingmajorcorporations....Jonesinsistedonalong,laborious,exactinglythoroughprocessthatwouldcarefulyconsidereveryeligiblecandidate,thenrelyonreasonalonetoselectthebestqualied.

Theresultranksamongthenestexamplesofsuccessionplanningincorporatehistory.14

Jonestooktherststepinthatprocessbycreatingadocumententitled“ARoadMapforCEOSuccession”in1974—sevenyearsbeforeWelchbecameCEO.AfterworkingcloselywithGE’sExecutiveManpowerSta,hespenttwoyearsparinganinitiallistofninety-sixpossibilities—alofthemGEinsiders—downtotwelve,andthensixprimecandidates,includingWelch.Totestandobservethecandidates,Jonesappointedeachofthesixtobe“sectorexecutives,”reportingdirectlytotheCorporateExecutiveOce.

Overthenextthreeyears,hegradualynarrowedtheeld,putingthecandidatesthroughavarietyofrigorouschalenges,interviews,essaycontests,andevaluations.15Akeypartoftheprocessincludedthe“airplaneinterviews,”whereinJonesaskedeachcandidate:

“YouandIareyinginacompanyplane.Itcrashes.YouandIarebothkiled.WhoshouldbechairmanofGeneralElectric?”(Joneslearnedthistechniquefromhispredecessor,FredBorch.)16Welcheventualywonthegruelingendurancecontestoverastrongeld;runner-upcandidateswentontobecomepresidentorCEOofsuchcompaniesasGTE,Rubbermaid,ApoloComputer,andRCA.17Asaninterestingaside,moreGEalumnihavebecomechiefexecutivesatAmericancorporationsthanalumniofanyothercompany.18

Westinghouse,incontrasttoGE,hasbeenrockedbyperiodsofturmoilanddiscontinuityatthetop.WestinghousehashadnearlytwiceasmanyCEOsasGE,somewithtenureoflessthantwoyears.

TheaverageWestinghouseCEOremainedinoceeightyears,comparedtofourteenyearsatGE.Furthermore,Westinghousehasperiodicalyresortedto

hiringCEOsfromtheoutside,ratherthanbuildingoninternaltalent,asGEhasalwaysdone.GeorgeWestinghousewaskickedoutofthecompanyin1908andreplacedbytwooutsiders(bothbankers)duringareorganization.19In1946,anotheroutsider(againabanker)becameCEO.20Thenin1993,WestinghousewentoutsideyetagainforaCEO—bringinginanex-PepsiCoexecutivetorunthecompanyafteritpostedbilion-dolarlossesin1991and1992.21

Wewouldliketocommentmoreexplicitlyabouttheinternal

WewouldliketocommentmoreexplicitlyabouttheinternalsuccessionprocessatWestinghouse,butwefoundscantmaterialonthistopicinoutsidepublicationsorfromthecompanyitself.Butthat,too,isaninterestingpoint.GEhaspaidsuchprominent,consciousatentiontoleadershipcontinuitythatboththecompanyandoutsideobservershavecommentedgreatlyonit.Westinghousehaspaidsignicantlylessatentiontomanagementdevelopmentandsuccessionplanning.

PROMOTEFROMWITHINTOPRESERVETHECORE

Throughoutthisbook,we’vedownplayedtheroleofleadershipinavisionarycompany.Yetitwouldbeoutrightwrongtostatethattopmanagementdoesn’tmateratal.ItwouldbenaivetosuggestthatanyrandompersoncouldbecomeCEOofavisionarycompany,anditwouldstilcontinuetotickalongintopform.Topmanagementwilhaveanimpactonanorganization—inmostcases,asignicantimpact.Thequestionis,wilithavetherightkindofimpact?Wilmanagementpreservethecorewhilemakingitsimpact?

Visionarycompaniesdevelop,promote,andcarefulyselectmanagerialtalentgrownfrominsidethecompanytoagreaterdegreethanthecomparisoncompanies.Theydothisasakeystepinpreservingtheircore.Overtheperiod1806to1992,wefoundevidencethatonlytwovisionarycompanies(11.1percent)everhiredachiefexecutivedirectlyfromoutsidethecompany,comparedtothirteen(72.2percent)ofthecomparisoncompanies.

Of113chiefexecutivesforwhichwehavedatainthevisionarycompanies,only3.5percentcamedirectlyfromoutsidethecompany,versus22.1percentof140CEOsatthecomparisoncompanies.Inotherwords,thevisionarycompaniesweresixtimesmorelikelytopromoteinsiderstochiefexecutivethanthecomparisoncompanies.(SeeTable8.1inthetextandTableA.8inAppendix3.)

PUTanotherway,acrossseventeenhundredyearsofcombinedhistoryinthevisionarycompanies,wefoundonlyfourindividualcasesofanoutsidercomingdirectlyintotheroleofchiefexecutive.

Inshort,itisnotthequalityofleadershipthatmostseparatesthevisionarycompaniesfromthecomparisoncompanies.Itisthecontinuityofqualityleadershipthatmaters—continuitythatpreservesthecore.Boththevisionarycompaniesandthecomparisoncompanieshavehadexcelenttopmanagementatcertainpointsintheirhistories.Butthevisionarycompanieshavehadbetermanagementdevelopmentandsuccessionplanning—keypartsofatickingclock.Theytherebyensuredgreatercontinuityinleadershiptalentgrownfromwithinthanthecomparisoncompaniesinfteenoutofeighteencases.(SeeTableA.8inAppendix3.)

Table8.1

CompaniesthatPutOutsidersintoChiefExecutiveRoles221806–1992

Visionary

Comparison

Companies

Companies

PhilipMorris

Ames

WaltDisney

Burroughs

ChaseManhatan

Colgate

Columbia

GeneralMotors

HowardJohnson

Kenwood

Norton

R.J.Reynolds

WelsFargo

Westinghouse

Zenith

NOTE:IBMhiredanoutsiderasCEO(LouisGerstner)in1993,theyearafterwecutothedataforouranalysis.WedidnotcountWiliamAlenatBoeingasanoutsiderbecausehehadbeenactivelyinvolvedinmajormanagementdecisions(suchasreorganizations,R&Dinvestments,nancingstructures,andbusinessstrategy)fortwentyyearsasthecompany’slawyerandfourteenyearsasahighlyactivedirectorpriortobecomingchiefexecutive—

aposthethenheldfortwenty-threeyears.WeareindebtedtoMortenHansenforhisbackgroundanalysisforthistable.

Youcanthinkofitasacontinuousself-reinforcingprocess—a

“leadershipcontinuityloop”:

LeadershipContinuityLoop

Absenceofanyoftheseelementscanleadtomanagement

Absenceofanyoftheseelementscanleadtomanagementdiscontinuitiesthatforceacompanytosearchoutsideforachiefexecutive—andthereforepulthecompanyawayfromitscoreideology.Suchdiscontinuitiescanalsoimpedeprogress,asacompanystalsduetoturmoilatthetop.Infact,wesawapaterncommoninthecomparisoncompaniesthatstandsincontrasttothe

“managementcontinuityloop”inthevisionarycompanies.Wecametocalthispaternthe“leadershipgapandsaviorsyndrome”:ConsiderthefolowingexamplesofColgateversusP&GandZenithversusMotorola.

DiscontinuityatColgateVersusTalentStackedLikeCordwoodatP&G

Upuntiltheearly1900s,Colgatewasanextraordinarycompany.

Foundedin1806,thecompanyhadatainedoveracenturyofsteadygrowthandwasroughlythesamesizeasP&G.Italsohadthestrongestearlystatementofcoreideologyofanycomparisoncompanyinourstudy,completewithcorevaluesandanenduringpurposearticulatedbySidneyColgate.23Bythe1940s,however,Colgatehadfalentolessthanhalfthesizeandlessthanone-fourththeprotabilityofP&G,andremainedatthatratioonaverageforthenextfourdecades.Italsodriftedfromitsstrongcoreideologyandbecameacompanywithamuchweakerself-identitythanProcter.

Whathappened?Theanswerliespartlyinpoorsuccession

Whathappened?TheanswerliespartlyinpoorsuccessionplanningandresultingmanagementdiscontinuitiesatColgaterelativetoP&G.Colgatehadbeenrunentirelybyinsiders(almembersoftheColgatefamily)foritsrstfourgenerationsoftopmanagement.However,thecompanyfailedinitsmanagementdevelopmentandsuccessionplanningduringtheearly1900s.Bythelate1920s,Colgatefacedsuchashortageofwel-developedsuccessorsthatitresortedtoamergerwithPalmolive-Peetwhich

“putanalienmanagementinoce.”24Asa1936Fortunearticledescribed:

ThebrothersColgateweregetingold.Gilbert,thePresident,wasseventy,Sidneywassixty-six.AndRussel,whowasonlyfty-ve,tooknogreatpartinthemanagement....Sidney’sson,BayardColgate,was...barelysixyearsoutofYale.That,foraColgate,wastooyoung.SothebrotherslistenedatentivelywhenCharlesPearceoeredtomergePalmolive-PeetwithColgate....[Afterthemerger],theyresignedthemselvestovirtualretirement.

Pearce,whobecamechiefexecutiveofthecombinedcompany,provedtobeadisaster.Drivenby“amaniaforexpansion,”25

PearceconcentratedonanunsuccessfulatempttomergeColgateintoagiantconglomeratewithStandardBrands,Hershey,andKraft.

Distractedbyhisquestforsheersize,PearceignoredthefundamentalsofColgate’sbusinessanditsbasicvalues.HeevenmovedheadquartersfromJerseyCity,NewJersey(whereithadresidedclosetothesoapmakingoperationsforeighty-oneyears),toChicago.26DuringPearce’sreignfrom1928to1933,Colgate’saveragereturnonsalesdeclinedbymorethanhalf(9.0to4.0

percent).DuringthesameperiodP&G’sreturnonsalesactualyincreasedslightly(11.6to12.0percent),despitetheDepression.27

PearceseverelybreachedColgate’scoreideology,especialyitscorevalueoffairdealingwithretailers,customers,andemployees.28Hedrovesuchhardbargainswithretailersthatthey

employees.Hedrovesuchhardbargainswithretailersthattheyrevolted:

Druggistswereespecialyirate:theyhadlongbeenaccustomedtotheconservativedealingsoftheColgates.ThetacticsofthePearce...managementpleasedthemnotatal.AndsinceColgate...wasdependingonsubstantialprotsfromitstoiletarticles,...thedefectionofthedruggists...wasaruinousblow.29

Finaly,accordingtoFortune,theColgatefamily“rousedupfromitslethargytolookastonishedonwhatCharlesPearcehaddone.”30

BayardColgate(agethirty-six)replacedPearceaschiefexecutive,movedthe

headquartersbacktoNewJersey,andtriedtoreawakentheColgatevaluesandreestablishforwardprogress.However,Pearce’sreignofhavocmadetheCEOjobparticularlydicultfortheyoungColgate,whohadnotbeenpreparedorgroomedforsucharole.Heheldthepostforonlyveyears,beforepassingthejobtointernationalsalesmanagerEdwardLitle.ColgatefelbehindP&G,nevertocatchup.DuringthedecadeimmediatelyafterthePearceera,P&GgrewtwiceasfastandatainedfourtimestheprofitsasColgate.31

WiththePearcedebacle,Colgatebeganapaternofpoorlyhandledtopmanagementsuccession.EdwardLitle(chiefexecutivefrom1938to1960)ranColgateasaone-manshow.32“Colgatewasdominatedby[Litle]—and‘dominate’isnottoostrongaterm,”

wroteForbes.33WefoundnoevidencethatLitlecouldimagineColgatewithouthimselfatthehelm,orthatthecompanyhadanysuccessionplaninplace.Finaly,atageseventy-nine,Litleretired,andColgatehadtocalhomeoneofitsinternationalvicepresidentstorideinasa“WhiteKnight”toturnaroundthecompanywhosedomesticoperationswereinserioustrouble.34

In1979,ColgateexperiencedyetanothertumultuoustransitionatthetopwhenchiefexecutiveDavidFosterwasremoved—againsthiswil—bytheColgateboard.Likehispredecessorsbeforehim,

hiswil—bytheColgateboard.Likehispredecessorsbeforehim,Foster“carriedonatraditionofone-manruleatColgate,anditsuitedhistemperament.”35Infact,Fosteractualyimpededsuccessionplanning,accordingtoanarticleinFortune:Totheend,DavidFosterdidhisbesttogivehisheirapparenttheleastpossiblepower—orevenvisibility....Foster[sought]

anefectivewaytosilencetheboardonthematerofsuccession.

Colgatehadanunwritenpolicyatthetimecalingfortopexecutivestoleaveatsixty.Fosterwasthenfty-veandwassayinghewouldadheretothepolicy,butitisatelingcommentthatwhen[hispotentialheir]receivedanoertobecomepresidentof[anothercompany],hetookit.36

Rockedagainbyturmoilatthetop,ColgateslidfurtherbehindP&GinbothsalesandprotabilityduringthedecadeafterFoster’souster,droppingtoone-fourththesizeofP&Ginbothsalesandprofits.CertainlyfactorsotherthanchaoticmanagementcontributedtoColgate’srelativedecline,includingP&G’s

superiorR&Deortsandgreatereconomiesofscale.But—andthisisthecrucialpoint—

ColgaterstlostitschancetorunevenwithP&GduringthePearceturmoil,andthencontinuedwithtsandstalsatcriticaltransitionpoints.

P&G,incontrast,suerednolurchesinmanagementlikethoseatColgate,eventhoughthetwocompaniesfacedexactlythesamechalengeofmovingbeyondfamilygovernanceatpreciselythesamepointinhistory.Duringthe1920s,whiletheColgatebrothersneglectedtodevelopworthysuccessors,CooperProcterhadbeencarefulypreparingRichardDeupree—aninsiderwhohadjoinedP&Gin1909—toassumetheroleofchiefexecutive.37UnderCooperProcter’swatchfuleyeandcoaching,Deupreeassumedevergreaterresponsibility,eventualybecomingchiefoperatingocerin1928(theexactsameyearthatColgate“putanalienmanagementinoce”).In1930,Deupreebeganasuccessfuleighteen-yearstintaschiefexecutive—therstnonfamilyCEOin

eighteen-yearstintaschiefexecutive—therstnonfamilyCEOinP&G’shistory.Then,likeProcterbeforehim,Deupreeensuredcontinuityfromgenerationtogeneration,asJohnSmale(CEO

1981–1989)described:

DeupreeheldapivotalroleincarryingoutandhandingdownthecharacteroftheCompany.Heknew—andlearnedfrom—theonlytwopeopletoprecedehimasChiefExecutiveOcersinceProcter&Gamblewasincorporatedin1890.Andhealsoknew

—andhelpedteach—thenextfourpeopletoholdthejobafterhim.Iamoneofthesefourpeople—onlytheseventhChiefExecutiveofthisCompanyinthenearly100yearssinceit’sbeenincorporated.38

P&Gunderstoodtheimportanceofconstantlydevelopingmanagerialtalentsoastoneverfacegapsinsuccessionatanylevel,andthereforetopreserveitscorethroughoutthecompany.Dun’sReviewoncecommentedthat“P&G’sprogramfordevelopingmanagersissothoroughgoingandconsistentthatthecompanyhastalentstackedlikecordwood—ineveryjobandineverylevel.”39

Althewaytoseniormanagementranks,P&Gaimsataltimesto

“havetwoorthreepeopleequalycapableofassumingresponsibilityofthenextstepup.”40Deupree’ssuccessor,NeilMcElroy,explained:“Our[development]ofpeoplewho...wilbethemanagementofthefuturegoesonyearafteryear,ingoodtimesandbad.Ifyoudon’tdoit,Xyearsfromnowwewilhaveagap.

Andwecan’tstandagap.”41

LeadershipGapsatZenithVersusMotorola’sDeepBench

“Commander”EugeneF.McDonald,Jr.,thebriliantanddomineeringmastermindfounderofZenithCorporation,haddevelopednocapablesuccessorsbythetimehediedin1958.

McDonald’sclosestassociate,HughRobertson,tookoveraschief

McDonald’sclosestassociate,HughRobertson,tookoveraschiefexecutive,buthewasalreadypasttheageofseventy.Fortunemagazinecommentedin1960,“Zenithistravelinglargelyonmomentumimpartedby...forcefulpersonalitiesthatbelongtoitspastratherthanitsfuture.”42RobertsonheldonfortwoyearsandpassedthecompanytothehighlyconservativecorporatecounselJosephWright,whoalowedthecompanytodriftawayfromitscorevalueoffanaticaldedicationtohighquality.43InsiderSamKaplanbecamechiefexecutivein1968,butdiedsuddenlyin1970.

Facingyetanothermanagementvacuumatthetop,Zenithfelttheneedtondanoutsidesaviortorescuethecompany.Afteranintensivesearch,ZenithhiredJohnNevinfromFord.44

Afteranunspectaculartenureandcontinueddriftfromthecompany’soriginalvalues,Nevinresignedin1979,forcingex-chairmanWrighttocomeoutofretirementatagesixty-eight“totrytoputthecompanybackonitsfeet.”45WrightelevatedRevoneKluckmantochiefexecutive,buthe—likeKaplanbeforehim—diedsuddenlytwoyearsintohistenure,forcingyetanothercrisistransition.

Incontrast,Motorolahadnoneofthesameturmoil—amodelexampleofmanagementcontinuitythatpreservesthecore.FounderPaulGalvinbegangroominghissonBobGalvinyearsbeforetheformaltransferofpower.TheyoungerGalvinbeganworkatMotorolain1940whilestilinhighschool,sixteenyearsbeforebecomingpresidentandnineteenyearsbeforebecoming

chiefexecutive.46PaulGalvinmadesurethathissongrewupfromdeepinsidethebusiness,havinghimbeginasastockclerkwithaminimumofspecialprivileges.WhenyoungBobreportedtothepersonneloficeatsevenA.M.toapplyforasummerjob,amanageroeredtotakehimdirectly—outofturn—toseetheheadofpersonnel.Galvindeclined.Hewantedtogothroughtheprocessfromthebotom,justlikeeveryotherMotorolanhadto.47

BobGalvinmovedupthroughthebusiness,nalysharingpresidentialdutiesforthethreeyearsprecedinghisfather’sdeath.

“Intime,myfather...announcedwewouldactasone.Eitherofus

“Intime,myfather...announcedwewouldactasone.Eitherofuscouldactonanyissue.Theotherwouldsupport.”48PaulGalvin’sbiographerwrotethatthetransferofexperiencefromonegenerationtothenextwasadailyprocessthatlastedyears.49Then,almostimmediatelyafterhisfather’sdeathin1959,BobGalvinbeganthinkingaboutmanagementdevelopmentandsuccessionplanningforthenextgeneration—aquarterofacenturybeforehewouldpassthereins.

Toreinforcetheconceptofleadershipcontinuityfromwithin,BobGalvindiscardedthetraditionalconceptofachiefexecutiveocerinfavoroftheconceptofaChiefExecutiveOficeoccupiedby“teammembers.”“Members”pluralisnotamisprint.Galvinenvisionedanoficeheldbymultipleteammembers(usualythree)atanyonetime,ratherthanasingleleader.Galvindidthisinparttoensurethatthecompanywouldhavecapableinsiderswelpositionedtoassumeleadershipresponsibilityatanypointintime.

“Therewasalwaysaprivatebutclearunderstandingofsuccessionhierarchy,”wroteGalvin.“Wewerepreparedforunschedulablechangethroughoutthatquarterofacentury[thatIwasamemberoftheChiefExecutiveOfice.]”50

Motorolaimplementedthis“OceOf”conceptnotonlyatthechiefexecutivelevel,butalsoatlowerlevels(withtwoorthreeteammembersperoce)—akeymechanismformanagementdevelopmentandleadershipcontinuitythroughoutthecompany.

Awarethatsuchanapproachwascontroversialamongmanagementthinkers—nottomentionawkwardtomanage—Galvinarguedthatthebenefitsfaroutweighedthecosts,ashewrotein1991:IfanOceOfatthetopwastosucceed,itneededcandidateswhohadexperiencedandadaptedtosucha...

roleearlierintheircareer.Itfolowedthattheexperiencebasehadtobeprovidedbysimilarassignmentsatbusinessunitlevels....TheOceOfhasitsdisadvantages.Someincumbentsjustplaindon’tpreferit....Mixedsignalscanemanatefromtheoce...

.Asaconsequence,periodicalysomeOceOfshavenot

.Asaconsequence,periodicalysomeOceOfshavenotclicked.Someplayersdepartedorwerebenched.Butithasworkedwelmoreoften....Theproofisintheusing.Onbalanceitisagureofmerit.Ithasconsistentlyprovidedthebestinformedsuccessionanswers.ItabsolutelyhelpedtoprovidetheprovensourceofChiefExecutiveOcecandidates.51

Insixty-veyearsofhistory,MotorolahassuerednoleadershipdiscontinuitieslikethoseatZenith.Motorolahascontinualyreinventeditself(frombateryrepairforSearsradiostointegratedcircuitstosatelitecommunicationssystems),yetdisplayedunbrokencontinuityintopmanagementexcelencesteepedinitscorevalues,evenwhenithasunexpectedlylosttopmanagementtalent.Forexample,in1993,GeorgeFisher—akeymemberoftheChiefExecutiveOce—leftMotorolatobecomechiefexecutiveatKodak.Atmostcompanies,theunexpecteddepartureofsuchacapablechiefexecutivewouldcausedisarray,turmoil,andamanagementgap—ashappenedatZenithwhenCEOsdiedunexpectedly.ButnotatMotorola.Theothertwomembersofthechiefexecutiveoce(GaryTooker,agefty-four,andChristopherGalvin,ageforty-three)simplyclickedintoplacetoshouldertheextraresponsibilities.Simultaneously,Motorolabegananinternalprocesstoselectanewthirdteammemberfromitsdeepbenchofwel-trainedmanagerialtalent.Inanarticleappropriatelytitled

“MotorolaWilBeJustFine,Thanks,”theNewYorkTimessummedup:“Mr.FisherhadtheluxuryofmakinghismovesecureintheknowledgethatMotorolacouldhardlybebeterpositionedtoabsorbsuchasurprise.”52

ManagementTurmoilandCorporateDecline

Westinghouse,Colgate,andZenithandarenottheonlyexamplesoftopmanagementturmoilanddiscontinuityinourstudy.Wefoundnumeroussuchexamplesinthecomparisoncompanies.

numeroussuchexamplesinthecomparisoncompanies.

IthappenedatMelvileCorporationinthe1950s,whenWardMelvilefoundhehadn’tadequatelypreparedanysuccessors.

Desperatetopassthecompanytosomebody—anybody—becausehewas“anxioustoretire,”Melvilegavethejobtoaproductionmanagerwhowasilpreparedanddidn’tevenwantthejob.Thecompanydeclinedprecipitously.“Iwasshockedtoseehowfastthenumberscandeterioratewhenthemenarewrong,”Melvilecommentedlater.53Melvilethenlaunchedayear-longsearchforanoutsideCEOtocomeinandturnaroundthecompany.

Fortunately,Melvilehadthewisdomtoabandontheoutsidesearchandturninsteadtodevelopingapromisingyounginsiderwho,overtime,provedtobeaverycapableCEO.54

IthappenedatDouglasAircraftinthelate1950s,asfounderDonaldDouglasturnedhiscompanyovertoaninadequatelypreparedDonaldDouglas,Jr.“TheyoungerDouglascouldnotpossiblylhisoldman’sshoes,”wroteonebiographicalaccount.

“Thesonretaliatedagainstthoseheconsideredhisenemies[i.e.,mostofhisfather’smanagement],and...replacedexperiencedadministratorswiththosewhojoinedhisteam.”55AsDouglas,Jr.,placedkeyfriendsinhighpositions,talentedmanagersleftthecompanywhenitneededthemmosttofacetheever-growingonslaughtfromBoeing.Duringtheearly1960s,thelossofmanagerialtalentcaughtupwithDouglasasittrieddesperately—

andunsuccessfuly—tocatchuptoBoeing.Facinganepiccrisisin1966,Douglas,Jr.,soughtsalvationintheformofamergerwithMcDonnelAircraft.

IthappenedatR.J.Reynoldsinthe1970s,ascompanydirectorJ.

PaulSticht—ex-presidentofFederatedDepartmentStores—“helpedtorpedotheplannedsuccessionofanheirapparent,thenmaneuveredhimselfintothepresidency,”accordingtoBusinessWeek.56Stichtassumedchiefexecutiveresponsibilityandrestockedthemanagementteamalmostentirelywithoutsiders.57Later,inoneofthemostfamousseniormanagementdisastersincorporatehistory,RossJohnson(atrulyalienelementtothecompany’s

history,RossJohnson(atrulyalienelementtothecompany’sheritage)becameCEOafterRJRacquiredNabiscoBrandsin1985.

Wel-documentedinBarbariansattheGate:TheFalofRJR

NabiscobyBryanBurroughsandJohnHelyar,theJohnsoneraendedwithajunk-bond-nancedtakeoverbynanciersKohlbergKravisRoberts&Co.,whobroughtinyetanotheroutsideCEO.

IthappenedatAmes,asthefoundingfamilywatcheditscreationdestroyedbyoutsiderswhowerebroughtinduetolackofcapablesuccessors.IthappenedatBurroughswithitsimportationofoutsiderW.MichaelBlumenthalfromBendix,whenthecompanyfaced“anobviousgapinourmanagementstructure,”broughtonbecause“newmanagerswerenotgroomedduringtheyearsof[RayW.]Macdonald’sdictatorialrule.”58ItalsohappenedatChaseManhatan,HowardJohnson,andColumbiaPictures.

Italsohappenedattworecenthigh-prolecasesinourvisionarycompanies:DisneyandIBM.

AtDisney,Waltdevelopednocapablesuccessor,andthecompanyounderedduringthe1970sasmanagersranaroundaskingthemselves,“WhatwouldWaltdo?”Tosavethecompany,theboardhiredoutsidersMichaelEisnerandFrankWelsin1984.

We’dliketopointout,however,thatDisneyconsciouslydiditsbesttopreserveideologicalcontinuityevenwhileselectinganoutsider.

RayWatson,whoguidedtheCEOsearch,wantedEisnerforthejobnotonlybecausehehadastelartrackrecordintheindustry,butalsobecauseEisnerunderstoodandappreciated—indeed,hadunabashedenthusiasmfor—theDisneyvalues.59AsoneDisneyitesummedup:“EisnerturnedouttobemoreWaltthanWalt.”60

TheDisneycaseilustratesanimportantpoint.Ifyou’reinvolvedwithanorganizationthatfeelsitmustgooutsideforatopmanager,thenlookforcandidateswhoarehighlycompatiblewiththecoreideology.Theycanbedierentinmanagerialstyle,buttheyshouldsharethecorevaluesatagutlevel.

WhatshouldonemakeofIBM’s1993decisiontoreplaceitsinternalygrownCEOwithLouisV.Gerstner—anoutsiderfromR.J.

Reynoldswithnoindustryexperience?Howdoesthismassive

Reynoldswithnoindustryexperience?Howdoesthismassiveanomalytwithwhatwe’veseeninourothervisionarycompanies?Itdoesn’tt.IBM’sdecisionsimplydoesn’tmakeanysensetous—atleastnotinthecontextoftheseventeenhundredcumulativeyearsofhistoryweexaminedinthevisionarycompanies.

PerhapsIBM’sboardwasoperatingundertheassumptionthatdramaticchangerequiresanoutsider.Tothatassumptionwerespondsimply:JackWelch.The“leadingmasterofcorporatechangeinourtime”spenthisentirecareerinsidethecompanythatmadehimCEO.IBMhashadoneofthemostthoroughmanagementdevelopmentprogramsofanycorporationontheplanet.Ithasalongtrackrecordofhiringextraordinarilytalentedpeople.WesimplycannotbelievethatIBMdidn’thaveatleastoneWelch-caliberchangeagentinsidethecompany.Indeed,wewouldbesurprisedifthereweren’tatleastadozeninsidersequalycapableasanyoneIBMcouldatractfromtheoutside.

AScompanieslikeGE,Motorola,P&G,Boeing,Nordstrom,3M,andHPhaveshowntimeandagain,avisionarycompanyabsolutelydoesnotneedtohiretopmanagementfromtheoutsideinordertogetchangeandfreshideas.

IBM’sboardandsearchcommiteewanteddramaticchangeandprogress.WithMr.Gerstner,they’lprobablygetit.ButtherealquestionforIBM—indeed,thepivotalissueoverthenextdecade—

is:CanGerstnerpreservethecoreidealsofIBMwhilesimultaneouslybringingaboutthismomentouschange?CanGerstnerbetoIBMwhatEisnerhasbeentoDisney?Ifso,thenIBM

mightregainitsreveredplaceamongtheworld’smostvisionarycompanies.

THEMESSAGEFORCEOS,MANAGERS,ANDENTREPRENEURS

Simplyput,ourresearchleadsustoconcludethatitisextraordinarilydiculttobecomeandremainahighlyvisionarycompanybyhiringtopmanagementfromoutsidetheorganization.

Equalyimportant,thereisabsolutelynoinconsistencybetweenpromotingfromwithinandstimulatingsignificantchange.

Ifyou’rethechiefexecutiveorboardmemberatalargecompany,youcandirectlyapplythelessonsofthischapter.Yourcompanyshouldhave

managementdevelopmentprocessesandlong-rangesuccessionplanninginplacetoensureasmoothtransitionfromonegenerationtothenext.WeurgeyoutokeepinmindhowtheWaltDisneyCompany—anAmericanicon—gotitselfinaterriblexbecauseWaltneglectedtobuildthisvitalpartofatickingclock.WeurgeyoutonotrepeatthemistakesmadeatColgate,Zenith,Melvile,Ames,R.J.Reynolds,andBurroughs.Donotfalintothetrapofthinkingthattheonlywaytobringaboutchangeandprogressatthetopistobringinoutsiders,whomightdiluteordestroythecore.Thekeyistodevelopandpromoteinsiderswhoarehighlycapableofstimulatinghealthychangeandprogress,whilepreservingthecore.

Ifyou’reamanager,theessenceofthischapteralsoappliestoyou.Ifyou’rebuildingavisionarydepartment,division,orgroupwithinalargercompany,youcanalsobethinkingaboutmanagementdevelopmentandsuccessionplanning,albeitonasmalerscale.Ifyouwerehitbyabus,whocouldstepintoyourrole?Whatareyoudoingtohelpthosepeopledevelop?Whatplanninghaveyoudonetoensureasmoothandorderlytransitionwhenyoumoveuptohigherresponsibilities?(Youcanalsobeaskingthoseathigherlevelswhatstepstheyhavetakentoensureasmoothsuccession.)Finaly,ifyoundavisionarycompanythatyoutrealywelwith,itmightbeworthyourwhiletodevelopyourskilswithinthatcompanyratherthanjobhop.

Howdoesthischapterapplytosmalercompaniesandentrepreneurs?Clearly,asmalcompanycannothaveachief

entrepreneurs?Clearly,asmalcompanycannothaveachiefexecutivesuccessionprocessthatbeginswithninety-sixcandidates,ashappenedatGE.Nonetheless,smaltomidsizecompaniescanbedevelopingmanagersandplanningforsuccession.MotorolawasstilasmalcompanywhenPaulGalvinbegancarefulygroominghissontobecomechiefexecutive.ThesameholdstrueforfamilytransitionsduringtheearlydaysofMerck,P&G,J&J,Nordstrom,andMarriot.SamWaltonbeganthinkingaboutfuturemanagementofthecompanybeforethecompanyhadevenftystores.61BilHewletandDavePackardbeganformalmanagementdevelopmentprogramsandthoughtfulsuccessionplanninginthe1950s,whenthecompanyhadfivehundredemployees.62

Interestingly,nearlyalofthekeyearlyarchitectsinthevisionarycompaniesremainedinoceforlongperiodsoftime(32.4yearsonaverage),sofewofthecompaniesfacedactualsuccessionwhilestilyoungandsmal.Nonetheless,manyofthemwereplanningforsuccessionlongbeforetheactualmomentofsuccession.Ifyou’reasmal-businessperson,thisindicatestakingaverylong-termview.

Theentrepreneurialmodelofbuildingacompanyaroundagreatidea,growingquickly,cashingout,andpassingthecompanyotooutsideprofessionalmanagerswilprobablynotproducethenextHewlet-Packard,Motorola,GeneralElectric,orMerck.

Fromtheperspectiveofbuildingavisionarycompany,theissueisnotonlyhowwelthecompanywildoduringthecurrentgeneration.Thecrucialquestionis,howwelwilthecompanyperforminthenextgeneration,andthenextgenerationafterthat,andthenextgenerationafterthat?Alindividualleaderseventualydie.Butavisionarycompanycantickalongforcenturies,pursuingitspurposeandexpressingitscorevalueslongbeyondthetenureofanyindividualleader.

*GivenGE’srecentsuperbperformanceintheearly1990sandWestinghouse’sdecline,weexpectthattheWelcherarankingwilimprovesignificantlyonthisdimension.

†TwobookscovertheWelchselectionprocessindetail.OneisTichyandSherman’s.

TheotherisTheNewGE,byRobertSlater.Inthissection,wehavedrawnbackgrounddatafrombothofthesefinebooks.

Chapter9

Chapter9

GoodEnoughNeverIs

Don’tbotherjusttobebeterthanyourcontemporariesorpredecessors.Trytobebeterthanyourself.

WILLIAMFAULKNER1

Peoplewouldalwayssaytomyfather,“Geewhiz,you’vedonerealwel.Nowyoucanrest.”Andhewouldreply,“Oh,no.Gottokeepgoinganddoitbeter.”

J.WILLARDMARRIOTT,JR.,CHAIRMAN,MARRIOTT,19872

Thecriticalquestionaskedbyavisionarycompanyisnot“Howwelarewedoing?”or“Howcanwedowel?”or“Howweldowehavetoperforminordertomeetthecompetition?”Forthesecompanies,thecriticalquestionis“Howcanwedobetertomorrowthanwedidtoday?”Theyinstitutionalizethisquestionaswayoflife—ahabitofmindandaction.Superbexecutionandperformancenaturalycometothevisionarycompaniesnotso

performancenaturalycometothevisionarycompaniesnotsomuchasanendgoal,butastheresidualresultofanever-endingcycleofself-stimulatedimprovementandinvestmentforthefuture.

Thereisnoultimatenishlineinahighlyvisionarycompany.

Thereisno“havingmadeit.”Thereisnopointwheretheyfeeltheycancoasttherestoftheway,livingofthefruitsoftheirlabor.

Visionarycompanies,welearned,ataintheirextraordinarypositionnotsomuchbecauseofsuperiorinsightorspecial“secrets”

ofsuccess,butlargelybecauseofthesimplefactthattheyaresoterriblydemandingofthemselves.Becomingandremainingavisionarycompanyrequiresoodlesofplainold-fashioneddiscipline,hardwork,andavisceralrevulsiontoanytendencytowardsmugself-satisfaction.AsJ.WilardMarriot,Sr.,summedupwhilereflectingontheessenceofsuccess:Disciplineisthe

greatestthingintheworld.Wherethereisnodiscipline,thereisnocharacter.Andwithoutcharacter,thereisnoprogress....Adversitygivesusopportunitiestogrow.Andweusualygetwhatweworkfor.Ifwehaveproblemsandovercomethem,wegrowtalincharacter,andthequalitiesthatbringsuccess.3

Duringthe1980s,“continuousimprovement”becameamanagementcatchphrase.Butatthevisionarycompanies,theconcepthasbeencommonplacefordecades—overacenturyinsomecases.WiliamProcterandJamesGamble,forexample,usedtheconceptofcontinuousimprovementasfarbackasthe1850s!4

WiliamMcKnightbroughttheconcepttolifeat3Minthe1910s.J.

WilardMarriotembracedtheconceptsoonafteropeninghisrstrootbeerstandin1927.DavidPackardincessantlyusedtheterm

“continuousimprovement”beginninginthe1940s.

Ourresearchndingsclearlysupporttheconceptofcontinuousimprovement,butnotasaprogramormanagementfad.Inavisionarycompany,itisaninstitutionalizedhabit—adisciplinedwayoflife—ingrainedintothefabricoftheorganizationand

wayoflife—ingrainedintothefabricoftheorganizationandreinforcedbytangiblemechanismsthatcreatediscontentwiththestatusquo.Furthermore,visionarycompaniesapplytheconceptofself-improvementinamuchbroadersensethanjustprocessimprovement.Itmeanslong-terminvestmentsforthefuture;itmeansinvestmentinthedevelopmentofemployees;itmeansadoptionofnewideasandtechnologies.Inshort,itmeansdoingeverythingpossibletomakethecompanystrongertomorrowthanitistoday.

MECHANISMSOFDISCONTENT

You’reprobablygetingtheimpressionthatthevisionarycompaniesarenotexactlycomfortableplaces.Andthat’spreciselytheimpressionyoushouldbegeting.

COMFORTisnottheobjectiveinavisionarycompany.

Indeed,visionarycompaniesinstalpowerfulmechanismstocreatediscomfort—

toobliteratecomplacency—andtherebystimulatechangeandimprovementbeforetheexternalworlddemandsit.

Likegreatartistsorinventors,visionarycompaniesthriveondiscontent.Theyunderstandthatcontentmentleadstocomplacency,whichinevitablyleadstodecline.Theproblem,ofcourse,ishowtoavoidcomplacency—howtoremainself-disciplinedonceacompanyhasatainedsuccessorbecomenumberoneinitseld.

Howcanacompanykeepalivethat“rethatburnsfromwithin”

thatimpelspeopletokeeppushing,toneverbesatised,andtoalwayssearchforimprovement?

RichardDeupreeatProcter&Gambleponderedtheseexactquestions,worriedthatP&G’srisetoprominenceintheearly

questions,worriedthatP&G’srisetoprominenceintheearlytwentiethcenturymightcausethecompanytobecomefat,happy,andcomplacent.Whattodo?Hecouldhavegonearoundgivingpassionatespeechesabouttheimportanceofremainingdisciplined.

Hecouldhavewritenmemosandpamphletsaboutthedangersofcomplacency.Hecouldhavemetpersonalywithmanagersthroughoutthecompanytoimpressuponthemtheinherentvalueofchangeandself-improvement.ButDeupreeknewthatthecompanyneededsomethingmorethanjustgoodintentionstoimproveforthefuture.Hewantedsomethingwithteethinit,somethingthatwouldcontinualyimpelprogressfromwithin.

Hethereforerespondedfavorablytoaradicalproposalmadein1931bymarketingmanagerNeilMcElroy,namelytocreateabrandmanagementstructurethatwouldalowP&GbrandstocompetedirectlywithotherP&Gbrands,almostasiftheywerefromdierentcompanies.P&Galreadyhadthebestpeople,thebestproducts,thebestmarketingmuscle.SowhynotpitthebestofP&G

againstthebestofP&G?Ifthemarketplacedoesn’tprovideenoughcompetition,whynotcreateasystemofinternalcompetitionthatmakesitvirtualyimpossibleforanybrandtorestonitslaurels?

Implementedintheearly1930s,thecompetingbrandmanagementstructurebecameapowerfulmechanismatP&Gforstimulatingchangeandimprovementfromwithin.ThestructureprovedsoeectivethatitwaseventualycopiedinoneformoranotherbyvirtualyeveryAmericanconsumerproductscompany,includingColgate—butnotuntilnearlythreedecadeslater.5

Thepointhereisnotthatasuccessfulcompanyshouldnecessarilycreateinternalcompetitioninordertokeepitselfvibrant.Thepointisthatitshouldhavesomesortofdiscomfortmechanismsinplacetocombatthediseaseofcomplacency—adiseasethatinevitablybeginstoinfectalsuccessfulorganizations.Internalcompetitionisonesuchmechanism,butnottheonlyone.Wefoundavarietyofmechanismsacrossthevisionarycompanies.

Merckinthe1950sembracedastrategyofconsciouslyyieldingmarketshareasproductsbecamelow-margincommodities,thusforcingitselftoproducenewinnovationsinordertogrowand

forcingitselftoproducenewinnovationsinordertogrowandprosper.6Motorolausedaninnovate-or-diemechanismsimilartoMerck’s,withitspracticeofcutingomatureproductlinesthataccountedforsignicantsalesvolume,thusforcingitselftolthegapwithnewproducts.Motoroladidthiswithtelevisionsandcarradios.7(ChairmanRobertGalvinkeptthelastcarradiomadeatitsU.S.plantonhisdeskasareminderofMotorola’s“refoundingasafront-runnerinhighertechnologies.”)8Motorolaledthegapsviaamechanismcaled“TechnologyRoadMaps”—acomprehensivetoolforbenchmarkingtechnologyprogressversuscompetitorsandanticipatedmarketneedsuptotenyearsintothefuture.9

GeneralElectricinstitutionalizedinternaldiscomfortwithaprocesscaled“workout.”Groupsofemployeesmeettodiscussopportunitiesforimprovementandmakeconcreteproposals.

Uppermanagersarenotalowedtoparticipateinthediscussion,butmustmakeon-the-spotdecisionsabouttheproposals,infrontofthewholegroup—heorshecannotrun,hide,evade,orprocrastinate.10

Boeingcreateddiscomfortforitselfwithaplanningprocessthatwecametocal“eyesoftheenemy.”ItassignsmanagersthetaskofdevelopingstrategyasiftheyworkedforacompetingcompanywiththeaimofobliteratingBoeing.What

weaknesseswouldtheyexploit?Whatstrengthswouldtheyleverage?Whatmarketscouldbeeasilyinvaded?Then,basedontheseresponses,howshouldBoeingrespond?11

EarlyinWal-Mart’shistory,SamWaltonbeganusingamechanismcaled“BeatYesterday”ledgerbooks(seeexamplep.189).Theseledgerbookstrackedsalesguresonadailybasisincomparisontotheexactsamedayoftheweekoneyearearlier.Wal-Martusedtheseledgersasastimulustopushthestandardsupandup,forever.12

Nordstromcreatedanenvironmentwherepeoplecanneverstoptryingtoimprove.Salesperhour(SPH)rankingsmeasuresuccessrelativetoone’speers.Thus,therearenoabsolutestandardsthat,onceachieved,alowanemployeetorelax.Nordstromalso

onceachieved,alowanemployeetorelax.Nordstromalsocarefulytrackscustomerfeedbackandlinksemployeecompensationandadvancementtothetrends.13BruceNordstromexplained:

Ifyourealylistentoyourcustomers,they’reneverhappy—

they’lletyouknowwhatyou’redoingwrong—anditjustforcesyoutogetbeter.Fatheadednessiswhatbothersmemost.Ithinkwegetsomuchpressaboutourserviceandalthisstuandwestartbelievingitandthenwethinkwe’rebeterthanthecustomer.Andthenwe’redeadrightthere.14

Hewlet-Packardalsohasahistoryofrankingemployeesrelativetotheirpeers.Managersmustarguefortherankingsoftheirpeopleingrouprankingsessionswithothermanagerswhoarejustasintentonarguingthattheirpeopleshouldgetthetoprankings.Theprocesscontinuesuntilalthemanagersagreeonapooledrankingfromtoptobotom.It’satough,draining,anduncomfortableprocessthatmakesitvirtualyimpossibleforanyemployeetoatainahighratingandthencoasttherestoftheway.15

HPalsoinstaledapowerfulmechanismcaled“payasyougo”(apolicyagainsttakingoutanylong-termdebt).Sophisticatednancialmodelshaveshownthispolicytobetotalyirrational—

thatacompanylikeHPshouldtakeoutdebtinordertomaximizeitsvalue.Butsuchmodelsfailtoaccountforthepowerfulinternaleectofano-debtpolicy:It

enforcesdiscipline.Byrefusingtotakeonlong-termdebtinordertofundgrowth,HPforceditselftolearnhowtofundits20-pluspercentaverageannualgrowth(nottomentionitsongoing10percentofsalesinvestmentinR&D)entirelyfromwithin.Suchamechanismmaynotbeconsideredrational,butitproducedawholecompanyofincrediblydisciplinedgeneralmanagersskiledatoperatingwithalevelofleannessandeficiencyusualyonlyfoundinsmal,cash-constrainedcompanies.AsanHP

vicepresidentdescribed:

Wal-Mart“BeatYesterday”ledgerbookNovember

1984

1985

1986

1987

1988

1stMonday

1stTuesday

1stWeds.

1stThursday

1stFriday

1stSaturday

1stSunday

1stWEEK

Thisphilosophy[pay-as-you-go]providesgreatdisciplinealthewaydown.Ifyouwanttoinnovate,youmustbootstrap.Itisoneofthemostpowerful,leastunderstoodinuencesthatpervadesthecompany.16

Andthecomparisoncompanies?Wefoundnoevidencethattheyinstaledmechanismsofdiscomforttothesamedegreeasthevisionarycompanies.Thesenseofruthlessself-disciplinesimplydoesnotshowupasconsistentlyintheirhistory.Indeed,wefoundthatsomeofthecomparisoncompaniesconsciouslytookthecomfortableroad,attimesmilkingthecompanyintheshort-termattheexpenseofthelong-term—abehaviorpaternalmostunheardofinthevisionarycompanies.

BUILDFORTHEFUTURE(ANDDOWELLTODAY)

PutyourselfintheshoesofBilHewletandDavidPackardin1946.

Youhaveasmalcompany,lessthantenyearsold.You’vejustwatchedyourrevenuedeclineby50percentasdefensecontracts

watchedyourrevenuedeclineby50percentasdefensecontractsdriedupattheendofWorldWarI.Youfaceanimminentcashowcrisisthatthreatenstheverysurvivalofthecompany,andyouhavenoprospectsincommercialmarketsthatwouldimmediatelysolvetheproblem.DavidPackarddescribedthesituation:Wewerealcelebratingtheendofthewarbut,atthesametime,werealizedtherewasgoingtobeaveryseriousproblem.

Oursalesdroppedfromaboutamilionandahalftosomethinglikehalfofthatin1946,andwewereveryworriedasIrememberaboutwhetherwecouldholdonornot.17

Whatwouldyoudointhesamesituation?Whatdoyouthinktheydid?

First,theycutpayrolbyapproximately20percent.Facedwithevaporatinggovernmentcontracts,theysimplyhadtoreduceheadcountinordertosavethecompany.Second,theyvowedthattheywouldneveragainalowthemselvestobecomeoverlydependentonthehire-and-firegovernmentcontractbusiness.18

HewletandPackarddidn’tstopthere,however.Theytookaremarkablyboldandfarsightedstepforasmalcompanyreelingfroma40percentdeclineinbusiness:Theydecidedtotakeadvantageofthefactthataldefense-fundedinstitutionswerefacinghardtimes,andtheythereforesetouttohiretalentedscientistsandengineerswhohadbeenengagedatgovernment-fundedresearchlaboratoriesduringthewar.Theyalsodecidedtokeeptheirbestandmostexpensivein-housetalent,notwantingtomakecutsthatwouldhavebeen

damaginginthelongterm.Packardexplained:Eventhoughourbusinesswasgoingdown,wedecidedweweregoingtohire...thesebrightyoungengineers.WehiredRalphLeeandBruceWholeyandArtFongandHoraceOverackerandseveralotherpeoplerightatthetimewhenourcompanywasgoingdownbecausewewereconvincedthatthiswasatimetogetsomegoodtechnicalpeople.19

TheremarkablethingaboutthisdecisionwasthatHewletandPackardwerenotatalsurewhetherthepostwarbusinessclimatewouldprovideenoughsupportfortheirtalentedsta.Itwasagamble.And,infact,thecompanystruggledthroughapainfulpostwaradjustmentanddidn’tstarttogrowrapidlyagainuntil1950.ButHP’sfarsightedinvestmentin1946paidohandsomelyoverthenexttwodecadesasitsengineeringteamintroducedaslewofinnovativeandprofitablenewproducts.20

Asthecompanygrew,BilHewletandDavidPackardconstantlyemphasizedtheimportanceofnevercompromisingthelong-termprinciplesandhealthofHPforthesakeofquick,expedientprots.

Forexample,DavidPackardpointedoutin1976thatanytimehediscoveredanemployeehadviolatedHP’sethicalprinciplesinordertoincreaseshort-termdivisionalprots,theindividualinvolvedwasred—noexceptions,nomaterwhatthecircumstance,nomaterwhattheimpactontheimmediatebotomline.21HP’slong-termreputation,inPackard’sview,hadtobeprotectedunderalcircumstances.YetHewletandPackardnevermistooktheirfarsightedperspectiveasareasontoletupthepressureandcoastcomplacentlythroughthecurrentyear.Toilustrate,herearetwoquotesfromPackardspeakingtoHP

managersinthe1970s:

DavidPackard

DavidPackard

Fifty-YearPerspective

One-YearPerspective

“Ifwecontinueourdedicationtothe

“Itisjustaseasytomakeaprofittodayasprinciplesthathavecarriedusthroughitwilbetomorrow.Actionstakenwhichthefirst50years,wewilbeassuredofresultinreducingshort-termprofitintheourcontinuingsuccessoverthenext50hopeofincreasinglong-termprofitareyears.I’msureIspeakforBilaswelasveryseldomsuccessful.Suchactionsaremyself,insayingwearevery,very

myself,insayingwearevery,veryalmostalwaystheresultofwishful

proudofwhatyou’redoingandwe

thinkingandalmostalwaysfailtoachieve

expectyoutodoevenbeterinthe

anoveraloptimumperformance.”23

future.”22

Infairness,PatrickHaggarty—TexasInstrument’scounterparttoDavidPackard—alsoguidedhiscompanywithalong-termperspective.Infact,healsohiredtopscientistsfromresearchlabsin1946—thoughTIwasnotfacingadirenancialcrisislikethatatHP.24

However,asTIevolvedbeyondHaggarty,itveeredawayfromthedicultchalengeputforthatHP,namelytomanagewithafty-yearhorizonandperformextremelywelinthecurrentyear.Inthe1970s,TI,unlikeHP,beganintroducingcheapconsumerproductsandmakingdrastic,unexpectedpricecuts—oftenattheexpenseofitsdealers—inabidtograbmarketshare.Onedealercommentedin1979,“TIissobentongetingthepricedownthatwhenitcomestotheconsumer,theysqueezethequalityout.”25Thestrategybackred,leavingTIwithnanciallossesandadamagedreputation.WhereasHPneverlostsightofeithertheshortorlongterm,TI’squestforsheersizeandgrowthintheshorttermerodeditsfoundationandheritageasacreatorofexcelentandinnovativeproductsandseverelydamageditslong-termprospects.26

Hewlet-PackardversusTexasInstrumentsilustratesoneofthekeydierenceswesawbetweenthevisionaryandcomparisoncompanies.Visionarycompanieshabitualyinvest,build,andmanageforthelongtermtoagreaterdegreethanthecomparisoncompaniesinourstudy.“Longterm”atavisionarycompany

doesnotmeanveortenyears;itmeansmultipledecades—fiftyyearsismorelikeit.Yet,atthesametime,theydonotletthemselvesothehookintheshortterm.

MANAGERSatvisionarycompaniessimplydonotacceptthe

propositionthattheymustchoosebetweenshort-termperformanceorlong-termsuccess.Theybuildrstandforemostforthelongtermwhilesimultaneouslyholdingthemselvestohighlydemandingshort-termstandards.

Again,comfortisnottheobjectiveinavisionarycompany.

GreaterLong-TermInvestmentintheVisionaryCompanies

Takingasystematiclookacrosstheentiresetofcompaniesinourstudy,wefoundsubstantialevidencethatthevisionarycompaniesinvestedforthefuturetoagreaterdegreethanthecomparisoncompanies.Byanalyzingannualnancialstatementsdatingbacktotheyear1915,wefoundthatthevisionarycompaniesconsistentlyinvestedmoreheavilyinnewproperty,plant,andequipmentasapercentageofannualsalesthanthecomparisoncompanies(thirteenoutoffteencases).*Theyalsoplowedagreaterpercentageofeachyear’searningsbackintothecompany,payingoutlessincashdividendstoshareholders(twelveoutoffteencases,plusoneindistinguishablecase).(SeeTableA.10inAppendix3.)FewofourcompaniesreportedR&Dexpendituresasaseparatelineitemforlongperiodsoftheirhistory,andsome,suchasWal-MartandMarriot,simplydon’thaveR&Dintheconventionalsense.However,forthosepairsonwhichwehaveinformation,thevisionarycompaniesinvestedmoreheavilyinR&Dasapercentageofsalesineverysinglecase(eightoutofeight).27Inthepharmaceuticalindustry,wherebasicresearchisarguablythemostimportantfactorinlong-termcorporatehealth,ourvisionarycompaniesoutinvestedourcomparisoncompaniesinR&Dasapercentageofsalesbyover30percent.Merck,forexample,hasconsistentlyinvestedmoreheavilyinbasicresearchasapercentage

consistentlyinvestedmoreheavilyinbasicresearchasapercentageofsalesthanPzersincethe1940sandmoreheavilythaneveryothercompanyintheindustrysincethelate1960s—akeyreasonforMerck’spreeminentpositioninthe1980s.28

Thevisionarycompaniesalsoinvestedmuchmoreaggressivelyinhumancapital

viaextensiverecruiting,employeetraining,andprofessionaldevelopmentprograms.Merck,3M,P&G,Motorola,GE,Disney,Marriot,andIBMalmadesignicantinvestmentsintheir“universities”and“educationcenters”forintensivetraininganddevelopmentprograms.(Thecomparisoncompaniesinvestedintraining,butnotasearlyortothesamedegree.)Motorola,forexample,targetsfortyhoursperweekoftrainingperemployeeperyearandrequiresthateverydivisionspend1.5percentofpayrolontraining.29AlmanagersatMerckatendathree-daytrainingcourseonrecruitingandinterviewingtechniques;MerckCEORoyVagelosroutinelybeginsmeetingswiththequestion:“Whomdidyourecruitlately?”30Ingeneral,wenoticedthatthevisionarycompaniestendedtohavemuchmoreelaborateandextensiverecruitingandinterviewingprocessesthanthecomparisoncompanies,requiringasignicantprofessionalandmanagerialtimeinvestment.AtHP,forinstance,potentialnewemployeesusualyinterviewwithatleasteightpeopleinthedivisionwheretheywileventualywork.

Finaly,thevisionarycompaniesinvestearlierandmoreaggressivelythanthecomparisoncompaniesinsuchaspectsastechnicalknowhow,newtechnologies,newmanagementmethods,andinnovativeindustrypractices.Insteadofwaitingfortheworldtoimposetheneedforchange,they’relikelytobeearlieradoptersthanthecomparisoncompanies.Throughoutitshistory,GE

embracednewmanagementmethods—managementbyobjectives,decentralization,

employee

empowerment—earlier

than

Westinghouse.Infact,GEhashistoricalybeenaleaderinadoptingnewmanagementmethods.In1956,GEpublishedanddistributedtoalitsmanagersatwo-volumeworkentitledSomeClassicContributionstoProfessionalManaging.Thevolumescontainedacolectionofthirty-sixpapersrepresentingthemostsignicant

colectionofthirty-sixpapersrepresentingthemostsignicantmanagementthinkingtodateandweredesignedtospreadpowerfulmanagementideasthroughouttheranksofGE.

MerckwasoneoftherstAmericancompaniesinhistorytofulyembracea“zerodefects”TQMprocess—backin1965.31Merckwasalsothersttoadoptstate-of-the-artnancialanalysistechniquesbasedonMonteCarlocomputersimulationsthatalowittomakestrategicdecisionswithextraordinarilylongtimehorizons.32PhilipMorrisadoptedstate-of-theartproductiontechnologiesmorequicklythanR.J.Reynoldsduringthepivotal1960–1985era.33

Motorolacommitedtonewtechnologiesthatwouldlikelybeimportantdowntheroad,whileZenithheldbackuntilforcedbythemarkettoadoptthem.WaltDisneyhabitualyinvestedinnewlmtechnologies,quicklyseizinguponthemwhileitsrivalsfearfulycontemplatedtheirpossibledrawbacks.34CitibankconsistentlyinvestedinimportantnewmethodsearlierthanChaseManhatan—threedecadesearlierinsomecases:AdoptedEarlieratCitibankThanatChaseManhatanDivisionalprofitabilitystatements

Meritpay

Managementtrainingprograms

Colegerecruitingprograms

Organizationbyindustry(versusgeography)

Nationalcharter

Automatedtelermachines

Creditcards

Retailbranches

Foreignbranches

Notonlywerethecomparisoncompaniesslowerandmoretimid,butinanumberofcasesmanagementshirkedinvestmentforthefutureor,worse,milkedthecompanyatacrucialstageinitshistory.Forexample,duringthe1970sand1980s,whilePhilipMorrisrelentlesslyinvestedinitsgoalofbecomingnumberone(seetheBHAGschapter),R.J.Reynoldsexecutivesusedthecompanyprimarilyasaplatformfortheirownself-aggrandizementandenrichment.35Theyboughtaeetofcorporatejets(referredtoasthe“RJRAirForce”),built

expensiveairporthangars(dubbedthe

“TajMahalofcorporatehangars”),constructedelaborateandunneededcorporateoces(caledthe“GlassMenagerie”),decoratedwithexpensiveantiquefurnitureandexquisiteartwork(“theonlycompanyI’veeverworkedforwithoutabudget,”

accordingtoonevendor),andsponsoredcelebrityathletesandsportingeventswithdubiousmarketingvalue.Whenaskedaboutthewisdomoftheseexpenses,CEOF.RossJohnsonrespondedsimply:“Afewmiliondolarsarelostinthesandsoftime.”36

McDonnelDouglasconsistentlydemonstratedapenny-wise,pound-foolishfanaticalatentiontotheshort-termbotomlinethathasinhibitedboldleapsintothefuture(includinghesitationonbuildingajumbojet).Bythe1970s,thisconservatismhadbecomearepetitivehistoricalpaternatMcDonnelDouglas.A1978

BusinessWeekarticlecharacterizedMcDonnelDouglasas“infusedwithapenchantforpenny-pinching”anddescribedhowitsconservative,short-term,botom-lineorientationledtothecompany’sdecisiontoabandondevelopmentofnewgenerationjetliners:“Knownforfrugalityandprudence,McDonnel-Douglasisconcentratingonderivativedesigns...ratherthanlaunchcostlynewdevelopmentprograms.”37Thecontrastbetween“reachingouttotomorrow”atBoeingversusthe“penny-pinchconservatism”atMcDonnelDouglashasexpresseditselfinkeydecisionsforoverhalfacentury.

halfacentury.

Fordecades,Colgateneglectedinvestmentsinnewproductdevelopment,marketingprograms,andplantmodernization.HerearerepresentativequotesfromForbesandFortune,commentingonColgateacrosstime:

1966:“Turningoutnewproductsthatsucceedrequiresafinely-tunedmarketingmachine.Colgatesimplydidnothaveoneafter22yearsofLitle’srule[1938–1960].LeschlaunchedacrashprogramtocreatealmostovernightwhatithadtakenP&G30yearstonurtureandperfect.”38

1969:“Thecompanyhadnotproducedanymajornewproductsinyears.Nonewereevenintheworks,andbetween1956

and1960,Colgate’sdomesticvolumehadactualydeclined.”39

1979:“Foster,desperatetokeepearningsrising,wascutingbackonadvertisingandholdingdownonresearchanddevelopmentspending—thelifebloodofanymarketingcompany.Inshort,hewasborrowingfromthefuturewiththehopethattomorrowwouldbringastrongereconomytobailhimout.”40

1982:“Colgateisnowvirtualytheonlyconsumerproductscompanyinthecountrywithnonewmajorproductprogram.”41

1987:“ProfitsfromthecorebusinessproppedupFoster’sacquisitions.Thatsqueezedfinancialyandstifledimportantthingssuchasnewproductdevelopmentandplantmodernization.”42

1991:“Developingbreakthroughproductscostsbigmoney.ButMark,anaccomplishedcostcuter,maynotbewilingtopaythepricethatothercompaniesarepaying.Colgatesetsasidelessthan2%ofitsrevenuesforresearchanddevelopment.ComparethatwithP&G’salmost3%.”43

development.ComparethatwithP&G’salmost3%.”

MARRIOTTVERSUSHOWARDJOHNSON:THEDECLINEOFAGREATAMERICANFRANCHISE

In1960,HowardJohnson,Sr.,abruptlyretiredfromthecompanyhebuilt,leavingitinthehandsofhisson,Howard,Jr.“I’veneverseenanythinglikeit,”saidalongtimeassociate.“Mostmendon’twanttoletgoofwhatthey’vebuilt.Hejustwalkedaway,andthatwasthat.”44Heleftbehindoneofthebest-knownAmericanbusinesses,withsevenhundredrestaurantsandhotelsdotinghighwaysaroundthecountry,alofthemadornedwitheye-catchingbrightorangeroofsandbelovedbymiddleAmerica.J.WilardMarriot,Jr.,commentedatthetimethathehopedthecompanyhehadinheritedfromhisfathercouldonedaybeassuccessfulasHowardJohnson.45By1985,MarriothadnotonlybecomeassuccessfulasHowardJohnson,buthadfarsurpassedit—byafactorofseventimes.

Whathappened?TheanswerlieslargelyinMarriot’srelentlessself-disciplineasacontinuousimprovementmachineversusHowardJohnson’scomplacency.AsHowardJohnson,Jr.describedina1975interview:“Weareareactingcompany.Wedon’ttrytoanticipatethefuture.Inthisbusiness,youcan’tlooktoofar

ahead,maybetwoyears.”46UnlikeMarriot,HowardJohnsonrefusedtoinvestinrestaurantsandhotelstailoredtospecicmarketsegmentsandeventualyfounditself“segmentedtodeath.”WhileMarriotcontinuedtoinvestandbuildforthefutureevenduringrecessions,HowardJohnsonbecameoverlyfocusedoncostcontrol,eciency,andshort-termnancialobjectives.47WhileMarriotpusheditselftocontinualyimprovethequalityandvalueofitsservice,HowardJohnsonbecame“overpricedandunderstaedpurveyorsofpalidfood,hamstrungbyoutdatedideas.”48AformerHowardJohnsonexecutivecommented:“HoJoalwaysseemedtohaveideastoupgradetherestaurantsandhotels,buttheyneverwantedtospend

upgradetherestaurantsandhotels,buttheyneverwantedtospendthemoney.”49AnexecutivefromImperialGroup,thecompanythatboughtHowardJohnsonin1979,explainedwhyitsoldthecompanysixyearslaterforlessthanhalftheacquisitionprice:Protswerearticialyhigh.Itsreinvestmenthadbeenneglected.Pennieshadbeenpinchedonstang,menusandrenewal.Itwasmilkingthebusinessbynotreinvesting.50

Atonepoint,Johnson,Jr.,movedtoelegantquartersinNewYork’sRockefelerCenter(leavingtherestofhismanagementteaminBoston)andspentthebulkofhistimesocializinginelitesociety.51Summedupacompetitor:

EverytimeIsawHowardJohnsonhewasalwaystelingmehowhewasgoingtocutcosts.Idon’tthinkhespentenoughtimeathisrestaurants.Ifhe’deatenathisownrestaurantsmoreinsteadoflunchingat21[afashionableNewYorkrestaurant],hemighthavelearnedsomething.52

Incontrast,Marriot,Jr.,livedarelativelymodestlifestyleguidedbywhathecals“theMormonworkethic”(seventyhoursperweek)thatdrovehimtopersonalyvisituptotwohundredMarriotfacilitiesperyear—andtoexpectsimilartravelschedulesfromothertopmanagers.53

Evenmoreimportant,Marriot,Jr.,translatedhispersonaldriveforprogressintotheveryfabricoftheinstitution.HereisashortlistofmechanismsforstimulatingimprovementwesawatMarriotduringthisera,butnotatHowardJohnson:

•“GuestServiceIndex”(GSI)reportsbasedoncustomercommentcardsanddetailedsurveysofcustomersselectedatrandom.ManagerscantracktheirGSI

bycomputerizedreportsandmakecorrectiveadjustments.GSIreportsafectbonus

andmakecorrectiveadjustments.GSIreportsafectbonuscompensationandpromotionopportunities.54

•Annualperformancereviewsforeveryemployee—hourlyandmanagerial.55

•Incentivebonusesreachingalthewaydowntocofeeshopmanagers;bonusesbasedonservice,quality,andcleanlinessinadditiontocostefectiveness.56

•Profit-sharingprogramavailabletoemployeesatallevelsofthecompany;participationintheprogramwhereindividualemployeesinvestupto10percentoftheirwagesinaprofit-sharingtrust,thuscreatingatangiblelinkbetweentheindividualemployee’swelfareandtheprogressofthecompany.57

•Investmentinextensiveinterviewingandscreeningtohirequalityemployees;newMarriothotelsroutinelyinterviewoverathousandemployeesforonehundredopenings.58

•Managementandemployeedevelopmentprograms;bytheearly1970s,Marriotwasspendingupto5percentofpretaxprofitsonmanagementdevelopment.59

•Investmentinaful-scalecorporate“LearningCenter”(builtin1970)equippedwithstate-of-the-art

audio/visual/computerizedteachingtechnologies.A1971

Forbesarticledescribed:“HundredsofMarriotmanagersstreaminandoutforrefreshercourses,rightalongwithnewemployeesinvolvedin‘totalimmersion’trainingonhowtoprepareandserve.”60

•“PhantomShoppers”—inspectorsthatposeascustomers.Iftheservicehasbeengood,thephantompulsoutanIDcardandhandstheserverthecardwitha$10bilclippedtotheback.Iftheserviceneedsimprovement,there’sno$10bilandthecardsays“Oops!”Peoplewhogetan“Oops!”aresenttoretraining.

Eachemployeegetsuptothreechancestoimprove.61

THEMESSAGEFORCEOS,MANAGERS,ANDENTREPRENEURS

ThedeclineofHowardJohnsonrelativetoMarriotpresentsanexcelentexampleofnearlyalthelessonsofthischapter.Butwecouldhaveselectedanynumberofexamples.WecoulddescribehowAmesalwayslaggedbehindWal-Martinadoptingnewretailinginnovations,andhowitdelayedinvestmentinnewtechnologiessuchasbarcodescanningbecausethepaybackperiodwaslongerthantwoyears.62WecoulddescribehowNortonmilkedcertaindivisionstosuchanextentthatwindowshadnotbeenwashedformonthsbecauseeveryoneexpectedeachdaytobethelast.63WecoulddescribeindetailhowZenithneglectedtoinvestinsolid-stateelectronics(thelastcompanytoswitchtoprintedcircuitboardsinthe1950s),draggeditsfeetintocolorTVs,cutR&Dtokeepearningsup,andmilkedZenith’sreputationforquality—alwhileMotorolaandtheJapanesekeptimprovingthemselves.Andonandon.

Indeed,thedisciplineofself-improvementstandsoutasoneofthemostcleardierencesbetweenthevisionaryandcomparisoncompanies.Takingintoaccountmechanismsofdiscomfortandlong-terminvestmentsforthefuture,wefoundthatthevisionarycompanieshavedriventhemselvesharderforself-improvementinsixteenoutofeighteencases(seeTableA.10inAppendix3).

Ifyou’reinvolvedinbuildingandmanagingacompany,weurgeyoutoconsiderthefolowingquestions:

•What“mechanismsofdiscontent”canyoucreatethatwouldobliteratecomplacencyandbringaboutchangeandimprovementfromwithin,yetareconsistentwithyourcoreideology?Howcanyougivethesemechanismssharpteeth?

•Whatareyoudoingtoinvestforthefuturewhiledoingweltoday?Doesyourcompanyadoptinnovativenewmethodsandtechnologiesbeforetherestoftheindustry?

•Howdoyourespondtodownturns?Doesyourcompany

•Howdoyourespondtodownturns?Doesyourcompanycontinuetobuildforthelong-termevenduringdificulttimes?

•Dopeopleinyourcompanyunderstandthatcomfortisnottheobjective—thatlifeinavisionarycompanyisnotsupposedtobeeasy?Doesyourcompany

rejectdoingwelasanendgoal,replacingitwiththenever-endingdisciplineofworkingtodobetertomorrowthanitdidtoday?

Weseegoodnewsandbadnewsinthischapter.Thegoodnewsisthatoneofthekeyelementsofbeingavisionarycompanyisstrikinglysimple:Goodold-fashionedhardwork,dedicationtoimprovement,andcontinualybuildingforthefuturewiltakeyoualongway.It’spretystraightforwardstu,easilywithinthegraspofeverymanager.Thebadnewsisthatcreatingavisionarycompanyrequireshugequantitiesofgoodold-fashionedhardwork,dedicationtoimprovement,andcontinualybuildingforthefuture.

Therearenoshortcuts.Therearenomagicpotions.Therearenowork-arounds.Tobuildavisionarycompany,you’vegottobereadyforthelong,hardpul.Successisnevernal.It’salessonHowardJohnsonneverlearned.

THEPARABLEOFTHEBLACKBELT

Pictureamartialartistkneelingbeforethemastersenseiinaceremonytoreceiveahard-earnedblackbelt.Afteryearsofrelentlesstraining,thestudenthasnalyreachedapinnacleofachievementinthediscipline.

“Beforegrantingthebelt,youmustpassonemoretest,”saysthesensei.

“Iamready,”respondsthestudent,expectingperhapsonenalroundofsparring.

“Youmustanswertheessentialquestion:Whatisthetruemeaningoftheblackbelt?”

“Theendofmyjourney,”saysthestudent.“Awel-deservedrewardforalmyhardwork.”

rewardforalmyhardwork.”

Thesenseiwaitsformore.Clearly,heisnotsatised.Finaly,thesenseispeaks.“Youarenotyetreadyfortheblackbelt.Returninoneyear.”

Ayearlater,thestudentkneelsagaininfrontofthesensei.

“Whatisthetruemeaningoftheblackbelt?”asksthesensei.

“Asymbolofdistinctionandthehighestachievementinourart,”

saysthestudent.

Thesenseisaysnothingformanyminutes,waiting.Clearly,heisnotsatised.Finaly,hespeaks.“Youarestilnotreadyfortheblackbelt.Returninoneyear.”

Ayearlater,thestudentkneelsonceagaininfrontofthesensei.

Andagainthesenseiasks:“Whatisthetruemeaningoftheblackbelt?”

“Theblackbeltrepresentsthebeginning—thestartofanever-endingjourneyofdiscipline,work,andthepursuitofanever-higherstandard,”saysthestudent.

“Yes.Youarenowreadytoreceivetheblackbeltandbeginyourwork”

*Numberofcasesvariesbasedoninformationconsistentlyavailable.Financialandentertainmentcompanies,forexample,reportdiferentaccountinglineitemsthanindustrialcompanies.WeexcludedSony/Kenwood.

Chapter10

Chapter10

TheEndoftheBeginning

Thisisnottheend.Itisnoteventhebeginningoftheend.Butitis,perhaps,theendofthebeginning.

WINSTONS.CHURCHILL1

It’sbecomefashionableinrecentdecadesforcompaniestospendcountlesshoursandsumsofmoneydraftingelegantvisionstatements,valuesstatements,missionstatements,purposestatements,aspirationstatements,objectivesstatements,andsoon.

Suchpronouncementsarealneandgood—indeed,theycanbequiteuseful—butthey’renottheessenceofavisionarycompany.

Justbecauseacompanyhasa“visionstatement”(orsomethinglikeit)innowayguaranteesthatitwilbecomeavisionarycompany!Ifyouwalkawayfromthisbookthinkingthatthemostessentialstepinbuildingavisionarycompanyistowritesuchastatement,thenyouwilhavemissedthewholepoint.Astatementmightbeagoodfirststep,butitisonlyafirststep.

Theessenceofavisionarycompanycomesinthetranslationofitscoreideologyanditsownuniquedriveforprogressintothevery

coreideologyanditsownuniquedriveforprogressintotheveryfabricoftheorganization—intogoals,strategies,tactics,policies,processes,culturalpractices,managementbehaviors,buildinglayouts,paysystems,accountingsystems,jobdesign—intoeverythingthatthecompanydoes.Avisionarycompanycreatesatotalenvironmentthatenvelopsemployees,bombardingthemwithasetofsignalssoconsistentandmutualyreinforcingthatit’svirtualyimpossibletomisunderstandthecompany’sideologyandambitions.

We’vemadethispointinanumberofwaysinprecedingchapters.

Butitisanimportantenoughpoint—indeed,itjustmightbethemostimportantpointtotakeawayfromthisbook—thatwechoosetobringourndingstoaclose

withthisshortcapstonechapterilustratingthecentralconceptofalignmentthathasrunthroughoutthesepages.By“alignment”wemeansimplythataltheelementsofacompanyworktogetherinconcertwithinthecontextofthecompany’scoreideologyandthetypeofprogressitaimstoachieve

—itsvision,ifyoulike.(Weseevisionassimplyacombinationofanenduringcoreideologyplusenvisionedprogressforthefuture.)Considerthefolowingthreeexamplesofalignmentatitsbest.

THEPOWEROFALIGNMENT:FORD,MERCK,ANDHEWLETT-PACKARD

Ford

WewroteinanearlierchapterabouthowexecutivesattheFordMotorCompanywroteastatementof“Mission,Values,andGuidingPrinciples”(MVGP)asakeypartofitsremarkable1980sturnaround.TheMVGPlistedpeopleandproductsaheadofprotsandemphasizedthecentralimportanceofqualityimprovement,employeeinvolvement,andcustomersatisfaction.ButtheMVGP

statementdidnotbringabouttheturnaround,atleastnotbyitself.

HadFordnotdramaticalytranslatedtheMVGPintoreality—haditnotaligneditsoperations,strategies,andtacticstobeconsistent

notaligneditsoperations,strategies,andtacticstobeconsistentwiththeMVGP—thenFordwouldhavefailedintheturnaroundandwewouldn’tbewritingaboutitinthisbook.

Forthersttimeinitshistory,Fordfulyimplementedstatisticalqualitycontrolandinstructedproductionmanagerstoshutdownalineintheeventofabadpartorfaultymaterial.2ButForddidn’tstopwithitsownplants.Italsocarriedthedriveforqualitytoitssupplierswithits“Q1”programthatscreenedsuppliersbasedonqualityratingsandwhetherthesupplierhadalsoimplementedstatisticalqualitycontrol.Fordprovidededucationseminarsandhands-onassistanceforitssupplierstohelpthemmeetQ1

standards,whichFordcontinualyincreasedovertime.3

Fordcreatedemployeeinvolvementprograms,thusmakinglineemployeeskey

teammembersofthequalityimprovementeort.

Notonlythat,itcreatedparticipativemanagementprogramstoinstructmanagersandsupervisorsinhowtosupporttheemployeeinvolvementprograms.Itfurtherreinforcedtheseprogramsbyplacinggreateremphasisonparticipativemanagementskilsasafactorinpromotions.4Tokeepemployeesbeterinformedandthereforefeelingmoreinvolvedwiththecompany,FordinvestedinasatelitetelevisionsystemtocommunicateFordnewsandinformationtoemployeesbeforetheywouldhaveachancetoseeitonTVorreaditinthenewspaper.5Toforgeadirectlinkbetweenemployeesandthesuccessofthecompany,Fordnegotiatedaprot-sharingclausewithlabor—thersteverinitscontractwiththeUnitedAutoWorkers.6Ford’srelationshipwithlaborimprovedtosuchanextentintheearly1980sthattheunionmadePhilipCaldwelanhonorarymemberuponhisretirement—therstCEO

ofanAmericancarcompanytoeverbeinductedintotheUAW.7

Togetthecompanybacktoits“car”roots,FordcreatedaseparategroupwiththeBHAGofcreatingacompletelynewcar,trulyworld-classinitssegmentanddesignedwiththecustomermoreinmindthanatanytimesincetheModelT.FordbackedwhatbecameknownastheTaurus/Sableprogramwitha$3.25

bilionbudget,thelargestinFord’shistorybyafactoroffourtimes.

bilionbudget,thelargestinFord’shistorybyafactoroffourtimes.

WithTaurus/Sable,Fordbegansolicitinginputfromproductionworkersaboutthedesignyearsbeforeitwasreadyforproduction.8

Toreinforcetheimportanceofcustomerinputandsatisfaction,Ford’shighest-rankingexecutivesatendedfocusgroupsessionstoheardirectlywhatcustomershadtosay.Thecompanyinstitutedanextensive“Quality-Commitment-Performance”folow-upprogramtosolicitcustomerinputonthequalityofdealerserviceandcreatedtheprestigiousPresident’sAwardtorecognizedealershipswiththehighestcustomerratings.9

Inhundredsofways—bigandsmal—FordtranslatedtheMVGP

intodailypractice,intoreality.AndthatistherealforcebehindFord’sremarkableturnaround.Canyouimaginethecynicismthatwouldhaveerupted

hadFordpublishedtheMVGPbutthennottranslatedtherhetoricintoreality?Laborwouldhavebeencynical.

Customerswouldhavebeencynical.Shareholderswouldhavebeencynical.Andthewholeturnaroundprobablywouldhavefailed.

Merck

Inthelate1920s,GeorgeW.MerckformulatedthebackboneofMerck’svision.Buildinguponcorevaluesofintegrity,contributiontosociety,responsibilitytocustomersandemployees,andtheunequivocalpursuitofqualityandexcelence,heenvisionedMerckasaworld-classcompanythatbenetshumanitythroughinnovativecontributionstomedicine—acompanythatmakessuperbprotsnotastheprimarygoal,butasaresidualresultofsucceedingatthattask.Atthe1933openingoftheMerckResearchLaboratory,hesaid:

Webelievethatresearchworkcarriedonwithpatienceandpersistencewilbringtoindustryandcommercenewlife;andwehavefaiththatinthisnewlaboratory,withthetoolswehavesupplied,sciencewilbeadvanced,knowledgeincreased,andhumanlifewineveragreaterfreedomfromsueringand

humanlifewineveragreaterfreedomfromsueringanddisease....Wepledgeoureveryaidthatthisenterpriseshalmeritthefaithwehaveinit.Letyourlightsoshine—thatthosewhoseektheTruth,thatthosewhotoilthatthisworldmaybeabeterplacetolivein,thatthosewhoholdaloftthattorchofScienceandKnowledgethroughthesesocialandeconomicdarkages,shaltakenewcourageandfeeltheirhandssupported,

[emphasishis]10

We’recertainlyimpressedwithGeorgeMerck’svisionarypronouncement—especialygiventhathespokethesewordsoversixtyyearsago,longbefore“visionstatements”becamepopular.

Buthiswordsandsentimentsalone,asinspiringandimpressiveastheyare,donot—indeed,couldnot—makeMerckavisionarycompany.ThetrulyoutstandingthingaboutMerckishowconsistentlyithasaligneditselfwiththecoreideologyandthetypeofprogressenvisionedbyGeorgeMerck.

Forexample,thecompanydidn’tjustcreateastandardindustrialR&Dlab.

Instead,itsettheBHAGofcreatingaresearchcapabilitysooutstandingthatitcould“talkonequaltermswiththeuniversitiesandresearchinstitutes.”11Infact,Merckexplicitlydesignedtheresearchlaboratoriestohaveanacademicatmosphereandappearance—tolooksomuchlikeacolegethatitquicklybecameknownasthe“MerckCampus.”12Furthermore,insteadofkeepingitspureresearchbehindlockeddoors,Merckencourageditsresearchscientiststopublishinscienticjournals—akeymovethatatractedmanyatopscientist.13ItalsoencourageditsresearcherstocolaboratewithscientistsatacademicandnoncompetingindustrialresearchlaboratoriesoutsideofMerck—anunusualstepthatimprovedthequalityoftheirpublishedwork.

Thecompanyrecruitedprominentacademicscientiststoserveontheboardofdirectors14andcreatedadualcareertrackthatalowedscientiststopassuppromotionsintomanagementwithoutnancialpenalty.15Merckevenwentsofarastolistthescienticpublicationsofitsresearchersinrecruitingmaterials,muchasan

publicationsofitsresearchersinrecruitingmaterials,muchasanacademicinstitutionliststhepublicationsofitsfaculty.Asonescientistsummedup:

MerckislikeMITorHarvardoranyotheracademicinstitutionwithanoutstandingreputationforresearch.Youhavetowanttodoyourscienceintensely.16

Tofurtherencouragescienticexplorationandexperimentation,Merckgaveresearchscientists“thegreatestpossiblelatitudeandscopeinpursuingtheirinvestigations,theutmostfreedomtofolowpromisingleads—nomaterhowunrelatedto..practicalreturns.”17UnlikemostAmericancorporations,Merckprohibitedmarketinginputintothepureresearchprocessuntilproductshadclearlyenteredthedevelopmentstage.18AsCEOP.RoyVagelosputit:

Wekeepbasicresearchexclusivelyinthehandsofresearch.Wekeepmarketingoutofthewayuntilproductsarebeingtestedonhumans.Wedon’twantconcernsabout“marketpotential”togetinthewayofbasicscienticexplorationandexperimentationthatcanleadtobigbreak-throughs.19

TheseandsimilarpracticeshaveremainedessentialyintactatMerckforsixdecades,eventhoughmanyofthemyinthefaceofconventionalbusinessdoctrine.Alongtheway,Merckhasaddedotherpracticesthat,although

unconventional,makeperfectsenseatMerck.Forinstance,MerckexplicitlyrejectedbudgetsasaplanningorcontroltoolinR&D.Itcreatesnewproductprojectteamsandexplicitlydoesnotgivethemabudget.Instead,teamleaders(“champions”)mustpersuadepeoplefromavarietyofdisciplinestojointheteamandtocommittheirresourcestotheproject.Thisprocesscreatesasurvival-of-the-testselectionprocesswherethebestprojectsatractresourcesandtheweakestperish.20Unlikeitsmorediversiedcompetitors,Merckadoptedtheunconventional

morediversiedcompetitors,Merckadoptedtheunconventionalstrategyofbeingoneoftheleastdiversiedpharmaceuticalcompanies,placingalbetsonitsabilitytoinnovatenew,breakthroughdrugs.21Merckliveswiththeself-imposedrequirementthatnewproductsmustbesignicantlybeterthanthecompetition,elsetheycannotbeintroducedtothemarket—ahighlyriskystrategythatcanproducelongdroughtsifnothinggoodcomesdownthepipe.22

Infact,throughoutitshistory,MerckhassetBHAGsthat—boldastheymightbe—werealignedperfectlywithitsideology:Early1930s:BHAGtobuildaresearchcapabilitysooutstandingthatitcould“talkonequaltermswiththeuniversitiesandresearchinstitutes”(describedearlier).23

Early1950s:BHAGtotransformitselfintoafulyintegratedpharmaceuticalcompanyinordertoparticipatefulyinthedramaticchangesinmedicine—backedbya

“betthecompany”acquisitionofpharmaceuticalgiantSharp&DohmethatgaveMerckawel-establisheddistributionandmarketingnetwork.24

Late1970s:BHAG“toestablishMerckasthepre-eminentdrugmakerworldwideinthe1980s.”25

Late1980s:BHAGtobecomethefirstdrugmakerwithadvancedresearchineverydiseasecategory.26

Early1990s:BHAGto“redefinethepharmaceuticalparadigm”

witha$6bilionacquisitionofMedcotocreatemoreofadirectlinkwithendcustomers.27

Merckalsohasalongtrackrecordofbeingwelalignedwithitsideologyof

corporateresponsibility.Alotofcompaniestalkaboutcorporatesocialresponsibility,equalopportunity,andothersuchloftyideals.ButhowmanyofthesecompanieswereoneofthersttodonatetotheUnitedNegroColegeFund,asMerckdidin

todonatetotheUnitedNegroColegeFund,asMerckdidin1944?28HowmanyweretherstintheirindustrytoestablishanOceofMinorityAairs,asMerckdidinthe1960s?29Howmanycompaniesinthe1970srequiredthatalseniorexecutivesincludearmativeactiongoalsintheirannualobjectivesandtiedthemtobonuses,stockoptions,ratings,andmeritincreases?30HowmanywererecognizedbytheNationalOrganizationforWomenfor

“vigorousprogramstorecruit,develop,andpromotewomenandminorities”?HowmanywereselectedbyBlackEnterpriseandWorkingMotherasoneofthebestplacesforwomenandminoritiestoworkinAmerica?31Howmanylargeindustrialcompanieshaveawomanasachiefnancialocer?32HowmanycompanieswouldhavebroughtstreptomycintoJapan—atnoprofit

—toeliminateaseriousoutbreakoftuberculosisaftertheendofWorldWarI?33HowmanycompanieswouldhavemadethedecisiontodevelopMectizantocureriverblindnessandtogiveitawayfree?34HowmanyhavesetanexplicitenvironmentalBHAG,suchas“toreduceourreleaseoftoxinsintotheenvironmentby90%by1995”?35Indeed,toafargreaterdegreethanmostcompanies,Merckhasconsistentlytranslateditssocialconscienceintopractice.

Merckdoesn’tjustenvisionprogressandexcelenceinitsemployees.Itcommitstoprogressandexcelence.GetingajobatMerckislikeapplyingtograduateschool—rigorousandthorough.

MerckoftenrequirescandidatestodelivermultiplewritenrecommendationsabouttheirqualicationsforworkingatMerck—

justlikeapplyingtoatop-ighteducationalinstitution.36Merckinvestsheavilyinemployeerecruiting,development,andretention.

Itratesmanagersontheirsuccessatrecruitingandretainingtoptalent.Bythe1980s,Merckhadoneofthelowestturnoverratesinindustry(5percentversustheU.S.averageof20percent).37

Finaly,Merckconsistentlyreinforcesitscoreideology,decadeafterdecade,day

afterday—inshareholderreports,inrecruitingmaterials,inemployeemanuals,inself-publishedbooks,inhistoricalvideos,inexecutivespeeches,inorientationseminars,in

historicalvideos,inexecutivespeeches,inorientationseminars,inarticlesforoutsidemagazinesandjournals,andinamyriadofinternalmagazinesandnewsleters.WhenweaskedMercktosendusanydocumentsthatmightdescribeitsvaluesandpurpose,Merckprovideduswithnofewerthaneighty-vedistinctitems,somedatingbacktotheturnofthecentury.In1991,thecompanyputonanextensiveandelaboratecentennialcelebration,withpublicationofbooks,articles,speeches,videos,historicalanalyses—alwithtremendousemphasisonthecompany’sheritageandvalues.ItissimplyimpossibletoworkatMerckandnotbeimmersedintheideology;itpervadeseverything,andhasdonesofornearlyacentury.AsJereyL.Sturchio,Merck’sdirectorofscienceandtechnologypolicy,summedup:

IusedtoworkatanothermajorAmericancorporationbeforecomingtoMerck.ThebasicdierenceIseebetweenthetwocompaniesisrhetoricversusreality.Theothercompanytoutedvaluesandvisionsandaltherest,buttherewasabigdierencebetweenrhetoricandreality.AtMerck,thereisnodiference.38

Hewlett-Packard

BilHewletandDavePackardenvisionedHPasarole-modelcorporation,knownforprogressivepersonnelpractices,innovativeandentrepreneurialculture,andanunbrokenstringofproductsthatmakeatechnicalcontribution.“Ourmaintask,”wroteDavePackard,“istodesign,develop,andmanufacturethenest

[electronicequipment]fortheadvancementofscienceandthewelfareofhumanity.Weintendtodevoteourselvestothattask.”39

HPdirectorFredTermanusedtheloftyphrase“ModelSocialInstitution”todescribethecompany’saspirations.40Later,HewletboileddownHP’sguidingprinciplesintowhathecaledthe“FourMusts”:Thecompanymustatainprotablegrowth;thecompanymustmakeitsprotthroughtechnologicalcontribution;thecompanymustrecognizeandrespectthepersonalworthof

companymustrecognizeandrespectthepersonalworthofemployeesandalowthemtoshareinthesuccessofthecompany;andthecompanymustoperateasaresponsiblecitizenofthegeneralcommunity.41

Alneandgood,butHewletandPackard’svisionwouldhavebeenessentialyuselessifnottranslatedintopractice.LikeMerck,HPstandsoutnotasmuchforitsloftyvaluesandaspirations,butforthecomprehensiveandconsistentwayitalignedwiththem.

Forexample,HPhasalonghistoryofshowingrespectforemployeesinamultitudeoftangibleways.Inthe1940s,itintroduceda“productionbonus”(essentialyaprot-sharingplan)thatpaidthesamepercentagestothejanitorastotheCEO,andcreatedacatastrophicmedicalinsuranceplanforalemployees—

actionsvirtualyunheardofatthattime,especialyinasmalcompany.42Whenthecompanywentpublicinthe1950s,alemployeesatallevelswithsixmonthsoftenurereceivedanautomaticstockgrantandbecameeligibleforastockoptionprogram.43Soonthereafter,HPinstitutedanemployeestockpurchaseprogram,witha25percentsubsidyfromthecompany.44

Toreducethechanceoflayos,HPpasseduplargegovernmentcontractopportunities—protableastheymightbe—iftheywouldleadto“hire-and-re”tactics.45ItrequireddivisionstohireHP

insidersrstbeforelookingtotheoutside,providingfurthersecureemploymentacrosstheentirecompany(nottomentionkeepingtheculturetight).46Whenfacingcorporate-widedownturns,HP

generalyaskedalemployeestotakeeveryotherFridayoandreducetheirpayby10percent,ratherthanimposinga10percentlayof.47HPwasoneoftherstAmericancompaniestointroduceextimeopportunitiesforemployeesatallevelsandtoconductextensiveemployeesurveystogaugeandtrackemployeeconcerns.48ItwasalsooneoftherstAmericancompaniestointroduceanopen-doorpolicyinwhichemployeescouldbringgrievancesalthewaytothetopwithoutretribution.49Topromotecommunicationandinformalityandtodeemphasizehierarchy,HP

createdawide-openoorplan;nomanageratanylevelwouldbe

createdawide-openoorplan;nomanageratanylevelwouldbealowedtohaveaprivateocewithadoor—averyunusualpracticeinthe1950s.Notsurprisingly,HPhasremainednonunionized,asoneHPerdescribed:

Severalatemptsatunionizationweremadebutfaileddismaly.

Whatunioncouldmakeheadwayinacompanywhoseemployeesfeltanintegralpartofmanagement,andwhoinvitedthepicketsinoutofthecoldtosharehotcoeeanddoughnutsatcofeebreaks?50

Similarly,HPtookmanystepstoreinforcetheimportanceoftechnologicalcontributionandtopromoteanentrepreneurialenvironment.Beginninginthe1950s,HPsoughttohireonlytop10

percentgraduatingseniorsfromrespectedengineeringschools,ratherthanhiringmoreexperiencedbutlesstalentedengineersfromindustry.51(Thirtyyearslater,HPwasstilviewedattopengineeringschoolsastheelitejoboer.)52Like3M,HPpursuedastrategyofproducingnewandbeterproductseachyearasitsprimarysourceofgrowth,ratherthanseekingtoridetheproductlifecycleandmaximizeunitvolumeofolderproducts.In1963,morethan50percentofHP’ssalescamefromproductsintroducedinthepreviousfiveyears;by1990,thishadimprovedto50percentofsalesfromproductsintroducedinthepreviousthreeyears.53Andtheycouldn’tbejustanynewproducts;me-tooorcopycatproductswerealwaysweededout,nomaterwhatthemarketpotential.“Ifyouhadtheopportunitytolisteninononeofourmanagementsessions,”explainedBilHewlet,“youwouldndthatmanyapproachesarerejectedbecausepeoplefeelthereisnotenoughofatechnicalcontributiontojustifybringingaparticularproducttomarket.”54Thistough,self-imposedstandardledHPtobypasshigh-volumemarkets—suchasIBM-compatiblepersonalcomputers—

untilitcouldgureoutawaytoenterwithatechnologicalcontribution.WhatfolowsisanactualconversationbetweenaseasonedlabmanagerandayoungproductmanageratHPin

seasonedlabmanagerandayoungproductmanageratHPin1984:55

“We’vegottointroduceanIBM-compatiblepersonalcomputernow.That’swherethemarketisgoing.That’sPRODUCTMANAGER:

wherethevolumeis.That’swhatcustomersprimarilywant.”

“Butwhere’sthetechnologicalcontribution?UntilwefigureoutawaytomakeanIBM-compatiblepersonalLABMANAGER:

computerwithacleartechnicaladvantage,thenwejustcan’tdoit—nomaterhowbigthemarket.”

“Butwhatifthat’snotwhatcustomerswant?Whatiftheyjustwanttoruntheirsoftwareanddon’trealycarePRODUCTMANAGER:

abouttechnicalcontribution?Andwhatifthemarketwindowwilcloseunlessweactnow?”

“Thenweshouldn’tbeinthatbusiness.That’snotwhoweare.Wesimplyshouldn’tbeinmarketsthatdon’tLABMANAGER:

valuetechnicalcontribution.That’sjustnotwhattheHewlet-PackardCompanyisalabout.”

Thelabmanagerwonhandsdown,astheyalmostalwaysdoatHP.“Asimportantastheyare,”saidBilHewlet,“marketingpeoplemustplayasecondaryroleinthequestionofproductdefinition.”56Foryears,HPshunnedmarketinputinfavorofthe

“NextBenchSyndrome”—astrategyofengineerssolvingtheirowntechnicalproblemsastheprimarymeansofidentifyingopportunitiesfortechnicalandmarketcontribution.57Inthe1950sand1960s,HPtitleditsproductlists“ContributiontotheTestEquipmentField”[emphasisours]—aninterestingandrevealingdetail.58Corporate-wideherorecognitionprogramsweregeneralygearedtowardtheengineerswhoinventednewgadgets,notthosewhosoldthem.Careeradvancementsalsoreectedthe

whosoldthem.Careeradvancementsalsoreectedthetechnologicalemphasis;over90percentofdivisiongeneralmanagersatHPholdtechnicaldegrees.59

Topromoteanentrepreneurialculture,HPearlyonadoptedamanagementmethodof“provideawel-denedobjective,givethepersonasmuchfreedomaspossibleinworkingtowardthatobjective,andnaly,providemotivationbyseeingthatthecontributionoftheindividualisrecognizedthroughouttheorganization.”60Later,asthecompanyrapidlyexpandedinthe1950s,itextendedthismanagementmethodintoadecentralizedstructureofhighlyautonomousdivisionssetupaslitlebusinesseswithself-controlovertheirownR&D,production,andmarketingstrategiesandwidediscretioninoperatingdecisions(withinthebounds,ofcourse,oftheHPideology).Whenenteringa

newbusiness,HPwouldusualycreateanewdivisionandturnitloosetofigureouthowbesttoenterthemarket.AccordingtoHewlet:Wesimplysaid,“Here’stheeldwewanttoenter;nowyoudenetheparticularitemyoucanbuild.”Thepresumptionwasthattheywoulddesignitonthebesttechnologyavailable.61

Tofurtherreinforceentrepreneurship,HPdisperseditsdivisionsintoseveralstates,ratherthanlocatingthemalnearheadquarters.

ThecompanythenalocatedR&Dfundstorewardinnovation—themostinnovativedivisionsgetingthemostresources.(EventhoughHPhasacentrallaboratorycaled“HPLabs,”italocatedthevastmajorityofR&Dfundstoitsdivisions.)62Facilitiesthatbeganasmanufacturingplantscouldonlyatainfuldivisionalstatusbycreating(withboot-strappedfunds)aninnovativenewproductandtakingittomarket.63And,unlikemostcompanies,HPencourageditsinternationaldivisionstodevelopR&Dcapabilities,ratherthanmerelyremainingsalesanddistributioncenters.64

EqualyimportantaswhatHPdiddoiswhatitdidnotdo,regardlessofprevailingmanagementtheoriesorfads.Recal,forinstance,howHPshunnedcorporatedebt(eventhoughsucha

instance,howHPshunnedcorporatedebt(eventhoughsuchapracticeis“irrational”)becauseHewletandPackardbelieveddebtwoulderodeentrepreneurialdiscipline.Unlikemanyhigh-technologycompanies,HPavoidedoutsideinvestorslikeventurecapitalistsbecause“theycanpushcompaniestogrowtoofast,andifyougrowtoofast,youcanloseyourvalues.”65Instarkcontrasttomostcorporations,HPforbadethepersonneldepartmentfromgetinginvolvedinpersonnelproblems:

Takingcareofhisorherpeopleisthemostimportantpartofeverymanagementjob....Innocaseisthepersonneldepartmentexpectedtohandlethemanager’spersonnelproblems—heorshemustacceptandhandlethepersonnelresponsibilitytobeagoodmanager.66

AparticularlyrevealingexampleofHPfolowingitsownvisionandnotfalingpreytomanagementfadsandfashionsofthedaycameinthe1970s,whenthe“learning-curve/market-share”theoryofcorporatestrategysweptAmericanbusiness.Toutedbyprestigiousmanagementconsultingrmsandtaughtattop-ightbusinessschools,itbecameapervasivemanagementtooladoptedby

thousandsofexecutivesacrossthecorporatelandscape.

Operatingunderthetheorythatgreatermarketshareleadstolowercostsandeventualygreaterprots,managersatawiderangeofcompaniesbegancutingpricesinordertogainmarketshare.Forroughlyadecade,thistheorydominatedstrategicthinking.ButnotatHP,whichexplicitlyrejectedthelearningcurvetheoryandhelditselftoadierentstandard:“Ifaproductisn’tgoodenoughtomakeanexcelentgrossmarginintherstyear,thenit’snotaproductwithasignicanttechnicaladvantageandtheHewlet-

PackardCompanyshouldn’tbemakingit,period.”67Packardexplainedtohismanagersin1974:“IfIhearanybodytalkingabouthowbigtheirshareofthemarketisorwhatthey’retryingtodotoincreasetheirshareofthemarket,I’mgoingtopersonalyseethatablackmarkgetsputintheirpersonnelfolder.”68

blackmarkgetsputintheirpersonnelfolder.”

Finaly,HP—likeFordandMerck—hasgonetogreatlengthstocontinualyimmerseemployeesinthetenetsofwhatbecameknownasthe“HPWay.”HewletandPackardtookaltheirmanagerso-siteinthe1950stothe“SonomaConferences,”wheretheypennedHP’sideologyandambitionsintoadocument

“somewhatsimilartotheU.S.Constitution—adocumentexpressingbasicidealssubjecttocurrentinterpretationandtoamendment.”69

Soonthereafter,HPbeganastrictpromote-from-withinpolicy,implementedextensiveinterviewingprocessesthatemphasize

“adaptabilityandt”totheHPWay,andcreatedaprogramtoindoctrinaterst-linesupervisors.“Werecognizedveryearlythatitwasimportanttohaveyourrstlinemanagersindoctrinatedororientedtowardthephilosophybecause...they’rethecompanytomostpeople,”explainedDavePackard.70

WefoundnolessthanahundredseparatedocumentedincidentsofHPmanagerstalkingexplicitlyaboutHP’svaluesandpurpose—

ininternaltalks,inexternalspeeches,inwritenmaterials,inindividualconversations.Theysimplytalkedandactedonthemconstantlyfordecades.Wealsoencountereddozensof“BilandDavestories”recountedovertheyearstoconveytheessenceoftheHPWay.Forinstance,whenBilHewletfounda

storeroomchain-lockedonaweekend,hechoppedandshreddedthechainwithapairofboltcutersandleftitonthemanager’sdeskwithatersenotethatlockedstoreroomsdonottwithHP’snotionofrespectforitsemployees—orsothestorygoes.71Trueornot,thestoriesilustratehowHP’smanagementworkedcontinualytomaketheHPWayagenuinewayoflife.BarneyOliver,longtimegeneralmanagerofHPLaboratories,summedupHPduringitsrisetoprominence:

WhenIfirstjoinedHPin1952itwasimmediatelyapparentthatnearlyalofits400employeeswereenthusiasticabout,loyalto,andproudoftheircompanytoanunusualdegree....Asoneemployeeputit,“IhavetheimpressionthatBilandDaveareworkingforme,ratherthantheotherwayaround.”What

workingforme,ratherthantheotherwayaround.”WhatsurprisesvisitorstodayisthatthissamespirithassurvivedHP’sgrowth.Itisunusualtondsuchspiritinacompanywithover17,000employees,butitisnotsurprising.Forinadeepersense,whatwasgoingoninthoseearlydayswasaprocessofeducationinmanagement....MostoftheearlyemployeesbecameextensionsofBilandDave’spersonalitiesandphilosophies,andputthesephilosophiesandtechniquestogoodusewhentheytooktheirplacesaslineleaders,supervisorsordivisionheads....Wealbelievein[thesephilosophies]andpracticethem.Theyarepartofourwayoflife.72

LESSONSOFALIGNMENTFORCEOS,MANAGERS,AND

ENTREPRENEURS

Weapplaudifyougoo-sitetodiscussyourcorporateideology,likeHewletandPackarddidinthe1950s.Weencourageyoutosetloftyambitionsforyourcompany,likeGeorgeMerckdidinthe1930s.Wehopeyouwilwanttoputtopapertheguidingvisionofyourcompany,likeForddid.Butneverforgetthatsuchstepsdonotinthemselvesmakeavisionarycompany.Youneveratainnalalignment.Youneverreachnalsuccess.Youhavetoworkatitconstantly.Herearesomeguideposts.

1.PainttheWholePicture

You’reprobablyfeelingabitoverwhelmedbyalthecomprehensivedetailaboutFord,Merck,andHP.Andthatinitselfispreciselythepoint!

VISIONARYcompaniesdonotrelyonanyoneprogram,strategy,tactic,mechanism,culturalnorm,symbolicgesture,orCEOspeechtopreservethecoreandstimulateprogress.

It’sthewholebalofwaxthatcounts.

It’stheremarkablecomprehensivenessandconsistencyovertimethatcounts.It’sthenearlyoverwhelmingsetofsignalsandactions—

signalstocontinualyreinforcethecoreideologyandtostimulateprogress—thatleadtoavisionarycompany.Takeninisolation,eachfactaboutFord,Merck,andHPwouldbetrivial,andcertainlywouldn’taccountfortheirvisionarystatus.Butinthecontextofhundredsofotherfacts,theyadduptoaconsistentoveralpicture.

Itwouldbeamistaketoconcludethatyoucouldimplementanysinglechapterofthisbookinisolationandhaveavisionarycompany.Coreideologyalonecannotdoit.Thedriveforprogressalonecannotdoit.ABHAGalonewilnotdoit.Evolutionthroughautonomyandentrepreneurshipbyitselfwilnotdoit.Homegrownmanagementalonedoesnotmakeavisionarycompany,noracult-likeculture,norevenlivingtheconceptthatgoodenoughneveris.

Avisionarycompanyislikeagreatworkofart.ThinkofMichelangelo’sscenesfromGenesisontheceilingoftheSistineChapelorhisstatueofDavid.Thinkofagreatandenduringnovel,likeHuckleberryFinnorCrimeandPunishment.ThinkofBeethoven’sNinthSymphonyorShakespeare’sHenryV.Thinkofabeautifulydesignedbuilding,likethemasterpiecesofFrankLloydWrightorLudwigMiesvanderRohe.Youcan’tpointtoanyonesingleitemthatmakesthewholethingwork;it’stheentirework—

althepiecesworkingtogethertocreateanoveraleect—thatleadstoenduringgreatness.Andit’snotjustthebigpieces,butalsotheity-bitydetails—theturnofphrase,thechangeinpaceatjusttherightmoment,theperfecto-centerplacementofawindow,asubtleexpressionsculptedintotheeyes.AsthegreatarchitectMiesvanderRoheputit,“Godisinthedetails.”

2.SweattheSmalStuff

Peopledon’tworkday-to-dayinthe“bigpicture.”Theyworkinthenity-gritydetailsoftheircompanyanditsbusiness.Notthatthebigpictureisirrelevant,

butit’sthelitlethingsthatmakeabigimpression,thatsendpowerfulsignals.Litlethings,likebusinesscardsforsalespeopleatNordstromtosendthesignal,“Wewantyoutobeasalesprofessional.”Litlethings,likeWal-Martgivingemployeesatthelowestlevelcompletedepartmentalnancialreportstosendthesignal,“Youareapartnerinthecompanyandwewantyoutorunyourdepartmentasyourownlitlebusiness.”

Litlethings,likeMotorola’schairmansitinginforthequalityimprovementreports(whichalwaystoppedtheagenda)andthenleavingforthenancialreportstosendthesignal,“Qualityimprovementisourcrusade,notjustprots.”Litlethings,likealowingkeydivisionsatJohnson&Johnsontoputtheirownlogosontheirproducts—andleaveotheJ&Jlogo—tosendthesignal,

“Wewantyoutooperatewiththepsychologyofautonomous,entrepreneurialbusinessunits.”Litlethings,likePhilipMorrissendingemployeeshomewithaboxofcigaretesalongwiththeirpaychecktosendthesignal“We’reproudofourproduct,nomaterwhattheSurgeonGeneralsays.”

Socialcognitionresearchshowsthatindividualspickuponalthesignalsintheirworkenvironment—bigandsmal—ascuesforhowtheyshouldbehave.Peoplenoticelitlethings.Peoplerememberstoriesnotsomuchaboutgrandheroics,butaboutlitleeventslikeshreddingthechainofalockedstoreroom.Peoplewanttobelieveintheircompany’svision,butwilbeeverwatchfulforthetinyinconsistenciesthatalowthemtosay“Aha!See,thereyougo.Iknewmanagementwasjustblowingsmoke.Theydon’trealybelievetheirownrhetoric.”

3.Cluster,Don’tShotgun

Visionarycompaniesdon’tputinplaceanyrandomsetofmechanismsorprocesses.Theyputinplacepiecesthatreinforceeachother,clusteredtogethertodeliverapowerfulcombined

eachother,clusteredtogethertodeliverapowerfulcombinedpunch.Theysearchforsynergyandlinkages.NoticetheclusteringatFord:statisticalqualitycontrolmethodsreinforcedbyemployeeinvolvementprogramsreinforcedbyparticipativemanagementtrainingprogramsreinforcedbypromotioncriteriabasedonparticipativemanagementskils.NoticetheclusteringatMerck:recruitingoftopscientistsreinforcedbyalowingthemtopublishreinforcedby

alowingthemtocolaboratewithoutsidescientistsreinforcedbythe“MerckCampus”reinforcedbythedualcareertrack.NoticehowitwouldbeimpossibletoworkatHPandnotgetthemessagethatmanagershadbetertreattheirpeoplewelorthatdivisionshadbetermakeprotsbytechnicalcontribution.

WorkingatHPislikebeinginasoundroomequippedwithnotonebuttenspeakersworkingtoamplifyeachotherandsendthesameconsistentmessagesfromtheoor,theceiling,totheright,totheleft,front,back,andsideways.

4.SwiminYourOwnCurrent,EvenifYouSwimAgainsttheTide

RecalhowMerckandHPtookstepsthatewinthefaceofconventionalbusinesspracticesinordertoremaintruetothemselves.Alignmentmeansbeingguidedrstandforemostbyone’sowninternalcompass,notthestandards,practices,conventions,forces,trends,fads,fashions,andbuzzwordsoftheouterworld.Notthatyoushouldignorereality—quitethecontrary

—butyourcompany’sownself-denedideologyandambitionsshouldguidealofitsdealingswithreality.Ifdoneright,youwillikelyastonishcompetitors,journalists,businessprofessors,andotherswithidiosyncraticpracticesandstrategiesthat,howeverunusual,makeperfectsenseforyourcompany.

Johnson&Johnson,forexample,madethedecisiontoplaceitsnewheadquartersrightsmackinthemiddleofblightedNewBrunswick,NewJersey,inthe1970snotbecauseitmadethebestbusinesssense(itdidn’t),butbecauseitmadethemostsenseinthecontextoftheJ&JCredo.Boeinghelditselftoaircraftdesignsafety

contextoftheJ&JCredo.Boeinghelditselftoaircraftdesignsafetystandardsthatfarexceededitscompetitors’notbecausethemarketdemandedit,butbecauseBoeing’sideologydemandedit.3M

rejectedtheconventionalbusinesswisdomthatasmalgrowingcompanyshouldconcentrateononelineofbusiness;afocusstrategysimplydidn’ttwiththetypeofinnovativecompany3Merswantedtobuild.Thelearning-curve/market-sharemodelmayhavebecomethelatestrageamongcorporateexecutivesinthe1970s,butitjustdidn’tmakesenseforHP.

Thepointhereisnotthatthevisionarycompaniespursue“good”

practicesandothercompaniespursue“bad”practices.“Goodorbad”putsthewrongframeonit.Whatmightbe“good”atHP

mightbe“bad”atMerckor3MorMarriotorP&G.

THErealquestiontoaskisnot“Isthispracticegood?”but“Isthispracticeappropriateforus—doesittwithourideologyandambitions?”

5.ObliterateMisalignments

Ifyoulookaroundyourcompanyrightnow,youcanprobablyputyourngeronatleastadozenspecicitemsmisalignedwithitscoreideologyorthatimpedeprogress—“inappropriate”practicesthathavesomehowcreptthroughthewoodwork.Doesyourincentivesystemrewardbehaviorsinconsistentwithyourcorevalues?Doestheorganization’sstructuregetinthewayofprogress?

Dogoalsandstrategiesdrivethecompanyawayfromitsbasicpurpose?Docorporatepoliciesinhibitchangeandimprovement?

Doestheoficeandbuildinglayoutstifleprogress?

Atainingalignmentisnotjustaprocessofaddingnewthings;itisalsoanever-endingprocessofidentifyinganddoggedlycorrectingmisalignmentsthatpushacompanyawayfromitscore

correctingmisalignmentsthatpushacompanyawayfromitscoreideologyorimpedeprogress.Ifthebuildinglayoutimpedesprogress,changethebuildinglayoutormove.Ifthestrategyismisalignedwiththecore,changethestrategy.Iftheorganizationstructureinhibitsprogress,changetheorganizationstructure.Iftheincentivesystemrewardsbehaviorinconsistentwiththecore,changetheincentivesystem.Keepinmindthattheonlysacredcowinavisionarycompanyisitscoreideology.Anythingelsecanbechangedoreliminated.

6.KeeptheUniversalRequirementsWhileInventingNewMethods

Acompanymusthaveacoreideologytobecomeavisionarycompany.Itmustalsohaveanunrelentingdriveforprogress.Andnaly,itmustbeweldesignedasanorganizationtopreservethecoreandstimulateprogress,withalthekeypiecesworkinginalignment.Theseareuniversalrequirementsforvisionarycompanies.Theydistinguishedvisionarycompaniesahundredyearsago.They

distinguishvisionarycompaniestoday.Andtheywildistinguishvisionarycompaniesinthetwenty-rstcentury.Ifweweretorewritethisbookintheyear2095,wewouldndthesesamebasicelementstodistinguishthemostenduringandsuccessfulcorporationsfromtherestofthepack.

However,thespecicmethodsvisionarycompaniesusetopreservethecoreandstimulateprogresswilundoubtedlychangeandimprove.BHAGs,cult-likecultures,evolutionthroughexperimentation,homegrownmanagement,andcontinuousself-improvement—thesearealprovenmethodsofpreservingthecoreandstimulatingprogress.Buttheyarenottheonlyeectivemethodsthatcanbeinvented.Companieswilinventnewmethodstocomplementthesetime-testedones.Thevisionarycompaniesoftomorrowarealreadyouttheretodayexperimentingwithnewandbetermethods.They’reundoubtedlyalreadydoingthingsthattheircompetitorsmightndoddorunusual,butthatwilsomedaybecomecommonpractice.

becomecommonpractice.

Andthat’sexactlywhatyoushouldbedoinginthecorporationsyouworkwith—thatis,ifyouwantthemtoentertheeliteleagueofvisionarycompanies.Itdoesn’tmaterwhetheryou’reanentrepreneur,manager,CEO,boardmember,orconsultant.Youshouldbeworkingtoimplementasmanymethodsasyoucanthinkoftopreserveacherishedcoreideologythatguidesandinspirespeopleatallevels.Andyoushouldbeworkingtoinventmechanismsthatcreatedissatisfactionwiththestatusquoandstimulatechange,improvement,innovation,andrenewal—

mechanisms,inshort,thatinfectpeoplewiththespiritofprogress.

Ifyoucanthinkofnewmethodstopreservethecorethatwehaven’twritenaboutinthisbook,thenbyalmeansputtheminplace.Ifyoucaninventpowerfulnewmechanismstostimulateprogress,thengivethematry.Usetheprovenmethodsandcreatenewmethods.Doboth.

THISISNOTTHEEND

We’vedoneourbesttodiscoverandteachherethefundamentalunderpinningsoftrulyoutstandingcompaniesthathavestoodthetestoftime.We’vegivenyouanimmenseamountofdetailandevidenceinthisbook,andweexpectthatfewreaderswilremembereverylitleiteminthesepages.Butasyouwalkaway

fromreadingthisbook,wehopeyouwiltakeawayfourkeyconceptstoguideyourthinkingfortherestofyourmanagerialcareer,andtopassontoothers.Theseconceptsare:1.Beaclockbuilder—anarchitect—notatimeteler.

2.Embracethe“GeniusoftheAND.”

3.Preservethecore/stimulateprogress.

4.Seekconsistentalignment.

WefeelabitlikeDorothyintheWizardofOz,whoafterherlongjourneyinsearchofthewizard,pulsbackthecurtainanddiscovers

journeyinsearchofthewizard,pulsbackthecurtainanddiscoversthatthewizardisn’tawizardafteral.He’sjustanormalhumanbeing.LikeDorothy,wediscoveredthatthosewhobuildvisionarycompaniesarenotnecessarilymorebriliant,morecharismatic,morecreative,morecomplexthinkers,moreadeptatcomingupwithgreatideas—inshort,morewizardlike—thantherestofus.

Whatthey’vedoneiswithintheconceptualgraspofeverymanager,CEO,andentrepreneurintheworld.Thebuildersofvisionarycompaniestendtobesimple—somemightevensaysimplistic—intheirapproachestobusiness.Yetsimpledoesnotmeaneasy.

Wethinkthishasprofoundimplicationsforwhatyoutakeawayfromthisbook.Itmeansthatnomaterwhoyouare,youcanbeamajorcontributorinbuildingavisionarycompany.Youdon’thavetowaitforthegreatcharismaticvisionarytodescendfromthemount.Youdon’thavetohopeforthelightningboltofcreativeinspirationtostrikewiththe“greatidea.”Youdon’thavetoacceptthedebilitatingperspectiveof“Wel,let’sfaceit.OurCEOjustisn’tacharismaticvisionaryleader.It’shopeless.”Youdon’thavetobuyintothebeliefthatbuildingvisionarycompaniesissomethingmysteriousthatonlyotherpeopledo.

Italsomeansthatlifewilprobablybemoredicultforyoufromhereon.Itmeanshelpingthosearoundyoutounderstandthelessonsofthisbook.Itmeansacceptingthefrighteningtruththatyouareprobablyasqualiedasanyoneelsetohelpyourorganizationbecomevisionary.Anditmeansrecognizingthatyoucanbeginrightnow—today—toapplythelessonsofthisbook.

Finaly,andperhapsmostimportantofal,itmeansworkingwithadeepand

abidingrespectforthecorporationasanimportantsocialinstitutioninitsownright—aninstitutionthatrequiresthecareandatentionwegivetoourgreatuniversitiesorsystemsofgovernment.Foritisthroughthepowerofhumanorganization—ofindividualsworkingtogetherincommoncause—thatthebulkoftheworld’sbestworkgetsdone.

Sothisisnottheend.Noreventhebeginningoftheend.Butitis,wehope,theendofthebeginning—thebeginningofthechalengingandarduous,buteminentlydoabletaskofbuildinga

chalengingandarduous,buteminentlydoabletaskofbuildingavisionarycompany.

Chapter11

Chapter11

BuildingtheVision*

“Weshalnotceasefromexploration

Andtheendofalourexploring

Wilbetoarrivewherewestarted

Andknowtheplaceforthefirsttime.”

T.S.ELIOT,FOURQUARTETS

Visionhasbecomeoneofthemostoverused—andleastunderstood—wordsinthelanguage.Thewordvisionconjuresupalkindsofimages.Wethinkofoutstandingachievement.Wethinkofdeeplyheldvaluesthatbondpeopleinasocietytogether.Wethinkofaudacious,exhilaratinggoalsthatgalvanizepeople.Wethinkofsomethingeternal—theunderlyingreasonsforanorganization’sexistence.Wethinkofsomethingthatreachesinsideusandpulsoutourbesteorts.Wethinkofthedreamsofwhatwewanttobe.Andthereinliesaproblem.Alofusknowvisionisimportant,butwhatexactlyisit?

Inthisnewchapterforthepaperbackedition,wepresenta

Inthisnewchapterforthepaperbackedition,wepresentaconceptualframeworkthatdenesvision,addsclarityandrigortothevagueandfuzzysetofconceptsswirlingaroundthattrendyterm,andgivespracticalguidanceforarticulatingacoherentvisionwithinanorganization.Itisaprescriptiveframeworkrootedinthesix-yearresearchprojectonvisionarycompaniesthatledtoourbookandrenedandtestedbyourongoingworkwithhard-nosedexecutivesfromorganizationsofaltypesandsizesfromaroundtheworld.Inthefolowingpageswethoroughlydescribethisframework.Someofthekeyideasthatcomposetheframeworkoverlapwithsomeofourresearchndingsfromearlierchapters.

Thereforepartsofthischaptermightseemabitredundant,butwewantthistobeeectiveasastand-alonechapter.Additionaly,thischapterprovides

substantialpracticalguidanceabouthowtoapplytheideas,alongwithilustrativeexamplesdrawnnotonlyfromthevisionarycompaniesbutotherswe’veworkedwithorstudiedbeyondouroriginalresearchforthebook.

Again,toreiteratethekeyndingfromourBuilttoLastresearch,thefundamentaldistinguishingcharacteristicofthemostenduringandsuccessfulcorporationsisthattheypreserveacherishedcoreideologywhilesimultaneouslystimulatingprogressandchangeineverythingthatisnotpartoftheircoreideology.Putanotherway,theydistinguishtheirtimelesscorevaluesandenduringcorepurpose(whichshouldneverchange)fromtheiroperatingpracticesandbusinessstrategies(whichshouldbechangingconstantlyinresponsetoachangingworld).Intrulygreatcompanies,changeisaconstant,butnottheonlyconstant.Theyunderstandthedierencebetweenwhatshouldneverchangeandwhatshouldbeopenforchange,betweenwhatistrulysacredandwhatisnot.Andbybeingclearaboutwhatshouldneverchange,theyarebeterabletostimulatechangeandprogressineverythingelse.Articulatingavisionusingtheframeworkpresentedinthischapterprovidestheguidingcontextforimplementingthe“preservethecore/stimulateprogress”conceptinanorganization.

THEVISIONFRAMEWORK

Figure11.AArticulatingaVision

Awel-conceivedvisionconsistsoftwomajorcomponents—coreideologyandanenvisionedfuture.Noticethedirectparaleltothefundamental“preservethecore/stimulateprogress”dynamic.Agoodvisionbuildsontheinterplaybetweenthesetwocomplementaryyin-and-yangforces:itdenes“whatwestandforand

whyweexist”thatdoesnotchange(thecoreideology)andsetsforth“whatweaspiretobecome,toachieve,tocreate”thatwilrequiresignicantchangeandprogresstoatain(theenvisionedfuture).

Topursuethevisionmeanstocreateorganizationalandstrategicalignmenttopreservethecoreideologyandstimulateprogresstowardtheenvisionedfuture.Alignmentbringsthevisiontolife,translatingitfromgoodintentionstoconcretereality.

COREIDEOLOGY

Coreideology,aswedescribedinChapter3,denestheenduring

Coreideology,aswedescribedinChapter3,denestheenduringcharacterofanorganization—itsself-identitythatremainsconsistentthroughtimeandtranscendsproduct/marketlifecycles,technologicalbreakthroughs,managementfads,andindividualleaders.Infact,themostlastingandsignicantcontributionofthearchitectsofvisionarycompaniesisthecoreideology.AsBilHewletsaidabouthislong-timefriendandbusinesspartnerDavidPackarduponPackard’sdeathin1996,“Asfarasthecompanyisconcerned,thegreatestthingheleftbehindhimwasacodeofethicsknownastheHPWay.1HP’scoreideology,whichhasguidedthecompanysinceitsinceptionin1938,includesadeeprespectfortheindividualasamoraltenet,adedicationtoaordablequalityandreliability,acommitmenttocommunityresponsibility(Packardbequeathedhis$4.3bilionofHPstocktoacharitablefoundation),andaviewthatthecompanyexiststomaketechnicalcontributionsfortheadvancementandwelfareofhumanity.CompanybuilderslikeDavidPackard,MasaruIbukaofSony,GeorgeMerckofMerck,WiliamMcKnightof3M,andPaulGalvinofMotorolaunderstoodthatitisfarmoreimportanttoknowwhoyouarethanwhereyouaregoing,forwhereyouaregoingwilcertainlychangeastheworldaboutyouchanges.Leadersdie,productsbecomeobsolete,marketschange,newtechnologiesemerge,managementfadscomeandgo;butcoreideologyinagreatcompanyenduresasasourceofguidanceandinspiration.

Coreideologyprovidesthebondinggluethatholdsanorganizationtogetherasitgrows,decentralizes,diversies,expandsglobaly,andatainsdiversitywithin.ThinkofcoreideologyasanalogoustotheprinciplesofJudaismthatheldtheJewishpeopletogetherforcenturieswithoutahomeland,evenastheyspreadintheDiaspora.Orthinkofitaslikethetruthsheldtobe“self-evident”inthe

UnitedStatesDeclarationofIndependence,ortheenduringidealsandprinciplesofthescienticcommunitythatbondscientistsfromeverynationalitytogetherwiththecommonpurposeofadvancinghumanknowledge.

Anyeectivevisionmustembodythecoreideologyoftheorganization,whichinturnconsistsoftwodistinctsub-components:

organization,whichinturnconsistsoftwodistinctsub-components:corevaluesandcorepurpose.

CoreValues

Corevaluesaretheorganization’sessentialandenduringtenets—asmalsetoftimelessguidingprinciplesthatrequirenoexternaljustication;theyhaveintrinsicvalueandimportancetothoseinsidetheorganization.Disney’scorevaluesofimaginationandwholesomenessstemnotfromamarketrequirement,butfromaninnerbeliefthatimaginationandwholesomenessshouldbenurturedfortheirownsake.WiliamProcterandJamesGambledidn’tinstilproductexcelenceasamere“strategy”forsuccess,butasanalmostreligioustenetheldforoverfteendecadesbyP&G

people.SubserviencetothecustomerasawayoflifeatNordstromtracesitsrootsbackto1901—eightdecadesbeforecustomerserviceprogramsbecamestylishinbusiness.BilHewletandDavidPackardheldrespectfortheindividualrstandforemostasadeeppersonalbelief;theydidn’treaditinabooksomewhereorhearitfromamanagementguru.RalphLarson,CEOofJohnson&

Johnson,putitthisway:“ThecorevaluesembodiedinourCredomightbeacompetitiveadvantage,butthatisnotwhywehavethem.Wehavethembecausetheydeneforuswhatwestandfor,andwewouldholdthemeveniftheybecameacompetitivedisadvantageincertainsituations.”2

Thekeypointisthatanenduringgreatcompanydecidesforitselfwhatvaluesitholdstobecore,largelyindependentofthecurrentenvironment,competitiverequirements,ormanagementfads.

Clearly,then,thereisnouniversaly“right”setofcorevalues.Acompanyneednothavecustomerserviceasacorevalue(Sonydoesn’t),orrespectfortheindividual(Disneydoesn’t),orquality(Wal-Martdoesn’t),ormarket

responsiveness(HPdoesn’t),orteamwork(Nordstromdoesn’t).(Ofcourse,thesecompaniesmighthavepracticesorstrategiesbasedaroundthesedimensions.)Again,toemphasizeafundamentalndingofourresearch,thekeyisnotwhatcorevaluesanorganizationhas,butthatithascorevalues.

whatcorevaluesanorganizationhas,butthatithascorevalues.

Inidentifyingthecorevaluesofyourownorganization,pushwithrelentlessself-honestyfortrulycorevalues.Ifyouarticulatemorethanveorsix,there’sagoodchanceyou’renotgetingdowntotheessentials,andprobablyconfusingcorevalues(whichdonotchange)withoperatingpractices,businessstrategies,andculturalnorms(whichshouldbeopenforchange).Remember,thesevaluesmuststandthetestoftime.Afteryou’vedraftedapreliminarylistofthecorevalues,askabouteachone:“Ifthecircumstanceschangedandpenalizedusforholdingthiscorevalue,wouldwestilkeepit?”Ifyoucan’thonestlyansweryes,thenit’snotcoreandshouldbedropped.

Forexample,ahightechnologycompanyweworkedwithwonderedwhetheritshouldput“quality”onitslistofcorevalues.

TheCEOasked:“Supposeintenyearsqualitydoesn’tmakeahootofdierenceinourmarkets.Supposetheonlythingthatmatersissheerspeedandhorsepower,butnotquality.Wouldwestilwanttoputqualityonourlistofcorevalues?”Themembersofthemanagementteamlookedaroundateachotherandnalysaid,

“Tobehonest,no.”Qualitystayedofthelistasacorevalue.

Qualitystayedinthecurrentstrategyofthecompany—andqualityimprovementprogramsremainedinplaceasamechanismforstimulatingprogress—butitdidnotmakethelistofcorevalues.

Remember,strategieschangeasmarketconditionschange,butcorevaluesremainintactinavisionarycompany.Thissamegroupofexecutivesthenwrestledwithwhetheritshouldput“leading-edgeinnovation”onitslistofcorevalues.TheCEOaskedthesamequestion:“Wouldwekeepitonthelistasacorevalue,nomaterhowtheworldarounduschanges?”Thistime,themanagementteamgavearesounding,“Yes!Wealwayswanttodoleading-edgeinnovation.That’swhoweare.It’srealyimportanttous,andalwayswilbe.Nomaterwhat.Andifourcurrentmarketsdon’tvalueit,wewilfindmarketsthat

valueit.”Leading-edgeinnovationwentonthelistofcorevalues,andwilstaythereforever.Acompanyshouldnotchangeitscorevaluesinresponsetomarketchanges;rather,itshouldchangemarkets—ifnecessary—in

marketchanges;rather,itshouldchangemarkets—ifnecessary—inordertoremaintruetoitscorevalues.

Whoshouldbeinvolvedinarticulatingthecorevaluesvariesdependingonthesize,age,andgeographicdispersionofthecompany,butinmanysituationsweliketosuggesta“MarsGroup.”

Itworkslikethis:Imagineyou’vebeenaskedtorecreatetheverybestatributesofyourorganizationonanotherplanet,butyouonlyhaveseatsontherocketshipforvetosevenpeople.Whowouldyousend?Theyarethepeoplewholikelyhaveagut-levelunderstandingofyourcorevalues,havethehighestlevelofcredibilitywiththeirpeers,andthehighestlevelofcompetence.

We’loftenaskagroupofpeoplebroughttogethertoworkoncorevaluestonominateaMarsGroupofvetosevenindividuals.

Invariably,theyendupselectingapowerful,crediblegroupthatdoesasuperjobofarticulatingthecorevaluespreciselybecausetheyareexemplarsofthecorevalues—arepresentativesliceofthecompany’s“geneticcode.”(The“MarsGroup”canalsobeusedefectivelytoarticulatecorepurpose,describedbelow.)We’veneverencounteredanorganization,evenaglobalorganizationcomposedofpeoplefromwidelydiversecultures,thatcouldnotidentifyasetofsharedcorevalues.Thekeyistoworkfromtheindividualtotheorganization.Thoseinvolvedinarticulatingthecorevaluesshouldwrestlewithsuchquestionsas:Whatcorevaluesdoyoupersonalybringtoyourwork—corevaluesyouholdtobesofundamentalthatyouwouldkeepthemregardlessofwhethertheyarerewarded?Whatwouldyousayifaskedtodescribetoyourchildrenand/orotherlovedonesthecorevaluesyoustandforinyourwork,valuesthatyouhopetheywouldstandforwhentheybecomeworkingadults?Ifyouawoketomorrowmorningwithenoughmoneytoretirefortherestofyourlife,wouldyoucontinuetoliveaccordingtothesecorevalues?Canyouenvisionthesecorevaluesbeingequalyvalidforyou100yearsfromnowastheyaretoday?Wouldyouwanttoholdthesecorevalues,evenifatsomepointoneormoreofthembecameacompetitivedisadvantage?Ifyouweretostartaneworganizationtomorrowinadierentlineofwork,whatcorevalueswouldyou

tomorrowinadierentlineofwork,whatcorevalueswouldyoubuildintotheneworganizationregardlessofitsindustry?Thelastthreequestionsareparticularlyimportant,astheymakethecrucialdistinctionbetweenenduringcorevaluesthatshouldnotchangeandpracticesandstrategiesthatshouldbechangingalthetime.

CorePurpose

Corepurpose,thesecondcomponentofcoreideology,istheorganization’sfundamentalreasonforbeing.InourhardcovereditionofBuilttoLast,wedidnotgiveenoughatentiontopurposeasdistinctfromcorevaluesandweunder-emphasizeditsimportance.Pushedtochoosebetweencorepurposeandcorevalues,wewouldlikelychoosecorepurposeasthemoreimportantofthetwoforguidingandinspiringanorganization.Itisalsomoredificulttoidentifythancorevalues.

Aneectivepurposereectstheimportancepeopleatachtothecompany’swork—ittapstheiridealisticmotivations—ratherthanjustdescribingtheorganization’soutputortargetcustomers.Itcapturesthesouloftheorganization.(SeeTable11.1forexamplesofpurpose.)Purposegetsatthedeeperreasonsforanorganization’sexistencebeyondjustmakingmoney,asilustratedbya1960speechbyDavidPackard,whereinhesaid:“Ithinkmanypeopleassume,wrongly,thatacompanyexistssimplytomakemoney.Whilethisisanimportantresultofacompany’sexistence,wehavetogodeeperandfindtherealreasonsforourbeing.”

Purpose(whichshouldlastatleast100years)shouldnotbeconfusedwithspecicgoalsorbusinessstrategies(whichshouldchangemanytimesin100years).Whereasyoumightachieveagoalorcompleteastrategy,youcannotfullapurpose;itislikeaguidingstaronthehorizon—foreverpursued,butneverreached.

Yetwhilepurposeitselfdoesnotchange,itdoesinspirechange.

Theveryfactthatpurposecanneverbefulyrealizedmeansthatanorganizationcanneverstopstimulatingchangeandprogressinordertolivemorefulytoitspurpose.

Table11.1

ExamplesofCorePurpose

3M:

Tosolveunsolvedproblemsinnovatively

Cargil:

ToimprovethestandardoflivingaroundtheworldTostrengthenthesocialfabricbycontinualydemocratizingFannieMae:

homeownership

TomaketechnicalcontributionsfortheadvancementandwelfareHewlet-Packard:ofhumanity

Israel:

ToprovideasecureplaceonEarthfortheJewishpeopleLostArrow

TobearolemodelandtoolforsocialchangeCorporation:

ToprovideaplaceforpeopletoflourishandtoenhancethePacificTheatres:community

MaryKay:

Togiveunlimitedopportunitytowomen

McKinsey:

TohelpleadingcorporationsandgovernmentsbemoresuccessfulMerck:

Topreserveandimprovehumanlife

Toexperiencetheemotionofcompetition,winning,andcrushingNike:

competitors

ToexperiencethejoyofadvancingandapplyingtechnologyforSony:

thebenefitofthepublic

TohelppeoplewithmentalimpairmentsrealizetheirfulTelecare:

potential

TogiveordinaryfolkthechancetobuythesamethingsasrichWal-Mart:

people

WaltDisney:

Tomakepeoplehappy

Inidentifyingpurpose,somecompaniesmakethemistakeof

Inidentifyingpurpose,somecompaniesmakethemistakeofsimplydescribingtheircurrentproductlinesorcustomersegments.

Wedonotconsiderthefolowingtobeaneectivepurpose:“Weexisttofullourgovernmentcharterandparticipateinthesecondarymortgagemarketbypackagingmortgagesintoinvestmentsecurities.”Itismerelydescriptive.AfarmoreeectivestatementofpurposewouldbethatexpressedbytheexecutivesatFannieMae:“Tostrengthenthesocialfabricbycontinualydemocratizinghomeownership.”Thesecondarymortgagemarketasweknowitmightnotevenexistin100years,butstrengtheningthesocialfabricbycontinualydemocratizinghomeownershipcanbeanenduringpurpose,nomaterhowmuchtheworldchanges.

Guidedandinspiredbythispurpose,FannieMaelaunchedintheearly1990saseriesofboldinitiatives,includingaprogramtodevelopnewsystemsforreducingmortgageunderwritingcostsby40percentinveyears,programstoeliminatediscriminationinthelendingprocessbackedby$5bilioninunderwritingexperiments,andanaudaciousgoaltoprovide$1trilion(witha

“t”)targetedattenmilionfamiliesthathadtraditionalybeenshutoutofhomeownership—minorities,immigrants,andlow-incomegroups—bytheyear2000.

Similarly,3Mdoesn’tdeneitspurposeintermsofadhesivesandabrasives,butastheperpetualquesttosolveunsolvedproblemsinnovatively—apurposethe

leads3Mcontinualyintoavastarrayofnewelds.McKinsey’spurposeisnottodomanagementconsulting,buttohelpcorporationsandgovernmentsbemoresuccessful,whichmightin100yearsinvolvemethodsotherthanconsulting.HPdoesn’texisttomakeelectronictestandmeasurementequipment,buttomaketechnicalcontributionsthatsomehowmakepeople’slivesbeter—apurposethathasledthecompanyfaraeldfromitsoriginsinelectronicinstruments.

ImagineifWaltDisneyhadconceivedofhiscompany’spurposeastomakecartoons,ratherthantomakepeoplehappy;weprobablywouldn’thaveDisneyland,EPCOTCenter,ortheAnaheimMightyDuckshockeyteam!

Apharmaceuticalcompanyweworkedwithconsideredstating

Apharmaceuticalcompanyweworkedwithconsideredstatingtheirpurposeas“Tomakedrugsforhumantherapy.”Weasked:

“Wouldthatpurposestilholdahundredyearsfromnow?”Onemanagerpointedoutthatthecompanymightweldiscoverorinventnewwaysofimprovinghumantherapybesidestraditionaldrugs.Anotherpointedoutthatthecompanywouldlikelyinventsolutionsforanimaltherapysometimeinthenextfewdecades.Athirdexecutivepointedoutthat“Wel,I’mnotherejusttomakestufortherapy.I’mheretomakesignicantimprovementsintherapy—toleaveamarkbeyondwhateveryoneelsehasdone.

Otherwise,what’sthepoint?”Ultimately,thecompanycaptureditspurposeas:“Weexisttoprovidesignicantimprovementsintherapy.”Thispurposecanguideandinspirethecompanyforthenexthundredyears.

Onepowerfulmethodforgetingatpurposeisthe“FiveWhys.”

Startwiththedescriptivestatement,“WemakeXproducts”or“wedeliverXservices,”andthenask“whyisthatimportant?”vetimes.Afterafewwhys,you’lndthatyou’regetingdowntothefundamentalpurposeoftheorganization.Weusedthismethodtodeepenandenrichapurposediscussioninsomeworkwedidwithamarketresearchcompany.Theexecutiveteamrstmetforseveralhoursandgeneratedthefolowingstatementofpurposefortheirorganization:“Toprovidethebestmarketresearchdataavailable.”Wethenasked,“Whyisitimportanttoprovidethebestmarketresearchdataavailable?”Aftersomediscussion,theiranswerreectedadeepersenseofthisorganization’spurpose:“Toprovidethebestmarket-researchdataavailablesothatour

customerswilunderstandtheirmarketsbeterthantheycouldotherwise.”Afurtherdiscussionledtheteamtorealizethattheirsenseofself-worthcomesnotjustfromselingmarket-researchdatabutinactualymakingacontributiontotheircustomers’success.

Thislineofself-questioningeventualyledthecompanytoidentifyitspurposeas:“Tocontributetoourcustomers”successbyhelpingthemunderstandtheirmarkets.”Withthispurposeinmind,thecompanynowframesitsproductdecisionsnotwiththequestion

“Wilitsel?”butwiththequestion“Wilitmakeacontributionto

“Wilitsel?”butwiththequestion“Wilitmakeacontributiontoourcustomers’success?”

The“vewhys”canhelpcompaniesin“mundane”industriesframetheirworkinamoremeaningfulway.Forexample,anasphaltandgravelcompanymightbeginwith“Wemakegravelandasphaltproducts.”Afterafewwhysitcouldconcludethatasphaltandgravelisimportantbecausethequalityoftheunderlyinginfrastructureplaysavitalroleinpeople’ssafetyandexperience;drivingonapitedroadisannoyinganddangerous;747scannotlandsafelyonrunwaysbuiltwithpoorworkmanshiporinferiorconcrete;buildingswithsubstandardmaterialsweakenwithtimeandcrumbleinearthquakes.Fromthisintrospectionmayemergethepurpose:“Tomakepeople’slivesbeterbyimprovingthequalityofman-madestructures.”Withasenseofpurposeverymuchalongtheselines,GraniteRockCompanyofWatsonvile,California,wontheMalcolmBaldrigeQualityAward—notaneasyfeatforasmalrockquarryandasphaltcompany—andhasbecomeoneofthemostprogressiveandexcitingcompanieswe’veencounteredinanyindustry.

You’lnoticethatnoneofthecorepurposesdiscussedinthischapterfalintothecategory“maximizeshareholderwealth.”Akeyroleofcorepurposeistoguideandinspire.“Maximizeshareholderwealth”doesnotinspirepeopleatallevelsofanorganization,anditprovidespreciouslitleguidance.“Maximizeshareholderwealth”

isthestandard“o-the-shelf”purposeforthoseorganizationsthathavenotyetidentiedtheirtruecorepurpose.Itisasubstituteideology,andaweaksubstituteatthat.Listentopeopleingreatorganizationstalkabouttheirachievementsand

you’lhearverylitleaboutearningspershare.Motorolapeopletalkaboutimpressivequalityimprovementsandtheeectsoftheproductstheycreateontheworld.HPpeopletalkwithprideaboutthetechnicalcontributionstheirproductshavemadetothemarketplace.Nordstrompeopletalkaboutheroiccustomerserviceandremarkableindividualperformancebystarsalespeople.WhenaBoeingengineertalksaboutlaunchinganexcitingandrevolutionary777aircraftshedoesn’tsay,“Iputmyheartandsoul

revolutionary777aircraftshedoesn’tsay,“Iputmyheartandsoulintothisprojectbecauseitwouldadd37centstoourearningspershare.”

Onewaytogetatthepurposethatliesbeyondjustmaximizingshareholderwealthistoplaythe“RandomCorporateSerialKiler”

game.Itworkslikethis:Supposeyoucouldselthecompanytoanindividualwhowouldpayapricethateveryoneinsideandoutsidethecompanyagreesismorethanfair,takingintoaccountaverygeneroussetofassumptionsabouttheexpectedfuturecashowsofthecompany.Supposefurtherthattheindividualwilguaranteestableemploymentatthesamepayscaleforalemployeesafterthepurchase,butwithnoguaranteethatthosejobswilbeinthesameindustry.Finaly,supposethebuyerplansto“kil”thecompanyafterthepurchase—itsproductsorserviceswilbediscontinued,itsoperationswilbeshutdown,itsbrand-nameswilbeshelvedforever,andsoon.Thecompanywiluterlyandcompletelyceasetoexist,wipedcompletelyfromthefaceoftheEarth.Wouldyouaccepttheoer?Whyorwhynot?Whatwouldbelostifthecompanyceasedtoexist?Whyisitimportantthatthecompanycontinuetoexist,nowandinthefuture?We’vefoundthisexercisetobeverypowerfulforhelpinghard-nosed,nancialy-focusedexecutivestoreectonthedeeperreasonsforbeingoftheirorganization.

AnotherapproachistoaskeachmemberoftheMarsGrouptoanswerthefolowingquestions:Ifyouwokeuptomorrowmorningwithenoughmoneyinthebankthatyouwouldneverneedtoworkagain,howcouldweframethepurposeofthisorganizationsuchthatyouwouldwanttocontinueworkinganyway?Whatdeepersenseofpurposewouldmotivateyoutocontinuetodedicateyourpreciouscreativeenergiestothiscompany’seforts?

Aswemoveintothe21stcentury,companieswilneedtodrawonthefulcreativeenergyandtalentoftheirpeople.Butwhyshouldpeoplegivethislevelofcommitmentanddevotion?AsPeterDruckerhaspointedout,thebestand

mostdedicatedpeopleareultimatelyvolunteers,fortheyhavetheopportunitytodosomethingelsewiththeirlives.Withanincreasinglymobilesociety,

somethingelsewiththeirlives.Withanincreasinglymobilesociety,cynicismaboutcorporatelife,andanexpandingentrepreneurialsegmentoftheeconomy,companiesneedmorethanevertohaveaclearunderstandingoftheirpurposeinordertomakeworkmeaningfulandtherebyatract,retain,andmotivateoutstandingpeople.

AFewKeyPointsonCoreIdeology

Averyimportantpoint:Youdonot“create”or“set”coreideology.

Youdiscovercoreideology.Itisnotderivedbylookingtotheexternalenvironment;yougetatitbylookinginside.Ithastobeauthentic.Youcan’tfakeanideology.Norcanyoujust

“intelectualize”it.Donotask,“Whatcorevaluesshouldwehold?”

Askinstead:“Whatcorevaluesdoweactualyhold?”Corevaluesandpurposemustbepassionately-heldonagutlevelortheyarenotcore.Valuesyouthinktheorganization“ought”tohave,butthatyoucannothonestlysaythatitdoeshave,shouldnotbemixedintotheauthenticcorevalues.Todosocreatescynicismthroughouttheorganization(Whoaretheytryingtokid?Wealknowthatisn’tacorevaluearoundhere!”).Suchaspirationsofwhatyou’dliketobecomearemoreappropriateaspartofyourenvisionedfuture(tobediscussedlater)oraspartofyourstrategy,notpartofthecoreideology.(Authenticcorevaluesthatoncewereavibrantpartoftheorganizationbuthavebecomefeebleovertimecan,however,beconsideredalegitimatepartofthecoreideologyaslongasyouacknowledgetotheorganizationthatyouhavealotofworktodotobringthembacktolife.)

Theroleofcoreideologyistoguideandinspire,nottodierentiate;it’sentirelypossiblethattwocompaniescanhavethesamecorevaluesorpurpose.Manycompaniescouldhavethepurpose“tomaketechnicalcontributions,”butfewliveitaspassionatelyasHP.Manycompaniescouldhavethepurpose“topreserveandimprovehumanlife,”butfewholditasdeeplyasMerck.Manycompaniescouldhavethecorevalueof“heroiccustomerservice,”butfewcreateanintensecult-likeculturearound

customerservice,”butfewcreateanintensecult-likeculturearoundthatvaluelikeNordstromdoes.Manycompaniescouldhavethecorevalueof“innovation,”butfewcreatethepowerfulalignmentmechanismsthatstimulateinnovationthatweseeat3M.Again,it’snotthecontentoftheideologythatmakesacompanyvisionary,it’stheauthenticity,discipline,andconsistencywithwhichtheideologyislived—thedegreeofalignment—thatdierentiatesvisionarycompaniesfromtherestofthepack.It’snotwhatyoubelievethatsetsyouapartsomuchasthatyoubelieveinsomething,thatyoubelieveinitdeeply,thatyoupreserveitovertime,andthatyoubringittolifewithconsistentalignment.

Coreideologyneedonlybemeaningfulandinspirationaltopeopleinsidetheorganization;itneednotbeexcitingtoaloutsiders.It’sthepeopleinsidetheorganizationthatneedtobecompeledbythecorevaluesandpurposetogeneratelong-termcommitmenttotheorganization’ssuccess.Theeectyourcoreideologyhasonpeopleoutsidetheorganizationislessimportantandshouldnotbethedeterminingfactorinidentifyingthecoreideology.Coreideologythereforeplaysanessentialroleindeterminingwho’sinsideandwho’soutsidetheorganization.Aclearandwel-articulatedideologyatractspeopletothecompanywhosepersonalvaluesarecompatiblewiththecompany’scorevaluesand,conversely,repelsthosewhosepersonalvaluesarecontradictory.

Youcannot“instal”newcorevaluesorpurposeintopeople.

Corevaluesandpurposearenotsomethingpeople“buyin”to.

Peoplemustalreadyhaveapredispositiontoholdingthem.

Executivesoftenask,“Howdowegetpeopletoshareourcoreideology?”Youdon’t.Youcan’t!Instead,thetaskistofindpeoplewhoalreadyhaveapredispositiontoshareyourcorevaluesandpurpose,atractandretainthesepeople,andletthosewhoaren’tdisposedtoshareyourcorevaluesgoelsewhere.Indeed,theveryprocessofarticulatingcoreideologymayresultinsomeindividualschoosingtoleavewhenitbecomesclearthattheyarenotpersonalycompatiblewiththeorganization’score—apositivecatharticoutcome,notonetobeavoided.Ofcourse,youcan

catharticoutcome,notonetobeavoided.Ofcourse,youcan(indeedshould)stilhavediversitywithinthetightcoreideology;justbecausepeoplesharethesame

corevaluesorpurposedoesnotmeanthattheyalthinkorlookthesame.

Don’tconfusecoreideologywith“statements”ofthecoreideology.Acompanycanhaveaverystrongcoreideologywithoutaformalstatement.Forexample,Nikehasnot(toourknowledge)formalyarticulatedastatementofitscorepurpose.Yet,fromourobservations,Nikehasapowerfulcorepurposethatpermeatestheentireorganizationwithacult-likefervor:Toexperiencetheemotionofcompetition,winning,andcrushingcompetitors.Nikehasacampusthatseemsmorelikeashrinetothecompetitivespiritthanacorporateocecomplex;giantphotosofNikeheroescoverthewals,bronzeplaquesofNikeathleteshangalongtheNike“WalkofFame,”statuesofNikeathletesstandalongsidetherunningtrackthatringsthecampus,andbuildingsarenamedafterchampionslikeOlympicmarathonchampionJoanBenoit,basketbalsuperstarMichaelJordan,andtennisplayerJohnMcEnroe.Nikepeoplewhodonotfeelstimulatedbythecompetitivespiritandtheurgeto“beferocious”simplydon’tlastlongintheculture.Eventhecompany’sname(NikeistheGreekgoddessofvictory)reectsasenseofcompetition.Thus,althoughNikehasnotformalyarticulateditspurpose,itclearlyhasastrongone.

Identifyingcorevaluesandpurposeisthereforenotawordsmithingexercise.Anorganizationwilgenerateavarietyofstatementsovertimetodescribethecoreideology.InHP’sarchives,wefoundmorethanhalfadozendistinctversionsofthe“HPWay”

draftedbyDavidPackardovertheyears1956to1972;alstatedthesameprinciples,butthewordsusedvarieddependingupontheeraandcircumstances.Similarly,Sony’scoreideologyhasbeenstatedmanydierentwaysoveritshistory.Atthefoundingofthecompany,MasaruIbukadescribedtwokeyelementsofSony’sideology:“Weshalwelcometechnicaldicultiesandfocusonhighlysophisticatedtechnicalproductsthathavegreatusefulnessforsocietyregardlessofthequantityinvolved;weshalplaceour

forsocietyregardlessofthequantityinvolved;weshalplaceourmainemphasisonability,performance,andpersonalcharactersothateachindividualcanshowthebestinabilityandskil.”Fourdecadeslater,thissameideologyappearedinthe“SonyPioneerSpirit”:“Sonyisapioneerandneverintendstofolowothers.

Throughprogress,Sonywantstoservethewholeworld.Itshalbealwaysaseekeroftheunknown....Sonyhasaprincipleofrespectingandencouraging

one’sability...andalwaystriestobringoutthebestinaperson.ThisisthevitalforceofSony.”3

Samecorevalues;diferentwords.

Youshouldthereforefocusongetingthecontentright—oncapturingtheessenceofthecorevaluesandpurpose—notonwordsmithingtheperfectstatementtobeetchedinstone.Thepointisnottocreateaperfect“statement,”buttogainadeepunderstandingofyourorganization’scorevaluesandpurposewhichcanthenbeexpressedinamultitudeofways.Infact,oncethecorehasbeenidentied,weliketosuggestthateverymanagergeneratehisorherownstatementofthecorevaluesandpurposetosharewithhisorherpeople.

Finaly,don’tconfuse“coreideology”withtheconceptof“corecompetence.”Here’sthedierence:Corecompetenceisastrategicconceptthatcapturesyourorganization’scapabilities—whatyouareparticularlygoodat—whereascoreideologycaptureswhatyoustandforandwhyyouexist.Corecompetenciesshouldbewelalignedwithacompany’scoreideology—andareoftenrootedinitscoreideology—butarenotthesameasitsideology.Forexample,Sonyhasacorecompetenceofminiaturization—astrengththatcanbestrategicalyappliedtoawidearrayofproductsandmarkets—

butdoesnothaveacoreideologyofminiaturization.Sonymightnotevenhaveminiaturizationaspartofitsstrategyin100years,buttoremainagreatcompanyitwilstilhavethesamecorevaluescapturedintheSonyPioneerSpiritandhavethesamefundamentalreasonforbeingofadvancingtechnologyforthebenetofthegeneralpublic.InavisionarycompanylikeSony,corecompetencieschangeoverthedecades,whereascoreideologydoesnot.

doesnot.

Onceyou’reclearaboutthecoreideology,youshouldfeelfreetochangeabsolutelyanythingthatisnotpartofthecoreideology.

Fromthenon,anytimesomeonesayssomethingshouldn’tchangebecause“It’spartofourculture”or“We’vealwaysdoneitthatway”oranyoftheotherexcusesforresistingchange,remindthemofthissimplerule:Ifit’snotcore,it’supforchange.Or,thestrongversionofthisrule:Ifit’snotcore,changeit!Ofcourse,articulatingcoreideologyisjustastartingpoint.Youalsomustdeterminewhattypeofprogressyouwanttostimulate,whichbringsustothe

secondcomponentofthevisionframework.

ENVISIONEDFUTURE

Envisionedfuture—thesecondprimarycomponentofthevisionframework—consistsoftwoparts:aten-tothirty-year“BigHairyAudaciousGoal”andvividdescriptionsofwhatitwilbelikewhentheorganizationachievestheBHAG.Weselectedthephrase

“envisionedfuture,”recognizingthatitcontainsaparadox.Ontheonehand,itconveysasenseofconcreteness—somethingvividandreal;youcanseeit,touchit,feelit.Ontheotherhand,itportraysatimeyetunrealized—adream,hope,oraspiration.

Vision-levelBHAG

AlthoughorganizationsmayhavemanyBHAGsatdierentlevelsoperatingalatthesametime,visionrequiresaspecialtypeofBHAG—a“vision-level”BHAGthatappliestotheentireorganizationandrequirestentothirtyyearsofeorttocomplete.

(Seechapter5forafuldiscussionofBHAGs.)SetingtheBHAGtentothirtyyearsintothefuturerequiresthinkingbeyondthecurrentcapabilitiesoftheorganizationandcurrentenvironmentaltrends,forces,andconditions.Indeed,inventingsuchagoalforcesanexecutiveteamtobevisionary,ratherthanjuststrategicortactical.

ABHAGshouldnotbeasurebet—perhapsonly50to70percentprobabilityofsuccess—buttheorganizationmustbelieve“wecan

probabilityofsuccess—buttheorganizationmustbelieve“wecandoitanyway.”Itshouldrequireextraordinaryeort,andperhapsalitleluck.

Increatingsuchavision-levelBHAGwesuggestthinkingaboutthefolowingfourcategories:target,commonenemy,rolemodel,orinternaltransformation.

TargetBHAGscanbequantitativeorqualitative.Examples:

•Becomea$125bilioncompanybytheyear2000.(Wal-Mart,1990)

•Democratizetheautomobile.(Ford,early1900s)

•BecomethecompanythatmostchangestheworldwideimageofJapaneseproductsasbeingofpoorquality.(Sony,early1950s)

•Tobecomethemostpowerful,themostserviceable,themostfar-reachingworldnancialinstitutionthathaseverbeen.(CityBank,predecessortoCiticorp,1915)

•Becomethedominantplayerincommercialaircraft,andbringtheworldintothejetage.(Boeing,1950)

Common-enemyBHAGsinvolvefocusingonbeatingacommonenemy—aDavidversusGoliathBHAG.Examples:

•KnockoRJRasthenumberonetobaccocompanyintheworld.

(PhilipMorris,1950s)

•CrushAdidas.(Nike,1960s)

•YamahaWotsubusu!(Wewilcrush,squash,slaughterYamaha!)(Honda,1970s)

Role-modelBHAGsareparticularlyeectiveforup-and-comingorganizationswithbrightprospects.Examples:

•BecometheNikeofthecyclingindustry.(GiroSportDesign,1986)

•BecomeasrespectedintwentyyearsasHewlet-Packardistoday.

(Watkins-Johnson,1996)

•BecometheHarvardoftheWest.(StanfordUniversity,1940s)

•BecometheHarvardoftheWest.(StanfordUniversity,1940s)InternalTransformationBHAGstendtobeeectiveinoldorlargeorganizationsinneedofinternaltransformation.Examples:

•Becomenumberoneortwoineverymarketweserveandrevolutionizethiscompanytohavethestrengthsofabigcompanycombinedwiththeleannessand

agilityofasmalcompany.

(GeneralElectric,1980s)

•Transformthiscompanyfromadefensecontractorintothebestdiversiedhigh-technologycompanyintheworld.(Rockwel,1995)

•Transformthisdivisionfromapoorlyrespectedinternalproductssuppliertooneofthemostrespected,exciting,andsought-afterdivisionsinthecompany.(componentssupportdivisionofacomputerproductscompany,1989)

VividDescriptions

Vividdescription,thesecondcomponentofenvisionedfuture,isavibrant,engaging,andspecicdescriptionofwhatitwilbeliketoachievetheBHAG.Thinkofitastranslatingthevisionfromwordsintopictures,ofcreatinganimagethatpeoplecancarryaroundintheirheads.Wecalthis“paintingapicturewithyourwords.”This

“picture-painting”isessentialformakingtheten-tothirty-yearBHAGtangibleinpeople’sminds.

Forexample,recalhowHenryFordbroughttolifetheBHAGtodemocratizetheautomobilewiththevividdescription:“Iwilbuildamotorcarforthegreatmultitude....Itwilbesolowinpricethatnomanmakingagoodsalarywilbeunabletoownone—andenjoywithhisfamilytheblessingofhoursofpleasureinGod’sgreatopenspaces....WhenI’mthrougheverybodywilbeabletoaordone,andeveryonewilhaveone.Thehorsewilhavedisappearedfromourhighways,theautomobilewilbetakenforgranted...[andwewil]givealargenumberofmenemploymentatgoodwages.”

atgoodwages.”

Intheexampleaboveofthecomponentssupportdivision,thegeneralmanagervividlydescribedtheBHAG:“Wewilberespectedandadmiredbyourpeers....Oursolutionswilbeactivelysoughtbytheend-productdivisions,whowilachievesignicantproduct

“hits”inthemarketplacelargelyduetoourtechnicalcontribution..

..Wewilhaveprideinourselves....Thebestup-and-comingpeopleinthecompanywilseektoworkinourdivision....

Peoplewilgiveunsolicitedfeedbackthattheylovewhattheyaredoing...Peoplewilwalkonthebalsoftheirfeet....Peoplewilwilinglyworkhardbecausetheywantto....Bothemployeesandcustomerswilfeelthatourdivisionhascontributedtotheirlifeinapositiveway.”4

Passion,emotion,andconvictionareessentialpartsofthevividdescription.Somemanagersareuncomfortablewithexpressingemotionabouttheirdreams,butit’sthepassionandemotionthatwilatractandmotivateothers.WinstonChurchilunderstoodthiswhenhedescribedtheBHAGfacingGreatBritainin1940.Hedidn’tjustsay“BeatHitler.”Hesaid:

Hitlerknowshewilhavetobreakusonthisislandorlosethewar.IfwecanstanduptohimalEuropemaybefreeandthelifeoftheworldmaymoveforwardintobroad,sunlituplands.

Butifwefail,thewholeworldincludingtheUnitedStates,includingalwehaveknownandcaredfor,wilsinkintotheabyssofanewDarkAge,mademoresinister,andperhapsmoreprotracted,bythelightsofpervertedscience.Letusthereforebraceourselvestoourduties,andsobearourselvesthatiftheBritishEmpireanditsCommonwealthlastforathousandyears,menwilstilsay,“Thiswastheirfinesthour.”5

AFewKeyPointsonEnvisionedFuture

Don’tconfusecoreideologyandenvisionedfuture,asmanagersoftendo.Inparticular,weseemanagersconfusecorepurposeand

oftendo.Inparticular,weseemanagersconfusecorepurposeandBHAGs,exchangingonefortheother,mixingthetwotogether,orfailingtoarticulatebothasdistinctitems.Purposeistheorganization’sfundamentalreasonforexistence,whichlikeastaronthehorizoncanneverbereached;itguidesandinspiresforever.

ABHAG,ontheotherhand,isaspecicgoalwhich,likeaspecicmountaintoclimb,hasaspecictimeframeandcanbeachieved.

Whereasidentifyingcoreideologyisadiscoveryprocess,setingtheenvisioned

futureisacreativeprocess.

WendthatexecutivesoftenhaveagreatdealofdicultycomingupwithexcitingBHAGs;theywantto“analyze”theirwayintothefuture.We’vefound,therefore,thatsomeexecutivesmakemoreprogressbystartingrstwiththevividdescriptionandbackingfromthereintotheBHAG.Thisapproachinvolvesstartingwithquestionslike:“We’resitinghereintwentyyears;whatwouldwelovetosee?Whatwouldthiscompanylooklike?Whatwoulditfeelliketoemployees?Whatwouldithaveachieved?Ifsomeonewroteanarticleforamajorbusinessmagazineaboutthiscompanyintwentyyears,whatwoulditsay?”Onebiotechnologycompanyweworkedwithhadtroubleenvisioningitsfuture.Saidonememberoftheexecutiveteam,“Everytimewecomeupwithsomethingfortheentirecompanyitisjusttoogenerictobeexciting—somethingbanallike“advancebiotechnologyworldwide.”Askedtopaintapictureofthecompanyintwentyyears,theydescribedsuchthingsas:“thecoverofBusinessWeekasamodelsuccessstory...theFortunemost-admiredtoptenlist...

thebestscienceandbusinessgraduateswanttoworkhere...

peopleonairplanesraveaboutoneofourproductstocaptiveseatmates...twentyconsecutiveyearsofprotablegrowth...anentrepreneurialculturethathasspawnedhalf-a-dozennewdivisionsfromwithin...managementgurususeusasanexampleofexcelentmanagementandprogressivethinking...”andsoon.

Fromthis,theyimputedtheBHAGtobecometherstbiotechnologyrmaswel-respectedasMerckandJohnson&

Johnson.

Itmakesnosensetoanalyzewhetheranenvisionedfutureisthe

Itmakesnosensetoanalyzewhetheranenvisionedfutureisthe

“right”one.Withacreation—andthetaskistocreateafuture,nottopredictthefuture—therecanbenorightanswer.DidBeethovencreatethe“right”NinthSymphony?DidShakespearecreatethe

“right”Hamlet?Wecan’tanswerthesequestions;they’renonsense.

Theessentialquestionsabouttheenvisionedfutureinvolvesuchquestionsas:“Doesitgetourjuicesowing?Dowenditstimulating?Doesitstimulateforwardmomentum?Doesitgetpeoplegoing?”Theenvisionedfuturemustbetrulyexcitingtothoseinsidetheorganization,otherwiseit’sjustnotaful-edgedBHAG.Indeed,theenvisionedfutureshouldproduceabitof“thegulpfactor”whenitdawnsonpeoplewhatitwiltaketoachievethegoalandthelevelofcommitmenttothegoal,thereshouldbeanalmostaudible“gulp.”

Butwhataboutfailureinrealizingtheenvisionedfuture?Wefoundthatthevisionarycompaniesdisplayaremarkableabilitytoachieveeventheirmostaudaciousgoals.PhilipMorrisdidrisefromsixthtorstandbeatR.J.Reynoldsworldwide;Forddiddemocratizetheautomobile;Boeingdidbecomethedominantcommercialaircraftcompany;Citicorpdidbecomethemostfar-reachingbankintheworld;anditlookslikeWal-Martwilachieveits$125biliongoal,evenwithoutSamWalton.Incontrast,thecomparisoncompaniesinourresearchfrequentlydidnotachievetheirBHAGs,inthecaseswheretheysetthem.Thedierenceliesnotinsetingeasiergoals,asthevisionarycompaniestendedtohaveevenmoreaudaciousambitionsthanthecomparisoncompanies.Nordoesthedierencelieincharismaticvisionaryleadership,asthevisionarycompaniesoftenachievedtheirBHAGswithoutsuchlarger-than-lifeleadersatthehelm.Nordoesthedierencelieinbeterstrategy,asthevisionarycompaniesoftenrealizedtheirgoalsmorebyanorganicprocessof“tryalotofstuandkeepwhatworks”thanbywel-laidstrategicplans.Rather,thesourceoftheirsuccessliesinbuildingtheorganizationastheirprimarymeansofcreatingthefuture.

Finaly,inthinkingaboutenvisionedfuture,bewarethe“we’vearrivedsyndrome”—complacentlethargythatarisesoncean

arrivedsyndrome”—complacentlethargythatarisesonceanorganizationhasachievedaBHAGandfailstoreplaceitwithanother.NASAsueredfromthewe’vearrivedsyndromeafterthesuccessfulmoonlandings;afteryou’velandedonthemoon,whatdoyoudoforanencore?AppleComputersueredfromthewe’vearrivedsyndromewhenitachievedthegoalofcreatingacomputerthatnon-techiescoulduse.Start-upcompaniesfrequentlysuerfromthewe’vearrivedsyndromeaftergoingpublicorreachingastagewheresurvivalnolongerseemsinquestion.Anenvisionedfutureonlyhelpsanorganizationsolongasithasn’tyetbeenachieved.Inourworkwithcompanies,wefrequentlyhearexecutivessay,“It’sjustnotasexcitingaroundhereasitusedtobe;weseemtohavelostourmomentum.”Usualy,thissignalsthattheorganizationhasclimbed

onemountain,andnotyetpickedanewmountaintoclimb.

PUTTINGITALLTOGETHER

Tofurtherilustratethevisionframework,wegiveinTables11.2

and11.3twoexamplesofaltheelementstingtogetherintoacompletevision:Merckatitstimeoftransitionfromachemicalcompanytoapharmaceuticalcompanyduringthe1930sandSonyasasmal,entrepreneurialcompanyinthe1950s.

Table11.2

ExampleofCompleteVision

Merck,1930s

COREIDEOLOGY

CoreValues

•Corporatesocialresponsibility

•Unequivocalexcelenceinalaspectsofthecompany

•Science-basedinnovation

•Honestyandintegrity

•Profit,butprofitfromworkthatbenefitshumanity

Purpose

Topreserveandimprovehumanlife.

ENVISIONEDFUTURE

Totransformthiscompanyfromachemical

manufacturerintooneofthepreeminentdrug-makingBHAG

companiesintheworld,witharesearchcapabilitythatrivalsanymajoruniversity.

Withthetoolswehavesupplied,sciencewilbeadvanced,knowledgeincreased,andhumanlifewineveragreaterfreedomfromsuferinganddisease....

Wepledgeoureveryaidthatthisenterpriseshalmeritthefaithwehaveinit.Letyourlightsoshine—thatVividDescriptions

thosewhoseektheTruth,thatthosewhotoilthatthisworldmaybeabeterplacetolivein,thatthosewhoholdaloftthattorchofScienceandKnowledgethroughthesesocialandeconomicdarkages,shaltakenewcourageandfeeltheirhandssupported.

Table11.3

ExampleofCompleteVision

Sony,1950s

COREIDEOLOGY

CoreValues

•ElevationoftheJapanesenationalcultureandstatus

•Beingapioneer—notfolowingothers,butdoingtheimpossible

•Respectandencouragementofindividualabilityandcreativity

ToexperiencethesheerjoyofinnovationandthePurpose

applicationoftechnologyforthebenefitandpleasureof

thegeneralpublic.

ENVISIONEDFUTURE

BecomethecompanymostknownforchangingtheBHAG

worldwideimageofJapaneseproductsasbeingofpoorquality.

Wewilcreateproductsthatbecomepervasivearoundtheworld....WewilbethefirstJapanesecompanytogointotheAmericanmarketanddistributedirectly..

..WewilsucceedwithinnovationslikethetransistorradiothatAmericancompanieshavefailedat....FiftyVividDescriptions

yearsfromnow,ourbrand-namewilbeaswelknownasanyonEarth...andwilsignifyinnovationandqualitythatrivalsthemostinnovativecompaniesanywhere....“MadeinJapan”wilmeansomethingfine,notshoddy.

Manyexecutiveshavethrashedaboutwith“missionstatements”

and“visionstatements.”Unfortunately,mostoftheseturnouttobeamuddledstewofvalues,goals,purposes,philosophies,beliefs,aspirations,norms,strategies,practices,anddescriptions.Evenmoreproblematic,seldomdothesestatementsrigorouslylinktothefundamentaldynamicofvisionarycompaniesthatwediscoveredinBuilttoLast:preservethecore/stimulateprogress.Keepinmindthatthisdynamic,notvisionormissionstatements,istheprimaryengineofenduringgreatcompanies,andthatvisionsimplyprovidestheguidingcontextforbringingthisdynamictolife.Withthisdeeperunderstanding,weurgearigorousapplicationoftheconceptsinthischaptertorecastyourvisionormissionintoaneectiveguidingcontextforbuildingavisionarycompany.Ifyoudoitright,youshouldn’thavetodoitagainforatleastadecade,andyoucangetonwiththemostimportantwork:creatingalignment.

alignment.

Creatingalignment,whichisakeypartofourongoingworktohelpcompaniestransformthemselvesintovisionarycompanies,requirestwokeyprocesses:1)developingnewalignmentstopreservethecoreandstimulateprogress,and2)eliminatingmisalignments—thosethatdrivethecompanyawayfromthecoreideologyandthosethatimpedeprogresstowardtheenvisionedfuture.

Therstprocessisacreativeprocess,requiringtheinventionofnewmechanisms,processes,andstrategiestobringthecorevaluesandpurposetolifeandtostimulateprogresstowardtheenvisionedfuture.InChapter7,forexample,wedescribehow3Mhasinstaledmultiplemechanismstopreserveitscoreideologyofinnovationandinternalentrepreneurship.

Thesecondpartofalignmentisananalyticprocess,requiringadisciplinedanalysisoftheorganization—itsprocesses,structures,andstrategies—touncovermisalignmentsthatpromotebehaviorinconsistentwiththecoreideologyorthatimpedeprogress.Mostmanagerswe’veworkedwithfalshortineliminatingmisalignments.Ifyoustateteamworkasacorevalue,butyoucompensateprimarilyonindividualperformance,thenyou’vegottochangethecompensationstructure.Ifyoustateinnovationasacorevalue,yethavemarketshareasthedominantstrategicobjective,thenyou’vegottochangeyourstrategy.Ifyouwanttoencouragepeopletotryalotofstuandkeepwhatworks,thenyouhavetoremovepenaltiesforhonestmistakes.Keepinmindthatthisisanever-endingprocess.Whenmisalignmentscropupyou’vegottokilthemasquicklyaspossible.Thinkofmisalignmentsascancercels.It’sbesttogetinthereandcutthemoutbeforetheyspreadtoofar.

Ifyougoo-sitetoarticulateavision,thenyoushouldcomebackwithatleastahalfdozenspecic,concretechangestomakeinyourorganizationtoincreasealignment.Whatcanyouaddtotheorganizationtobeterpreservethecoreandstimulateprogress?

And,justasimportant,whatshouldyouobliterateinyourorganizationthat’scurrentlydrivingyouawayfromthecoreand/or

organizationthat’scurrentlydrivingyouawayfromthecoreand/orblockingprogress?Ifyoudothisright,youwilspendonlyasmalpercentageofyourtimearticulatingthevision.Thevastmajorityofyourtimewilbespentbringingtheorganizationintoalignment.

Yes,it’sveryimportanttostopandthinkaboutvision.Butevenmoreimportant,youhavetoaligntheorganizationtopreservethecoreideologyandstimulateprogresstowardtheenvisionedfuture,notmerelywriteastatement.Keepinmindthatthereisabigdierencebetweenbeinganorganizationwithavisionstatementandbecomingatrulyvisionaryorganization.Whenyouhavesuperbalignment,avisitorcoulddropintoyourorganizationfromanotherplanetandinferthevisionwithouthavingtoreaditonpaper.Thisistheprimaryworkoftheclock-builder.

*ThischapterfirstappearedastheleadarticleintheSeptember/October1996issueofHarvardBusinessReview.

Epilogue

Epilogue

FrequentlyAskedQuestions

Whileconductingseminars,givingtalks,andworkingasconsultantstocompanies,we’veencounteredanumberofquestionsaboutourndingsandideas.Herearethemostcommon,andourbriefanswers.

Q:I’MNOTCEO.WHATCANIDOWITHTHESEFINDINGS?

Plenty.

First,youcanapplymostofourndingsinyourworkarea,albeitonasmalerscale.Youcanbeaclockbuilderatanylevel,forthisisastateofmindasmuchasamethodofoperating.Insteadofinstinctivelyjumpingintosolveaproblemintheheroicleadermode,askrst,“Whatprocessshouldweusetosolvethisproblem?”Youcanbuildacult-likeculturearoundastrongideologyatanylevel.Ofcourse,itwilbeconstrainedsomewhatbytheideologyoftheoveralorganization,butitcanbedone.Andiftheoveralcompanydoesn’thaveaclearideology,thenalthemorereason(andfreedom)toputoneinplaceatyourlevel!Justbecausethecorporationasawholemightnothaveastrongcore

becausethecorporationasawholemightnothaveastrongcoreideologydoesn’tmeanyourgroupshouldbedeprived.Onemanufacturingmanagerforacomputercompanytoldus:“Igottiredofwaitingforthoseontoptogettheiracttogether,soIjustwentaheadwithmypeople.Wenowhaveaverydistinctsetofvalueshereinmygroup,andwemanagebythem.Itgivesmypeopleagreatersenseofmeaningintheirwork.Wehaveastrongself-identitywithinthecompany,andweinterviewpeoplewithaneyetohowthey’ltwithourteam.Peoplefeeltheybelongtosomethingspecial.Weevenhaveourownjacketsandcaps.”

Youcanalsostimulateprogressatanylevel.We’veseenBHAGsworkparticularlywelatmidlevels.ArealestateoperationsmanagerwithinalargercompanyaskseverysingleemployeeandmanagerinhergrouptosetapersonalBHAGforeachyear.ShealsosetsaBHAGfortheentiregroup.Andthere’snoreasonwhyyoucan’tcreateagroupculturethatencouragespeopletotryalotofstuandkeepwhatworks.Whynotputinplacea3M-style15

percentruleinyourgroup?Whynotinventmechanismsofdiscontenttostimulatechangeandimprovementbeforeyou’reforcedtochangeandimprove?Onemanagerrunninganinternalcomponentsoperationthathadcaptivecustomerswithinalargercompanywenttothedivisionshisgroupsuppliedandsaid:“Fromnowon,we’renotgoingtoholdyoutothepolicythatyouhavetogetalofyourcomponentsfromus.Ifyoucangetbetercomponents,fasterturnaround,beterservice,orhigherqualityfromoutsidevendors,thenokay.Knowingthatyoucangoelsewherewilforceustogetbeter.”

Anotherpowerfulstepyoucantakeistoeducatethosearoundyouaboutthekeyndingsfromthecompanieswestudied.Helpthemunderstandtheimportanceofbuildingtheorganization,ratherthanjustbuildingthenextgreatproduct.Helpthemunderstandtheconceptofpreservingthecoreandstimulatingprogress.Pointouttopeoplewheretheorganizationismisalignedandwhyalignmentissovital.HelpthemrejecttheTyrannyoftheOR.Forexample,onemiddlemanagerweknowfrequentlygetspeopleunstuckduringmeetingsbysaying,“Hey,Ithinkwe’re

peopleunstuckduringmeetingsbysaying,“Hey,Ithinkwe’resuccumbingtothe‘TyrannyoftheOR’here.Let’sndawaytoembracethe‘GeniusoftheAND.’”Andtheyusualydo.

Youcanusethevisionarycompaniesasasourceofimmensecredibility.Forexample,ifseniorexecutivesresistarticulatingcorevaluesorpurposeastoo“soft”or“newage,”pointtoHewlet-

Packard,Merck,3M,Procter&Gamble,Sony,andothersinthisbook—andpointtohowthey’vedonethisfordecades.Howcananyhard-nosedexecutivearguewiththelong-termtrackrecordofthesecompanies?Indeed,youcanusethesecompaniesascredibilitytovirtualydemandthatseniormanagementpayatention.Whatexecutivecouldnotbeinterestedinatainingtheenduringstatureofthesecompanies?

Q:ISTHEREHOPEFOROLD,LARGE,NONVISIONARY

CORPORATIONS?

Yes,butthetaskisprobablymoredificultthanbuildingavisionarycompanyfromthegroundup.Foronething,therewilbeentrenchedprocessesandpracticesthatneedtobechangedorobliteratedinordertoalignwithan

ideology.Theolderandlargerthecompany,themoreentrenchedthemisalignments.

Yetwe’veseenanumberofpositiveexamples.Eveninourownstudy,wesawavisionarycompanythatstrayedfromitsideology,yetreturnedtoitdecadeslaterandpuledoanamazingrealignment:Ford.AndPhilipMorrisdidnotdisplaymanycharacteristicsofavisionarycompanyuntilaboutthelate1940s—

ataboutitsonehundredthbirthday.Additionaly,we’veseenremarkableprogressatcompanieswe’veworkedwith.Onelargebank,forinstance,beganworkingwithourpreliminaryndingsafewyearsagoand—forthefirsttimeinitshistory—pinneddownitscoreideologyandbeganalongprocessofaligningitselftopreservethecoreandstimulateprogress.Oneofitsexecutivevicepresidentsexplained:“I’veworkedatthiscompanymyentirelife,andI’dbeguntolosehope.Butoncewebecameclearinourownmindsaboutwhatwerealystandforandbegantochangethe

aboutwhatwerealystandforandbegantochangetheorganizationtotwiththat,wel,thereleaseofhumanenergyhasbeenamazing.Peoplealthewaydowntotheindividualbranchlevelfeelthattheirworkhasmoremeaningthanitusedto.Andnowthatweknowwhatiscoreandshouldremainedxed,we’vefeltliberatedtochangeanythingelse—toslaysacredcowsthathadrealybeengetinginourway.It’slikeawakeningasleepinggiant.

We’renotatthelevelofyourvisionarycompaniesyet,butwe’vecomealongway.”

Beingavisionarycompanyisacontinuum.Itisnotstatic.Anycompanyatanytimecanmovealongthatcontinuumandbecomemorevisionary—evenifithasalongwaytogo.Again,it’salong-termprocess.Theracegoestothosewhopersistandneverquitmovinginthatdirection.Ourndingsdonotrepresentaquickx,orthenextfashionstatementinalongstringofmanagementfads,orthenextbuzzwordoftheday,oranew“program”tointroduce.

No!Theonlywaytomakeanycompanyvisionaryisthroughalong-termcommitmenttoaneternalprocessofbuildingtheorganizationtopreservethecoreandstimulateprogress.

Q:WHATGUIDANCEWOULDYOUGIVETOAVISIONARY

COMPANYTHATSEEMSTOBELOSINGITSVISIONARYSTATUS

—LIKE,SAY,IBM?

IBM’sagreatcase,becauseitwasarguablyoneofthemostvisionarycompaniesintheworldfornearlyseventyyears.IBM

showsthatnotonlycancompaniesmoveforwardonthecontinuumofvisionarystatus,theycanalsomovebackward.Onceavisionarycompanydoesnotnecessarilymeanalwaysavisionarycompany!

Likedemocracies,visionarycompaniesrequireeternalvigilance.

AcompanylikeIBMshouldlearnthelessonsofitsownpast.Fordecades,IBMcherishedandfanaticalyprotecteditscorevalues(caledthe“ThreeBasicBeliefs”)whilesimultaneouslybeingoneofthemostprogressivecompaniesontheplanet.IBMcommitedtosomeofthemostaudaciousBHAGsinhistory,includingabet-the-companydecisiontogowiththeIBM360andrenderobsolete

companydecisiontogowiththeIBM360andrenderobsoletenearlyalofitspriorproductlines.Bold!YetthenIBMgotconservativeinthe1980s,protectingitsmainframeline.Itlostsightofitsownpast.

IfweweresitingdownwiththeseniorexecutivesatIBM,we’dchalengethemtosetaBHAGofboldnessequaltothatoftheIBM

360.We’dchalengeIBMtoonceagainobsoleteitself,tobetthecompanyonthesuccessorfailureofthatBHAG,justlikeitdidonthe360.We’dchalengethemtohavefaiththatIBMpeoplewouldcomethroughandachievetheimpossibleagain,justliketheydidonthe360.IBMhasgreatpeople,andtheywouldundoubtedlyrisetothetask.

We’dalsochalengetheIBMexecutivestorevisitthethreebasicbeliefs,justlikeJ&Jrevisiteditscredointhe1970s.We’dchalengethemtohavethetoponehundredmanagersandathousandIBMerschosenatrandomtoatendarededicationtothebeliefsandalsignagiantprintedversionofthem.We’dchalengethemtocastthatgiantsigneddocumentinbronze,reproduceit,andplacereplicatesofitineverysingleIBMfacilityintheworld.We’dchalengethemtoaskeveryemployeeinthecompanytopersonalyrededicatehimselforherselfto

thethreebasicbeliefs—inwriting.

Finaly,we’dchalengethemtosetuparealignmentprocessforpreservingthecoreandstimulatingprogress.We’dchalengethemtoidentifyatleastfiftyspecicmisalignmentswiththethreebasicbeliefs.We’dchalengethemtoidentifyatleastftymorespecicmisalignmentsthatinhibitprogress.Andthenwe’dchalengethemtonotjustchangethesemisalignments,buteliminatethementirely.

WebelieveIBMhastherootstoregainitsstatureasoneofthemostvisionarycompaniesintheworld.IfIBMreembracesthebasiclessonsofbeingavisionarycompany,thenwebelieveitwilregainitsstatureandholditforthenextsevendecades.If,ontheotherhand,itdoesnotreembracetheselessonsthenwebelieveitwilcontinuetodeclineinthelongterm,eventhoughitmightbouncebackintheshortterm.

Althoughthespecicswouldbedierent,we’dgivethesame

Althoughthespecicswouldbedierent,we’dgivethesameguidancetoanyvisionarycompanyonthedecline.We’daskthemtolearnthelessonsoftheirownpast.We’daskthemtoreclarifyandrecommittotheirideology—togetbacktotheirbasicroots.

Andwe’daskthemtomakedramatic,boldmovesforward.Mostimportant,we’dputthemonaruthlessrealignmentprogramtopreservethecoreandstimulateprogress.

Q:ARETHEREANYPEOPLEWHOCAN’TBUILDAVISIONARY

COMPANY?

Few.Theonlypeoplewhocan’tdoitarethoseunwilingtopersistforthelonghaul,thosewholiketorestontheirlaurels,thosewithnocoreideology,andthosewhodonotcareaboutthehealthofthecompanyafterthey’regone.Ifyouwanttostartacompany,builditquickly,makealotofmoney,cashout,andretire,thenbuildingavisionarycompanyisnotforyou.Ifyoudon’thaveadriveforprogress—aninternalurgetoneverstopimprovingandgoingforwardforitsownsake—thenbuildingavisionarycompanyisnotforyou.Ifyoudon’thaveanyinterestinavalues-drivencompanywithasenseofpurposebeyondjustmakingasmuchmoneyaspossible,thenbuildingavisionarycompanyisnotforyou.Ifyoudon’tcareaboutbuildingthecompanysothatitwilbestrongnot

onlyduringyourtenurebutalsodecadesafteryou’regone,thenbuildingavisionarycompanyisnotforyou.Butbeyondthesefour,weseenootherprerequisites.

Q:DOYOURFINDINGSAPPLYTONONPROFIT

ORGANIZATIONS?

Yes.Theycanapplyinanytypeoforganization,althoughtheformmightvary.We’reemployedbyanonprotorganization(StanfordUniversity)andJerryisanassociatedeanthere.We’vefoundourndingstoapplyquitewel.We’vealsoseenexecutivesatfor-protcorporationstakeourndingsandapplytheminnonprotorganizations.OneCEOofavisionarycompanydirectlyappliesthe

organizations.OneCEOofavisionarycompanydirectlyappliestheideasathischurch.Anotherexecutivebringsthemtoahospitalofwhichsheisadirector.WeeventhinkthearchitectsoftheUnitedStatesusedtheconceptsofvisionarycompanies.

Q:HOWDOESYOURBOOKFITOTHERWORKS,SUCHASIN

SEARCHOFEXCELLENCE?

InSearchofExcelencestandsoutasoneoftheoutstandingbooksofthepasttwodecades,anddeservedlyso.Everyoneshouldreadit.

WefoundalotofcompatibilitybetweenPetersandWaterman’sworkandours.Buttherearealsosomekeydierences.Onedierenceisinmethod:Unliketheirresearchproject,welookedatcompaniesthroughouttheirentirelifespansandindirectcomparisontoothercompanies.Anotherkeydierenceisthatweboiledalofourndingsintoaframeworkofunderlyingideas.Inparticular,theconceptofpreservingthecoreandstimulatingprogressprovidesanumbrelaovervirtualyeverythingweobserved.Wefoundsomeoftheir“eightatributes”tobewelsupportedinourresearch,inparticular:Hands-On/Value-Driven,Autonomy&Entrepreneurship,ABiasforAction,andSimultaneousLoose-TightProperties.Butwealsofoundsomeoftheeightatributeslesswelsupported,inparticular:SticktotheKnitingandClosetotheCustomer.Ifyoudenethe“Kniting”asthecoreideology,thenyes,visionarycompaniessticktothekniting.Butaslongastheydon’tbreachthecore,anythingisfairgame—andthatcantakecompanieslikeMotorolaand3Mfaraeldfromwheretheystarted.Andwith

ClosetotheCustomer,wefoundanumberofourcompaniestobemuchmoretechnology-driventhancustomer-driven:Sony,HP,andMerckimmediatelycometomind.

It’snotthattheydon’tcarefortheircustomersorservethemwel;quitethecontrary.Butalthreeofthesecompanieswilignorecustomerdemandsifthosedemandspulthemawayfromtheirideology,asHPdidwhenitignoredcustomersclamoringforcheapIBM-compatiblecomputersorcheappocketcalculators.Closetothecustomeryes,butneverattheexpenseofthecore.

thecustomeryes,butneverattheexpenseofthecore.

WealsofoundextensivecompatibilitywiththeworkofPeterDrucker.Infact,wecameawaywithimmenserespectforDrucker’sprescience.Readhisclassicworks:ConceptoftheCorporation(1946),ThePracticeofManagement(1954),andManagingforResults(1964),andyou’lgetoneheckofajoltinseeinghowfaraheadoftoday’smanagementthinkinghewas.Infact,aswedidourresearch,wecameuponanumberofcompaniesthatweretremendouslyinuencedbyDrucker’swritings:HP,GE,P&G,Merck,Motorola,andFordtonameafew.

Finaly,wealsofoundcompatibilitywithotherworks,suchasEdgarSchein’sOrganizationalCultureandLeadership(1985)andJohnKoterandJamesHesket’sCorporateCultureandPerformance(1992).Scheinwritesaboutcultural“hybrids”—

managersthatgrowupinthecoreofthecompany,yetareabletobringaboutculturalchange(withoutlosingthecorevalues).Ourchapteronhome-grownmanagementtswelwithSchein’sndings,especialyourdiscussionofJackWelchatGE.KoterandHesketexploredtherelationshipbetweenstrongculturesandorganizationalperformance,whichdovetailswithourndingsaboutcult-likeculturesinhigh-performingorganizations.

Q:YOUSTUDIEDTHEPAST.DOYOUWORRYTHATYOUR

FINDINGSMIGHTBECOMEOBSOLETEINTHETWENTY-FIRST

CENTURY?

No.Ifanything,webelieveourndingswilapplymoreinthetwenty-rstcentury

thaninthetwentieth.Inparticular,theessentialideastocomefromourwork—clockbuilding,theGeniusoftheAND,preservingthecore/stimulatingprogress,andalignment—wilcontinuetobekeyconceptslongintothefuture.Wecannoteasilypictureascenariowheretheywouldbecomeobsolete.

Takeclockbuilding,forexample.Theconceptoffocusingonbuildingthecharacteristicsoftheorganizationversuscomingupwithagreatideaorbeingagreatcharismaticleaderwilbecomeevenmoreimportant.Withtheacceleratingrateoftechnological

evenmoreimportant.Withtheacceleratingrateoftechnologicalchange,increasingglobalcompetition,anddramaticalyshorterproductlifecycles,thelifespanofanyspecicideawilcontinuetodecline.Nomaterhowgreattheidea,itwilbecomeobsoletemorequicklythanatanytimeinthepast.

Andasforthecharismaticleadermodel,wethinktheworldisheadinginexactlytheoppositedirection.Justlookatthetwentiethcentury.Nearlytheentireworldhasmovedtowarddemocracy.

Democracyisaprocess.Theveryessenceofdemocracyistoavoidoverdependenceonanysingleleaderandputtheprimaryfocusontheprocess.EvenChurchil—perhapsthesinglegreatestleaderofthiscentury—wassecondarytothenationanditsprocesses,kickedoutofoceattheendofWorldWarI.Hitler,Stalin,Mussolini,Tōjō—thesewerecharismaticleaderswhodidnotunderstandthattheywerefundamentalylessimportantthantheinstitutionstheyserved.Andevenifyoudon’tbuytheanalogybetweentheshifttodemocracyandtheevolutionofcorporations,thegreatcharismaticleadermodelhasonefundamentalawthatwilnotevergoaway

—notnow,notinthetwenty-rstcentury,notinathousandyears:Alleadersdie.Andtotranscendthisunchangingreality,thefocusmustberstandforemostonbuildingthecharacteristicsoftheorganization.

Ourkeyframeworkconcept,preservingthecore/stimulatingprogress,wilalsobecomeincreasinglyimportantinthetwenty-firstcentury.Lookatthetrendsofbusinessorganization:ater,moredecentralized,moregeographicalydispersed,greaterindividualautonomy,moreknowledgeworkers,andsoon.Morethanatanytimeinthepast,companieswilnotbeabletoholdthemselvestogetherwiththetraditionalmethodsofcontrol:hierarchy,systems,budgets,andthelike.

Evengoingintotheocewilbecomelessrelevantastechnologyenablespeopletoworkfromremotesites.

Thecorporatebondinggluewilincreasinglybecomeideological.

Peoplestilhaveafundamentalhumanneedtobelongtosomethingtheycanfeelproudof.Theyhaveafundamentalneedforguidingvaluesandsenseofpurposethatgivestheirlifeandworkmeaning.Theyhaveafundamentalneedforconnectionwith

workmeaning.Theyhaveafundamentalneedforconnectionwithotherpeople,sharingwiththemthecommonbondofbeliefsandaspirations.Morethananytimeinthepast,employeeswildemandoperatingautonomywhilealsodemandingthattheorganizationsthey’reconnectedtostandforsomething.

Andlookatthetrendsoftheouterworld:fragmentation,segmentation,chaoticchange,unpredictability,increasedentrepreneurship,andsoon.Onlythosecompaniesparticularlyadeptatstimulatingprogresswilbeabletothrive.Companieswilneedtocontinualyrenewthemselves,perhapsthroughawesomeBHAGs,inordertoremainexcitingplacestowork.Companiesinsearchofgreatnesswilneedtorelentlesslypushthemselvesforself-stimulatedchangeandimprovementbeforetheworlddemandschangeandimprovement.Companiesthatmimictheevolutionofwel-adaptedspecies—thosethattryalotofstuandkeepwhatworks—wilhavebeteroddsofsurvivalinanunpredictable,changingenvironment;otherswillikelybecomeextinct.Wethinkthevisionarycompaniesofthetwenty-rstcenturywilneedtobecomeincreasinglyfanaticalaboutpreservingtheircoreideologyandbecomingincreasinglyaggressiveingrantingoperationalautonomytoindividualemployees.Morethaneverbefore,companieswilneedtoembracetheyinandyangdynamicofpreservingthecoreandstimulatingprogress.

Thatsaid,companiesmustapplythegeneralndingsfromourworkwithimagination.Wedeliberatelychosenottowritea“ten-stepprogram”styleofbook.Itwouldhavebeenaterribledisservicetoourreadersandourresearch.Indeed,thelastthingavisionarycompanywouldeverdoisfolowacookbookrecipeforsuccess,anymorethanMichelangelowouldhaveboughtapaint-by-numberskit.Buildingavisionarycompanyisadesignproblem,andgreatdesignersapplygeneralprinciples,notmechanicallock-stepdogma.Anyspecichow-towilalmostcertainlybecomeobsolete.Butthegeneralconcepts—

adapted,ofcourse,tochangingconditions—canlastasguidingprincipleswelintothenextcentury.WedoubtthatthebasicelementsunderlyingcompanieslikeMerck,Motorola,Procter&Gamble,and3Mwilbeany

likeMerck,Motorola,Procter&Gamble,and3Mwilbeanydierentacenturyfromnow.Theformwilundoubtedlychange,butnottheessentialelements.

Appendix1

RESEARCHISSUES

“PLAYINGWITHFIRE”(WHATABOUTBANKRUPTVISIONARY

COMPANIES?)

Ourresearchwouldnotcapturecompaniesthathavevisionarycharacteristicsyetfail.Mightitbethatahigherpercentageofcompaniesthatsharethevisionarycharacteristicsgobankruptthanthosecompaniesthatdonotsharethevisionarycharacteristics?Touseananalogy,supposewestudiedtheclimbingtechniquesoftwogroupsofmountainclimbers:“visionaryclimbers”whosuccessfulyclimbMountEverestand“comparisonclimbers”whodonotsuccessfulyclimbMountEverest.Furthersupposethatwefounddifferencesbetweenthetwogroups(suchasinphilosophy,intraining,orinrisktaking).It’sentirelypossiblethatthe“visionaryclimbers”dieatamorefrequentratethanthe“comparisonclimbers,”butsincewe’reonlystudyingclimbersthatlived,wewouldn’tcatchthatfactinthestudy.So,althoughwecouldgivegoodguidanceastowhatittakestobeavisionaryclimber,wemight(unwittingly)alsobegivingguidancethatincreasestheoddsofdeath.Similarly,supposehavingthecharacteristicsofavisionarycompanyresultsina75percentbankruptcyrate(alowingthat25percentdogoontobecomesuper-premierinstitutions)andhavingcomparisoncompanycharacteristicsresultsinonlya50percentfailurerate(alowingthatthesurviving50

percentdonotbecomesuper-premierinstitutions).Underthesecircumstances,perhapssomemanagerswouldwanttoforgobeingvisionaryandincreasethechancesofsimplesurvival.

Wehavetworesponsestothisconcern.First,someclimbersdoindeeddiewhiletryingtoclimbMountEverest,butonlythosewhofulytrytoclimbMountEverest(whatevertherisks)doinfacteverreachthesummit.Wecannotdeny

thepossibilitythatsomecompanieswithvisionarycharacteristicshavediedoutthereonthecorporatelandscape.Butsowhat?We’renotwritingaboutmeresurvivalinthis

book.Wedon’tfindmeresurvivaltobeaveryinterestingtopic.We’reinterestedinhowcompaniesmightattainentrancetothatspecialcategoryofpremierinstitutions,andwereadilyadmitthatitmightrequireariskypathtogetthere.

But—andthisisoursecondresponse—webelieve(althoughwecannotprove)thatthevisionarycharacteristicsmightactualyincreaseboththeoddsofgreatnessandtheoddsofsurvival.Wereturnagaintoourhistoricalperspective.We’renotwritingaboutone-shotcompanieshere.We’rewritingaboutenduringcompaniesthathavefacedmassivechangeandprosperedfordecades.Ifbeingvisionaryisrisky,thenwhyhasthisrisknotcaughtupwiththesecompaniesandkiledthematsomepointduringtheirverylonglives?

IS“VISIONARY”JUSTANOTHERWORDFOR

“SUCCESSFUL”?

UsingtheCEOsurveyimplicitlyassumesfinancialsuccess.Wereadilyacknowledgethis.Afteral,wouldCEOsdescribeunprofitablecompaniesashighlyvisionary?Probablynot.Thisraisesalegitimatechicken-and-eggquestion:Dowesimplyascribetheterm“visionary”

toanycompanythatturnsouttobesuccessful?No.Therearemanyfinancialysuccessfulcompaniesthatdidnotshowuponourlistofvisionarycompanies.WedidanextensiveanalysisofcorporateperformanceofFortune500companiesforthedecadepriortooursurvey.Thisanalysisshowedthatthevisionarycompanieswerenottheonlyhighlysuccessfulcompaniesduringthattimeframe.Infact,ifyoujusttookthetopeighteencompaniesintheFortune500IndustrialplusFortune500Servicelistingsintermsofreturntoinvestorsduringtheperiod1978—1988(thedecadeprecedingoursurvey),thelistlooksquitedifferentthanourvisionarycompanylist,asshownbelow.

Top18FortuneIndustrialandServiceCompaniesReturntoInvestors,1978—1988

1.Hasbro

2.TheLimited

3.Wal-Mart*

4.Affiliated

5.Tele-Communications

6.GiantFood

7.Toys“R”Us

8.MarionLaboratories

9.StateStreetBostonCorp

10.BerkshireHathaway

11.DCNY

12.Macmilan

13.CooperTire&Rubber

14.TysonFoods

15.PhilipsIndustries

16.MCICommunications

17.DilardDepartmentScores

18.FoodLion

*Visionarycompany

TheevidencesuggeststhatoursurveyedCEOssawavisionarycompanyasmorethanjustahighlyprofitablecompany(elsewewouldhavesimplyhadaone-for-onelinkagebetweenthetopfinancialperformersin1978—1988andtheCEOresponses).Ofcourse,fromtheperiod1926—1990,ourvisionarycompaniesoutperformedjustabouteveryone.ThissuggeststhatiftheCEOs

werethinkingonlyintermsoffinancialsuccess,theywerethinkingintermsofverylong-termsuccess,whichfitswithourpictureofavisionarycompanyasanenduringgreatinstitution.

CANWETRUSTTHECEOSURVEYTOGIVEUSTHERIGHT

COMPANIES?

Doingasurvey—evenasurveyofhighlythoughtfulandknowledgeablepeoplesuchasleadingCEOs—isanimperfectmethod.Oursurveyattemptedtominimizebias,butdidnoteliminatebiasentirely.Foronething,companiesthatreceivedsignificantpositivepresscoveragearoundthetimeofthesurveymayhavereceivedunduerepresentationinthesurveyresults.Forexample,AmericanExpressreceivedfabulouspress—someofitlabelingthecompanyas“visionary”—inthefewmonthsimmediatelypriortothesurvey.ThisperhapsinfluencedsomeoftheCEOresponsesandgaveAmericanExpressundulyhighrepresentationinthesurveydata.AswecompareAmericanExpresstotheothercompaniesonourlist,itsharesfewercharacteristicsofavisionarycompany.

Wealsoacknowledgethatrelyingonasurveyassumesthatvisionarycompaniesare,bydefinition,widelyknownandadmired.

This,inturn,introducesabiastowardlarge,publiclyheldcompanies.

(Noticethatalofthecompaniesinourfinalsamplesetarepubliclytraded.)Butmighttherebehighlyvisionarycompanies(perhapsevenmorevisionarythanthoseinourstudy)thatprefertoremainsmaloroutofthepubliceye?Forexample,L.L.BeanandGraniteRock(1992

winneroftheMalcolmBaldrigequalityaward—quiteafeatforarockquarry)appeartosharemanyofthetraitsofourvisionarycompanies,buttheyremainprivatelyheldandsomewhatsecludedinstitutions.

Thoughacknowledgingthesedifficulties,westilbelievethattheCEOsurvey,whilelessthanperfect,wasthebestavailablemethodforconstructingastudyset.Sincewedidn’tknowaheadoftimethekeycharacteristicsofavisionarycompany(that’swhatweweretryingtofindout!),wecouldn’tconstructaprecisescientificscreeningdevice.

Mostimportant,thesurveyhadthebenefitofawidepopulationofdiscerning

judgeswhodidn’tshareouridiosyncraticprejudices.

Inarelatedpoint,somehaveaskedwhetheroursurveymerelyrecreatedFortunemagazine’slistof“MostAdmired”companies(whichalsousesaCEOsurvey),ratherthanalistof“visionarycompanies.”No.WethoroughlyanalyzedtheFortune“MostAdmired”

listsfortheyears1983—1990and,althoughthevisionarycompaniesarewelrepresentedintheFortunesurvey,wedidnotfindaone-for-

onecorrelation.In1989alofthevisionarycompaniescommontobothlistsfelinthetop30percentoftheFortunelist,butnotinaone-for-onecorrelationwiththetopeighteen.(Onlytwoofthecomparisoncompaniesshowedupinthetop30percentoftheFortunelist.)Ofcourse,thevisionarycompaniesareadmired(aswewouldexpect),butvisionarycompaniesarenotmerelyaregurgitationoftheFortune

“MostAdmired”list.

CORRELATIONSVERSUSCAUSES

Weidentifiedcertaincharacteristicsthattendtodistinguishthevisionarycompaniesfromthecomparisoncompaniesinthisparticularsampleset.Wecanthereforeclaimthatthereisacorrelationbetweenthesedifferencesandthevisionarycompanies.However,wecannotclaimacausallink.Wecannotprovethatthecharacteristicsofvisionarycompanieswilnecessarilyleadtoenduringsuccessinalcases.Nordoweknowdefinitivelythatthecompaniesinourstudyhavediscoveredanoptimalapproachtobusiness—perhapsthereareanumberofprivatelyheldcompaniesthatnoonehasstudiedthatwereevenmoresuccessfulforlongerperiodsoftime,yetreliedonadifferentsetofdynamics.Wecannotclaimtohavedefinitivelyfoundcauseandeffect.Tightlycontroledexperimentssimplydonotexistintherealworldofcorporations,anditisthereforeimpossibletoeverclaimcauseandeffectwith100percentcertainty.Ourcomparisonanalysesgiveusgreaterconfidencethatwehaveidentifiedcausesandnotjustrandomcorrelationsthanwewouldhavehadwithoutcomparisons,buttheycannotgiveuscertainconfidence.

We’dliketoemphasize,however,thatthebasicelementswefoundtodistinguishthevisionarycompaniesusuallyappearedinthecompanieslongbeforetheybecamehugelysuccessfulpremierinstitutions.Indeed,thefactthat

suchcharacteristicsgeneralyprecededultimatesuccess(afactthatshowsagainthepowerofthehistoricalapproach)givesusconfidencethatwehavefoundmorethanchancecorrelations.

TROUBLEDTIMESATTHEVISIONARYCOMPANIES

Intheearly1990s,themajorityofthevisionarycompaniesinourstudywereundeniablypremierinstitutionsintheirindustries.Nonetheless,afewofthevisionarycompanieswerehavingdifficulty.Doesthisunderminethebasicvalidityofourfindings?Wedon’tthinkso,fortworeasons.

First,it’simportanttokeepinmindthatallthehighlyvisionarycompaniesinourstudy,eventheonesdoingwelinthe1990s,receivedblackeyesatpointsintheirhistory.Highlyvisionarycompaniesarenotimmunetosetbacksanddifficulttimes,yettheydisplayresiliencyandhavebuiltremarkablelong-termtrackrecords.

ConsiderIBM,forexample.WhateverIBM’sproblemsinthe1990s,thecompanyhadanimpressiveseven-decadetrackrecordthatincludedtwoworldwars,theDepression,andtheinventionofcomputers.NocompanyinthebusinessmachinesindustrymatchedIBMstrideforstrideoverthatseventy-yearperiod.EveninIBM’sdarkesthours,thebusinesspressreferredtoitas“anationaltreasure.”Acompanydoesnotattainsuchstatusbyaccident,andwebelievethattherearemanylessonstobelearnedfromIBM’shistory—

itssuccessesanditsdifficulties.WhatlessonsshouldIBMlearnfromitsownpast?Whatdoesitneedtodotoregainitspriorstatus?

Second,keepinmindthatthroughoutourstudywecontinualycomparedonecompanytoanother.So,althoughnocompanyisperfect(alhavetheirwarts),somecompaniesdoattainsuperiorstatusoverthelonghaul.Forexample,whenBurroughslanguishedandlostitsownuniqueidentity,noonewroteaboutthedemiseof“anationaltreasure.”Formostpeople,Burroughswasjustanothercompany.WhydidIBMrisetoanelevatedstatuswhileBurroughsneverreachedasimilarstatusintheAmericanpsycheorworldeconomy?Whatevertheirimperfections,thefactremainsthatthevisionarycompanieshaveoutshinedthegeneralmarketandacarefulyselectedcontrolsetofcomparisoncompaniesoverthelongcourseofhistory.Wecanlearnmuchfromthecontrast.

LARGECOMPANIESVERSUSSMALLCOMPANIES

Isthestudybiasedtowardlargecompanies?Yesandno.Yes,thelistconsistsonlyoflargecorporations.Buteverysinglecompanyonthelistwasonceasmallcompany.Welookedatthesecompaniesnotonlywhentheywerelarge,butalsowhentheyweresmal,andwesoughttogaininsightsthatwouldapplytosmalcompaniesaswelaslargecompanies.KeepinmindthatwealsosurveyedCEOsofsmaltomidsizecompanies(fromtheInc.500andInc.100);eventhesmal-

companyCEOswantedtolearnlessonsfromcompaniesthatbecamelarge.

UNEVENINFORMATION

Thequalityandquantityofhistoricalinformationvariedacrosscompanies.Somecompanies,suchasHewlett-PackardandMerck,openedtheirarchivestousandprovidedmultipleboxesofprimarysourcematerials.Mostcompanies(eventhecomparisoncompanies)cooperatedfreely,althoughthequalityofinformationvaried.Inafewcases,however,thecompanyrefusedtocooperateinthestudyandwethereforereliedentirelyonsecondarysources.Furthermore,thesecondarysourcesvariedinqualityandquantityacrossthecompanies.Forexample,wefoundnobookswrittenspecificalyaboutNordstrom,butwefoundstacksofbooksonsuchcompaniesasFord,IBM,Disney,andGE.Wedidourbesttolocatealpossiblesourcesoneachandeverycompany,andwefoundsubstantialsourcesonalbutonecompany(Kenwood).Thereisnosuchthingasperfectinformation.But,giventhemagnitudeofinformationwedidhave,we’reconfidentthatourfindingswouldnotchangesignificantlygivenperfectinformation.Ifanything,wesuspecttheywouldbefurtherreinforced.

UNITEDSTATESBIAS

WesurveyedonlyAmericanCEOsandonlyexaminedonepairofnonU.S.companies(SonyversusKenwood).Webelievethatthebasicdynamicsofbeingavisionarycompanywilholdupacrossculturesandnationalities,butwealsosuspectthattheflavorofthosedynamics

wil

vary—perhaps

dramaticaly—across

cultures.

We

freely

acknowledgethisfactandencouragefutureresearchintocross-culturaldifferencesinvisionarycompanies.

Appendix2

FOUNDINGROOTSOFVISIONARYCOMPANIES

ANDCOMPARISONCOMPANIES

3M1

Yearfounded:1902

Founder(s):FiveMinnesotainvestors—tworailroadoperators,aphysician,ameat-marketoperator,andanattorneyLocation:CrystalBay,MN

FoundingConcept:Toopenandoperateaminetoextractcorundumasanabrasivetoexporttogrinding-wheelmanufacturers.

InitialResults:Miningbusinessfailedafterselingonlyonetonofmaterial;nofurtherpurchaserscouldbefound.Companystumbledalongviapersonalaccountsoftheinvestorsandsavedbyanewinvestor(LouisOrdway),whohelpedthecompanyshifttosandpaperproductionin1905.3Mcouldnotaffordtopayitspresident(EdgarOber)asalaryduringhisfirstelevenyears.

Norton2

Yearfounded:1885

Founder(s):

Seven

investor-managers

of

diverse

business

backgrounds

Location:Worcester,MA

FoundingConcept:Purchasedsmalgrinding-wheelcompanyfromFrankNortontocapitalizeonthegrowingmarketforgrindingwheelsfortheexpandingmachinetoolsindustry.

InitialResults:Earlygrowthandsuccess;paidsteadyannual

dividendsinalbutoneofitsfirstfifteenyearsofoperationsandmultiplieditscapitalfifteentimesoverduringthesametime.By1990,Nortonhadbecomethenumberonecompanyinitsindustry.

AmericanExpress3

Yearfounded:1850

Founder(s):HenryWels(ageunknown),WiliamFargo(ageunknown),JohnButterfield(ageunknown)

Location:NewYork,NY

FoundingConcept:Toeliminate“wastefulcompetition”betweenthreerivalcompanies(Wels&Company;Livingston,Fargo&Company;andButterfield,Wasson&Company)inthefreightexpressbusiness,thethreecompaniesagreedtojoinforcesintoone,somewhatmonopolistic,company.

InitialResults:Immediatelyprofitableandrapidlygrowing(notsurprisingwithanearmonopoly).

WellsFargo4

Yearfounded:1852

Founder(s):HenryWels(ageunknown),WiliamFargo(ageunknown)Location:SanFrancisco,CA

FoundingConcept:Toprovideexpress(packagedelivery)andbankingservicesintheexpandingCaliforniamarket(expansionduetothegoldrush).

InitialResults:OneoftheonlycompaniestosurvivetheCaliforniabankingshakeoutof1855,andemergedinstrongpositionwithfewcompetitorsafterthepanic.Expandedrapidlyfrom1855to1866.

Boeing5

Yearfounded:1915

Founder(s):WiliamE.Boeing(age35)

Location:Seattle,WA

FoundingConcept:Fromthearticlesofincorporation:“Tobeageneralmanufacturingbusiness...tomanufacturegoods,wares,andgeneralmerchandiseofeverykind,especialyairplanesandvehiclesofaviation...tooperateaflyingschoolandactasacommoncarrierofpassengersandfreightbyaerialnavigation.”BilBoeingenteredthebusinessasanex-lumbermerchant.

InitialResults:BilBoeing’sfirstairplane(theB&W)faileditsNavytests.Boeingthensoldfiftyofitssecondplane(theModelC)totheNavy,butcouldnotextendthecontractandthecompanyspiraleddownwardthrough1919–1920.Boeinglost$300,000in1920andkeptitselfalivethroughloansfromBilBoeingandmakingfurnitureandspeedboats.

DouglasAircraft6

Yearfounded:1920

Founder(s):DonaldW.Douglas(age28)

Location:LosAngeles,CA

FoundingConcept:TodesignandbuildanaircraftforthefirstnonstopflightacrosstheUnitedStates(theCloudster).Companyreorganizedin1921intoa

newcorporationtotransfertechnologyfromCloudstertofulfilcontractforexperimentaltorpedobombersfortheNavy.

InitialResults:SuccessfulygainedquantitycontractfromtheNavyforeighteentorpedobombersandsoonthereafterobtainedfurthercontractsfromtheU.S.andNorwegiangovernments.Thecompanyattainedearlysuccessandgrewatanaverageannualrateof284

percentperyearduringitsfirstfouryearsofoperations.

Citicorp7

Yearfounded:1812

Founder(s):SamuelOsgood(ageunknown)

Location:NewYork,NY

FoundingConcept:Essentialyaprivatecreditunionforitsmerchant-owners,whousedittofinancetheirownventures.

InitialResults:Nocoherentstrategyandcontinuedtooperatelikeaprivatebankfornearlyseventyyears.Didn’tbeginprocessofbecominganationalbankuntilthe1890sundertheguidanceofJamesStilman.

ChaseManhattan8

Yearfounded:1799forBankofManhattanand1877forChaseBank.

Founder(s):AaronBurr(ageunknown)forBankofManhattanandJohnThompson(ageunknown)forChaseBank

Location:NewYork,NY

FoundingConcept:Tobeabank.

InitialResults:BankofManhattanflourishedfrom1808on.TheChaseBankdidn’tbecomeprominentuntil1911.

OtherComments:ChaseandManhattanmergedin1955.

Ford9

Yearfounded:1903

Founder(s):HenryFord(age40)andAlexMalcomson(ageunknown)Location:Detroit,MI

FoundingConcept:TomakeautomobilesbasedonHenryFord’smechanicalexpertiseand,inparticular,tocapitalizeonverticalpistontechnology.Oneof502firmsfoundedintheUnitedStatesbetween1900and1908tomakeautomobiles.

InitialResults:Firstcar,theModelA,provedsuccessful;reachedsalesofoversixhundredunitspermonthbytheendofthefirstyearofoperations.Introducedfivemodels(A,B,C,F,andK)beforeintroducingtheModelTin1908,whichrevolutionizedtheindustryandmadeFordthenumberonecarmaker.

OtherComments:AlthoughForddidnotfoundthecompanyspecificalytobuildtheModelT,itappearsthathehadconsideredtheideaofthemass-productionlinemanufacturingprocessasearlyas1903.

GeneralMotors10

Yearfounded:1908

Founder(s):WiliamDurant(ageunknown)

Location:Detroit,MI

FoundingConcept:Toacquireandorganizearangeofsmalerautomakersintoonecompanywiththestrategyofprovidingavarietyofcarsforavarietyoftastesandincomesandcapitalizingonsharedfinancialandotherresources.

InitialResults:Between1908and1910,Durantacquiredseventeencompanies—including

Oldsmobile,

Cadilac,

and

Pontiac—to

complementBuickMotors.AddedChevroletin1918.Bumpyroadwithstronggrowthbutfinancialcrises;Durantoustedin1920.

OtherComments:From1921to1927,GMundertheguidanceofAlfredSloan,caughtandpassedFordtobecamethenumberoneautomaker.

GeneralElectric11

Yearfounded:1892

Founder(s):ThomasEdison(age45),ElihuThomson(age39),CharlesCoffin(age48)

Location:NewYork,NY

FoundingConcept:ConsolidationofEdisonGeneralElectricCompany(foundedin1878todevelopandcommercializeEdison’selectricityandlightingresearch)andThomson-HoustonElectricCompany(foundedin1883asaconglomerateofelectricity-relatedbusinesses).

InitialResults:Successfulfirstyear($3milionearningsinsevenmonths);financialdifficultiesandcashshortagein1893duetonationaldepression;recoveredandgrewsteadilythroughthenexttwodecadesaided,inpart,byevolvingtotheACsystem.

Westinghouse12

Yearfounded:1886

Founder(s):GeorgeWestinghouse(age39)

Location:Pittsburgh,PA

FoundingConcept:Todevelopandcommercializealternatingcurrent(AC)electricitytechnologyandtheconceptofcentralpowersystems—

atechnologythateventualyprovedsuperiortoEdison’sDCsystem—

andtherebymaketheACsystemtheprimarysystemthroughouttheworld.

InitialResults:Superiortechnologyconceptledtosubstantialearlysuccess,turningthecompanyintothenumbertwocompanyintheindustry,andGeorgeWestinghousewasabletofinanceinitialgrowthfortwodecadeswithoutlosingcontrolofthecompany.

OtherComments:Financialtroubleduringthenationalpanicof1907

ledbankerstooustWestinghousefromhisowncompanyin1910.

Hewlett-Packard13

Yearfounded:1937

Founder(s):WiliamHewlett(age26)andDavidPackard(age26)

Location:PaloAlto,CA

FoundingConcept:Initialapproachwas“strictlyopportunistic”withinthebroadlydefined“radio,electronic,andelectricalengineeringfield.”

Initialproductsconsideredinearlyyearsincludedweldingequipment,shockmachinesforweightreduction,automaticurinalflushers,bowlingaleysensors,radiotransmitters,publicaddresssystems,air-conditioningequipment,clockdrivesfortelescopes,medicalequipment,andosciloscopes.

InitialResults:Keptitselfaliveinthefirstyearviacontractengineeringjobsandleanoperations(inagarage).In1939,soldafewaudioosciloscopes.First-yearsales:justabove$5,100withaprofitof$1,300.Movedoutofgaragein1940.Seventeenpeopleemployedin1941.WorldWarIboostedemploymentto144people;shranktwentypercentafterthewar.Salesin1948:$2.1milion.

TexasInstruments14

Yearfounded:1930

Founder(s):Dr.J.ClarenceKarcher(ageunknown)andEugeneMcDermott(age31)

Location:Newark,NJ

FoundingConcept:BeganlifeasGeophysicalService,Inc.,“thefirstindependentcompanytomakereflectionseismographsurveysofpotentialoilfields,anditsTexaslabsdevelopedandproducedinstrumentsforsuchwork.”ThecompanymovedtoDalas,Texas,in1934tosolidifyitspositionintheoilexplorationbusiness.ChangeditsnametoTexasInstrumentsin1951.

InitialResults:Quicklybecamethemarketleaderingeophysicalexplorationbusiness.Grewandprosperedintheearlyandmid-1930s.

Stumbledintheearly1940swhenittriedtomoveintotheoilexploration

businessdirectly.Saveditselfbyapplyingseismictechnologytosignalsearchforthemilitary.RecoveredwelduringWorldWarI.

IBM15

Yearfounded:1911(1890forrootcompanies)

Founder(s):CharlesFlint(ageunknown)

Location:NewYork,NY

FoundingConcept:Mergeroftwosmalcompaniesintoamini-conglomerateofmeasuringscales,timeclocks,andtabulatingmachines

forclerksandaccountants(namedthe“Computing,Tabulating,RecordingCompany,”orCTR.)

InitialResults:Flounderedforthreeyearsandtheboardseriouslydiscussedliquidation.In1914,hiredThomasJ.Watson,Sr.,whograduallyimprovedthehealthofthecompanyandturneditintothemarketleaderintabulatingmachinesby1930.

OtherComments:ChangednametotheInternationalBusinessMachinesCorporationin1925.

Burroughs16

Yearfounded:1892

Founder(s):WiliamBurroughs(ageunknown),JosephBoyer(ageunknown)

Location:St.Louis,MO

FoundingConcept:WiliamBurroughsinventedthefirst-everrecordingandaddingmachineandformedacompany(namedtheAmericanArithmometerCompany)tomarketit.

InitialResults:Onceonthemarket,theproductprovedasuccessandthecompanygrew.Burroughsconsolidateditspositionintheindustrythroughnewproductsandacquisitions.In1914,thecompanyhadninetyproducts.In1920,itwasviewedasa“mainstayoftheoffice-machineindustry.”

OtherComments:WiliamBurroughsreceivedtheFranklinInstitute’s

JohnScottMedalforhisinvention;hediedin1898fromtuberculosis;companyrenamed“BurroughsAddingMachineCompany”inhismemoryin1905.

Johnson&Johnson17

Yearfounded:1886

Founder(s):RobertW.Johnson(age41),JamesJohnson,E.MeadJohnson(youngerbrothersofRobertW.;agesunknown)Location:NewBrunswick,NJ

FoundingConcept:Manufactureofmedicalproducts,withparticularemphasisonantisepticsurgicaldressingsandmedicalplasters;firstcataloghadthirty-twopages“crammedwithanarrayofproducts.”

InitialResults:Thecompanybeganwithfourteenemployeesin1886;in1888,thecompanyemployed125workers;in1894,thecompanyemployed400.Earlysuccessbasedonawiderangeofinnovativeproducts,emergenceofhospitals,andcultivationofastrongbrandimage.

Bristol-Myers18

Yearfounded:1887

Founder(s):WiliamMcLarenBristol(ageearly20s),JohnRipleyMyers(early20s)

Location:Clinton,NY

FoundingConcept:Acquiredfor$5,000“afailingdrugmanufacturingfirmcaledtheClintonManufacturingCompany.”NeitherBristolnorMyershadanybackgroundinpharmaceuticals.

InitialResults:Struggledearlyon;in1889,thecompanyemployedonlynineemployees;didnotearnaprofitduringitsfirsttwelveyearsofoperations.Thecompanydidnotbegintogrowrapidlyuntil1903,whenitintroducednewhitproducts:SalHepatica(alaxativesalt)and

Ipana(thefirst-everdisinfectanttoothpaste).

Marriott19

Yearfounded:1927

Founder(s):J.WilardMarriott(age26),AlieMarriott(age22)Location:Washington,DC

FoundingConcept:Tobeinbusinessforthemselves.Beganwithanine-seatA&Wrootbeerstand.Toattractadditionalbusiness,theyaddedhotfood(mostlyMexican)andnamedtherestauranttheHotShoppe.

InitialResults:Builtonsixteen-hourdays,thestoreprovedprofitableduringthefirstyear,with$16,000grossreceipts.By1929,hadexpandedtothreeoutletsrunningtwenty-fourhoursperday.ExpandedtoBaltimorein1931.HadeighteenHotShoppesby1940.

HowardJohnson20

Yearfounded:1925

Founder(s):HowardJohnson(age27)

Location:Wolaston,MA

FoundingConcept:Acquiredasodafountainandadoptedhismother’sice-creamformula,whichprovedahitwithNewEnglanders.

InitialResults:Withinsixmonths,demandexceededhisproductioncapacity.By1928,ice-creamsalesreached$240,000.In1933,heexpandedtothefamousroadsideorange-tiledrestaurants.Builtto125unitsby1940.

OtherComments:OnceHowardJohnsonhadthebasicconceptofhisroadrestaurantsdown,heexpandedandfulycapitalizedonthatideatothefulest.

Merck21

Yearfounded:1891

Founder(s):GeorgeMerck(age23)

Location:NewYorkCity,NY

FoundingConcept:SalesbranchforGermanchemicalcompany,E.

Merck.TracesrootsbacktoMerckfamilyapothecaryinDarmstadt,Germany,1668.

InitialResults:Solidsalessuccess($1milionby1897)ofimportedchemicalsfromparentcompany;didn’tmanufactureitsownchemicalsuntilitsseconddecadeoflife.BeganmanufacturingiodidesandotherstaplepharmaceuticalsatnewfacilityinRahway,NewJersey,inabout1903.Revenuein1910$3milion.

Pfizer22

Yearfounded:1849

Founder(s):CharlesPfizer(age25)andCharlesErhart(age28)Location:Brooklyn,NY

FoundingConcept:Manufactureofhigh-qualitychemicalsnotthenproducedintheUnitedStates,thusleveragingoffatariffadvantageoverimports;firstproductwasSantonin,acompoundtocombatparasiticworms.

InitialResults:Santoninappearstohavesoldwel,givingthecompanyabasis

forexpansion;in1855,thecompanybeganmanufacturingiodine-basedproducts,andby1860thecompanymanufacturedatleastfiveproductlines.In1857thecompanyopenedanofficeindowntownManhattanandbetween1857and1888Pfizerpurchasedseventy-twolotsoflandforexpansion.

Motorola23

Yearfounded:1928

Founder(s):PaulV.Galvin(age33)Location:Chicago,IL

FoundingConcept:Batteryeliminatorsforradios,includingarepairbusinessforSears,RoebuckradiobatteryeliminatorsthatcamebacktoSearsforserviceunderwarranty.Galvin“knewthattheeliminatorwasnotgoingtoprovideamarketforverylong,”sohebeganlookingearlyforothermarkets.

InitialResults:Thecompanykeptitselfbarelyaliveinthefirstyearontheeliminatormanufactureandrepairbusiness.Almostbankruptattheendof1929.Conceivedofcarradioconceptin1930.Lostmoneyin1930,thenbecameprofitablein1931andgrewsteadilyfromthenon.

Zenith24

Yearfounded:1923

Founder(s):EugeneF.MacDonald(age37)

Location:Chicago,IL

FoundingConcept:Salesandmarketingofradiostocapitalizeontheemergingradioindustry(commercialradiobroadcastsbeganin1920,andradioswereinshortsupply);in1923,tookoutanexclusivelicensetoselradiosmadebytheChicagoRadioLab;in1924,introducedtheworld’sfirstportableradio.

InitialResults:Earlyinnovationsfueledsalesgrowth(1924:firstportableradio;1926:firsthomeradiotooperatefromanACoutlet;1927:firstpush-buttontuning).Laxassetmanagement,however,ledtoliquidityandcreditproblemsinthemid-1920s.

Nordstrom25

Yearfounded:1901

Founder(s):JohnNordstrom(age30),CarlWalin(ageunknown)Location:Seattle,WA

FoundingConcept:InthewordsofJohnNordstrom:“IwasstilnotcertainwhatIwantedtodo....Istartedlookingaroundforsomesmalbusinesstogetinto.Mr.Walinwasashoemakerbytradeand...hadsetupashoerepairshop....IoftenvisitedMisterWalininhisshopandonedayhesuggestedthatwejoinapartnershipandopenashoestore.”

InitialResults:Becameprofitableearly.Changedlocationthreetimesinthefirstfifteenyears,butremainedasingle-unitbusinessuntil1923,whenthepartnersaddedasecondstore.

OtherComments:JohnNordstromsoldouthisshareofthecompanytotwoofhissons(EverettandElmer)in1928.

Melville26

Yearfounded:1892

Founder(s):FrankMelvile(ageunknown)

Location:NewYork,NY

FoundingConcept:FrankMelvile,atravelingshoewholesaler,acquiredthreeshoestores“whentheownerskippedtownwithoutpayingMelvileforashipmentofshoes.”

InitialResults:Appearstohavebeenprofitablefromearlyon.Beganexpandingintoachainconceptin1895.By1923ithad31retailoutlets;by1935ithad571retailoutlets.LargestretailerofshoesintheUnitedStatesbytheearly1930s.

Procter&Gamble27

Yearfounded:1837

Founder(s):WiliamProcter(age36)andJamesGamble(age34)Location:Cincinnati,OH

FoundingConcept:Procter,acandle-maker,andGamble,asoapmaker,reliedonthesameanimalfatrawmaterialstomaketheir

products;asbrothers-in-law,theydecidedtopooltheireffortsandformedapartnershiptoselsoapandcandles.

InitialResults:Thecompanygrewslowly,requiringfifteenyearsbeforeoutgrowingtheirmodestoffice,productionfacility,andstoreon

“MainStreet,2nddooroffSixthStreet.”Althoughnotspectacularingrowth,thecompanyappearstohavebeenprofitable;in1847,thecompanyearned$20,000.Twodecadesafterfounding,thecompanyemployedeightyfactoryworkers.

OtherComments:Atitsfounding,P&Gwasoneofeighteencompaniesthatsoldsoapand/orcandlesinCincinnati.

Colgate28

Yearfounded:1806

Founder(s):WiliamColgate(age23)

Location:NewYork,NY

FoundingConcept:AccordingtoColgate’schairmanin1956,“AtthatperiodinAmericanhistory[1806],atleast75percentofthesoapusedwashomemade....Soapmadeathomewascrude,coarse,roughtotheskin,andhardlypleasantinaroma.WiliamColgateundertooktomakeasoapthatwouldbepleasanttothesensesandyetavailabletotheaverageperson.”

InitialResults:Littleinformationavailable;noindicationthatthecompanywassignificantlymoreorlesssuccessfulthanP&Gduringitsfirsttwodecadesoflife.

OtherComments:OneofthefirstcompaniesintheUnitedStatestomanufacturesoapforsale.

PhilipMorris29

Yearfounded:1847

Founder(s):PhilipMorris(ageunknown)

Location:London,England

FoundingConcept:TobaccoshoponBondStreetinLondon.

InitialResults:Remainedasimpleretailshopuntil1854,whenPhilipMorrisbeganmakingcigarettes.Littleindicationofsubstantialearlygrowth.IntroduceditscigarettesintheUnitedStatesin1902.

AmericaninvestorspurchasedrightstothePhilipMorrisnamein1919.

OtherComments:Marlborobrandintroducedasawomen’scigarettein1924.

R.J.Reynolds30

Yearfounded:1875

Founder(s):RichardJ.Reynolds(age25)

Location:Winston,NC

FoundingConcept:Todevelopandselchewingtobaccobasedonanewlydeveloped“flue-curedleafthatmadethebestchewingtobacco.”

InitialResults:Inthefirstyearofoperations,hiscompanyturnedout150,000poundsofproduct.“Fromthenon,abouteveryotheryear,anewadditionhadtobemadetothefactorytokeepupwithanationofchewers.”Bythemid-1880s,R.J.Reynoldshadamassedapersonalfortuneinexcessof$100,000.

OtherComments:IntroducedCamelbrandcigarettesin1913;becameNo.1U.S.brandby1917.

Sony31

Yearfounded:1945

Founder(s):MasaruIbuka(age37)

Location:Tokyo,Japan

FoundingConcept:Noclearideaotherthanthevagueconceptto

applytechnologytothecreationofconsumerproducts.

InitialResults:Struggledwithafailedricecooker,failedtaperecordersystem;stayedaliveviacrudeheatingpadsandthenahodgepodgeofproductsoncontractforJapanBroadcasting,suchasvoltmetersandcontrolconsolesforstudios.Developedfirsthitconsumerproduct(pocketradio)in1955.Tookadozenyearstoreachfivehundredemployees.

Kenwood32

Yearfounded:1946

Founder(s):Notlistedinhistory

Location:KomaganeCity,Japan

FoundingConcept:Tobeaspecialistpioneerinaudiotechnology.

InitialResults:Quicklyestablisheditselfasaleaderinaudiotechnology.Itsfirstproducts,specializedradiocomponents,weresuccessfulandimmediatelyestablishedthecompany.Itshigh-frequencytransformeristhefirstproductmadeinJapantopasstheapprovalstandardsoftheJapanBroadcastingCorporation(1949).

Wal-Mart33

Yearfounded:1945

Founder(s):SamWalton(age27)

Location:Newport,AR

FoundingConcept:Acquiredafranchiselicenseforasingle-unitBenFranklinfive-and-dimestoreinasmaltown;noevidenceofplanstobeanythingthanasingle-unitoutlet.

InitialResults:Firstyearsales:$80,000;thirdyearsales$225,000.

Losthisleasein1950,andtherebylosthisstore.MovedtoBentonville,

Arkansas,andopenedasmalfive-and-dimestorehecaled“Walton’s.”Expandedtotwounitsin1952.

OtherComments:Openedfirstlarge-scaleruraldiscountstorein1962.

Ames34

Yearfounded:1958

Founder(s):MiltonGilman(age33)andIrvingGilman(ageunknown)Location:Southbridge,MA

FoundingConcept:Mortgagedfamilyfarmspecificalytolaunchdiscountretailingchaininsmaltowns.

InitialResults:First-yearsales$1milion;withintwoyears,Amesexpandedtomulti-unitchaininNewYorkandVermont.

OtherComments:Openedfirstlarge-scaleruraldiscountstorein1958.

WaltDisney35

Yearfounded:1923

Founder(s):WalterE.Disney(age21),RoyO.Disney(age27)Location:LosAngeles,CA

FoundingConcept:WaltmovedfromKansasCitytoLosAngelestogetintothemoviebusiness,butcouldnotlandajob,soherentedacamera,madeananimationstand,setupastudioinhisuncle’sgarage,anddecidedtogointotheanimationbusinessforhimself.

AccordingtoDisneybiographerSchickel,“Hewasatleasthalfwayconvincedthathewastoolate,byperhapssixyears,tobreakintoanimation,but[it]wastheonlyareainwhichhehadanypriorexperience.”

InitialResults:Firstfilmseries(Alice)providedbarelyenoughcashflow(duetofrugalexpenses)tokeepgoing.Secondproduct(OswaldtheRabbit,1927)didbetter,butlostcontrolofproductinbadbusinessarrangement.In1928,heintroducedMickyMouse.

ColumbiaPictures36

Yearfounded:1920

Founder(s):HarryCohn(age29)andJackCohn(ageunknown)Location:LosAngeles,CA

FoundingConcept:HarryandJackCohnfoundedthecompanyin1920initialytomakecartoonsandshortfilmstoshowtheoff-screenactivitiesofmoviestarsandpublicizethecurrentpicturesofthestars.

Thenmovedintoful-lengthfeaturefilms.

InitialResults:Onlymoderatesuccesswiththeinitialshortsconcept.

Firstfeature-lengthfilmsmoresuccessful:$130,000incomeforcostof$20,000onfirstful-lengthfeature;betweenAugust1922andDecember1923,thecompanyproducedtenprofitableful-lengthfeaturemovies.

APPENDIX2NOTES

Thepaginationofthiselectroniceditiondoesnotmatchtheeditionfromwhichitwascreated.Tolocateaspecificpassage,pleaseusethesearchfeatureofyoure-bookreader.

1.OurStorySoFar(St.Paul,MN:3MCompany,1977),51–56.

2.CharlesW.Cheape,NortonCompany:aNewEnglandEnterprise(Cambridge,MA:HarvardUniversityPress,1985),12

3.AldenHatch,AmericanExpress1850–1950(GardenCity,NY:CountryLifePress,1950);“AboutAmericanExpress,”corporate

publication;PeterG.Grossman,AmericanExpress:TheUnofficialHistoryofthePeopleWhoBuilttheGreatEmpire(NewYork:Crown,1987).

4.InternationalDirectoryofCorporateHistories(Chicago:St.JamesPress,1988),380.

5.E.E.Tauber,BoeinginPeaceandWar(Enumaclaw,WA:TABA,1991),19;RobertJ.Serling,LegendandLegacy(NewYork:St.

Martin’sPress,1992),2–6.

6.

René

Francilon,McDonnellDouglasAircraftSince1920

(Annapolis,MD:NavalInstitutePress,1988),1–12.

7.HaroldvanB.ClevelandandThomasF.Huertas,Citibank1812–

1970(Cambridge,MA:HarvardUniversityPress,1985);InternationalDirectoryofCorporateHistories(Chicago:St.JamesPress,1988),253.

8.InternationalDirectoryofCorporateHistories(Chicago:St.JamesPress,1988),247.

9.AlfredChandler,GiantEnterprise:Ford,GeneralMotors,andtheAutomobileIndustry(Cambridge,MA:M.I.T.Press,1964);ArthurKuhn,GMPasses

Ford,1918–38(UniversityPark,PA:PennsylvaniaStateUniversityPress,1986);RobertLacey,Ford:TheMenandtheMachine(NewYork:BalantineBooks,1986)10.AlfredSloan,MyYearswithGeneralMotors(NewYork:AnchorBooks,1972);AlfredChandler,GiantEnterprise:Ford,GeneralMotors,andtheAutomobileIndustry(Cambridge,MA:M.I.T.

Press,1964);MaryannKeler,RudeAwakening(NewYork:Morrow,1986);ArthurKuhn,GMPassesFord,1918–38(UniversityPark,PA:PennsylvaniaStateUniversityPress,1986);ArthurPund,TheTurningWheel:TheStoryofGeneralMotorsThrough25

Years,1908–1933(GardenCity,NY:DoubledayDoarn,1934).

11.TheGeneralElectricStory(Schenectady,NY:HalofHistoryFoundation,1981),volumes1–2.

12.HenryG.Prout,ALifeofGeorgeWestinghouse(NewYork:AmericanSocietyofMechanicalEngineers,1921),1–150.

13.MaterialscourtesyHewlett-PackardCompanyArchives.

14.“ResearchPackedwithPh.D.’s,”BusinessWeek,22December1956,

58;Hoover’sHandbook,1991,(Emeryvile,CA:TheReferencePress,1990),528;JohnMcDonald,“TheMenWhoMadeT.I.,”Fortune,November1961,118–119.

15.ThomasJ.Watson,Jr.,Father,Son&Company(NewYork:BantamBooks,1990),13–17;InternationalDirectoryofCorporateHistories(Chicago:St.JamesPress,1988),147.

16.InternationalDirectoryofCorporateHistories(Chicago:St.JamesPress,1988),165.

17.LawrenceG.Foster,ACompanythatCares(NewBrunswick,NJ:Johnson&Johnson,1986),9–27.

18.Bristol-MyersCompany—SpecialReport:TheNextCentury,companypublication(1987)3–5.

19.RobertO’Brian,Marriott:TheJ.WillardMarriottStory(SaltLakeCity:Deseret,1987),123–137.

20.“GlorifiedRoadStandsPay,”BusinessWeek,17February1940;

“TheHowardJohnsonRestaurants,”Fortune,September1940.

21.ValuesandVisions:AMerckCentury(Rahway,NJ:Merck,1993),13–15.

22.SamuelMines,Pfizer:AnInformalHistory(NewYork:Pfizer,1978),1–6.

23.HarryMarkPetrakis,TheFounder’sTouch(NewYork:McGraw-Hil,1965),62–111.

24.InternationalDirectoryofCorporateHistories(Chicago:St.JamesPress,1988),123.

25.JohnW.Nordstrom,TheImmigrantin1887(Seattle:DogwoodPress,1950),44–50;“NordstromHistory,”companypublication,26

November1990.

26.FrancisC.Rooner,Jr.,CreativeMerchandisinginanEraofChange(NewYork:NewcomenSociety,1970),8–12;“LargestAmericanShoeRetailer,”Barron’s,8April1935;Hoover’sHandbook1991(Emeryvile,CA:TheReferencePress,1990),372.

27.“Procter&GambleChronology,”companypublication;OscarSchisgal,EyesonTomorrow:TheEvolutionofProcter&Gamble(NewYork:Doubleday,1981),1–14;AlfredLief,ItFloats:TheStoryofProcter&Gamble(NewYork:Rinehart,1958),14–32;plusoverfortyoutsidearticlesonthecompanydatingbacktothe1920s.

28.“ColgatePalmoliveCompany:MemorableDates,”companypublication;“Colgate-Palmolive-Peet,”Fortune,April1936;WiliamLeeSimsI,150Years...andtheFuture!Colgate-Palmolive(1806–1956)(NewYork:NewcomenSociety,1956),9–10.

29.ThePhilipMorrisHistory,companypublication(1988).

30.RJReynolds:Our100thAnniversary,companypublication(1975).

31.NickLyons,TheSonyVision(NewYork:Crown,1976),1–35.

32.JapanElectronicsAlmanac’88,(Tokyo,Japan:DEMPAPublications,1988),p.282;Kenwoodannualreports.

33.VanceTrimble,SamWalton(NewYork:Dutton,1990),45–72.

34.“CorneringtheMarket,”Forbes,23May1983,46.AlsoHoover’sHandbook1991(Emeryvile,CA:TheReferencePress,1990),84.

35.RichardSchickel,TheDisneyVersion(NewYork:Simon&

Schuster,1968),91–117.

36.CliveHirschhorn,TheColumbiaStory(NewYork:Crown,1989),7–16.

Appendix3

TABLES

TableA.1

CategoriesTrackedAcrosstheEntireHistory

(FromFoundingDateto1991)oftheVisionaryandComparisonCompaniesinourResearch

Study

Category1:OrganizingArrangements.“Hard”items,suchasorganizationstructure,policiesandprocedures,systems,rewardsandincentives,ownershipstructure,andgeneralbusinessstrategiesandactivitiesofthecompany(e.g.,acquisitions,significantchangesinstrategy,goingpublic).

Category2:SocialFactors.“Soft”items,suchasthecompany’sculturalpractices,atmosphere,norms,rituals,mythologyandstories,groupdynamics,andmanagementstyle.

Category3:PhysicalSetting.Significantaspectsofthewaythecompany

handledphysicalspace,suchasplantandofficelayoutornewfacilities.Thisincludedanysignificantdecisionsregardingthegeographiclocationofkeypartsofthecompany.

Category4:Technology.Howthecompanyusedtechnology:information

technology,

state-of-the-art

processes

and

equipment,advancedjobconfigurations,andrelateditems.

Category5:Leadership.Leadershipofthefirmsinceitsinception:thetransitionbetweenkeyearlyshapersoftheorganizationandlatergenerations,leadershiptenure,thelengthoftimetheleaderswerewiththeorganizationbeforebecoming

CEO(Weretheybroughtinfromtheoutsideorgrownfromwithin?Whendidtheyjoin?),leadershipselectionprocessesandcriteria.

Category6:ProductsandServices.Significantproductsandservicesinthecompany’shistory.Howdidtheproductorserviceideascomeabout?Whatguidedtheirselectionanddevelopment?Didthecompanyhaveanyproductfailures,andhowdiditdealwiththem?Didthecompanyleadwithnewproductsorfolowinthemarketplace?

Category7:Vision:CoreValues,Purpose,andVisionaryGoals.Werethesevariablespresent?Ifyes,howdidtheycomeintobeing?Didtheorganizationhavethematcertainpointsinitshistoryandnotothers?Whatroledidtheyplay?Ifithadstrongvaluesandpurpose,didtheyremainintactorbecomediluted?Why?

Category8:FinancialAnalysis.Ratioandspreadsheetanalysisofalincomestatementsandbalancesheetsforeveryyeargoingbacktothedatewhenthecompanybecamepublic:salesandprofitgrowth,grossmargins,returnonassets,returnonsales,returnonequity,debttoequityratio,cashflowandworking

capital,liquidityratios,dividendpayoutratio,increaseingrosspropertyplantandequipmentasapercentageofsales,assetturnover.Wealsoexaminedstockreturnsandoveralstockperformancerelativetothemarket.

Category9:Markets/Environment.Significantaspectsofthecompany’sexternalenvironment:majormarketshifts,dramaticnationalorinternationalevents,governmentregulations,industrystructuralissues,dramatictechnologychanges,andrelateditems.

TableA.2

SourcesofInformationinOurResearchStudy

•Historicalmaterialsobtaineddirectlyfromthecompanies:archivematerials,historicaldocuments(suchasprospectusesfromwhenthecompanywentpublic),historicaldescriptions,internalpublications,videofootage,transcriptsofinterviewsandspeechesofaliveanddeceasedleaders,corporatepolicydocuments,historicalandcurrentvision(values,purpose,mission)statements,employeehandbooks,trainingandsocializationmaterials,andrelatedmaterials.

•Bookswrittenabouttheindustry,thecompany,and/oritsleaderspublishedeitherbythecompanyorbyoutsideobservers.(Weplacedmoreweightonbookswrittenbyoutsiders).Weobtainedalbooks(oldandnew)availablethroughtheunifiedcatalogoflibrarylistingsatStanford,UniversityofCalifornia,Harvard,Yale,andOxford.

•Articleswrittenaboutthecompany.Wedidextensiveliteraturesearchesfromthetimeofthecompany’sfoundinguptothepresentandexaminedallmajorarticlesoneachcompanythroughthedecadesfrombroadsourcessuchasForbes,Fortune,BusinessWeek,WallStreetJournal,Nation’sBusiness,NewYorkTimes,U.S.News,NewRepublic,HarvardBusinessReview,TheEconomist,andselectedarticlesfromindustryortopicspecificsourcessuchasDiscountMerchandiser,Marketing,andHotelandRestaurantQuarterly.

•Corporateannualreportsandfinancialstatements.Insomecases,thisinvolvednearlyahundredseparateincomestatementsandbalancesheetsforasinglecompany.

•HarvardandStanfordBusinessSchoolcasestudiesandindustryanalyses.Weobtainedeveryavailablebusinesscasestudyoneachcompanyandeachindustry

inourstudy.

•Financialdatabases,includingtheUniversityofChicagoCenterForResearchinSecurityPrices(CRSP)MarketIndexDatabase,whichgaveusmonthlystockreturnsforeverycompanydatedbacktowhenfirstavailable.

•Interviewswithkeymajorfigures,employees,ex-employees,andoutside“experts”aboutthecompanyortheindustry(e.g.,analystsandacademics).

•Businessandindustryreferencematerials,suchastheBiographicalDictionaryofAmericanBusinessLeaders,

theInternational

DirectoryofCompanyHistories,Hoover’sHandbookofCompanies,DevelopmentofAmericanIndustries,andMovieIndustryAlmanac.

TableA.3

Leadership*asaDistinguishingVariableDuringFormativeStages?

*Leadershipisdefinedastopexecutive(s)whodisplayedhighlevelsofpersistence,overcamesignificantobstacles,attracteddedicatedpeople,influencedgroupsofpeopletowardtheachievementofgoals,andplayedkeyrolesinguidingtheircompaniesthroughcrucialepisodesintheirhistory.NOTE:Inselectingdates,wetriedtocovertheperiodduringwhichtheexecutivestilhadsignificantinfluenceoverthedirectionofthecompany;insomecases,theexecutiveheldnumeroustitlesoverthecourseoftime—forexample,president,CEO,chairman,andgeneralmanager.Thepointofthistableistoshowthatboththevisionaryandcomparisoncompanieshadsuchpeopleduringformativestagesofevolutionand,therefore,leadershipsodefineddoesnotshowupasadistinguishingvariable.

TableA.4

EvidenceofCoreIdeology

METHOD:Inassessingtheideologicalnatureofthevisionaryandcomparisoncompanies,weconsideredevidencealongeachofthefolowingdimensions:

A:StatementsofIdeology

B:HistoricalContinuityofIdeology

C:IdeologyBeyondProfits

D:ConsistencyBetweenIdeologyandActions

Ineachcategory,wegaveeachvisionaryandcomparisoncompanyaratingbasedontheevidencewehadavailable.Wethencalculatedanoveralindexbasedonasummationofthecompany’sratingsacrossthesedimensions,scoringeach“H”asa3,each“M”asa2,andeach“L”asa1.

A:StatementsofIdeology

H:Significantevidencethatthecompanystatedanideology(corevaluesand/orpurposeasperourdefinitions)withtheintenttousetheideologyasasourceofguidance.Evidencethatkeymembersofthecompanyspokeand/orwroteabouttheideologymorethanafewtimesandthattheideologywascommunicatedwidelytopeoplethroughouttheorganization.

M:Someevidencethatthecompanystatedanideology(corevaluesand/orpurposeasperourdefinitions)withtheintenttousetheideologyasasourceofguidance.

Someevidencethatkeymembersofthecompanyspokeand/orwroteabouttheideology,butperhapsonly

onceorafewtimes,andsomeevidencethattheideologywascommunicatedtopeopleintheorganization,butlessthanthosethatreceivedan“H”onthisdimension.

L:Littleornoevidencethatthecompanymadeanyseriousattempttoclarifyanddeclareanideology(corevaluesand/orpurposeasperourdefinitions).

B:HistoricalContinuityofIdeology

H:EvidencethatthestatedideologydiscussedinPartAhaschangedlittleandhasbeencontinualyemphasizedthroughoutthecompany’shistorysincethetimetheideologywasfirstarticulated.

M:EvidencethatthestatedideologydiscussedinPartAhaschangedsubstantialyand/orthatthecompanyhasbeensporadicinitsreferencestotheideologythroughitshistorysincetheideologywasfirstarticulated.

L:Littleevidenceofanycontinuityofanideologythroughthehistoryofthecompany.

C:IdeologyBeyondProfits

H:Evidenceofexplicitdiscussionsabouttheroleofprofitabilityorshareholderwealthasbeingonlyapartofthecompany’sobjectives,andnottheprimarydrivingobjective.Explicituseofphraseslike“reasonable”

returns,“adequate”returns,“fair”returns,“profitabilityasanecessaryconditiontopursueotheraims,”ratherthan

“maximal”or“highest”returns.

M:Evidencethatprofitabilityandshareholderreturnsarehighlyimportant—equaltoorgreaterthanotheraimsandvalues.Ideologicalconcernsarealsoimportant,butnoticeablylessso(relativetoprofitmotives)thanthe

companiesthatreceivean“H”onthisdimension.

L:Evidencethatthecompanyishighlyprofitorshareholderwealthorientedwithideologicalconcernsdeeplysubordinatedtomakingmoney.Evidencethatthecompanyseesmaximizingwealthasthereasonforexistenceandnumberonegoalfaraheadofanyotherconcerns.

D:ConsistencyBetweenIdeologyand

Actions

H:Significantevidencethatthecompany’sideologyhasbeenmorethanwordsonpaper.Significantevidence(consistentlythroughoutthecompany’shistory)ofmajorstrategic(suchasproduct,market,orinvestment)and/ororganizationdesigndecisions(suchasstructure,incentivesystems,policies)beingguidedbyandconsistentwiththestatedideology.

M:Someevidencethatthecompany’sideologyhasbeenmorethanwordsonpaper.Someevidenceofmajorstrategic

(product,

market,

investment)

and/or

organizationdesigndecisions(structure,incentivesystems,policies)beingguidedbyandconsistentwiththestatedideologyorthatthishasbeenlessconsistentthroughhistorythanforthosecompaniesthatreceivean

“H”onthisdimension.

L:Littleevidenceofanyguidancebytheideologyandconsistencybetweenstatedideologiesandcorporateactions.

TableA.5

EvidenceofBHAGs

METHOD:InassessingtheuseofBHAGsinthevisionaryandcomparisoncompanies,weconsideredevidencealongeachofthefolowingdimensions:

A:UseofBHAGs

B:AudacityofBHAGs

C:HistoricalPatternofBHAGs

Ineachcategory,wegaveeachvisionaryandcomparisoncompanya

ratingbasedontheevidencewehadavailable.Wethencalculatedanoveralindexbasedonasummationofthecompany’sratingsacrossthesedimensions,scoringeach“H”asa3,each“M”asa2,andeach“L”asa1.

A:UseofBHAGs

H:SignificantevidencethatthecompanyusedBHAGstostimulateprogress.

M:SomeevidencethatthecompanyusedBHAGstostimulateprogress,butlessclearorprominentthanthosethatreceivedan“H.”

L:LittleornoevidencethatthecompanymadeanyserioususeofBHAGsinitshistory.

B:AudacityofBHAGs

H:SignificantevidencethattheBHAGsusedwerehighly

“audacious”(evidencethattheywereverydifficulttoachieveand/orhighlyrisky).

M:EvidencethattheBHAGsusedwere“audacious,”butsignificantlylessriskyordifficulttoachievethanthosethatreceivedan“H”onthisdimension.

L:Littleevidencethatgoalswerehighlyaudacious.

C:HistoricalPatternofBHAGs

H:EvidencethatthecompanyhadarepetitivehistoricalpatternofBHAGs,orsetBHAGsthattranscendedthroughmultiplegenerationsofleadership.

M:Lessevidence(thanthosethatreceivedan“H”)ofarepetitivehistoricalpatternofBHAGs,oruseofBHAGsthattranscendedthroughmultiplegenerationsof

leadership.

L:LittleevidenceofahistoricalpatternofBHAGsinitshistory.

TableA.6

EvidenceofCultism

METHOD:Inassessingcultisminthevisionaryandcomparisoncompanies,weconsideredevidenceindicatingthatthecompanyseekstocreateanintensesenseofloyaltyanddedicationandto

influencethebehaviorofthoseinsidethecompanytobeconsistentwiththecompany’sideology.Weexaminedevidencealongthreekeydimensionsofcultlikeenvironments:

A:Indoctrination

B:TightnessofFit

C:Elitism.

Ineachcategorywegaveeachvisionaryandcomparisoncompanyaratingbasedontheevidencewehadavailable.Wethencalculatedanoveralindexbasedonasummationofthecompany’sratingsacrossthesedimensions,scoringeach“H”asa3,each“M”asa2,andeach“L”asa1.

A:Indoctrination

H:Significantevidencethatthecompanyhasahistoryofformaland/ortangibleemployeeindoctrinationprocesses.Theseprocessesmightinclude:

—Orientationprogramsthatteachsuchthingsasvalues,behavioralnorms,corporateideology,history,andtradition

—Ongoing“training”thathasideologicalcontent

—Internalpublications:books,newspapers,andperiodicalsthatreinforceideology

—“On-the-job”ideologicalsocializationbypeers,immediatesupervisors,andothers

—Membersofthecompanybecomingtheprimarysocialgroupfornewemployees;employeesbeingencouragedtosocializeprimarilywithotheremployees

—Singingcorporatesongs,yelingcorporatecheers

—Exposuretoamythologyof“heroicdeeds”byexemplaremployees

—Useofuniquelanguageandterminologythatreinforcesaframeofreference

—Makingpledgesoraffirmations

—Hiringyoung,promotingfromwithin,shapingtheemployee’smind-setfromayoungage;everyonestartingatthebottom,soastoforcepeopleto“growup”intheideologyM:Someevidencethatthecompanyhasalonghistoryofformalandtangibleemployeeindoctrinationprocessesaroundthecoreideology,butlessprominentand/orlesshistoricalyconsistentthanthosethatreceivedan“H.”

L:Littleornoevidencethatthecompanyhasalonghistoryofformaland/ortangibleemployeeindoctrinationprocessesaroundthecoreideology.

B:TightnessofFit

H:Significantevidencethatthecompanyhashistoricalyimposed

“tightnessoffit”—peopletendtoeitherfitwelwiththecompanyortendtonotfitatal;theboundariesof“fit”areverytight(especialywithrespecttothecompany’sideology).Thecompanyusesavarietyoftangiblemethodstoenforcetightnessoffit,whichmightinclude:

—Tangiblerecognitionandrewardsforthosewhofitandtangiblenegativereinforcementandpenaltiesforthosewhodon’tfit(thosewhofitseemtobehappy,rewarded,valued;thosewhodon’tfitseemtobeunhappy,unvalued,“leftbehind”)

—Toleranceformistakesthatdonotbreachthecompany’sideology(“non-sins”);severepenaltiesforthosewhobreachtheideology(“sins”)

—Tightscreeningprocesses,eitherduringhiringorwithinthefirstfewyears

—Severeexpectationsofloyalty;penaltiesand/orsenseofbetrayalforperceived“lackofloyalty”

—Overtightbehavioralnormsandintrusivebehaviorcontrolwhichtendstorepelthosewhodon’tfit

—Expectationsofzealousnessofbehaviorandespousementoftheideology

—Seekingbuy-in(asinfinancialortimeinvestment)whichwiltendtorepelthosenotwilingtofuly“join”

M:Someevidencethatthecompanyhashistoricalyimposed

“tightnessoffit,”butlessprominentand/orlesshistoricalyconsistentthanthosethatreceivedan“H.”

L:Littleornoevidencethatthecompanyhashistoricalyimposed

“tightnessoffit.”

C:Elitism

H:Significantevidencethatthecompanyhashistoricalyreinforcedasenseofbelongingtosomethingspecialandsuperior.Bothpartsofthisareimportant—belongingandspecialness.Thiscanbereinforcedinavarietyofways,suchas:

—Continualverbalandwrittenemphasisonbeingpartofaspecialgroup,theelites

—Anobsessionwithsecrecyandcontroloverinformation,especialyinregardtotheoutsideworld

—Celebrationstoreinforcesuccesses,belonging,andspecialness

—Useofnames(“Motorolans,”“Nordies,”“Proctoids,”“CastMembers”)andspeciallanguagetoreinforcebeingpartofaspecialgroup

—Lotsofemphasisona“familyfeeling”—albelongingto“abig,happyfamily”

—Physicalisolation;thatis,thecompanyhasitsownfacilities(postoffices,restaurants,healthclubs,socialgatheringplaces)thatminimizetheneedforemployeestodealwiththeoutsideworld

M:Lessevidence(thanthosethatreceivedan“H”)thatthe

companyhashistoricalyreinforcedasenseofbelongingtosomethingspecialandsuperior.

L:Littleornoevidencethatthecompanyhashistoricalyreinforcedasenseofbelongingtosomethingspecialandsuperior.

TableA.7

EvidenceofPurposefulEvolution

METHOD:Inassessingtheuseofevolutionaryprogressinthevisionaryandcomparisoncompanies,weconsideredevidencecolectedinthecourseofourstudythatwouldindicatepurposefulevolutiontostimulateprogress.Weexaminedevidencealongthreedimensions:A:ConsciousUseofEvolutionaryProgress

B:OperationalAutonomytoStimulateandEnableVariationC:OtherMechanismstoStimulateandEnableVariationandSelectionIneachcategorywegaveeachvisionaryandcomparisoncompanyaratingbasedontheevidencewehadavailable.Wethencalculatedanoveralindexbasedonasummationofthecompany’sratingsacrossthesedimensions,scoringeach“H”asa3,each“M”asa2,andeach“L”asa1.

A:ConsciousUse

H:Significantevidencethatthecompanyhasahistoryofconsciouslyembracingtheconceptofmakingprogressbyanevolutionaryprocessofvariationandselection.Althoughthecompanymightalsoembraceotherformsofprogress(suchasBHAGs,orself-improvement),itmustalsohavemadeconscioususeofevolutionaryprocesses.Evidencethatthecompanyhas,infact,madesomesignificantstrategicshiftsandmovesstemmingfromuseofthistypeofprogress.

M:Someevidencethatthecompanyhasahistoryofconsciouslyembracingtheconceptofmakingprogressbyanevolutionaryprocessofvariationandselection,butlessprominentand/orlesshistoricalyconsistentconsciousadoptionthanthosethat

receivedan“H.”

L:Littleornoevidencethatthecompanyhasahistoryofconsciouslyembracingtheconceptofmakingprogressbyanevolutionaryprocessofvariationandselection.

B:OperationalAutonomy

H:Significantevidencethatthecompanyhasmadehistoricaluseofoperationalautonomyasameansofenablingvariation.

Operationalautonomymeansthatemployeeshavewidepersonaldiscretioninhowtogoaboutfulfilingtheirresponsibilitiesviadecentralizedorganizationstructuresandjobdesignsthatenableoperationalfreedom.

M:Someevidencethatthecompanyhasmadehistoricaluseofoperationalautonomyasameansofenablingvariation,butlessprominentand/orlesshistoricalyconsistentconsciousadoptionthanthosethatreceivedan“H.”

L:Littleornoevidencethatthecompanyhasmadehistoricaluseofoperationalautonomyasameansofenablingvariation.

C:OtherMechanisms

H:Significantevidencethatthecompanyhasahistoryofusingavarietyofmechanismsotherthanoperationalautonomytostimulateandenableevolutionaryprogressviavariationandselection.Thesemechanismscanbedesignedtostimulatecreativityandnewideas,experimentation,opportunism(quick,vigorousactioninresponsetounexpectedopportunities),lackofpenalties(oractualrewards)formistakes,rewardsforinnovationsandnewdirections,individualinitiative,andincentivesforcreatingnewopportunitiesfortheorganization.

M:Someevidencethatthecompanyhasahistoryofusingavarietyofmechanismstostimulateandenableevolutionaryprogressviavariationandselection,butlessprominentand/or

lesshistoricalyconsistentconsciousadoptionthanthosethatreceivedan“H.”

L:Littleornoevidencethatthecompanyhasahistoryofusingavarietyofmechanismstostimulateandenableevolutionaryprogressviavariationandselection.

TableA.8

EvidenceofManagementContinuity

METHOD:Inassessingmanagementcontinuityinthevisionaryandcomparisoncompanies,weconsideredevidencealongthefolowingdimensions:

A:InternalVersusExternalChiefExecutives

B:No“Post-Heroic-LeaderVacuum”or“SaviorSyndrome”

C:FormalManagementDevelopmentProgramsandMechanismsD:CarefulSuccessionPlanningandCEOSelectionMechanisms.

Ineachcategorywegaveeachvisionaryandcomparisoncompanyararingbasedontheevidencewehadavailable.Wethencalculatedanoveralindexbasedonasummationofthecompany’sratingsacrossthesedimensions,scoringeach“H”asa3,each“M”asa2,andeach“L”asa1.

A:Internal/External

H:Significantevidencethatthecompanyhasahistoryofselectingchiefexecutiveofficersonlyfrominside.

M:Evidencethatthecompanyhasahistoryofselectingchiefexecutiveofficersprimarilyfrominside,butoneortwodeviationsfromthisrule.

L:Evidencethatthecompanyhasdeviatedfromthe“insideonly”

rulemorethantwotimes.

B:No“Post-Heroic-LeaderVacuum”or“Savior

Syndrome”

H:Noevidencethatthecompanyhasexperienceda“Post-heroic-leadervacuum”(adearthofhighlyqualifiedsuccessorsafterthedepartureofastrongCEO)orthe“SaviorSyndrome”

(lookingtotheoutsideintimesoftroubletofinda“savior”whowilcomeinandrevivethecompany).

M:Evidencethatthecompanyhasexperienceda“Post-heroic-leadervacuum”orthe“SaviorSyndrome”atleastonceinitshistory.

L:Evidencethatthecompanyhasexperienceda“Post-heroic-leadervacuum”orthe“SaviorSyndrome”atleasttwiceinitshistory.

C:ManagementDevelopmentMechanisms

H:Significantevidencethatthecompanyhasahistoryofconsciousattentiontomanagementdevelopmentviainternalmanagementtrainingprograms,rotationprograms,conscioususeofon-the-jobexperiencestodevelopmanagers,exposuretotopmanagementissuesandthinking,andsoon.

M:Someevidencethatthecompanyhasahistoryofconsciousattentiontomanagementdevelopmentbutlessprominentand/orlesshistoricalyconsistentconsciousadoptionthanthosethatreceivedan“H.”

L:Littleornoevidencethatthecompanyhasahistoryofconsciousattentiontomanagementdevelopment.

D:SuccessionPlanningandCEOSelection

Mechanisms

H:SignificantevidencethatthecompanyhasahistoryofcarefulsuccessionplanningandformalCEOselectionmechanisms.

M:SomeevidencethatthecompanyhasahistoryofcarefulsuccessionplanningandformalCEOselectionmechanisms,butlessprominentand/orlesshistoricalyconsistentconscious

adoptionthanthosethatreceivedan“H.”

L:LittleornoevidencethatthecompanyhasahistoryofcarefulsuccessionplanningandformalCEOselectionmechanisms.

TableA.8BackupData

CEOStatistics

1806–1992

TableA.9

PerformanceRankingsofChiefExecutiveEras

GeneralElectricCompany

NotestoTableA.9

1.Calculatedaspretaxprofitdividedbyyear-endstockholder’sequity.

2.Ourreturnonequitydatabasecutsoffin1990.However,using1991

and1992annualreports,wefoundthattherankorderdoesnot

changeaddingintheseadditionalyears.WelchROEfrom1980–

1992comesoutat26.83percent.(For1991ROE,weexcludedthechangeinaccountingforpostretirementbenefitsinourcalculations.)

3.Returnonequitydatabasedatesbackonlyto1915;Coffinwasinofficebeginningin1892.

4.SwopeandYoungoperatedasachiefexecutiveteam.

5.CalculatedastheratioofcumulativeGEstockreturnduringtheCEO

eradividedbycumulativegeneralmarketstockreturnduringtheGECEOera.

6.OurstockreturndatabaserunsfromJanuary1926throughDecember1990.

7.CalculatedastheratioofcumulativeGEstockreturnduringtheCEO

eradividedbycumulativegeneralmarketstockreturnorcumulativeWestinghousestockreturnduringtheGECEOera.

8.GivenWestinghouse’sdifficultiesandGE’ssuccessin1988–1993,wepredictthatGEunderWelchwilrisesignificantlyonthisdimension.

TableA.10

EvidenceofSelf-Improvement

METHOD:Inassessingself-improvementinthevisionaryandcomparison

companies,weconsideredevidencealongthefolowingdimensions:

A:Long-TermInvestments(PP&E,R&D,Earnings,Reinvestments)B:InvestmentinHumanCapabilities:Recruiting,Training,andDevelopment

C:EarlyAdoptionofNewTechnologies,Methods,ProcessesD:MechanismstoStimulateImprovement.

Ineachcategorywegaveeachvisionaryandcomparisoncompanyaratingbasedontheevidencewehadavailable.Wethencalculated

anoveralindexbasedonasummationofthecompany’sratingsacrossthesedimensions,scoringeach“H”asa3,each“M”asa2,andeach“L”asa1.

A:Long-TermInvestments

H:Significantevidencethatthecompanyhasahistoryofreinvestingearningsforlong-termgrowth,basedonPP&Eratioaspercentageofsales,R&Dexpenditures,anddividendpayoutratios.

M:Someevidencethatthecompanyhasahistoryofreinvestingearningsforlong-termgrowth.

L:Evidencethatthecompanyhasneglectedinvestmentsforlong-termgrowth.

B:InvestmentinHumanCapabilities

H:Significantevidencethatthecompanyhasahistoryofinvestmentinemployeerecruiting,training,andprofessionaldevelopment—evenindownturns.

M:Someevidencethatthecompanyhasahistoryofinvestmentinemployeerecruiting,training,andprofessionaldevelopment—

evenindownturns.

L:Littleevidencethatthecompanyhasahistoryofinvestmentinemployeerecruiting,training,andprofessionaldevelopment—

evenindownturns.

C:EarlyAdoption

H:Significantevidencethatthecompanyhasahistoryofbeinganearlyadopterof,forexample,newtechnologies,processes,ormanagementmethods.

M:Someevidencethatthecompanyhasahistoryofbeingan

earlyadopterofnewtechnologies,processes,managementmethods.

L:Evidencethatthecompanyhasahistoryofbeingalateadopterofnewtechnologies,processes,managementmethods.

D:Mechanisms

H:Significantevidencethatthecompanyhasahistoryoftangible

“mechanismsofdiscomfort”thatimpelchangeandimprovementfromwithinbeforetheexternalenvironmentdemandschangeandimprovement.

M:Someevidencethatthecompanyhasahistoryoftangible

“mechanismsofdiscomfort”thatimpelchangeandimprovementfromwithinbeforetheexternalenvironmentdemandschangeandimprovement.

L:Littleornoevidencethatthecompanyhasahistoryoftangible

“mechanismsofdiscomfort”thatimpelchangeandimprovementfromwithinbeforetheexternalenvironmentdemandschangeandimprovement.

TableA.10BackupData

AverageAnnualIncreaseinGrossPP&Eas

PercentageofSales

TableA.10BackupData

AverageAnnualDividendPayoutRatio

Appendix4

CHAPTERNOTES

Thepaginationofthiselectroniceditiondoesnotmatchtheeditionfromwhichitwascreated.Tolocateaspecificpassage,pleaseusethesearchfeatureofyoure-bookreader.

CHAPTER1

1.Authorinterview,November19,1990.

2.“TheCharacterofProcter&Gamble,”textofspeechbyJohnG.

Smale,November7,1986.

3.WeusedtheCenterforResearchinSecuritiesMarketIndexDatabase(CRSP)asthesourceofourstockreturndata.The

“general-market”portfolioconsistsoftheweightedaverage(basedonmarketvalue)ofalstockstradedontheNYSEbeginningin1926,AMEXbeginningin1962,andNASDAQbeginningin1972.

AnalysisdoesnotincludeNordstromversusMelvileandSonyversusKenwood(datanotavailableinCRSP),whichwouldhaveimprovedtheperformanceofthevisionarycompanies.WewerefacedwithadecisionabouthowtohandleTexasInstruments,whichmergedwithIntercontinentalRubberCompanyin1953.Tomaintainconsistencyacrossthedatasource,weelectedtousetheCRSP

datadirectly—sincethisiswhatwedidinalofourothercompaniesintheanalysis.However,toensurethatTIwouldnotundulyskewthedata,wealsocalculatedthereturnsusingTIdataonlyafterthe1953

merger.Thisproducedacomparisontotalof$1,024,thusnotdramaticalychangingtheoveralresult;thevisionarycompaniesstiloutperformedthecomparisoncompaniesbyoversixtimes.

4.Weuseddescriptivestatistics,histograms,confidenceintervals,andt-tests.Weexamined:

•Populationversusreturns.Expectedreturnsbasedon:(numberofcompaniesheadquarteredineachstateinthepopulation)times(totalnumberofreturns)/(totalpopulation),ascomparedtoactualreturns.

•Populationversussample.Expectedsamplebasedon:(numberofcompanies

headquarteredineachstateinthepopulation)times(totalsample/totalpopulation),ascomparedtoactualsamplebystate.

•Sampleversusreturns.Expectedreturnsbasedon:(numberofcompaniesheadquarteredineachstate)times(totalnumberreturned)/(totalsample),ascomparedtoactualreturnsbystate.

•Inalthreeoftheprecedingcases,thedifferenceinscoresprovednotsignificantlydifferentfromzero.

5.Fortune500industrial:23percent;Fortune500service:23percent;Inc.500private:27percent;Inc.100public:25percent.

6.Darwindidn’tseethetortoisesandimmediatelyhavetheflashofinsightthatledtohistheoryofevolution(infact,helefttheGalapagosstilacreationist).Butthetortoises(andothervariationsinspecies)thatdidn’tfitneatlyintopriorassumptionsaboutspeciesplantedatinyseedofdoubtanddiscontent,whichlatergerminatedinhisevolutionarytheoryofvariationandnaturalselection.(SeeStephenJ.Gould’sbookTheFlamingo’sSmile,

“DarwinatSea,”Norton,1985.)

7.JerryI.Porras,StreamAnalysis—APowerfulWaytoDiagnoseandManageOrganizationalChange(Reading,MA:Addison-Wesley,1987).

CHAPTER2

1.Schickel,Richard,TheDisneyVersion(NewYork:Simon&

Schuster,1968),44,363.

2.SamWaltonwithJohnHuey,SamWalton:MadeinAmerica(New

York:Doubleday,1992),234.

3.TheoriginalinspirationforthisanalogycamefromalectureseriesonintelectualhistoryandtheNewtonianRevolutionentitledTheOriginoftheModernMind,taughtbyAlanCharlesKors,ProfessorofHistory,UniversityofPennsylvania,andcapturedonaudiotapeaspartoftheSuperstarTeacherSeriesfromtheTeachingCompany,Washington,D.C.

4.Hewlett-PackardCompanyArchives,“AnInterviewwithBilHewlett,”

1987,4.

5.“ResearchPackedwithPh.Ds,”BusinessWeek,22December1956,p.58.

6.JohnMcDonald,“TheMenWhoMadeT.I.,”Fortune,November1961,118.

7.AkioMorita,MadeinJapan(NewYork:Dutton,1986),44–57.

8.NickLyons,TheSonyVision(NewYork:Crown,1976),4–5.

9.AkioMorita,MadeinJapan(NewYork:Dutton,1986),44–57.

10.JapanElectronicsAlmanac,1988,282.

11.VanceTrimble,SamWalton(NewYork:Dutton,1990),121.

12.SamWaltonwithJohnHuey,SamWalton:MadeinAmerica(NewYork:Doubleday,1992),35.

13.Hoover’sHandbookofCorporations,1991.

14.VanceTrimble,SamWalton(NewYork:Dutton,1990),102–104.

15.Ibid.,121–122.

16.RobertO’Brien,Marriott:TheJWillardMarriottStory(SaltLakeCity:Deseret,1987).

17.JohnW.Nordstrom,TheImmigrantin1887(Seattle:DogwoodPress,1950),44–50;“NordstromHistory,”companypublication,26

November1990.

18.ValuesandVisions:AMerckCentury(Rahway,NJ:Merck,1993),13–15.

19.“Procter&GambleChronology,”companypublication;OscarSchisgal,EyesonTomorrow:TheEvolutionofProcter&Gamble

(NewYork:Doubleday,1981),1–14;AlfredLief,ItFloats:TheStoryofProcter&Gamble(NewYork:Rinehart,1958),14–32.

20.HarryMarkPetrakis,TheFounder’sTouch(NewYork:McGraw-Hil,1965),62–63.

21.ThePhilipMorrisHistory,companypublication,1988.

22.OurStorySoFar(St.Paul,MN:3MCompany,1977),51.

23.CharlesW.Cheape,NortonCompany:aNewEnglandEnterprise(Cambridge,MA:HarvardUniversityPress,1985),12.

24.RobertJ.Serling,LegendandLegacy(NewYork:St.Martin’sPress,1992),2–6.

25.“TakeofffortheBusinessJet,”BusinessWeek,28September1963.

26.RenéJ.Francilon,McDonnellDouglasAircraftSince1920,(Annapolis,MD:NavalInstitutePress,1988),1–12.

27.RichardSchickel,TheDisneyVersion(NewYork:Simon&

Schuster,1968),106–107.

28.CliveHirschhorn,TheColumbiaStory(NewYork:Crown,1989),7–16.

29.GroverandLagai,DevelopmentofAmericanIndustries,4thEdition,1959,491.

30.RobertLacey,Ford:TheMenandtheMachine(NewYork:BalantineBooks,1986),47–110.

31.CentennialReview,InternalWestinghouseDocument,1986.

32.Ibid.

33.LeonardS.Reich,TheMakingofAmericanIndustrialResearch:ScienceandBusinessatGEandBell,1876–1926(Cambridge:CambridgeUniversityPress,1985),69–71.(Author’snote:WecannotverifythatGE’slabwasdefinitelyAmerica’sfirst,butwedoknowthatitprecededBelLabs,oneoftheotherearlylabs,byafultwenty-fiveyears.)

34.BilHewlettinternalspeech,1956.CourtesyHewlett-PackardCompanyArchives.

35.DavePackard,“Industry’sNewChalenge:TheManagementof

Creativity,”WesternElectronicManufacturers’Association,SanDiego,23September1964,CourtesyHewlett-PackardCompanyArchives.

36.“Hewlett-PackardChairmanBuiltCompanybyDesign,CalculatorbyChance,”TheAMBAExecutive,September1977,6–7.

37.HarryMarkPetrakis,TheFounder’sTouch(NewYork:McGraw-Hil,1965),x–63.

38.OscarSchisgal,EyesonTomorrow:TheEvolutionofProcter&

Gamble(NewYork:Doubleday,1981),xii.

39.“NationalBusinessHalofFameRosterofPastLaureates,”

Fortune,5April1993,116.

40.Hoover’sHandbook,1991,381.

41.OurStorySoFar(St.Paul,MN:3MCompany,1977),59.

42.MildredHoughtonComfort,WilliamL.McKnight,Industrialist(Minneapolis:T.S.Denison,1962),35,45,182,194,201.

43.AkioMorita,MadeinJapan(NewYork:Dutton,1986),147.

44.OscarSchisgal,EyesonTomorrow:TheEvolutionofProcter&

Gamble(NewYork:Doubleday,1981),1–15.

45.RobertJ.Serling,LegendandLegacy:TheStoryofBoeingandItsPeople(NewYork:St.Martin’sPress,1992),70.

46.ValuesandVisions:AMerckCentury(Rahway,NJ:Merck,1993),12.

47.CamileB.WortmanandElizabethF.Loftus,Psychology(NewYork:McGraw-Hil,1992),385–418.

48.HaroldvanB.ClevelandandThomasF.Huertas,Citibank1812–

1970(Cambridge,MA:HarvardUniverstityPress,1985),32.

49.Citibank,1812–1970,301.

50.HaroldvanB.ClevelandandThomasF.Huertas,Citibank1812–

1970(Cambridge,MA:HarvardUniverstityPress,1985),41,301;andJohnDonaldWilson,TheChase(Boston:HarvardBusinessSchoolPress,1986),25.

51.Citibank,1812–1970,54.

52.AnnaRobesonBurr,PortraitofaBanker:JamesStillman,1850–

1918(NewYork:Duffield,1927),249.

53.“WigginIstheChaseBankandtheChaseBankIsWiggin,”

BusinessWeek,April30,1930.

54.VanceTrimble,SamWalton(NewYork:Dutton,1990),seepp.1–

45foragoodaccountofWalton’searlylife.

55.SamWaltonwithJohnHuey,SamWalton:MadeinAmerica(NewYork:Doubleday,1992),78–79.

56.“America’sMostSuccessfulMerchant,”Fortune,23September1991.

57.Muchofthedetailinthissectioncomesfrom:SamWaltonwithJohnHuey,MadeinAmerica(NewYork:Doubleday,1992),225–232.

58.VanceTrimble,SamWalton(NewYork:Dutton,1990),274.

59.SamWaltonwithJohnHuey,MadeinAmerica(NewYork:Doubleday,1992),225.

60.VanceTrimble,SamWalton(NewYork:Dutton,1990),121.

61.“IndustryOverview,”DiscountMerchandiser,June1977.

62.“GremlinsareEatinguptheProfitsatAmes,”BusinessWeek,19

October1987.

63.“DavidGlassWon’tCrackUnderFire,”Fortune,8February1993,80.

64.“PistnerdiscussesAmesStrategy,”DiscountMerchandiser,July1990.

65.“JamesHarmon’sTwoHats,”Forbes,May28,1990.

66.Goalsfortheyear2000fromaletterwereceivedfromaWal-Martdirectorin1991.Seeourchapteronvisionformoredetails.

67.HarryMarkPetrakis,TheFounder’sTouch(NewYork:McGraw-Hil,1965),49,61.

68.Ibid.,69,88.

69.Ibid.,114–15.

70.Ibid.,p.xi.

71.RobertW.Galvin,TheIdeaofIdeas(Schaumburg,IL:Motorola

UniversityPress,1991),45,65.

72.“ZenithBuckstheTrend,”Fortune,December1960.

73.“AttheZenithandontheSpot,”Forbes,September1,1961.

74.“ZenithBuckstheTrend,”Fortune,December1960;“IrrepressibleGeneMcDonald,”Reader’sDigest,July1944;and“CommanderMcDonaldofZenith,”Fortune,June1945.

75.InternationalDirectoryofCorporateHistories(Chicago:St.JamesPress,1988),123.

76.ZenithBuckstheTrend,”Fortune,December1960.

77.Ibid.

78.GalvindiedinNovemberof1959;McDonalddiedinMayof1958.

79.InternationalDirectoryofCompanyHistories(Chicago:St.JamesPress,1988),Volume2,135.

80.InternationalDirectoryofCompanyHistories(Chicago:St.JamesPress,1988),Volume2,135.

81.CliveHirschhorn,TheColumbiaStory(NewYork:Crown,1989).

82.Schickel,Richard,TheDisneyVersion(NewYork:Simon&

Schuster,1968),362.

83.TheDisneyStudioStory(Holywood:WaltDisney,1987),18.

84.TheDisneyStudioStory(Holywood:WaltDisney,1987);andSchickel,Richard,TheDisneyVersion(NewYork:Simon&

Schuster,1968),180.

85.TheDisneyStudioStory(Holywood:WaltDisney,1987),42.

86.Personnel,December1989,53.

87.JohnTaylor,StormingtheMagicKingdom(NewYork:BalantineBooks,1987),14.

88.Ibid.,p.viii.

89.Wehaveparaphrasedfromthelectureseries“TheOriginoftheModernMind,”byAlanCharlesKors,ProfessorofHistory,UniversityofPennsylvania,forthisparagraph.

90.Forthebestcoverageofthetheoryofevolution,wesuggestBiology,byNormanK.WesselsandJanetL.Hopson(NewYork:

RandomHouse,1988),chapters9–15,19,41–43.

91.ForanexcelentdescriptionofthepersonalitiesandprocessesoftheconstitutionalconventionseeMiracleatPhiladelphia—TheStoryoftheConstitutionalConvention:MaytoSeptember,1787,byCatherineDrinkerBowen(Boston:Little,Brown,1966).

INTERLUDE

1.F.ScottFitzgerald,TheCrack-up(1936).

CHAPTER3

1.Authorinterview,17April1992.

2.Merck&Company,ManagementGuide,CorporatePolicyStatement,February3,1989,courtesyMerck&Company.

3.WrittenpersonalybyDonPetersenatopthischapterwhenhereviewedourmanuscript,January1994.

4.GeorgeW.Merck,“AnEssentialPartnership—TheChemicalIndustryandMedicine,”speechpresentedtotheDivisionofMedicinalChemistry,AmericanChemicalSociety,22April1935.

5.Merck&Company,1991AnnualReport,InsideCover.

6.DavidBolierandKirkO.Hansen,Merk&Co.(A-D),BusinessEnterpriseTrustCase,No.90-013.

7.DavidBolierandKirkO.Hansen,Merk&Co.(A-D),BusinessEnterpriseTrustCase,No.90-013,caseD,3.

8.GeorgeW.Merck,SpeechattheMedicalColegeofVirginiaatRichmond,December1,1950,courtesyMerck&Companyhistoricalarchives.

9.“ChasPfizer:SuccessfulUpstart,”Forbes,15December1962.

10.AkioMorita,MadeinJapan(NewYork:Dutton,1986),43–44.

11.ThereissomedebateastotheexacttranslationoftheprospectusfromJapaneseintoEnglish.Wehavereliedontwosourcestocapturetheessenceofthispartoftheprospectus:NickLyons’sbook,TheSonyVision(NewYork:Crown,1976),1–18;anda

translationbyoneofourJapanesestudents,TsunetoIkeda,towhomwearegratefulforhisperspectiveonthedocument.

12.NickLyons,TheSonyVision(NewYork:Crown,1976),10.

13.AkioMorita,MadeinJapan(NewYork:Dutton,1986),147–148.

14.Ibid.,79.

15.RanganathNayakandJohnM.Ketteringham,Break-throughs!

(NewYork:RawsonAssociates,1986),130–150;andNickLyons,TheSonyVision(NewYork:Crown,1976),xv-xvii.

16.RobertL.Shook,Turnaround:TheNewFordMotorCompany(NewYork:Prentice-Hal,1990),94.

17.RobertL.Shook,Turnaround:TheNewFordMotorCompany(NewYork:Prentice-Hal,1990),96.

18.DetroitNews,November14,1916,citedinLacey,179.

19.RobertLacey,Ford—TheMenandtheMachine(NewYork:BalantineBooks,1986),179.

20.Ibid.,128.

21.Ibid.,129.

22.PeterF.Drucker,ConceptoftheCorporation(NewYork:JohnDay,1972),305–307.

23.PeterF.Drucker,Management:Tasks,Responsibilities,Practices(NewYork:Harper&Row,1985),808.

24.DavidPackard,speechgiventoHP’straininggroupon8March1960,courtesyofHewlett-PackardCompanyarchives.

25.DavidPackard,“AManagementCodeofEthics,”speechpresentedtotheAmericanManagementAssociation,SanFrancisco,CA,24January1958,courtesyHewlett-PackardCompanyarchives.

26.Ibid.

27.Watt’sCurrent,internalemployeenewsletter,FromOurPresident’sDesk,November1961,courtesyHewlett-PackardCompanyarchives.

28.DavePackard,“ObjectivesoftheHewlett-PackardCompany,”

January1957;courtesyHewlett-PackardCompanyarchives.

29.AuthorinterviewwithJohnYoung,17April1992,30.JohnMcDonald,“TheMenWhoMadeTI,”Fortune,November1961,123.

31.“RunningThingsWithaSlideRule,”BusinessWeek,27April1968.

32.“TheMenWhoMadeT.I.,”Fortune,November1961.

33.“RunningThingsWithaSlideRule,”BusinessWeek,27April1968.

34.“TexasInstruments:PushingHardintoConsumerMarkets,”

BusinessWeek,24August1974.

35.“JapaneseHeatontheWatchIndustry,”BusinessWeek,5May1980.

36.InternalHPSpeechbyDavidPackardemphasizingtodivisionmanagerstheimportanceofthinkingintermsofcontribution,notintermsofmarketshareorsize,courtesyofHewlett-PackardCompanyarchives.

37.“HowTIBeattheclockonits$20digitalwatch,”BusinessWeek,31

May1976;“JapaneseHeatontheWatchIndustry,”BusinessWeek,5May1980;HPinternalarchivesspeechbyDavidPackard,February11,1974;InterviewwithJohnYoung,April1992.

38.LawrenceG.Foster,ACompanythatCares(NewBrunswick,NJ:Johnson&Johnson,1986),17.

39.Ibid,64–67.

40.Ibid,65.

41.R.W.Johnson,Jr.,TryReality,apamphlethewrotein1935.

42.LawrenceG.Foster,ACompanythatCares(NewBrunswick,NJ;Johnson&Johnson,1986),108–109.

43.FrancisJ.AguilarandArvindBhambri,“Johnson&Johnson(A),”

HarvardBusinessSchoolCaseNo.384-053,4.

44.WarrenBennis,OnBecomingaLeader(Reading,MA:Addison-Wesley,1989),192.

45.FrancisJ.AguilarandArvindBhambri,“Johnson&Johnson(A),”

HarvardBusinessSchoolCaseNo.384-053,3.

46.FrancisJ.AguilarandArvindBhambri,“Johnson&Johnson(A),”

HarvardBusinessSchoolCaseNo.384-053.

47.Ibid,5.

48.“Bristol-MeyersPrescriptionforProfits,”Dun’sBusinessMonth,December1982.

49.SeeE.E.Tauber,BoeinginPeaceandWar(Enumaclaw,WA:TABA,1991);RobertJ.Serling,LegendandLegacy:TheStoryofBoeingandItsPeople(NewYork:St.Martin’sPress,1992);HaroldMansfield,Vision(NewYork:PopularPress,1966).

50.From“GambleintheSky,”Time,19July1954,and“AcceleratingtheJetAge,”Nation’sBusiness,August1967.

51.RobertJ.Serling,LegendandLegacy:TheStoryofBoeingandItsPeople(NewYork:St.Martin’sPress,1992),285.

52.HarryMarkPetrakis,TheFounder’sTouch(NewYork:McGraw-Hil,1965),134,153.

53.Ibid.,111.

54.RobertW.Galvin,TheIdeaofIdeas(Schaumburg,IL:MotorolaUniversityPress,1991).

55.“ForWhichWeStand—AStatementofPurpose,Principles,andEthics,”MotorolaInternalPublication,1988.

56.RobertO’Brien,Marriott:TheJWillardMarriottStory(SaltLakeCity:Deseret,1987),324.

57.Ibid.,320.

58.“StayingPower,”VisaVis,February1981,60.

59.RobertO’Brien,Marriott:TheJWillardMarriottStory(SaltLakeCity:Deseret,1987),256.

60.“Money,Talent,andtheDevilbytheTail:J.WilardMarriott,”

ManagementReview,January1985.

61.Ibid.

62.Marriott1988AnnualReport,3.

63.“HowardJohnsonTriesaLittleHarder,”BusinessWeek,29

September1973;“HoJoswilRepaintitsRoofs,”BusinessWeek,

13December1982;“HowaGreatAmericanFranchiseLostitsWay,”Forbes,30December1985;“TheSadCaseoftheDwindlingOrangeRoofs,”Forbes,3December1985.

64.“HoJoswilRepaintitsRoofs,”BusinessWeek,13December1982;“HowaGreatAmericanFranchiseLostitsWay,”Forbes,30

December1985.

65.InterviewwithRossMilhauser,NewYorkTimes,25January1979,D1.

66.“VoyageintotheUnknown,”Forbes,1December1971,41.

67.Fortune,8May1989.

68.DiscussionwiththeauthorsataconferenceatStanfordUniversity,October1991.

69.“PhilipMorris:UnconventionalWisdom,”Forbes,1January1971.

70.“HowPhilipMorrisDiversifiedRight,”Fortune,23October1989.

71.“CanHeKeepPhilipMorrisGrowing,”Fortune,6April1992.

72.“HowPhilipMorrisDiversifiedRight,”Fortune,23October1989.

73.Priortotheearly1950s,PhilipMorrisappearstonothavehadmuchofacoherentideology;thisdiscussionrelatestothemid-1950son.PhilipMorrisistheonlyvisionarycompanyinourstudyinwhichtheideologydoesn’tappearuntilrelativelylateinthecompany’shistory.

74.MildredHoughtonComfort,WilliamL.McKnight,Industrialist(Minneapolis:T.S.Denison,1962);VirginiaHuck,BrandoftheTartan—The3MStory(NewYork:Appleton-Century-Crofts,1955);OurStorySoFar(St.Paul,MN:3MCompany,1977);varioushistoricalbusinessarticles;“GettingtoKnowUs,”3Mpublication.

75.AldenHatch,AmericanExpress1850–1950:ACenturyofService(GardenCity,NY:CountryLifePress,1950);JonFriedmanandJohnMeechan,HouseofCards:InsidetheTroubledEmpireofAmericanExpress(NewYork:Putnam,1992);“EightPrinciples:LouGerstnerDiscussestheStayingPowerofCorporatePhilosophy,”TRSExpress(AmericanExpressPublication),December1987;PeterGrossman,AmericanExpress:The

UnofficialHistory.

76.E.E.Tauber,BoeinginPeaceandWar(Enumaclaw,WA:TABA,1991),RobertJ.Serling,LegendandLegacy(NewYork:St.

Martin’sPress,1992);HaroldMansfield,Vision(NewYork:PopularPress,1966);Boeingstatementofmissionandvalues,courtesyBoeingCorporation;“AcceleratingtheJetAge,”Nation’sBusiness,August1967.

77.HaroldvanB.ClevelandandThomasF.Huertas,Citibank1812–

1970(Cambridge,MA:HarvardUniverstityPress,1985);RichardB.Miler,Citicorp:TheStoryofaBankinCrisis(NewYork:McGraw-Hil,1993);RobertB.Levering,The100BestCompaniestoWorkforinAmerica(NewYork:NewAmericanLibrary,1984),43;“OurFuture”and“EthicalChoices,”internalCiticorppublications.

78.HenryFord,I,TheHumanEnvironmentandBusiness(NewYork:Weybright&Taley,1970);RobertL.Shook,Turnaround:TheNewFordMotorCompany(NewYork:Prentice-Hal,1990);AnneJardin,TheFirstHenryFord(ColonialPress,1970);RobertLacey,Ford—TheMenandtheMachine(NewYork:BalantineBooks,1986);AmericanLegendandThisistheFordMotorCompany,Fordcorporatepublications;FordatFifty(NewYork:Simon&

Schuster,1953).

79.RonaldG.Greenwood,ManagerialDecentralization:AStudyoftheGeneralElectricPhilosophy(Lexington,MA:LexingtonBooks,1974);RobertConot,ThomasA.Edison—AStreakofLuck(NewYork:DaCapoPress,1979);TheGeneralElectricStory(Schenectady,NY:HalofHistoryFoundation,1981),volumes1&

2;NoelM.TichyandStratfordSherman,ControlYourDestinyorSomeoneElseWill(NewYork:DoubledayCurrency,1993);“1956

StatementofGE’sCompanyObjectives,”courtesyGeneralElectricCompany.

80.“ObjectivesoftheHewlett-PackardCompany,”January1957,courtesyHewlett-PackardCompanyarchives;InterviewswithWiliamHewlettandJohnYoung;variousinternalpublications.

81.ThomasJ.Watson,Jr.,Father,Son,&Company(NewYork:

BantamBooks,1990),302;ThomasJ.Watson,Jr.,ABusinessandItsBeliefs(NewYork:McGraw-Hil,1963);“IBMYesterdayandToday,”corporatepublication;LouMobleyandKateMcKeown,

“BeyondIBM;IBM75thAnniversity,”Think,September1989.

82.“OurCredo,”courtesyofJohnson&JohnsonCompany;FrancisJ.

AguilarandArvindBhambri,“Johnson&Johnson(B),”HarvardBusinessSchoolCaseNo.384-054;JamesE.Burke,letter“OneHundredYears,”publishedinACompanythatCares(NewBrunswick,NJ:Johnson&Johnson,1986),163;variousarticlesandinternalcompanynewsletters.

83.RobertO’Brien,Marriott:TheJWillardMarriottStory(SaltLakeCity:

Deseret,1987);Marriott1988AnnualReport;variousarticles.

84.Merck&Company,“StatementofCorporateObjectives,”courtesyMerck&Company;MerckCenturyCelebrationVideos,courtesyMerck&Company;ValuesandVisions:AMerckCentury(Rahway,NJ:Merck,1993);variousarticlesanddocumentsfromMerckarchives.

85.ForWhichWeStand—AStatementofPurpose,Principles,andEthics,Motorolainternalpublication,1988;RobertW.Galvin,TheIdeaofIdeas(Schaumburg,IL:MotorolaUniversityPress,1991);HarryMarkPetrakis,TheFounder’sTouch(NewYork:McGraw-Hil,1965);variousarticles.

86.Drawnfrom“NordstromHistory,”companypublication,talkbyBruceNordstromatStanfordBusinessSchool,1991;variousarticles.

87.(Note:Priortotheearly1950s,PhilipMorrisappearsnottohavemuchofacoherentideology;thislistrelatestothemid-1950son.)Sources:“HowPhilipMorrisDiversifiedRight,”Fortune,23

October1989;“VoyageintotheUnknown,”Forbes,1December1971;“PhilipMorris;UnconventionalWisdom,”Forbes,1January1971;“CanHeKeepPhilipMorrisGrowing,”Fortune,6April1992;InterviewwithRossMilhauser,NewYorkTimes,25January1979,D1;“TheTwoTierMarketStilLives,”Forbes,1March1974;“AMachineThatWilSelAnything,”BusinessWeek,4March1967.

88.“FactsaboutProcter&Gamble,”companypublication,1988,6;

OscarSchisgal,EyesonTomorrow:TheEvolutionofProcter&

Gamble(NewYork:Doubleday,1981);ItFloats:TheStoryofProcter&Gamble(NewYork:Rinehart,1958).

89.AkioMorita,MadeinJapan(NewYork:Dutton,1986),especialypages147–48;NickLyons,TheSonyVision(NewYork:Crown,1976),Chapter1;Genryu—SonyChallenge1946–1968,specialcolectionofSonyManagementNewsletters,40thanniversaryedition(Tokyo:Sony,1986).

90.SamWaltonwithJohnHuey,SamWalton:MadeinAmerica(NewYork:Doubleday,1992);VanceTrimble,SamWalton(NewYork:Dutton,1990);

companyinterviews.

91.“TheWonderfulWorldsofWaltDisney,”companypublication,1966;Schickel,Richard,TheDisneyVersion(NewYork:Simon&

Schuster,1968);JohnTaylor,StormingtheMagicKingdom(NewYork:BalantineBooks,1987);DisneyUniversityEmployeeBrochureandCourseOfferings;fromInSearchofExcellenceVideoonDisney,theTomPetersGroup,PaloAlto,CA;JoeFowler,PrinceoftheMagicKingdom:MichaelEisnerandtheRe-MakingofDisney(NewYork:Wiley,1991);MarcEliot,WaltDisney:Hollywood’sDarkPrince(NewYork:BirchLanePress,1993);authorinterviews.

92.RobertB.Cialdini,Influence(NewYork:Quil,1984);PhilipG.

ZimbardoandMichaelR.Leippe,ThePsychologyofAttitudeChangeandSocialInfluence(NewYork:McGraw-Hil,1991).

93.MemofromJohnF.WelchtoGEcorporateofficers,October4,1991.

94.“FeistyP&GProfile,”PublishersWeekly,2August1993.

95.FrancisJ.AguilarandArvindBhambri,“Johnson&Johnson(A),”

HarvardBusinessSchoolCaseNo.384-053,5.

96.ThomasJ.Watson,Jr.,ABusinessandItsBeliefs(NewYork:ColumbiaUniversityPress,1963),5–6,72–73.

97.SamWaltonwithJohnHuey,SamWalton:MadeinAmerica(NewYork:Doubleday,1992),183,233.

98.“MemorableYearsinP&GHistory,”companypublication,7.

99.AuthorinterviewwithJohnYoung,17April1992.

100.ThomasJ.Watson,Jr.,ABusinessandItsBeliefs(NewYork:ColumbiaUniversityPress,1963),12–13.

101.DavidPackard,commencementspeech,ColoradoColege,June1,1964,

courtesyHewlett-PackardCompanyarchives.

102.ValuesandVisions:AMerckCentury(Rahway.NJ:Merck,1993),173.

103.“Disney’sPhilosophy,”NewYorkTimesMagazine,6March1938;RichardSchickel,TheDisneyVersion(NewYork:Simon&

Schuster,1968);WaltDisney,speechabouttheopeningofDisneyland,18July1955;JohnTaylor,StormingtheMagicKingdom(NewYork:BalantineBooks,1987);ChristopherFinch,WaltDisney’sAmerica(NewYork:AbbevilePress,1978).

104.Formal/Explicit:H-P,J&J,Merck,Motorola,Sony,WaltDisney;Implicit/Informal:3M,Boeing,Ford,GE,Marriott,PhilipMorris,Wal-Mart.

105.LawrenceG.Foster,ACompanythatCares(NewBrunswick,NJ:Johnson&Johnson,1986),17.

CHAPTER4

1.ParaphrasedfromRobertW.Galvin,TheIdeaofIdeas(Schaumburg,IL:MotorolaUniversityPress,1991),16–34.

2.OscarSchisgal,EyesonTomorrow:TheEvolutionofProcter&

Gamble(NewYork:Doubleday,1981),269.

3.SamWaltonwithJohnHuey,SamWalton:MadeinAmerica(NewYork:Doubleday,1992),249.

4.ThomasJ.Watson,Jr.,ABusinessandItsBeliefs(NewYork:McGraw-Hil,1963),5–6,72–73.

5.RobertO’Brien,Marriott:TheJWillardMarriottStory(SaltLakeCity:Deseret,1987),307,326.

6.RobertW.Galvin,TheIdeaofIdeas(Schaumburg,IL:MotorolaUniversityPress,1991),165–166.

7.BronzeplaqueonthewalofBoeingcorporateheadquarters.

8.JottingsinHenryFord’snotebooks.FromtheFordArchivesoftheEdisonInstitute,citedinRobertLacey,Ford:TheMenandtheMachine(NewYork:BalantineBooks,1986),141.

9.“NordstromGetstheCold,”Stores,January1990.

10.OneoftheauthorsworkeddirectlywiththismarketingmanageratHewlett-Packard.

CHAPTER5

1.Bartlett’sFamiliarQuotations,FifteenthEdition,686.

2.TsuenetoIkeda,“MasaruIbuka,”unpublishedresearchpaper,StanfordUniversityGraduateSchoolofBusiness,November1992.

3.Schickel,Richard,TheDisneyVersion(NewYork:Simon&

Schuster,1968),171.

4.“HowBoeingBettheCompanyandWon,”Audacity,Winter1993.

5.RobertJ.Serling,LegendandLegacy:TheStoryofBoeingandItsPeople(NewYork:St.Martin’sPress,1992),72–79.

6.Accordingto“HowBoeingBettheCompanyandWon”inAudacityandSerling(page122),theprojectwouldcostbetween$15milionand$16milion.Wethenwentbackandcomparedthe$15milionfigurewithBoeing’sincomestatementsandbalancesheetsfortheperiod1947–1951.

7.“HowBoeingBettheCompanyandWon,”Audacity,Winter1993.

8.H.Ingels,TheMcDonnellDouglasStory,121.

9.“ZoomingAirlinesGrabforNewJets,”BusinessWeek,22May1964.

10.RobertJ.Serling,LegendandLegacy:TheStoryofBoeinganditsPeople(NewYork:St.Martin’sPress,1992),31.

11.Ibid.,180–192.

12.Ibid.,285–290.

13.DanielJ.Boorstin,TheAmericans:TheDemocraticExperience(NewYork:VintageBooks,1974),593–597.

14.Ibid.,596.

15.NoelM.TichyandStratfordSherman,ControlYourDestinyorSomeoneElseWill(NewYork:DoubledayCurrency,1993),245–

246.

16.RobertSlater,TheNewGE(Homewood,IL:RichardD.Irwin,1993),77–93.

17.Ibid.,77–93.

18.Westinghouse1989AnnualReport.

19.“ReynoldsGetsaBangoutoftheCigaretteBrandExplosion,”

Fortune,October1976.

20.“BadNewsCanMeanGoodGrowth,”Forbes,15November1968

21.DanielJ.Boorstin,TheAmericans:TheDemocraticExperience(NewYork:VintageBooks,1974),548.

22.RobertLacey,Ford:TheMenandtheMachine(NewYork:BalantineBooks,1986),89–100.

23.Ibid.,89–100.

24.Genryu—SonyChallenge1946–1968,specialcolectionofSonyManagementNewsletters,40thanniversaryedition(Tokyo:Sony,1986),131.

25.AkioMorita,MadeinJapan(NewYork:Dutton,1986),74.

26.Forgoodoveralcoverageoftheseevents,readAkioMorita,MadeinJapan,Genryu—SonyChallenge1946–1968,andTheSonyVision.

27.AkioMorita,MadeinJapan(NewYork:Dutton,1986),66–69.

28.Genryu—SonyChallenge1946–1968,specialcolectionofSonyManagementNewsletters,40thanniversaryedition(Tokyo:Sony,1986),98.

29.Ibid.,98.

30.Ibid.,98.

31.SamWalton&JohnHuey,SamWalton:MadeinAmerica(NewYork:Doubleday,1992),22.

32.Ibid.,29.

33.VanceTrimble,SamWalton(NewYork:PenguinBooks,1990).

34.Ibid.,306.

35.E.E.Bauer,BoeinginPeaceandWar(Enumclaw,WA:TABA,1991),288.

36.JohnTaylor,StormingtheMagicKingdom(NewYork:BalantineBooks,1987),8–12.

37.WaltDisneyCompanyAnnualReport,1992,1.

38.“CloseEncountersatColumbiaPictures,”Fortune,1December1978.

39.T.A.Heppenheimer,“HowIBMDidIt,”Audacity,Winter1994,59.

40.ThomasJ.Watson,Jr.,Father,Son,&Company(NewYork:Bantam,1990),346–351.

41.“AnatomyofaTurnaround,”Forbes,1November1968,28.

42.ThomasJ.Watson,Jr.,Father,Son,&Company(NewYork:Bantam,1990),16.

43.IBM75thAnniversary,Think,September1989,23.

44.ThomasJ.Watson,Jr.,Father,Son,&Company(NewYork:Bantam,1990),28.

45.OscarSchisgal,EyesonTomorrow:TheEvolutionofProcter&

Gamble(NewYork:Doubleday,1981),87–98.

46.Ibid.,98.

47.Ibid.,200.

48.“WhereManagementStyleSetstheStrategy,”BusinessWeek,23

October1978.

49.NickLyons,TheSonyVision(NewYork:Crown,1976),150.

50.Ibid.,152.

51.HaroldvanB.ClevelandandThomasF.Huertas,Citibank1812–

1970(Cambridge,MA:HarvardUniversityPress,1985),32.

52.“JamesStilman,”Cosmopolitan,July1903,334.

53.RichardB.Miler,Citicorp:TheStoryofaBankinCrisis(NewYork:McGraw-Hil,1993),1.

54.HaroldvanB.ClevelandandThomasF.Huertas,Citibank1812–

1910(Cambridge,MA:HarvardUniverstityPress,1985),89.

55.RichardB.Miler,Citicorp:TheStoryofaBankinCrisis(NewYork:McGraw-Hil,1993),59.

56.Ibid.,80.

57.Ibid.,4.

58.HaroldvanB.ClevelandandThomasF.Huertas,Citibank1812–

1910(Cambridge,MA:HarvardUniverstityPress,1985),88.

59.RichardB.Miler,Citicorp:TheStoryofaBankinCrisis(NewYork:McGraw-Hil,1993),82.

60.HarryMarkPetrakis,TheFounder’sTouch(NewYork:McGraw-Hil,1965),170–171.

61.RobertW.Galvin,TheIdeaofIdeas(Schaumburg,IL:MotorolaUniversity

Press,1991),entirebooklet.

62.Ibid.,24.

63.“MotorolaGetsClosertoOrbit,”BusinessWeek,6August1993,36.

64.“ZenithCorporation(C),”HarvardBusinessSchoolCaseStudy,No.9–674–095,Rev.8/77,14.

65.PaperontheGeneralElectricrevolution;paperkeptconfidentialatrequestoftheauthor.

CHAPTER6

1.SamWaltonwithJohnHuey,SamWalton:MadeinAmerica(NewYork:Doubleday,1992),223.

2.FromInSearchofExcellenceVideoonIBM,TomPetersGroup,PaloAlto,CA.

3.RobertLevering,MiltonMoskowitz,andMichaelKatz,The100BestCompaniestoWorkforinAmerica(NewYork:NewAmericanLibrary,1985),243–245.

4.“Nordstrom’sPushEastWilTestitsRenownFortheBestService,”

WallStreetJournal,1August1979,A1.

5.“Nordstrom,”HarvardBusinessSchoolCaseNo.9-191-002and1-192-027,Rev.9/6/91.

6.“WhyRivalsasQuakingasNordstromHeadsEast,”BusinessWeek,15June1987.

7.WiliamDavidowandBroUtal,TotalCustomerService(NewYork:Harper&Row,1989),91.

8.InterviewtranscriptfromdiscussionwithJimNordstrombythestaffofTheReporter,StanfordGraduateSchoolofBusiness,1991.

9.AuthorinterviewwithaNordstrommanager,May1993.

10.60Minutes,CBStelevisioninterview,6May1990.

11.RobertLeveringandMiltonMoskowitz,The100BestCompaniestoWorkforinAmerica(NewYork:DoubledayCurrency,1993),327–332.

12.“TheSecretsBehindNordstrom’sService,”SanFranciscoChronicle,24December1992.

13.Nordstromorientationpacket.

14.RobertLeveringandMiltonMoskowitz,The100BestCompaniestoWorkforinAmerica(NewYorkDoubledayCurrency,1993),327–332.

15.“AtNordstromStores,ServiceComesFirst—ButataBigPrice,”

WallStreetJournal,20February1990.

16.“TheOtherNordstrom,”LosAngelesTimes,4February1990,BusinessSection.

17.RonZemkeandDickSchaaf,TheServiceEdge(NewYork:NewAmericanLibrary,1989),352–355;WiliamDavidowandBroUtal,TotalCustomerService(NewYork:Harper&Row,1989),86–87.

18.“Nordstrom’sPushEastWilTestitsRenownFortheBestService,”

WallStreetJournal,1August1979,A1;WiliamDavidowandBroUtall,TotalCustomerService(NewYork:Harper&Row,1989),130.

19.AuthorinterviewwithaNordstrommanager,May1993.

20.“Nordstrom,”HarvardBusinessSchoolCaseNo.9-191-002and1-192-027,Rev.9/6/91.

21.RonZemkeandDickSchaaf,TheServiceEdge(NewYork:NewAmericanLibrary,1989),352–355.

22.RobertLevering,MiltonMoskowitz,andMichaelKatz,The100

BestCompaniestoWorkforinAmerica(NewYork:NewAmericanLibrary,1985),243–245.

23.RobertLevering,MiltonMoskowitz,andMichaelKatz,The100

BestCompaniestoWorkforinAmerica(NewYork:NewAmericanLibrary,1985),243–245.

24.WallStreetJournal,20February1990.

25.“Nordstrom,”HarvardBusinessSchoolCaseNo.9-191-002and1-192-027,Rev.9/6/91.

26.WallStreetJournal,20February1990.

27.AuthorinterviewwithaNordstrommanager,May1993.

28.WallStreetJournal,20February1990.

29.AuthorinterviewwithaNordstrommanager,May,1993.

30.1990NordstromAnnualReport,12.

31.WallStreetJournal,February20,1990

32.1988NordstromAnnualReport,9.

33.WallStreetJournal,1August1989.

34.Nordstrom1988AnnualReport,5.

35.WallStreetJournal,1August1989.

36.Ibid.

37.ThesecretivenatureofNordstromcameclearfromavarietyofsources,includingsomeofthearticlesalreadycited,ourdiscussionswithaNordstrommanager,andthefactthatNordstromwasoneofthefewvisionarycompaniesinourresearchtorefusetoassistusinourresearcheffortsonthecompany.

38.WallStreetJournal,20February1990.

39.Ibid.

40.RobertLevering,MiltonMoskowitz,andMichaelKatz,The100

BestCompaniestoWorkforinAmerica(NewYork:NewAmericanLibrary,1985),243–245.

41.Ibid.,318–322.

42.“HowDisneyDoesIt,”Newsweek,3April1989.

43.Wereliedonthefolowingsourcesintheliteratureonthestudyofcults:

•JohnJ.Colins,TheCultExperience:AnOverviewofCults,TheirTraditions,andWhyPeopleJoinThem(Springfield,IL:ThomasBooks,1991).

•MarcGalanter,M.D.,CultsandtheNewReligiousMovements(Washington,DC:AmericanPsychiatricAssociation,1989).

•MarcGalanter,M.D.,“CultsandZealousSelf-HelpMovements:APsychiatricPerspective,”AmericanJournalofPsychiatry,May1990.

•WilaAppel,CultsinAmerica(NewYork:Holt,Rinehart,1983).

•RobertB.Cialdini,Influence—TheNewPsychologyofModernPersuasion(NewYork:QuilPress,1984).

•SusanLanda,“ChildrenandCults:APracticalGuide,”JournalofFamilyLaw,Volume29,1990–91.

•LiteraturefromtheInternationalCultEducationProgram,GracieStation,NY.

•LiteraturefromCultAwarenessNetwork,Chicago.

44.ThomasJ.Watson,Jr.,Father,Son&Company(NewYork:BantamBooks,1990),82.

45.RobertSobel,IBM:ColossusinTransition(NewYork:TrumanTaleyBooks,1981),58–69.

46.RobertSobel,IBM:ColossusinTransition(NewYork:TrumanTaleyBooks,1981),58–69.

47.ThomasJ,Watson,Jr.,Father,Son,&Company(NewYork:BantamBooks,1990),68.

48.Ibid.,68–71.

49.“IBM:ASpecialCompany,”specialissueofThink,September1989,IBMCorporation.

50.RobertLevering,MiltonMoskowitz,andMichaelKatz,The100

BestCompaniestoWorkforinAmerica(NewYork:NewAmericanLibrary,

1985),163–168.

51.Ibid.

52.Ibid.,165.

53.F.G.“Buck”RodgerswithRobertL.Shook,TheIBMWay(NewYork:Harper&Row,1986),48.

54.RobertSobel,IBM:ColossusinTransition(NewYork:TrumanTaleyBooks,1981),59.

55.“IBM:ASpecialCompany,”specialissueofThink,September1989,IBMCorporation,78–79.

56.Training,August1989,38.

57.DisneyUniversityEmployeeBrochureandCourseOfferings.

58.RonZemkeandDickSchaaf,TheServiceEdge(NewYork:NewAmericanLibrary,1989),526–533.

59.Schickel,Richard,TheDisneyVersion(NewYork:Simon&

Schuster,1968),319.

60.“HowDisneyDoesIt,”Newsweek,3April1989.

61.MarcEliot,WaltDisney:Hollywood’sDarkPrince(NewYork:BirchLanePress,1993),89.

62.Schickel,Richard,TheDisneyVersion(NewYork:Simon&

Schuster,1968),319.

63.FromInSearchofExcellenceVideoonDisney,TomPetersGroup,PaloAlto,CA.

64.Ibid.

65.Schickel,Richard,TheDisneyVersion(NewYork:Simon&

Schuster,1968),318.

66.RonZemkeandDickSchaaf,TheServiceEdge(NewYork:NewAmericanLibrary,1989),526–533.

67.Training,August1989,38.

68.FromastudentpaperonWaltDisney,StanfordUniversityGraduateSchoolofBusiness;authornamekeptanonymousatherrequest.

69.Interviewwiththirteen-yearDisneyimagineeringveteran.

70.WaltDisneyCompanyannualreports,1987–1992.

71.JoeFlower,PrinceoftheMagicKingdom:MichaelEisnerandtheRe-MakingofDisney(NewYork:Wiley,1991),3.

72.Authorobservation.

73.JoeFlower,PrinceoftheMagicKingdom:MichaelEisnerandtheRe-MakingofDisney(NewYork:Wiley,1991),3.

74.ForanexcelentaccountofWalt’srelationshiptohisemployees,seeMarcEliot,WaltDisney:Hollywood’sDarkPrince(NewYork:BirchLanePress,1993).

75.MarcEliot,WaltDisney:Hollywood’sDarkPrince(NewYork:BirchLanePress,1993),85.

76.Ibid.,89.

77.Ibid.,Chaptertenandpagexviii;Schickel,chaptereight.

78.RichardSchickel,TheDisneyVersion(NewYork:Simon&

Schuster,1968),319.

79.RobertLeveringandMiltonMoskowitz,The100BestCompaniestoWorkforinAmerica(NewYork:DoubledayCurrency,1993),372–376.

80.RobertLevering,MiltonMoskowitz,andMichaelKatz,The100

BestCompaniestoWorkforinAmerica(NewYork:NewAmericanLibrary,1985),286–290.

81.AuthorinterviewswithP&Grecruits;OscarSchisgal,EyesonTomorrow:TheEvolutionofProcter&Gamble(NewYork:Doubleday,1981),introductionand165.

82.DocumentsfurnishedbytheProcter&GambleCompany.

83.OscarSchisgal,EyesonTomorrow:TheEvolutionofProcter&

Gamble(NewYork:Doubleday,1981),116.

84.RobertLevering,MiltonMoskowitz,andMichaelKatz,The100

BestCompaniestoWorkforinAmerica(NewYork:NewAmericanLibrary,1985),288.

85.AleciaSwasy,SoapOpera:TheInsideStoryofProcter&Gamble(NewYork:TimesBooks,1993),21.

86.“MemorableYearsinP&GHistory,”P&Gcorporatepublication,17–

19;RobertLeveringandMiltonMoskowitz,The100BestCompaniestoWorkforinAmerica(NewYork:DoubledayCurrency,1993),375;AleciaSwasy,SoapOpera:TheInsideStoryofProcter&Gamble(NewYork:TimesBooks,1993),6–7.

87.“MemorableYearsinP&GHistory,”P&Gcorporatepublication,17–

19.

88.Ibid.

89.Authorinterview,October1993.

90.“TheCharacterofProcter&Gamble,”speechbyJohnG.Smale,7

November1986.

91.AleciaSwasy,SoapOpera:TheInsideStoryofProcter&Gamble(New

York:TimesBooks,1993),chapter1;authorinterviewswithP&GbrandmanagersgraduatedfromStanfordBusinessSchool.

92.TheCharacterofProcter&Gamble,”textofspeechbyJohnG.

Smale,7November1986;OscarSchisgal,EyesonTomorrow:TheEvolutionofProcter&Gamble(NewYork:Doubleday,1981).

93.CommentfromRickTranquiliaboutthe“TideOnesOperation,”

capturedinSmale’sspeech,page7.

94.“APolicythatGuided118YearsofSteadyGrowth,”System—TheMagazineofBusiness,December1924,717–720.

95.“HowtoBeHappyThought#2,”Forbes,15July1976;“TheMorningAfter,”Forbes,22January1979.

96.SamWaltonwithJohnHuey,SamWalton:MadeinAmerica(NewYork:Doubleday,1992),157.

97.SeeChapter7.

98.ParaphrasedfromJohnNordstromvisittoStanfordBusinessSchool.

CHAPTER7

1.Darwin,Charles,OriginofSpecies(Buffalo,NY:PrometheusBooks,1991),222.

2.Thisismoreofamottothanaquoteandappearsinvariousformsthroughoutmaterialson3M.WeparaphrasedthisversionfromOurStorySoFar(St.Paul,MN:3MCompany,1977),107.

3.LawrenceG.Foster,ACompanythatCares(NewBrunswick,NJ:Johnson&Johnson,1986),116.

4.Ibid.,32.

5.ElyseTanouye,“Johnson&JohnsonStaysFitbyShufflingItsMixofBusinesses,”WallStreetJournal,22December1992,A1.

6.LawrenceG.Foster,ACompanythatCares(NewBrunswick,NJ:Johnson&Johnson,1986),82.

7.RobertO’Brian,Marriott:TheJ.WillardMarriottStory(SaltLakeCity:Deseret,1987),182.

8.Ibid.,180–184.

9.AldenHatch,AmericanExpress1850–1950:ACenturyofService(GardenCity,NY:CountryLifePress,1950),chapter6;JonFriedmanandJohnMeechan,HouseofCards:InsidetheTroubledEmpireofAmericanExpress(NewYork:Putnam,1992),chapter3;“AboutAmericanExpress,”companyhistoricalpublication.

10.AldenHatch,AmericanExpress1850–1950:ACenturyofService(GardenCity,NY:CountryLifePress,1950),93.

11.JonFriedmanandJohnMeechan,HouseofCards:InsidetheTroubledEmpireofAmericanExpress(NewYork:Putnam,1992),52.

12.Ibid.,106.

13.“AboutAmericanExpress,”companyhistoricalpublication;AldenHatch,AmericanExpress1850–1950:ACenturyofService(GardenCity:CountryLifePress,1950),96–108.

14.AldenHatch,AmericanExpress1850–1950:ACenturyofService(GardenCity,NY:CountryLifePress,1950),106.

15.Authorinterview.

16.“HowHewlett-PackardEnteredtheComputerBusiness,”Hewlett-PackardCompanyarchivesdocument.

17.Authorinterview.

18.“RidingtheElectronicsBoom,”BusinessWeek,27February1960;HarryMarkPetrakis,TheFounder’sTouch(NewYork:McGraw-Hil,1965),215–218.

19.JonFriedmanandJohnMeechan,HouseofCards:InsidetheTroubledEmpireofAmericanExpress(NewYork:Putnam,1992),53.

20.InternationalDirectoryofCorporateHistories(Chicago:St.JamesPress,1988),395;AldenHatch,AmericanExpress1850–1950:ACenturyofService(GardenCity,NY:CountryLifePress,1950),133.

21.“AboutAmericanExpress,”companyhistoricalpublication;AldenHatch,AmericanExpress1850–1950:ACenturyofService(GardenCity,NY:CountryLifePress,1950),chapter11.

22.ACompanythatCares(NewBrunswick,NJ:Johnson&Johnson,1986),38,116,119.

23.ElyseTanyoue,“Johnson&JohnsonStaysFitbyShufflingItsMixofBusinesses,”WallStreetJournal,22December1992,A1.

24.Ibid.

25.SamWaltonwithJohnHuey,MadeinAmerica(NewYork:Doubleday,1992),70.

26.DarwinquotefromOriginofSpecies.

27.AuthorinterviewwithWal-MartoperationsexecutivethatattendedStanfordExecutivePrograminOrganizationChange.

28.NoelM.TichyandStratfordSherman,ControlYourOwnDestinyorSomeoneElseWill(NewYork:Doubleday,1993),52.

29.VirginiaHuck,BrandoftheTartan—The3MStory(NewYork:Appleton-Century-Crofts,1955),23.

30.MildredHoughtonComfort,WilliamL.McKnight,Industrialist(Minneapolis:T.S.Denison,1962),chapter5;OurStorySoFar(St.Paul,MN:3MCompany,1977),60.

31.VirginiaHuck,BrandoftheTartan—The3MStory(NewYork,Appleton-Century-Crofts,1955),chapters3–8.

32.“ProductDirectory1990,”3MCorporation,261.

33.OurStorySoFar(St.Paul,MN:3MCompany,1977),58.

34.VirginiaHuck,BrandoftheTartan—The3MStory(NewYork:Appleton-Century-Crofts,1955),chapter12.

35.Ibid.

36.OurStorySoFar(St.Paul,MN:3MCompany,1977),56–58.

37.MildredHoughtonComfort,WilliamL.McKnight,Industrialist(Minneapolis:T.S.Denison,1962),127.

38.Fromalsourceson3M,withparticularemphasisonWilliamL.

McKnight,Industrialist,andOurStorySoFar.

39.OurStorySoFar(St.Paul,MN:3MCompany,1977),12.

40.VirginiaHuck,BrandoftheTartan—The3MStory(NewYork,Appleton-Century-Crofts,1955),chapter15.

41.Ibid.,134;OurStorySoFar,70;Comfort,138.

42.VirginiaHuck,BrandoftheTartan—The3MStory(NewYork,Appleton-CenturyCrofts,1955),189–190.

43.OurStorySoFar(St.Paul,MN:3MCompany,1977),113–115.

44.RobertLeveringandMiltonMoskowitz,The100BestCompaniestoWorkforinAmerica(NewYork:DoubledayCurrency,1993),299.

45.OurStorySoFar(St.Paul,MN;3MCompany,1977),93.

46.Ibid.,112.

47.P.RanganthNayakandJohnM.Ketteringham,Break-throughs!

(NewYork:RawsonAssociates,1986),55–56.

48.“KeepingtheFireLitUndertheInnovators,”Fortune,28March1988,45;19923MAnnualReport,3.

49.“MastersofInnovation,”BusinessWeek,10April1989,58.

50.OurStorySoFar(St.Paul,MN:3MCompany,1977),5.

51.“MastersofInnovation,”BusinessWeek,10April1989,62.

52.OurStorySoFar(St.Paul,MN:3MCompany,1977),12.

53.Ibid.,101.

54.“MastersofInnovation,”BusinessWeek,10April1989,60.

55.GettingtoKnowUs,3Mcorporatepublication.

56.RobertLeveringandMiltonMoskowitz,The100BestCompaniestoWorkforinAmerica(NewYork:DoubledayCurrency,1993),299.

57.OurStorySoFar(St.Paul,MN:3MCompany,1977),4.

58.Ibid.,7.

59.19923MAnnualReport,3.

60.3MAnnualReport,1989;RobertLeveringandMiltonMoskowitz,The100BestCompaniestoWorkforinAmerica(NewYork:DoubledayCurrency,1993),299.

61.VirginiaHuck,BrandoftheTartan—The3MStory(NewYork,Appleton-Century-Crofts,1955),115–118.

62.P.RanganthNayakandJohnM.Ketteringham,Break-throughs!

(NewYork:RawsonAssociates,1986),63,

63.Ibid.,57.

64.Ibid.,54.

65.CharlesW.Cheape,FamilyFirmtoModernMultinational:NortonCompany,ANewEnglandEnterprise(Boston:HarvardUniversityPress,1985),chapter2.

66.AphraseTomPetershasoftenusedtodescribe3M.

67.CharlesW.Cheape,FamilyFirmtoModernMultinational:NortonCompany,ANewEnglandEnterprise(Boston:HarvardUniversityPress,1985),chapter2.

68.Ibid.,145.

69.Ibid.,159.

70.Ibid.,145.

71.Ibid.,235.

72.Ibid.,264.

73.Ibid.,291.

74.“It’snoLongerJustGrind,GrindatNorton,”Fortune,August1963,120.

75.CharlesW.Cheape,FamilyFirmtoModernMultinational:NortonCompany,ANewEnglandEnterprise(Boston:HarvardUniversityPress,1985),264.

76.Ibid.,263.

77.PaulB.Brown,“SeeSpotRun,”Forbes,10May1982,140.

78.CharlesW.Cheape,FamilyFirmtoModernMultinational:NortonCompany,ANewEnglandEnterprise(Boston:HarvardUniversityPress,1985),313.

79.P.RanganthNayakandJohnM.Ketteringham,Break-throughs!

(NewYork:RawsonAssociates,1986),72.

80.CharlesW.Cheape,FamilyFirmtoModernMultinational:NortonCompany,ANewEnglandEnterprise(Boston:HarvardUniversityPress,1985),307.

81.P.RanganthNayakandJohnM.Ketteringham,Break-throughs!

(NewYork:RawsonAssociates,1986),65;PaulB.Brown,“SeeSpotRun,”Forbes,10May1982,140.

82.CharlesW.Cheape,FamilyFirmtoModernMultinational:NortonCompany,ANewEnglandEnterprise(Boston:HarvardUniversityPress,1985),356.

83.OurStorySoFar(St.Paul,MN:3MCompany,1977),23.

84.NickLyons,TheSonyVision(NewYork:Crown,1976),147–149.

85.“TheThreeYearDeadlineatDavid’sBank,”Fortune,July1977;authorinterviews.

86.SuzannaAndrews,“DeconstructingtheMindofAmerica’sMostPowerfulBusinessman,”ManhattanInc.,1989.

87.“ThingsAreAddingUpAgainatBurroughs,”BusinessWeek,11

March1967;“AnatomyofaTurnaround,”Forbes,1November1968;“Burroughs’sWildRidewithComputers,”BusinessWeek,1

July1972;“HowRayMcDonald’sGrowthTheoryCreatedIBM’sToughestCompetitor,”Fortune,January1977.

88.“TexasInstrumentsCleansupItsAct,”BusinessWeek,19

September1983.

89.BroUttal,“TexasInstrumentsRegroups,”Fortune,9August1982.

90.ThomasJ.PetersandRobertH.Waterman,InSearchofExcellence(NewYork:Harper&Row,1982),15.

91.OurStorySoFar(St.Paul,MN:3MCompany,1977),7.

CHAPTER8

1.RobertSlater,TheNewGE(Homewood,IL:Irwin,1993),268.

2.RobertW.Galvin,TheIdeaofIdeas(Schaumburg,IL:MotorolaUniversityPress,1991),51–52.

3.“AMasterClassinRadicalChange,”Fortune,13December1993.

4.WelchwasbornonNovember19,1935(Slater,27).HebeganworkatGEonOctober17,1960(Slater,33).TheboardnamedhimCEO-electonDecember19,1980;hetookofficefourmonthslater(Tichy,58).

5.RobertSlater,TheNewGE(Homewood,IL:Irwin,1993),24.

6.TheGeneralElectricStory(Schenectady,NY:HalofHistoryFoundation,GeneralElectricCompany,1981),volume4,81;RobertSlater,TheNewGE(Homewood,IL:Irwin,1993),25.

7.GEunderJonesgrewpretaxprofitsatanaverageannualrateof14.06percent;GEunderWelchgrewpretaxprofitsat8.49percent.

Usingacombinationofreturnonequity,returnonsales,andreturnonassets,Jonesattainedanaverageof17.32percent;Welchattained16.03percent.

8.TheGeneralElectricStory(Schenectady,NY:HalofHistoryFoundation,GeneralElectricCompany,1981),volume4,28–31.

9.NoelM.TichyandStratfordSherman,ControlYourOwnDestinyorSomeoneElseWill(NewYork:Doubleday,1993),256.

10.TheGeneralElectricStory(Schenectady:HalofHistoryFoundation,GeneralElectricCompany,1981),volume4,23.

11.NoelM.TichyandStratfordSherman,ControlYourOwnDestinyor

SomeoneElseWill(NewYork:Doubleday,1993),39.

12.Calculatedaspretaxprofitdividedbyyear-endstockholder’sequity.

WeconstructedExcelSpreadsheetsdatingbackto1915usingAnnualReportsandMoody’sfinancialanalysisreports.

13.CalculatedastheratioofcumulativeGEstockreturnduringtheCEOeradividedbycumulativegeneralmarketstockreturnorcumulativeWestinghousestockreturnduringtheGECEOera.

14.NoelM.TichyandStratfordSherman,ControlYourOwnDestinyorSomeoneElseWill(NewYork:Doubleday,1993),42.

15.RobertSlater,TheNewGE(Homewood,IL:Irwin,1993),chapter4.

16.NoelM.TichyandStratfordSherman,ControlYourOwnDestinyorSomeoneElseWill(NewYork:Doubleday,1993),56–58.

17.RobertSlater,TheNewGE(Homewood,IL:Irwin,1993),chapter4.

18.NoelM.TichyandStratfordSherman,ControlYourOwnDestinyorSomeoneElseWill(NewYork:Doubleday,1993),44.

19.CentennialReview,InternalWestinghousedocument,1986.

20.GwilymPricehadbeenhiredtwoyearsearliertonegotiatemilitarywar

contracts.

Succeeded

Andrew

Robertson.

Source:

InternationalDirectoryofCompanyHistories(Chicago:St.JamesPress,1988).

21.“Westinghouse’sNewWarrior,”BusinessWeek,12July1993,38;Westinghouse1992AnnualReport.

22.An“outsider”issomeonewhohadnotworkedinsidethecompanypriortobecomingchiefexecutive.Companiesusedifferentofficialtitlesatdifferent

timesinhistory:president,generalmanager,chiefexecutiveofficer,chairman,andothers.CEOisactualyarelativelynewterm,notusedextensivelyinbusinessuntilthe1970s.Wepickedthepersonwhoheldthedefactoroleofoperatingchiefexecutive,regardlessoftheexacttitle.WecountedCEOtransitionsduringandafteracquisitionsormergersinourtabulations.

23.SidneyM.Colgate,“APolicythatGuided118YearsofSteadyGrowth,”System:TheMagazineofBusiness,December1924,717.

24.“Colgate-Palmolive-Peet,”Fortune,April1936,120–144.

25.Ibid.

26.ShieldsT.Hardin,TheColgateStory(NewYork:VantagePress,1959),71–75.

27.WecalculatedanaveragereturnonsalesforbothcompaniesforthefirstthreeyearsofPearce’stenure(1928–1930)andcomparedtoanaveragereturnonsalesforthesecondthreeyearsofhistenure(1931–1933).

28.Colgate’scoreideologypriortoPearceisweldocumentedinSidneyM.Colgate’s“APolicythatGuided118YearsofSteadyGrowth,”System:TheMagazineofBusiness,December1924,717.

29.“Colgate-Palmolive-Peet,”Fortune,April1936,120–144.

30.Ibid.

31.P&Gsalesgrewatotalof178.58percentandColgatesalesgrewat87.52percentduringtheperiod1934–1943.Cumulativeprofitbeforetaxfortheperiod1934–1943was$285milionatP&Gand$74milionatColgate.

32.BusinessWeek,4May1957,120.

33.“Colgatevs.P&G,”Forbes,1February1966.

34.“MoreforLesch?”Forbes,1March1969.

35.HughD.Menzies,“TheChangingoftheGuard,”Fortune,24

September1979.

36.Ibid.

37.OscarSchisgal,EyesOnTomorrow:TheEvolutionofProcter&

Gamble(NewYork:Doubleday,1981),76–78,108–109.

38.“TheCharacterofProcter&Gamble,”speechbyJohnG.Smale,7

November1986.

39.P&G:‘WeGrowourOwnManagers,’”Dun’sReview,December1975,48.

40.“NeilMcElroyofProcter&Gamble,”Nation’sBusiness,August1970,61.

41.Ibid.

42.RichardHammer,“ZenithBuckstheTrend,”Fortune,December1960.

43.Ibid.

44.“ZenithRadioCorporation(C),”HarvardBusinessSchoolCaseNo.

9-674-095,Rev.8/77,3.

45.BobTamarkin,“Zenith’sNewHope,”Forbes,31March1980.

46.“Underpromise,Overperform,”Forbes,30January1984.

47.“BobGalvin’sAngryCampaignAgainstJapan,”BusinessWeek,15April1985.

48.RobertW.Galvin,TheIdeaofIdeas(Schaumburg,IL:MotorolaUniversityPress,1991),63.

49.HarryMarkPetrakis,TheFounder’sTouch(NewYork:McGraw-Hil,1965),chapters17–18.

50.RobertW.Galvin,TheIdeaofIdeas(Schaumburg,IL:MotorolaUniversityPress,1991),45.

51.RobertW.Galvin,TheIdeaofIdeas(Schaumburg,IL:MotorolaUniversityPress,1991),64–65.

52.BarnabyJ.Feder,“MotorolaWilBeJustFine,Thanks,”NewYorkTimes31October1993,section3.

53.“MelvileShow,”Forbes,1February1969,22.

54.RogerBeardwood,“MelvileDrawsaBeadonthe$50-BilionFashionMarket,”Fortune,December1969.

55.WilburH.Morrison,DonaldDouglas—AHeartWithWings(Ames,IA:IowaStateUniversityPress,1991),252.

56.“RemarkableRevivalofRJRIndustries,”BusinessWeek,17

January1977.

57.“WhenMarketingTakesOveratR.J.Reynolds,”BusinessWeek,13November1978.

58.“TheBurroughsSyndrome,”BusinessWeek,12November1979;

“A‘toughstreetkid’stepsinatBurroughs,”BusinessWeek,29

October1979.

59.JohnTaylor,StormingtheMagicKingdom(NewYork:BalantineBooks,1987),203.

60.Authorinterview.

61.VanceTrimble,SamWalton(NewYork:Dutton,1990),118.

62.“EmployeeDevelopment,1958,”InternalHPdocument,courtesyHewlett-PackardCompanyarchives.

CHAPTER9

1.GeorgePlimpton,TheWriter’sChapbook(NewYork:VikingPenguin,1989),31.

2.BusinessMonth,December1987,46.

3.RobertO’Brian,Marriott(SaltLakeCity:Deseret,1987),10,11,315.

4.OscarSchisgal,EyesonTomorrow:TheEvolutionofProcter&

Gamble(NewYork:Doubleday,1981),chapter1.

5.WecouldnotfindthespecificdateatwhichColgateintroducedacompetingbrandmanagementprocess.Inculingthroughalarticles,books,andcompanypublications,wefoundnospecificmentionofanythingresemblingP&G’smechanismuntilthe1960s.

6.LouisGalambosandJeffreyL.Sturchio,“TheOriginsofanInnovativeOrganization:Merck&Co.,Inc.,1891–1960,”seminarpaperdeliveredatJohnsHopkinsUniversity,5October1992,34–35.

7.ItzkikGoldberger,unpublishedresearchstudyonMotorola,ALZACorporationOrganizationDesignProject,summer1992.

8.JilBettner,“Underpromise,Overperform,”Forbes,30January1984.

9.ItzkikGoldberger,unpublishedresearchstudyonMotorola,ALZACorporationOrganizationDesignProject,summer1992.

10.RobertSlater,TheNewGE(Homewood,IL:Irwin,1993),chapter13.

11.RobertJ.Serling,Legend&Legacy(NewYork:St.Martin’sPress,1992),448.

12.SamWaltonwithJohnHuey,MadeinAmerica(NewYork:

Doubleday,1992),240(photograph).

13.“Nordstrom,”HarvardBusinessSchoolCaseNo.9-191-002and1-192-027,Rev.9/6/91.

14.TranscriptofinterviewwithTheReporter,StanfordGraduateSchoolofBusiness,1991.

15.Basedonauthor’spersonalexperienceasanH-Pemployee.

16.“HumanResourcesatHewlett-Packard,”HarvardBusinessSchoolCaseNo.482-125,5.

17.Hewlett-PackardVideotapesessionwithBilHewlettandDavePackard,August-March1980–1981.TranscriptcourtesyHewlett-PackardCompanyarchives,part3,3–4,

18.Ibid.,13–14.

19.Ibid.,3–4.

20.Ibid.

21.DavidPackard,commentsatthecorporateannualmeetingofstockholders,24February1976.

22.“OnManagingHPfortheFuture,”DavidPackard,containedin18

March1975memofromDaveKirbyregarding“HPExecutiveSeminars”;courtesyHewlettPackardCompanyarchives.

23.“PerspectivesonHP,”DavidPackard,generalmanager’smeeting,17January1989,courtesyHewlettPackardCompanyarchives.

24.“TheMenWhoMadeTI,”Fortune,November1961,121.

25.“TexasInstrumentsWrestleswiththeConsumerMarket,”Fortune,3

December1979.

26.“TexasInstruments:PushingHardintotheConsumerMarkets,”

BusinessWeek,24August1974;“TheGreatDigitalWatchShakeout,”Business

Week,2May1977;“TexasInstrumentsWrestleswiththeConsumerMarket,”Fortune,3December1979;

“WhenMarketingFailedatTexasInstruments,”BusinessWeek,22

June1981;“TexasInstrumentsRegroups,”Fortune,9August1982;

“TI:ShotFulofHolesandTryingtoRecover,”BusinessWeek,5

October1984.

27.Fourcasescamedirectlyfromincomestatementlineitems:

Boeing,IBM,Johnson&Johnson,andMerck.Fourothercasescamefromavarietyofpublishedsourcesthatledustoaconvincingconclusion:H-P,3M,Motorola,andProcter&Gamble.

28.Basedonfinancialstatementanalysisandawidevarietyofarticlesonthepharmaceuticalindustry.

29.ItzkikGoldberger,unpublishedresearchstudyonMotorola,ALZACorporationOrganizationDesignProject,summer1992.

30.Ibid.

31.Values&Visions:AMerckCentury(Rahway,NJ:Merck,1991),121.

32.NancyA.Nichols,“ScientificManagementatMerck,”HarvardBusinessReview,January1994.

33.BryanBurroughandJohnHelyar,BarbariansattheGate(NewYork:Harper-Perennial,1991),chapters2–3.

34.Schickel,Richard,TheDisneyVersion(NewYork:Simon&

Schuster,1968),107.

35.BryanBurroughandJohnHelyar,BarbariansattheGate(NewYork:Harper-Perennial,1991),chapters2–3.

36.Ibid.

37.“WhereManagementStyleSetstheStrategy,”BusinessWeek,23

October1978.

38.“Colgatevs.P&G,”Forbes,1February1966.

39.“MoreforLesch?”Forbes,1March1969.

40.HughD.Menzies,“TheChangingoftheGuard,”Fortune,24

September1979.

41.JohnA.Byrne,“Becalmed,”Forbes,20December1982.

42.H.JohnSteinbreder,“TheManBrushingUpColgate’sImage,”

Fortune,11May1987.

43.GretchenMorgenson,“IsEfficiencyEnough?”Forbes,18March1991.

44.BusinessWeek,2July1966,46.

45.JohnMerwin,“TheSadCaseoftheDwindlingOrangeRoofs,”

Forbes,30December1985,76.

46.“TheIndividualStarPerformerisinTrouble,”Forbes,15May1975.

47.JohnMerwin,“TheSadCaseoftheDwindlingOrangeRoofs,”

Forbes,30December1985,79.

48.Ibid.,75.

49.“HoJo’sWilRepaintItsRoofs,”BusinessWeek,13December1982,109.

50.JohnMerwin,“TheSadCaseoftheDwindlingOrangeRoofs,”

Forbes,30December1985,75.

51.“HowardJohnsonTriesaLittleHarder,”BusinessWeek,29

September1973,82.

52.JohnMerwin,“TheSadCaseoftheDwindlingOrangeRoofs,”

Forbes,30December1985,79.

53.S.M.Sulivan,“Money,Talent,andtheDevilbytheTail,”

ManagementReview,January1985,21.

54.RonZemkeandDickSchaaf,TheServiceEdge,(NewYork:NewAmericanLibrary,1989),117–120.

55.S.M.Sulivan,“Money,Talent,andtheDevilbytheTail:J.WilardMarriott,”ManagementReview,January1985.

56.“TheMarriottStory,”Forbes,1February1971,22.

57.Ibid.

58.RonZemkeandDickSchaaf,TheServiceEdge,(NewYork:NewAmericanLibrary,1989),117–120;companydocuments.

59.IntheFebruary1971Forbesarticle,Marriottclaimedtobespending$1milionperyearonmanagementdevelopment.1970

pretaxprofitswerejustunder$20milion.

60.“TheMarriottStory,”Forbes,1February1971,23.

61.Success,October,1989,10.

62.“AmesHasaPlan,”DiscountMerchandiser,July1991,10

63.HarvardBusinessSchoolCaseNo.9-384-024,12.

CHAPTER10

1.SpeechgivenNovember10,1942.

2.RobertL.Shook,Turnaround:TheNewFordMotorCompany(NewYork:Prentice-Hal,1990),131.

3.Ibid.,99–100.

4.Ibid.,90,193.

5.Ibid.,207.

6.Ibid.,123.

7.Ibid.136.

8.Ibid.,chapter6.

9.Ibid.,chapter7.

10.WelcomingaddressbyGeorgeW.MerckatdedicationoftheMerckResearchLaboratory,25April1933,courtesyMerck&Co.

archives.

11.Goalclearlyevidentinearly1930s.ThequotecomesfromGeorgeMerckspeech,22April1935,courtesyMerck&Co.archives.

12.Laboratoriescreatedinthe1930s.QuotefromGeorgeW.MercktalkattheMedicalColegeofVirginia,1December1950,courtesyMerck&Co.archives.

13.ValuesandVisions:AMerckCentury(Rahway,NJ:Merck,1991),23.

14.LouisGalambosandJeffreyL.Sturchio,“TheOriginsofanInnovativeOrganization:Merck&Co.,Inc.,1891–1960,”19,27.

15.Manyreferencestothisthroughoutinternalandexternaldocuments.

Althoughwecouldnotconfirmtheactualdateofthispractice,webelieveitdatesbackatleasttothe1960s,perhapsearlier.

16.“Profiles:ScientistsinBasicBiologyandChemistry,MerckSharp&

DohmeResearchLaboratories,”courtesyMerck&Co.archives.

17.WelcomingaddressbyGeorgeW.MerckatdedicationoftheMerckResearchLaboratory,25April1933,courtesyMerck&Co.,archives;Values&Visions:AMerckCentury(Rahway,NJ:Merck,1991);LouisGalambosandJeffreyL.Sturchio,“TheOriginsofanInnovativeOrganization:Merck&Co.,Inc.,1891–1960.

18.WelcomingaddressbyGeorgeW.MerckatdedicationoftheMerckResearchLaboratory,25April1933,courtesyMerck&Co.,archives.

19.QuotefromVagelos,MITManagement,Fal1988;almostidenticaltoacommenthemadeduringavisittoStanfordBusinessSchoolfacultyin1990.

20.We’renotexactlysurewhenthispracticebegan.Itmighthavebeenmuchearlierthanthe1970s.Quotefrom“TheMiracleCompany,”

BusinessWeek,19October1987.

21.“MerckHasMadeBiotechWork,”Fortunereprintfrom1987article.

22.BusinessWeek,19October1987,87.

23.Goalclearlyevidentinearly1930s.ThequotecomesfromGeorgeMerckspeech,22April1935,courtesyMerck&Co.archives.

24.Values&Visions:AMerckCentury(Rahway,NJ:Merck,1991),29.

25.Forbes,26November1979.

26.WallStreetJournal,23June1989.

27.NancyA.Nichols,“ScientificManagementatMerck,”HarvardBusinessReview,January1994,90–91.

28.Values&Visions:AMerckCentury(Rahway,NJ:Merck,1991),51.

29.Ibid.,41.

30.Ibid.,51.

31.Ibid.

32.NancyA.Nichols,“ScientificManagementatMerck,”HarvardBusinessReview,January1994,89.

33.DavidBolierandKirkO.Hansen,Merck&Co.(A-D),BusinessEnterpriseTrustCaseNo.90-013.

34.Ibid.

35.Values&Visions:AMerckCentury(Rahway,NJ:Merck,1991),168.

36.Again,notclearwhenthepracticebeganexactly.We,asfacultyat

Stanford,havehadtowritesomeoftheserecommendations;theyareunlikeanyotherwe’vefoundinindustry.

37.Manyreferencestothisthroughoutinternalandexternaldocuments.

TheturnoverratecomesfromMerckWorld,July1989.

38.Authorinterview.

39.DavidPackardmemotoemployeesfrom“Watt’sCurrent,”

November1961,courtesyHewlett-PackardCompanyarchives.

40.LettertoIEEEAwardsBoard,23May1972,courtesyHewlett-PackardCompanyarchives.

41.CourtesyHewlett-PackardCompanyarchives.

42.DocumentscourtesyHewlett-PackardCompanyarchives;quotefromPackardon22March1982.

43.MemotoHPemployeesthatwentwithHPprospectusin1957.

44.SpeechbyDavidPackardon25March1982.Confirmedbyotherdocuments,courtesyHewlett-PackardCompanyarchives.

45.Beganasaoutgrowthofthe1945layoffsattheendofWorldWarI.

46.FirstarticulatedduringthetransferoftheOsciloscopeDivisionfromPaloAltotoColoradoSpringsin1964,courtesyHewlett-PackardCompanyarchives.

47.HPimplementedthiswiththerecessionintheearly1970s.

48.Packardspeech,25March1982,courtesyHewlett-PackardCompanyarchives.

49.BasedonauthorinterviewwithBilHewlett,1991.

50.LettertoIEEEAwardsBoard,23May1972,courtesyHewlett-PackardCompanyarchives.

51.SpeechbyBilHewlett,1956,courtesyHewlett-PackardCompanyarchives.

52.Personalauthorexperience.

53.SpeechbyDavidPackard,23September1964,courtesyHewlett-PackardCompanyarchives;“TurningR&DIntoRealProducts,”

Fortune,2July1990.

54.RunsthroughoutH-P’shistory.QuotefromBilHewlett,20April

1977,courtesyHewlett-PackardCompanyarchives.

55.Directauthorexperience.

56.RunsthroughoutHP’shistory.QuotefromBilHewlett,20April1977,courtesyHewlettPackardCompanyarchives.

57.SpeechbyDavidPackard,23September1964,courtesyHewlett-PackardCompanyarchives.

58.CourtesyHewlett-PackardCompanyarchives.

59.Ibid.

60.SpeechbyDavidPackard,8October1959,anddescriptionbyDavidPackardon19September1963,courtesyHewlett-PackardCompanyarchives.

61.RunsthroughoutHP’shistory.QuotefromBilHewlett,20April1977,courtesyHewlett-PackardCompanyarchives.

62.BilHewlett,20April1977,courtesyHewlett-PackardCompanyarchives.

63.“HumanResourcesatHewlett-Packard,”HarvardBusinessSchoolCaseNo.482-125,5.

64.KarlSchwarz,HPgeneralmanager,“HPGrenoble,aCaseStudyinTechnologyTransfer,”May1988,courtesyHewlett-PackardCompanyarchives.

65.FromHPvideotranscriptsofBilHewlettandDavidPackard,1980–1981,courtesyHewlett-PackardCompanyarchives.

66.BasedonDavidPackard’sremarksatthebeginningofnewmanagementtrainingprogramon17March1985,courtesyHewlett-PackardCompanyarchives.

67.AuthorinterviewwithJohnYoung,1992.

68.SpeechbyDavePackard,1974,courtesyHewlett-PackardCompanyarchives.

69.Firstpublishedversionsappeararound1958.QuotefromPackardon25March1982,courtesyHewlett-PackardCompanyarchives.

70.QuotefrominterviewwithDavidPackard,20August1981.Othersourcesindicatethattheprogrambeganintheearly1960s,courtesyHewlett-PackardCompanyarchives.

71.AuthorinterviewwithBilHewlett,1990.

72.LettertoIEEEAwardsBoard,23May1972,courtesyHewlett-PackardCompanyarchives.

CHAPTER11

1.CharlesBurressandMarkSimon,“DavidPackardDies,”SanFranciscoChronicle,March27,1996,1.

2.Authorinterview,NewBrunswick,NJ,February1995.

3.AkioMorita,MadeinJapan,(NewYork,NY:E.P.Dutton,1986),147–148.

4.Authorinterview.

5.WiliamManchester,TheLastLion,(Boston,MA:LittleBrown,1988),686.

Index

Index

Thepaginationofthiselectroniceditiondoesnotmatchtheeditionfromwhichitwascreated.Tolocateaspecicpassage,pleaseusethesearchfeatureofyoure-bookreader.

Note:Pagenumbersinitalicsrefertotablesandilustrations.

Actionandexperimentation,90,140—68

evolutionofcorporationsand,142—68.SeealsoProgress,evolutionary3M,150—68

Airportservices,MarriotCorporationopportunisticstepinto,141—42

Alignment.SeeOrganizationalalignment

Alen,Wiliam,61,106,174n

AmericanExpress,3,167,251

actionandexperimentationand,146

coreideologyof,67,68

evolutionintofinancialandtravelservicesby,142—44

foundingrootsof,257

AmericanExpress1850—1950(Hatch),143

AmesStores,3,14,174,198

charismaticleadermythand,37

foundingrootsof,272

greatideasmythand,25,27

managementturmoilandcorporatedeclineat,181,183

AppleComputer,236

Bankruptvisionarycompanies,249—50

BarbariansattheGate:TheFalofRJRNabisco(BurroughandHelyar),181

Berry,Marcelus,143

Best100CompaniestoWorkforinAmerica,The,120,125,132

BHAG.SeeBigHairyAudaciousGoals(BHAGs)

BigHairyAudaciousGoals(BHAGs),9,10,89,90—114,145,148—50,203,205—

6,242,244,248,285—86

categoriesof,232

commitmentandriskand,100—104

cult-likeculture,137

guidelinesforCEOs,managers,andentrepreneursand,111,113,114

hubrisfactorand,104—5

hubrisfactorand,104—5

leadersvs.,105—-11

visionarycompaniesand,235—36

vision-level,232—33,234—36

Bigpicture,213—13

Blumenthal,W.Michael,181

Boeing,3,14,17,167,174,188,215,227

BigHairyAudaciousGoalsand,91—93,100,104,105,111,112,113,149—50,232,235

coreideologyof,61—62,67,68

cult-likecultureof,137

driveforprogressand,82—84,86

foundingrootsof,258

Boeing,WiliamE.,26,31,83—84

Borch,Fred,170,172

BostonConsultingGroup(BCG),162

“Branchingandpruning,”146—49,164at3M,152—53,154,155—59

BrandoftheTartan—The3MStory(Tuck),150

Bristol,Wiliam,31—32

Bristol-MyersSquibb,3

coreideologyof,60—61

foundingrootsof,264

Bucy,Fred,166

BurkeJim,60,72

Burrough,3,27,127,174,253—54

BigHairyAudaciousGoalsand,101—3

foundingrootsof,263

managementturmoilandcorporatedeclineat,181,183

suppressionofevolutionaryprogressat,166

Burroughs,Bryan,181

BusinessandItsBeliefs,A(Watson),73—74,81

Carlton,RichardP.,140,153,155,165

Change,mythof,8—9

ChaseManhatan,3,174,181,194

BigHairyAudaciousGoalsand,107—9

charismaticleadermythand,35

foundingrootsof,259

suppressionofevolutionaryprogressat,165

Cheape,CharlesW.,161—62

ChiefExecutiveOficers(CEOs)mythabout,10,SeealsoHome-grownmanagementsurveyof,12—13,15,251—52

Churchil,WinstonS.,201,234

Citicorp(Citibank),3,4,14,83,165,194

BigHairyAudaciousGoalsand,107—9,112,232,235

charismaticleadermythand,35

charismaticleadermythand,35

coreideologyof,67,68

foundingrootsof,259

Clockbuilding(architectural)approach,22—42,87,88,89—90,247

BigHairyAudaciousGoalsand,105—11

charismaticleadermythand,31—40

companyastheultimatecreationin,28—31

examplesof,34—40

greatideasmythand,23—31

perceptualshiftand,40—42

ClosetotheCustomer,246

Clustering,214

Cofin,Charles,28—29,31

charismaticleadermythand,31,34

Cohn,Harry,32,131

charismaticleadermythand,39,40

Colgate,3,17,27,104,134—35,187

coreideology,175,176

discontinuityofleadershipat,174,175—77,183

foundingrootsof,269

self-improvementand,195—96

Colgate,Bayard,176

Colgate,Gilbert,176

Colgate,Russel,176

Colgate,Sidney,175,176

Colgate,Wiliam,31—32

ColumbiaPictures,3,17,27,101,131,174,181

charismaticleadermythand,38—40

foundingrootsof,273

Commitment,BigHairyAudaciousGoalsand,100—104

Comparisoncompanies,5,6

definitionof.Seespecificcompanies

selectionof,15

instudy,3

Competition,mythof,10.SeealsoSelf-improvementComputingTabulatingRecordingCompany(CTR),102—3,126

ConceptoftheCorporation(Drucker),54,246

Consumerproducts,Johnson&Johnson’saccidentalmoveinto,141

ControlYourOwnDestinyorSomeoneElseWil(TichyandSherman),148—49,171—72

Cordiner,Ralph,170

Corecompetence,231

Coreideology,8,46—79,90,175,176,181—82,216,221—22,282—84.SeealsoPreservethecore/stimulateprogress

corecompetencevs.,231

corevaluesand,73—76,222—24

corevaluesand,73—76,222—24

definitionof,48,219—20

driveforprogressand,8—9,81—90,88

guidelinesforCEOs,managers,andentrepreneursand,73—79

pragmaticidealism,48—54

preservationof,80—90

purposeand,76—78,224—28

varietyin,67—72

CorporateCultureandPerformance(KoterandHesket),246

Correlationsversuscauses,252—53

Culman,Joseph,66

Cult-likeculture,9,89,114—39,269—72

ofIBM,115,124—27,137

ideologicalcontrol/operationalautonomyand,137—39

messageforCEOs,managers,andentrepreneursand,135—37

ofNike,230

ofNordstrom,115—24,135,138

ofProcter&Gamble,124,131—35

ofWaltDisneyCompany,115,124—27,135

Daliba,Wiliam,144,164

Darwin,Charles,9,18,140,146,148,163

Darwinianrevolution,41,145—50

Details,213—14

Deupree,Richard,103—4,177—78,187

Dickson,Earle,141

“Discoverbuildings”trap,13—15

Disney,Roy,101

Disney,Walt,22,30,31,77,91,183,226

charismaticleadermythand,39—40

cult-likeculture,130—31

DisneyVersion,The(Schickel),127—28

Douglas,Donald,Jr.,31—32,181

Douglas,Donald,Sr.,181

DouglasAircraft,26,92—93.SeealsoMcDonnelDouglasfoundingrootsof,258

managementturmoilandcorporatedeclineat,181

Drew,Dick,153,163,164

Driveforprogress,asinternaldrive,84—85

Drucker,PeterF.,53—54,228,246

Edison,Thomas,27

Edwards,A.G.,37

Eisner,Michael,101,181—82

Eliot,Marc,130—31

Eliot,Marc,130—31

Eliot,T.S.,219

Emerson,RalphWaldo,53

Envisionedfuture,219—21,229,232—38

vision-levelBHAGsand,232—33,234—36

vividdescriptionand,233—34

Evolutionofcorporations,9,16—18,41,142—68,247

purposeful,149,291—93.SeealsoProgress,evolutionaryEyesonTomorrow:TheEvolutionofProcter&Gamble(Schisgal),103,132

FannieMae,corepurposeand,225—26

Fargo,J.C.,143,144

Father,Son&Co.(Watson,Jr.),124—25

Faulkner,Wiliam,185

Financialandtravelservices,AmericanExpress’sunintendedevolutioninto,142—44

Fisher,George,180

Fitzgerald,F.Scot,45

Ford(Lacey),53

Ford,Henry,27,52—53,84

BigHairyAudaciousGoalsand,97,233

FordMotorCompany,3,4,14,83,113,114,214,243,254

BigHairyAudaciousGoalsand,97,203,232,235

coreideologyof,46,52—54,67,68

foundingrootsof,260

greatideasmythand,27

organizationalalignmentand,202—3,213

Foster,David,177

Foundingdates,13,14,15

Fowler,Joe,130

Friedman,Jon,143

Fry,Art,159,163,164,167

Galvin,Christopher,180

Galvin,Paul,30,31,80,179,183

BigHairyAudaciousGoalsand,109—11

charismaticleadermythand,37—38

coreideologyand,62,221

Galvin,RobertW.,38,62,80,83,110,169,179,188

Gamble,James,30,31,33,74,186,222

Gelb,Richard,61

GeneralElectric(GE),3,14,16,86,254

actionandexperimentation,148—49

BigHairyAudaciousGoalsand,95,112,233

charismaticleadermythand,34

coreideologyof,69,71—72,77

coreideologyof,69,71—72,77

foundingrootsof,261

greatideasmythand,27—29

home-grownmanagementand,169—85

performancerankingsofChiefExecutiveerasat,298—99

self-improvementand,188,194

GeneralMotors(GM),3,97,174

coreideologyof,52—54

foundingrootsof,260

“GeniusoftheAND,”10,44—45,85,137,242,247

coreideologyand,48,55—57

Gerstner,LouisV.,174n,182

Gilman,Herbert,37

Gilman,Irving,25,31—32,37

Gilman,Milton,25,31—32,37

GiroSportDesign,233

Glass,David,37

GraniteRock,227,252

Greatideas,23—28

mythof,7,23—31

Greenwalt,Crawford,61—62

Haggarty,Pat,17,32,57,166,192

Harness,Ed,80

HarvardBusinessReview,219

HarvardBusinessSchool,60

Hatch,Alden,143

Helyar,John,181

Hesket,James,246

Hewlet,WiliamR.,1,17,24,29,33,150,183—84

coreideologyand,75,76,221,222

organizationalalignmentand,207—12

self-improvementand,190—91

Hewlet-Packard,1,3,3—4,14,17,24,81,85,86,94,183—84,227,246,254

actionandexperimentationand,142—43,167—68

coreideologyof,46,55—58,67,69,75—77,79,221,222,226,229,230

cult-likecultureof,121

foundingrootsof,262

greatideasmythand,23—24,26,29—30

organizationalalignmentand,207—15

self-improvementand,186,189—93

Historyandevolutionofcompanies,16—18

Home-grownmanagement,10,90,169—84,294—96

continuityofqualityleadershipand,173—75,174,175

messageforCEOs,managers,andentrepreneursabout,183—84

Honda,233

Honda,233

HouseofCards(FriedmanandMeehan),143

HowardJohnson,3,32,174,181

coreideologyof,65

declineof,196—98

foundingrootsof,265

Hubrisfactor,104—5

IBM,3,4,14,81,167,174n,243—45,253,254

BigHairyAudaciousGoalsand,101—4,111,112,113,149—50,244

coreideologyof,67,69,73—76

cult-likecultureof,115,124—27,137

foundingrootsof,263

managementturmoilandcorporatedeclineat,182

IBM:ASpecialCompany,126

IBMWay,The(Rodgers),125—26

Ibuka,Masaru,24,30,33,79,91,164

BigHairyAudaciousGoalsand,98—99

coreideologyand,49—51,221,230

InSearchofExcelence(PetersandWaterman),245—46

Internalcompass,214—15

Johnson,F.Ross,195

Johnson,Howard,Jr.,65,196,197

Johnson,Howard,Sr.,65,196

Johnson,RobertW,Jr.,72,140,147

coreideologyand,58—59,75,76

Johnson,RobenW.,Sr.,31,58,79

Johnson,Ross,181

Johnson&Johnson,3,14,16,185

actionandexperimentationand,147,164,167,168

coreideologyof,58—61,67,69,72,75,79,222

foundingrootsof,264

greatideasmythand,27

moveintoconsumerproductsby,141

organizationalalignment,213—15

Jones,Reginald,170,172

Kahn,Robert,100,105—6

Kaplan,Sam,178

Kennedy,JohnF.,94,105

Kenwood,3,174,254

coreideologyof,51

foundingrootsof,271

greatideasmythand,25,27

greatideasmythand,25,27

Kikuchi,Makato,106—7

Kilmer,Fred,58,141

Kluckman,Revone,178

Koter,John,246

Lacey,Robert,53

Larsen,Ralph,147,222

Leaders,visionary,23,247

BigHairyAudaciousGoalsvs.,105—11

at3M,11—12

mythof,7—8,11—12,31—40.SeealsoClockbuilding(architectural)approachLeadership,280—81

LegendandLegacy(Serling),62

Lehr,Lewis,164

Litle,Edward,176—79

L.L.Bean,252

Long-terminvestment,192—96

Long-termperformance,4,5,6,7

Lyons,Nick,51,106—7

McDonald,EugeneF.,Jr.,32,111,178

charismaticleadermythand,38

coreideologyand,63

Macdonald,RayW.,102,166,181

McDonnel,James,106

McDonnelAircraft,181

McDonnelDouglas,3,17,27,92,93,106,181

coreideologyof,61

self-improvementand,195

McElroy,Neil,178,187

McKeen,John,49

McKinsey,226

McKnight,Wiliam,186

actionandexperimentationand,151—53,163—65,168

charismaticleadermythand,32—33

coreideologyand,221

MadeinAmerica(Walton),25,36

Management,home-grown.SeeHomegrownmanagementManagement:Tasks,Responsibilities,Practices(Drucker),54

ManagingforResults(Drucker),246

Marriot(O’Brian),142

Marriot,J.Wilard,Jr.,64—65,185,196,197

Marriot,J.Wilard,Sr.,26,31,63—64,83,141—42,186

MarriotCorporation,3,14,86,167,168,183,193

MarriotCorporation,3,14,86,167,168,183,193

coreideologyof,63—65,67,69,77

foundingrootsof,265

greatideasmythand,26

opportunisticstepintoairportservicesby,141—42

self-improvementand,185,186,196—98

MarsGroup,222,228

Meehan,John,143

Melvile,Frank,32

Melvile,Ward,180—81

MelvileCorporation,3,122—23

foundingrootsof,268

managementturmoilandcorporatedeclineat,180—81,183

Merck,George,I,47—49,75,76

Merck,GeorgeW.,16,31,33,203—4,212,221

Merck&Company,3,14,16,26,82,183,246,254

BigHairyAudaciousGoalsand,112,113,205—6,236

coreideologyof,46—49,54,66—67,69,75,77,221,229,236

cult-likecultureof,137

envisionedfutureof,236

foundingrootsof,266

organizationalalignmentand,203—7,213,214

self-improvementand,150,188,193,194

Miles,Michael,66

Milhiser,Ross,65

Misalignments,obliterating,215—16,238

Mitchel,Charles,108

Moore,George,108,109

Morita,Akio,24,51,98

MotorolaCompany,3,14,15,17,26,30,86,167,168,213,227,246

actionandexperimentationand,145

BigHairyAudaciousGoalsand,109—11,113

charismaticleadermythand,37—38

coreideologyof,62—63,67,70,77,79,221

cult-likecultureof,121

driveforprogressand,80,83

foundingrootsof,267

home-grownmanagementat,169,178—80

self-improvementand,188,194,198

Mutation,41

3Mand,150—52,155

Myers,John,31—32

NabiscoBrands,181

NASA,236

Naturalselection,41,146,149

Naturalselection,41,146,149

Nevin,John,111,178

Newtonianrevolution,40—41

Nicholson,Geofrey,159,164

Nike,230,232

Nonprofitorganizations,245

Nonvisionarycorporations,hopefor,243

Nordstrom,3,14,26,168,183,213,227,254

coreideologyof,67,70,222,229

cult-likecultureof,115—24,138

driveforprogressand,82,84,86

foundingrootsof,268

self-improvementand,150,188—89

Nordstrom,Bruce,84,116,188—89

Nordstrom,Jim,116,138

Nordstrom,John,26,31,116

Norton,Charles,161

NortonCorporation,3,27,174,198

actionandexperimentationand,160—63,167

foundingrootsof,256

greatideasmythand,26

O’Brian,Robert,142

Okie,FrancisG.,151—52,163,164

Oliver,Barney,212

Operationalautonomy,137—39

Organization,McKnight’screationof,152

Organizationalalignment,90,201—18,238—39,247

lessonsof,212—16

powerof,202—12

Ford,202—3

Hewlet-Packard,207—12

Merck&Company,203—7

OrganizationalCultureandLeadership(Schein),246

OrganizationStreamAnalysis,18—19

Packard,David,17,29—31,183—84,186,190—91

coreideologyand,55—57,75—76,221,222,224,230

organizationalalignmentand,207,210—12

Palmolive-Peet,175—76

Pearce,Charles,176

Perspective,shiftin,40—42

Peters,ThomasJ.,166,245—46

Petersen,Don,46,52

Pfizer,3,27,193

Pfizer,3,27,193

coreideologyof,48—49

foundingrootsof,266

Pfizer,Charles,31—32

PhilipMorris,3,14,26,174,214,243

BigHairyAudaciousGoalsand,96—97,104,113,114,232,235

coreideologyof,65—67,70

cult-likecultureof,121

foundingrootsof,270

self-improvementand,150,194,195

Postheroicleaderstal,107—11

PracticeofManagement(Drucker),246

Pragmaticidealism,48—54

Preservethecore/stimulateprogress,17—18,44—45,80—90,216,247.SeealsoProgress,drivefor

keyconceptsforCEOs,managers,andentrepreneursand,87—88

methodsof,89.SeealsoActionandexperimentation;BigHairyAudaciousGoals(BHAGs);Cult-likeculture;Home-grownmanagement;Self-improvementPrinceoftheMagicKingdom(Fowler),130

Procter,Cooper,177

Procter,Wiliam,30,33,132,186,222

Procter,WiliamCooper,132,133

Procter&Gamble,1,3,14,17,26,183

BigHairyAudaciousGoalsand,103—4

coreideologyof,67,70,72,74,222

cult-likecultureof,121,131—35

driveforprogressand,80,83,86

foundingrootsof,269

home-grownmanagementand,175—78

self-improvementand,186,187

Profitmaximization,mythof,8,46—79.SeealsoCoreideologyProgress.SeealsoPreservethecore/stimulateprogressdrivefor,8—9,80—90,88,241—42

evolutionary,145—68

lessonsforCEOs,managers,andentrepreneursand,163—66

purposeful,291—93

suppressionof,165—66

at3M,150—68

Purposefulevolution,149,291—93

Purposeofcompany,73,76—78,224—28

Researchproject,11—21,21

conceptualframeworkin,19—20

data,coding,andtortoisehuntingin,18—19

“discoverbuildings”trapand,13—15

fieldtestingandreal-worldapplicationin,20,21

fieldtestingandreal-worldapplicationin,20,21

historyandevolutionofcompaniesand,16—18

issuesabout,231—37

originsof,11—12

selectionofcompaniesfor,12—13

Resiliency,4

Risk,BigHairyAudaciousGoalsand,100—104

R.J.Reynolds,27,174,235

BigHairyAudaciousGoalsand,96,104

coreideologyof,65,67

foundingrootsof,270

managementturmoilandcorporatedeclineat,181,183

self-improvementand,194,195

RJRNabisco,3,181

Robertson,Hugh,178

Rockefeler,David,109,165

Rockwel,233

Rodgers,Buck,125—26

Roosevelt,Theodore,91

Safetymyth,9

Schein,Edgar,246

Schickel,Richard,22,27,127—28

Schisgal,Oscar,103

Schook,Robert,52

InSearchofExcelence(PetersandWaterman),166

Self-improvement,10,90,150,185—200,300—304

long-terminvestmentand,192—96

mechanismsofdiscontentand,186—90

messageforCEOs,managers,andentrepreneursabout,198—99

parableoftheblackbeltand,199—200

Serling,Robert,62

Shepard,Mark,166

Sherman,Stratford,148—49,171—72

Silver,Spencer,159,162—64,167

Sloan,AlfredP.,coreideologyand,53—54

Smale,JohnG.,1,177—78

Sony,3,4,14,168,246

BigHairyAudaciousGoalsand,98—99,106—7,111,113,114,232,237

corecompetenceof,231

coreideologyof,49—52,54,67,70,78,79,221,222,230—31,237

cult-likecultureof,137

driveforprogressand,83

envisionedfutureof,237

foundingrootsof,271

greatideasmythand,24—26,30

greatideasmythand,24—26,30

SonyVision,The(Lyons),51,106—7

Sorenson,Charles,97

StanfordUniversity,233

Startingacompany,22—23

greatideasmythand,7,23—31

Sticht,J.Paul,181

“SticktotheKniting,”166—67,246

Stilman,James,107—9

charismaticleadermythand,35

Stockreturns,cumulative(1926to1990),4,5,6

StormingtheMagicKingdom(Taylor),40

Strategicplanningmyth,9.SecalsoProgress,evolutionarySturchioJefreyL.,207

Successfulcompanies,visionarycompaniesvs.,250—51

Swope,Gerald,170

Taylor,John,40

TexasInstruments(TI),3,17,24,27,192

coreideologyof,57—58

foundingrootsof,262

suppressionofevolutionaryprogressat,166

3M(Minnesota,Mining,andManufacturingCompany),3,14,16,94,215,246

actionandexperimentationand,150—68

“branchingandpruning,”152—53,154,155—59

mechanismstostimulateprogress,156—58

charismaticleadermythand,11—12

coreideologyof,67,68,155,168,221,226,229

driveforprogressand,82,86—87

foundingrootsof,256

greatideasmythand,26

self-improvementand,186

Tichy,NoelM.,148—49

TokyoTsushinKogyo,98

Tooker,Gary,180

Trimble,Vance,25

Tuck,Virginia,150

Twenty-firstcentury,applicabilityoffindingsfor,246—48

“TyranyoftheOR,”43—44,137,242

mythof,10

Uneveninformation,254

UnitedStates,foundingof,42

UnitedStatesbias,255

Vagelos,P.Roy,47,77,193,205

Values,core,20,73—76,222—24

mythof,8

Vanderlip,Frank,108,109

Variation,41,146,149,152—53,154,155

Visionarycompanies,237—39

bankrupt,249—50

BigHairyAudaciousGoalsand,235—36

definitionof,1—3,229

largevs.smal,254

long-termperformanceof,4,5,6,7

mythsabout,7—11.Seealsospecificmyths

problemsandsetbacksof,3—4

resiliencyof,4

selectionof,12—13

instudy,3

successfulcompaniesvs.,250—51

troubledtimesat,253—54

Visionframework,219—39

definitionof,219—21

Visionstatements,95,237

mythof,10—11,201

Wal-MartCorporation,3,14,22,57,82,167—68,213

actionandexperimentationand,147—48

BigHairyAudaciousGoalsand,99—100,105—6,112,148,232,235

charismaticleadermythand,36—37

coreideologyof,67,70,74,222

cult-likecultureof,115,121,137

foundingrootsof,272

greatideasmythand,25,26,30

self-improvementand,188,193,198

WaltDisney(Eliot),130—31

WaltDisneyCompany,3,14,17,22,24,27,30,167,168,174,194,254

BigHairyAudaciousGoalsand,101,102,112,113,149—50

charismaticleadermythand,38—40

coreideologyof,67,71,77—78,181—82,222,226

cult-likecultureof,121,124,127—31,135

driveforprogressand,83,86

foundingrootsof,273

managementturmoilandcorporatedeclineat,181—83

Walton,Jim,147

Walton,Sam,22,25,30,31,74,81,83,183,188,235

actionandexperimentationand,147—48

BigHairyAudaciousGoalsand,99,106,111

BigHairyAudaciousGoalsand,99,106,111

charismaticleadermythand,36—37

cult-likeculture,115

Waterman,RobertH.,166,245—46

Watkins-Johnson,233

Watson,ThomasJ.,Jr.,31,81,102—3,124,126

oncorevalues,73—76

Watson,ThomasJ.,Sr.,102—3,111,124,126

Welch,Jack,16,182,246

actionandexperimentationand,148—49

BigHairyAudaciousGoalsand,95,112

charismaticleadermythand,34

coreideologyand,71—72

home-grownmanagementand,169—72

Wels,Frank,181

WelsFargo,3,174

foundingrootsof,257

Westinghouse,3,95,172—73,174

foundingrootsof,261

greatideasmythand,27—29

Westinghouse,George,28—29,31,172

charismaticleadermythand,32,34

Wiggin,Albert,charismaticleadermythand,35

Wilson,T.A.,106

Wright,Joseph,178

Yeager,Chuck,61,77

Young,John,57

actionandexperimentationand,142—43

coreideologyand,46,74

ZenithCorporation,3,15,17,27,167,174,183,194,198

BigHairyAudaciousGoalsand,110—11

charismaticleadermythand,38

coreideologyof,63

foundingrootsof,267

leadershipgapsat,178,180

Acknowledgments

Acknowledgments

WinstonChurchiloncesaidthatwritingabookgoesthroughvephases.Inphaseone,itisanoveltyoratoy.Butbyphaseve,itbecomesatyrantrulingyourlife.Andjustwhenyouareabouttobereconciledtoyourservitude,youkilthe

monsterandingittothepublic.Wel,withoutalthewonderfulpeoplewhohelpedustomakethisbookareality,themonsterwouldhavewon—handsdown.

OurfriendandcoleagueMortenHansendeservesspecialmentionforhiscontributionstotheproject.MortentookaleavefromhisjobatBostonConsultingGrouptojoinourStanfordresearchteamforsixmonthsasaFulbrightScholar,duringwhichtimeheplayedakeyroleinselectingandanalyzingthecomparisoncompanies.

Afterhelefttheproject,heremainedinclosetouchwithourwork

—pushinguscontinualytounshackleourselvesfromourpreconceptionsandpayatentiontothehardevidence,evenifitdidn’ttwithourpreviousviewsoftheworld.Mortenisoneofthemostintelectualyhonestpeopleweknowandheneverletusslideeasilyintothetrapofseeingonlywhatwewantedtosee.Aswedevelopedournalideas,wealwaysaskedourselves,“Wilthispassthe‘MortenStandard’?”

DarrylRobertsandJoseVamosworkedasresearchassistantsontheprojectformultipleyearswhiledoingtheirgraduatestudiesatStanford.Darryldidthebackgroundcodingonanumberofveryimportantcompaniesinourproject,includingMerck,J&J,3M,andPhilipMorris.HealsoplayedakeyroleintheoriginalCEOsurveytoselectthevisionarycompaniesandservedasanexcelentsoundingboardfortestingourideas.Joseperformedalargechunkofthenancialanalysesthatunderpinmanyofourndings.Onepieceofhisworkinvolveddoingincomestatementandbalancesheetnancialratioanalysisforourcompaniesgoingbacktothe

sheetnancialratioanalysisforourcompaniesgoingbacktotheyear1915—ahugeprojectthatinitselflastedafulyear.BothDarrylandJosedidasuperbjob.

Wewerealsoblessedwithanumberofotherdedicatedresearchassistants—mostlyMBAandPh.D.studentsatStanford—whojoinedourteamforuptoayear.Inparticular,wewishtothank:TomBennet,ChidamChidambaram,RichardCrabb,MuraliDharan,YolandaAlindor,KimGraf,DebraIsserlis,DebbieKnox,ArnoldLee,KentMajor,DianeMiler,AnneRobinson,RobertSilvers,KevinWaddel,VincentYan,andBilYoustra.

WereceivedimmensehelpfromthestaatStanford’sJacksonLibrary,including

BetyBurton,SandraLeone,JannaLengwel,andSuzanneSweeney.WeareparticularlythankfultoresearchlibrarianPaulReistfortrackingdownanynumberofobscurereferencesonourcompaniesfromdecadespast.CarolynBilheimerofDialogInformationServices,Inc.,generouslycontributedherexpertiseandtimetohelpuslocatearticlesonthevisionarycompanies.LindaBethel,PeggyCrosby,ElenDiNucci,BetyGerhardt,ElenKitamura,SylviaLorton,MarkShields,KarenStock,andLindaTaokaalcontributedtheiradministrativetalentsatvariouspointsintheproject.ElenKitamuraorganizedthethousandsofdocumentsintonice,neatlesandboxes—aneortthatsavedushundredsofhoursandfrustrationoverthecourseoftheproject.LindaTaokaperformedthenearlyimpossibletaskofmanagingourschedulessowecouldworkontheproject.

Weareindebtedtonearlyalofthecompaniesinourstudy—bothvisionaryandcomparisoncompanies—forsendinguscurrentandarchivalmaterialsontheircompany.Twoindividualsstandoutfortheirinvaluablehelp.KarenLewis,oftheHewlet-PackardCompanyarchives,spentdaysworkingwithoneofourresearchassistantstoidentifyandexplainliteralyhundredsofdocumentsontheearlydaysofHP.Withoutherhelp,wecouldnothavepossiblygainedthedepthofunderstandingaboutHPthatprovedsopivotalinourthinking.JeSturchio,corporatearchivistatMerckduringourproject,deliveredhistoricalmaterialsbytheboxload.Heevenmanagedtogetoriginalcopies—onfadedbritleparchment—of

managedtogetoriginalcopies—onfadedbritleparchment—ofGeorgeMerck’srstspeechesthatoutlinedthevisionforMerck.TobothKarenandJef,wecannotthankyouenough.

Webenetedgreatlyfromanumberofthoughtfulandincisiveindividualswhocommentedonearlydraftsofourwork.Inparticular,wewishtothank:JimAdamsofStanford,LesDenendofNetworkGeneral,SteveDenningofGeneralAtlantic,BobHaasofLeviStrauss,BilHannemannofGiroSportDesign,DaveHeenanofTheoDavies,GaryHessenauerofGeneralElectric,BobJossofWestpacBankingCorporation,TomKosnikofStanford,EdwardLelandofStanford,ArjayMilerofStanford,MadsØvlisenofNovoNordisk,DonPetersenofFord,PeterRobertsonofUSC,T.J.

RodgersofCypressSemiconductor,JimRosseofFreedomCommunications,EdScheinofMIT,HaroldWagnerofAirProducts,DaveWitherowofPCExpress,

BruceWoolpertofGraniteRock,andJohnYoungofHewlet-Packard.Ourmosttrustedadvisers—ourspousesJoanneErnstandCharlenePorras—proofreadandcommentedonchaptersastheyemergedfromthelaserprinter.

Theylivedwiththebook,helpeduswriteit,andstayedmarriedtousaswestruggledthroughthelongmonthsofwriting.Luckyweare.

VirginiaSmith,oureditoratHarperBusiness,workedcloselywithusfromdayone,editingandcommentingoneachchapteraswewentalong.Shegaveusmanyhelpfultipsandexcelentoveralguidancetoimprovethemanuscript.Justasimportant,shebelievedintheprojectandgaveusmuch-neededencouragementeachstepalongtheway.Wedidnotwanttoletherdown.

Finaly,wecouldnothavefoundabeteradviser,aly,andfriendthanouragentPeterGinsbergofCurtisBrown,Ltd.Peter,yousawthevalueofourworklongbeforewehadaproposal.Youfoughtforus.Yougaveusmomentum.Truly,withoutyou,itwouldneverhaveturnedoutthiswel.Weareeternalygrateful.

AbouttheAuthors

AbouttheAuthors

JIMCOLLINSisastudentandteacherofenduringgreatcompanies—

howtheygrow,howtheyatainsuperiorperformance,andhowgoodcompaniescanbecomegreatcompanies.TheauthorofthenationalbestselerGoodtoGreat,hisworkhasbeenfeaturedinFortune,theEconomist,USAToday,andHarvardBusinessReview.

JERRYI.PORRASistheLaneProfessorofOrganizationalBehaviorandChange,Emeritus,attheStanfordUniversityGraduateSchoolofBusinesswherehehasservedasassociatedeanforacademicaairsandfrequentexecutiveeducationteacher.Hestudieswaysofaligningcompaniesaroundtheirpurposeandcorevaluestoproducelastinghighperformance.

Visitwww.AuthorTracker.comforexclusiveinformationonyourfavoriteHarperColinsauthors.

Author’sNote

Author’sNote

Aswesatdowntowritethisauthor’snotefortheColinsBusinessEssentialsedition,BuilttoLastcelebrateditssixthyearontheBusinessWeekbestselerlist.Farbeyondwhatwewouldhavedaredtoimagine,BuilttoLasthasliveduptoitsownname.

Ironicaly,wecanclaimnocreditforthetitle.Creativityoftensproutsfromfrustration,andoureditorsin1994werefrustratedintheextreme.Wehadinsertedaclauseintoourpublishingcontractthatgaveusnalrightofapproval,andasthepublicationdateneared,wejustkeptvetoingtitles.Inal,somethingontheorderof127dierentoptionsfelbythewayside,from“YouAretheCompetition”to“ResearchResultsonVisionaryCompanies.”

ThesituationnalyescalatedtotheexecutiveeditorforHarperColins,whowenthomefortheweekendandreturnedonMondaymorningwithanidea.“Here,”hesaid,throwingathree-by-venotecardonoureditor’sdesk,“seeifthey’lgoforthis.”Onithe’dwritenthesimplephrase“BuilttoLast.”

Andwehadourtitle.

Inretrospect,BuilttoLastisagreattitle,butitisalsothewrongtitle.Notfromamarketingstandpoint(don’tgetuswrong,we’dstilkeepit),butfromthestandpointofwhatthisbookisrealyalabout.BuilttoLast,itturnsout,isnotfundamentalyaboutbuildingtolast.Itisaboutbuildingsomethingthatisworthyoflasting—aboutbuildingacompanyofsuchintrinsicexcelencethattheworldwouldlosesomethingimportantifthatorganizationceasedtoexist.Implicitoneverypageisasimplequestion:Whyonearthwouldyousetleforcreatingsomethingmediocrethatdoeslitlemorethanmakemoney,whenyoucancreatesomethingoutstandingthatmakesalastingcontributionaswel?Andintheend,astheevidencefromourresearchshowed,thosewhomakea

end,astheevidencefromourresearchshowed,thosewhomakealastingcontributionmakemoremoneyoverthelongrunanyway.

IfwewererewritingBuilttoLasttoday,wewouldnotoverturnanyofthebasicconcepts;theyaretimelessprinciples.Wecertainlyknowmoreaboutgreat

companiesthanwedidin1994,andthereiscertainlymuchthatwecouldadd,butourfaithinthefundamentalndingshasnotfaded.Indeed,wearemoreconvincedthaneverthatbuildinganenduringgreatcompany—onethatistrulyworthyoflasting—isanoblecause.

JimColinsandJerryPorras

April2002

MOREPRAISEFORBUILTTOLAST

MOREPRAISEFORBUILTTOLAST

“ThegreatvalueofBuilttoLastisthatnoonebeforehadevertakenalookatwhatmakesthesecompaniessuccessful..There’salotofcommonsensehere,whichseemsmoreimportantintheendthanthelatestmanagementtheoryofthemonth.”

—DonKazak,PaloAltoWeekly

“You’lgetmuchcorporateloreherethatwilhelpyoustumpyourfriendsandimpressyourcoleagues.

Butdon’treadthisbookforitstriviavalue;readitforitsideas.ColinsandPorras’provocativeanalysiswilgetyouthinking.And,moreimportant,itchingtoapplytheseideasinyourownorganization.”—Training

“BuilttoLastisawel-developedtreatiseoncorporatelongevity,andanaptmeditationonorganizingwithvaluesinmind.”

—MichaelPelecchia,

BusinessMonday,

SanJoseMercuryNews

“BuilttoLastispowerfulandswiftreading,andjammedwiththebestpracticesofthosecompanieswhohave‘gonegold.’Itbelongsonyourlistifyousharetheirlongingto‘buildtolast.’”—TerryO’Keefe,AtlantaBusinessJournal

“[BuilttoLast]isthesortofbookthatmakesanimmediatestrongimpression;it’sthekindCEOsbuy

immediatestrongimpression;it’sthekindCEOsbuybythedozens,ifnotthehundreds.Simplyandstraightforwardly,Mr.ColinsandMr.Porrasmaketheirpoint,supportit,andgetoutoftheway..Thelessonsareheretobelearned,forCEOs,managersandentrepreneursalike.Ifyouwanttobuildyourorganizationtolast,youcan,andthisbookwilprovideagoodblueprint.”

—JimScheler,

CityBusiness

“TheInSearchofExcelenceforthe1990shasarrived.

ItisBuilttoLast.”

—Inc.

“Thishigh-energy,deeplyresearchedbookmakes

‘vision’anoperationalcomponentinamanager’stoolkit.Aftersixyearsofdelvingintothe‘secrets’of18

visionarycompanies(averagelifespanof90years),ColinsandPorrasdeliverastaccatoarrayoflessonsthatcanbeappliedatalmostanylevel.”

—ThomasL.Brown,

IndustryWeek

“BuilttoLastwilopenawholenewwindowonwhatittakestocreateandachievelong-lastinggreatnessasavisionarycorporation.”—EdgarH.Schein,InternationalBusiness

“What[ColinsandPorras]makeacaseforinBuilttoLastisnolessthanarevolutioninourunderstandingofwhatmakescompaniessuccessfuloverthelonghaul.”

—NancySheperdson,

ChicagoTribune

“ColinsandPorrasdemonstratethehowsofgoodmanagementindetail,withreadablecasehistories(IBM,Merck,Motorola,WaltDisney,amongothers)andstudiesofcontrastingcorporations,andtheyincludeguidelinesforthosestrivingforlong-lastingsuccess.”

—Booklist

Credits

Credits

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Copyright

Copyright

BUILTTOLAST.Copyright©1994,1997,2002byJamesC.

ColinsandJerryI.Porras.

AlrightsreservedunderInternationalandPan-AmericanCopyrightConventions.Bypaymentoftherequiredfees,youhavebeengrantedthenonexclusive,nontransferablerighttoaccessandreadthetextofthise-bookon-screen.Nopartofthistextmaybereproduced,transmited,downloaded,decompiled,reverse-engineered,orstoredinorintroducedintoanyinformationstorageandretrievalsystem,inanyformorbyanymeans,whetherelectronicormechanical,nowknownorhereinafterinvented,withouttheexpresswritenpermissionofHarperColinse-books.

TheLibraryofCongresshascataloguedthehardcovereditionasfolows:

Colins,JamesC.(JamesCharles)

Builttolast:successfulhabitsofvisionarycompanies/JamesC.ColinsandJerryI.Porras.

p.cm.

Includesindex.

ISBN0-88730-671-3

1.Successinbusiness—UnitedStates.2.Industrialmanagement—

UnitedStates.3.Entrepreneurship—UnitedStates.I.Porras,JerryI.

I.Title

HF5386.C7351994

658—dc20

94-20571

ISBN-10:0-06-051640-2(pbk.)

ISBN-13:978-0-06-051640-6(pbk.)

ISBN-13:978-0-06-051640-6(pbk.)EPubEdition©2011ISBN:9780060516406

06070809/RRD/22212019

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