Why do some companies succeed and others don’t?

After talking about product management and data bias books, with this article, we continue to explore relevant business books that can help us put in perspective organisations and markets.

The star of today is Built to Last, which continues the cycle of research conducted by Jim Collins and Jerry Porras on why some companies succeed and others don’t. The other books of the series are Good to Great and Great by Choice, which I strongly recommend you to read.

The Method Used

Something worth appreciating in Jim Collins’s books is that his research is based on the scientific method: he selects a sample of companies representing different industries and compares it with other unsuccessful companies. In particular, the selection should meet the following criteria:

  1. Being recognised by the industry and by other experts
  2. Left an impact on the world
  3. Had different CEOs and product life cycles
  4. Fonding is before 1950.

Among the Fortune 500 companies, here’s the selected list for success. By their side, you can also find its nemesis used for comparison.

  • 3M – Norton Abrasives
  • American Express – Wells Fargo
  • Boeing – McDonnell Douglas
  • Citicorp (now Citigroup) – Chase Manhattan (now Chase Bank)
  • Disney – Columbia Pictures
  • Ford – General Motors
  • General Electric – Westinghouse
  • Hewlett Packard – Texas Instruments
  • IBM – Burroughs Corporation
  • Johnson & Johnson – Bristol-Myers Squibb
  • Marriott – Howard Johnson’s
  • Merck – Pfizer
  • Motorola – Zenith Electronics
  • Nordstrom – Melville Corporation
  • Philip Morris (now Altria) – RJR Nabisco
  • Procter & Gamble – Colgate-Palmolive
  • Sony – Kenwood Corporation
  • Wal-Mart – Ames

To give a gauge, from 1926 to 1990, the visionary companies on the left outperformed the market by 15 times, while the rivalries outperformed it by two times. Arguably, many criticised the book afterwards because many “visionary companies” like Motorola and Merck no longer lead their market or industry.

The Principles

So, what were the key ideas? What were the traits that helped visionary companies outperform the market?

  1. Clock Building, Not Time Telling: an organisation should not depend on the leaders; it has to be able to build an overarching set of norms, visions and culture that make the machine work despite the change of leaders. “You should not be the one telling the time but the one building the clock”.
  2. More Than Profits: a vision is what brings a company forward. If your daily activities are focused on profit, you will not move in the right direction. Instead, find an overarching mission that every worker can join.
  3. Preserve the Core / Stimulate Progress: The book proposes the concept of hedgehog, the set of core beliefs and values that make an organisation district. Once you have identified it, preserve it forever, it must not change. But also, all the rest should change: an organisation should not be stuck. It should continue to experiment and stimulate new ideas.
  4. Big Hairy Audacious Goals: the goal must be high and significant. When people strive for very far objectives, they manage to stretch and expand their capabilities considerably, so even if you don’t reach those goals, you should still overcome your
  5. Cult-Like cultures: culture is an essential element for driving positive behaviours. Once a company understand its core ideology, it’s critical to build a set of norms that celebrates the uniqueness of the workplace. For instance, Walt Disney has created an entire language: Disneyland employees are “cast members.” Customers are “guests.” Jobs are “parts” in a “performance.” Disney required, moreover, that all new employees go through a “Disney Traditions” orientation course, where they learn the company’s business is “to make people happy.”
  6. Try a Lot of Stuff and Keep What works: A/B testing is needed to survive. Knowledge is not enough, and businesses should experiment with different strategies, practices, campaigns, et cetera. Netflix, for instance, is one of the champions of iterated testing.
  7. Home-Grown Management: according to the authors, it’s better to promote internally than hire managers from outside because they are better at promoting core values.
  8. Good Enough Never Is: if you settle on a satisfactory result, you will not excel. Striving for excellence should be a daily pursuit and the companies that do it manage to lead the way.

So What?

You do not need to be an old CEO to take essential learnings from the book. In particular, you could learn from that:

  • Understanding your core values can help you make the best decisions.
  • Big goals for your life will help you grow like crazy. Imagine your dream life in 10 years, then set a goal for achieving it in one.
  • Once you understand and keep stable your essence, try to experience many different events, opportunities, careers. Especially if you are young, you should try. See life as a big A/B test so that at the n-th iteration, things will work out!

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