Built to Last: Successful Habits of Visionary Companies

Built to Last: Successful Habits of Visionary Companies is a book written by Jim Collins and Jerry I. Porras. The first edition of the book was published on October 26, 1994 by HarperBusiness.^[1]

Background

The text outlines the results of a six-year research project into what makes enduringly great companies. Two primary objectives for the authors’ research goes as follows: “to identify underlying characteristics are common to highly visionary companies” and “to effectively communicate findings so they can influence management”. The research conducted by Collins and Porras was articulated in Built to Last, presenting valid examples based on stories and research data. The book is said to be "one of the most influential business books of our era".^[2]

Visionary defined

Collins and Porras listed a total of eighteen companies they identified as ‘visionary.’ They defined a visionary company as one that is a premier institution in its industry, is widely admired by knowledgeable businesspeople, made an imprint on the world, had multiple generations of Chief executive officers (CEOs), had multiple product/service life cycles, and was founded before 1950. The list of visionary companies was determined based on the results of a survey of 1,000 CEOs. The authors ensured representation across all industries and various sized organizations by sampling from Fortune 500 industrial companies, Fortune 500 service companies, Inc. 500 private companies and Inc. 100 public companies. The survey yielded a 23% response rate with 3.2 companies listed per response. An important caveat the authors express is the fact that through their research, they can claim a correlation, not a causal link between their findings and the success of companies.

Companies identified

The list of eighteen companies identified as visionary:

1. 3M
2. American Express
3. Boeing
4. Citicorp (now Citigroup)
5. Disney
6. Ford
7. General Electric
8. Hewlett Packard
9. IBM
10. Johnson & Johnson
11. Marriott
12. Merck
13. Motorola
14. Nordstrom
15. Philip Morris (now Altria)
16. Procter & Gamble
17. Sony
18. Wal-Mart

These companies have taken leadership roles in their industries, offering innovative products and services and consistently outsmarting rivals. What made the research particularly useful and interesting is that Collins and Porras compared and contrasted these visionary companies with a control set of rivals. For instance, Boeing was compared and contrasted with Douglas Aircraft, Marriott was compared and contrasted with Howard Johnson's, and Merck was compared and contrasted with Pfizer. The findings are based on what the visionary companies do that is different than close competitors who have achieved a high level of success, but not to the extent of the visionary companies. From 1926 through 1990 the comparison companies outperformed the general stock market by 2 times whereas the visionary companies outperformed the market by 15 times.

Impact

Built to Last has influenced many executives and entrepreneurs since it was originally published, including Red Hat.^[3] Co-author Jim Collins became a "superstar" among M.B.A.'s and used his share of the profits to "set up his own research center in Boulder, Colo., staffed with a team of grad students who tackle multiyear research projects aimed at answering big-business questions."^[4] This research ultimately led to subsequent books such as Good to Great.

Criticism

In his book The Halo Effect, Phil Rosenzweig is critical of not only Built to Last but also the entire genre of business books that it belongs to, including In Search of Excellence, Good to Great, and What Really Works. It finds similar faults with a swathe of business journalism.^[5] Rosenzweig uses Built to Last as an example of the "Delusion of Rigorous Research".^[6] He mentioned that the authors had deliberately implied that their research is backed by a huge quantity of data, but the problem is that most of this data are tainted by the Halo Effect.

"It's so slippery, it's like grabbing a frog," says Richard D'Aveni, professor of strategic management at Dartmouth's Tuck School of Business, of the book, and goes on to further comment "To take this book—or any business book—as gospel is to set yourself up for a fall."^[2]

Built to Last has also been criticized for the fact that many of the companies it profiled have subsequently faltered. For example:

"Ten years on, almost half of the visionary companies on the list have slipped dramatically in performance and reputation, and their vision currently seems more blurred than clairvoyant. Consider the fates of Motorola, Ford, Sony, Walt Disney, Boeing, Nordstrom, and Merck. Each has struggled in recent years, and all have faced serious questions about their leadership and strategy. Odds are, none of them today would meet BTL's criteria for visionary companies, which required that they be the premier player in their industry and be widely admired by people in the know."^[2]

However, author Jim Collins has subsequently argued that "The books never promised that these companies would always be great, just that they were once great."^[7]

Meanwhile, Kahneman in Thinking, Fast and Slow^[8] criticizes Collins' overstatement of the importance of good practices relative to sheer luck (explaining the low performance of companies as a typical regression to the mean):

"The basic message of Built to Last and other similar books is that good managerial practices can be identified and that good practices will be rewarded by good results. Both messages are overstated. The comparison of firms that have been more or less successful is to a significant extent a comparison between firms that have been more or less lucky. Knowing the importance of luck, you should be particularly suspicious when highly consistent patterns emerge from the comparison of successful and less successful firms. In the presence of randomness, regular patterns can only be mirages." ^[8]

Chris Grams, former Senior Director of Red Hat and one of Collins' biggest admirers, admits^[9] Kahneman's analysis is technically correct, but he also thinks it is emotionally bankrupt. Although Collins' books may lack academic rigor they make up for in one simple area: they inspire people. They also create the possibility of hope. "Others have done it. I could too!"

Morten Hansen who co-authored Jim Collins on Great by Choice has responded to Kahneman's criticism^[9] by referring to Chapter 7 of their book wherein they have analyzed that successful companies are not luckier than the comparisons and therefore luck cannot explain the difference, and that "Regression to the mean is not always happening, and so (it is true) for companies too."

See also

• Good to Great
• In Search of Excellence
• The Halo Effect

References

External links

• Was Built To Last Built To Last? Article on FastCompany about the performance of Built To Last Companies in the last 10 years.
• Visual summary of key ideas from Built to Last