Leadership: Building Companies to Last

In a world of constant change, the fundamentals are more important than ever

In this era of dramatic change, we're hit from all sides with lopsided perspectives that urge us to hold nothing sacred, to "reengineer" and dynamite everything, to fight chaos with chaos, to battle a crazy world with total, unfettered craziness. Everybody knows that the transformations facing us -- social, political, technological, economic -- render obsolete the lessons of the past.

Well, I submit that "everybody" is wrong. The real question is, What is the proper response to change? We certainly need new and improved business practices and organizational forms, but in a turbulent era like ours, attention to timeless fundamentals is even more important than it is in stable times.

To identify those timeless fundamentals, Jerry Porras and I embarked upon the intensive six-year research project that led to our book Built to Last. We studied the founding, growth, and development of exceptional companies that have stood the test of time, companies like Hewlett-Packard, 3M, Motorola, Procter & Gamble, Merck, Nordstrom, Sony, Disney, Marriott, and Wal-Mart. Those "visionary companies" had both endurance, with an average age of nearly 100 years, and sustained success. For example, their stock has performed 15 times better than the overall stock market has since 1926. We also studied each visionary company in contrast to a "comparison company" that had roughly the same shot in life but didn't turn out as well -- 3M with Norton, P&G with Colgate-Palmolive, Motorola with Zenith, and so on.

By studying companies that have prospered over the long term, we were able to uncover timeless fundamentals that enable organizations to endure and thrive. We studied those visionary companies not only as big businesses but also as start-ups and growth companies. And they succeeded from their earliest days by adhering to the same fundamentals that can help today's growth companies emerge from the turbulence of the 1990s to become the HPs, 3Ms, and P&Gs of the 21st century. By paying attention to the six timeless fundamentals that follow, you can learn from what those organizations did right and build your own visionary company.

Make the Company Itself the Ultimate Product -- Be a Clock Builder, Not a Time Teller
Imagine that you met a remarkable person who could look at the sun or the stars and, amazingly, state the exact time and date. Wouldn't it be even more amazing still if, instead of telling the time, that person built a clock that could tell the time forever, even after he or she were dead and gone?

Having a great idea or being a charismatic visionary leader is "time telling"; building a company that can prosper far beyond the tenure of any single leader and through multiple product life cycles is "clock building." Those who build visionary companies tend to be clock builders. Their primary accomplishment is not the implementation of a great idea, the expression of a charismatic personality, or the accumulation of wealth. It is the company itself and what it stands for.

Take, for example, T. J. Rodgers, founder and CEO of Cypress Semiconductor. Brilliant, self-assured, technically sophisticated, and guided by a fierce "take no prisoners" drive to win, Rodgers came to Jerry and me several years ago. "I want to go beyond the fast-growing entrepreneurial success," Rodgers told us. "I want to build Cypress into a monument company."

"Tell me, T. J.," I responded, "what is the most important product you are working on right now?" He threw out a highly technical name. I disagreed with him.

"How can you?" he asked. "You don't know the technology. You don't know my business the way I do. You don't know the market."

I then told him how David Packard, when asked to name the most important product decisions contributing to Hewlett-Packard's remarkable growth rate, answered entirely in terms of the attributes of the Hewlett-Packard organization -- the importance of granting immense operating freedom within well-defined objectives, the pay-as-you-go policy that enforces entrepreneurial discipline, the critical decision to enable all employees to share in the company's financial success. David Packard was clearly a clock-building leader.

Now, whenever T. J. Rodgers is asked about the most important product he is working on, he answers firmly, "Cypress Semiconductor Corporation." By making the shift from time telling (being a great product visionary) to clock building (creating a great organization), he has taken perhaps the single most important step in transforming his hot growth company into a visionary company that's built to last.

Achieving that transformation requires turning the world upside down and inside out, seeing products and market opportunities as vehicles for building a great company, not the other way around. In fact, only 3 of our 18 visionary companies began life with a "great idea." As we move into the 21st century and products, technologies, and markets blast through their life cycles, clock-building styles of leadership will become even more important.

Build Your Company Around a Core Ideology
In 17 of the 18 pairs of companies in our research, we found the visionary company was guided more by a core ideology -- core values and a sense of purpose beyond just making money -- than the comparison company was. A deeply held core ideology gives a company both a strong sense of identity and a thread of continuity that holds the organization together in the face of change.

We chose the word ideology because we found an almost religious fervor in the visionary companies as they grew up that we did not see to the same degree in the comparison companies. 3M's dedication to innovation, P&G's commitment to product excellence, Nordstrom's ideal of heroic customer service, HP's belief in respect for the individual -- those were sacred tenets, to be pursued zealously and preserved as a guiding force for generations.

Build a Cultlike Culture
Architects of visionary companies don't just trust in good intentions or "values statements"; they build cultlike cultures around their core ideologies. Walt Disney created an entire language to reinforce his company's ideology. Disneyland employees are "cast members." Customers are "guests." Jobs are "parts" in a "performance." Disney required -- as the company does to this day -- that all new employees go through a "Disney Traditions" orientation course, in which they learn that the company's business is "to make people happy."

The same spirit holds at smaller visionary companies, like Granite Rock, a rock-and-asphalt business in Watsonville, Calif., and recipient of the 1992 Malcolm Baldrige National Quality Award. (See "The Change Masters," Inc., March 1992.) Co-CEO Bruce W. Woolpert hates the word "employees"; they are "Granite Rock People." And not just anyone can be a Granite Rock Person. Bruce and Steve Woolpert have a deeply rooted ideology of quality, service, and fairness that harks back to the early days of this century, and if you don't accept that ideology, you simply don't belong at Granite Rock. Period. No matter how much business you might bring in.

Homegrow Your Management
In more than 1,700 years of combined history, we found only four cases in our visionary companies in which an outsider was hired as chief executive -- and that in only 2 of the 18 companies! In contrast, our less successful comparison companies were six times more likely to go outside for a CEO. Our findings simply do not support the widely held belief that companies should hire outsiders to stimulate change and progress.