Built To Last: Successful Habits of Visionary Companies

Author: James C. Collins and Jerry I. Porras
Published: 1994

Key Concept: Habits of Improvement and Choosing Discomfort

From Page...

Between chapter 2 (Clock Building, Not Time Telling) and chapter 9 (Good Enough Never Is), Collins and Porras introduce their readers to some very interesting and helpful concepts. The 'Tyranny of the OR', 'Preserve the Core / Stimulate Progress', and 'Cult-Like Cultures' to name a few. They are also the team that first coined the term 'Big Hairy Audacious Goals'; yet another gem for their readers back in 1994. Each of these concepts is worthy of your time to explore, as they are timeless in their lessons and application.

But it is within one of Built to Last's later chapters (chapter 9) that I feel Collins and Porras drive home two of the most critical aspects of this book and of visionary companies overall: Relentless Habits of Improvement and Choosing Discomfort.

Relentless Habits of Improvement

"Our research findings clearly support the concept of continuous improvement, but not as a program or management fad. In a visionary company, it is an institutionalized habit - a disciplined way of life - ingrained into the fabric of the organization and reinforced by tangible mechanisms that create discontent with the status quo. Furthermore, visionary companies apply the concept of self-improvement in a much broader sense than just process improvement. It means long-term investments for the future; it means investment in the development of employees; it means adoption of new ideas and technologies. In short, it means doing everything possible to make the company stronger tomorrow than it is today." (page 186)

I love this quote! The notion that improvement is first and foremost a habit that is ingrained throughout the entire organization, as opposed to how it's typically viewed - as a process or program. Also, that it's not just about process improvement. Rather, improvement for truly visionary companies is about so much more - it's about continual investment in employees' learning and growth, in looking for and adopting new ideas, approaches and technologies long before they are required. Visionary companies develop a habit of being ahead of the curve whenever and wherever possible.

They change and grow because they 'see the light', as opposed to waiting to change until they 'feel the heat'.

Choosing Discomfort

The authors also make a very important link between the habit of continuous improvement and the notion of discomfort. They noted that those who found themselves at the top of the list of visionary companies had intentionally put in place mechanisms to foster and strengthen this link - mechanisms to intentionally create discomfort.

"Like great artists or inventors, visionary companies thrive on discomfort. They understand that contentment leads to complacency, which inevitably leads to decline. Comfort is not the objective in a visionary company. Indeed, visionary companies install powerful mechanisms to create discomfort - to obliterate complacency - and thereby stimulate change and improvement before the external world demands it." (page 187)

A Cautionary Tale

The authors provide us with a great example of this on page 196 when comparing Marriott hotels vs Howard Johnson hotels. Here's the gist of it:

In 1960 Howard Johnson Sr. abruptly retires from the company he built, leaving it in the hands of his son, Howard Jr.
At the time, J. Willard Marriott commented that he hoped the company he inherited from his father could one day be as successful as Howard Johnson. Note: By 1985 Marriott had far surpassed the success of Howard Johnson - by a factor of seven times!
What happened? One created relentless habits of improvement, while the other fell into the trap of complacency.
In the words of Howard Johnson Jr. himself in 1975: "We are a reacting company. We don't try to anticipate the future. In this business you can't look too far ahead, maybe two years."
This mindset led to Howard Johnson becoming overly focused on cost control, efficiency, and short-term financial objectives, which further resulted in minimal reinvestment in the company (staff learning and development, technology, properties).
Meanwhile, Marriott strove to continually improve both the quality and value of its service.
Interestingly, there were also significant lifestyle differences between these two business leaders that may provide some additional insight into just how successful their respective businesses were.
Eventually, Howard Johnson Jr. moved away from his management team in Boston to elegant quarters in New York, spending less time leading his company and more time socializing. In contrast, Marriott Jr. lived a more modest lifestyle and continued with the work ethic habits that led him to succeed, including personally visiting up to 200 Marriott facilities every year.
Most importantly of all, Marriott Jr. "translated his personal drive for progress into the very fabric of the institution." For example: He implemented Guest Service Index reports based on customer feedback; he instituted annual performance reviews, incentive bonuses and profit sharing for all employees; and a commitment to spend up to 5% of pretax profits on management and employee development (even back in the 1970's), including building a state-of-the-art Learning Centre in 1970. All of which were concrete investments in the future of his company, which clearly paid for itself multiple times over.

The Most Critical Habit of All!

As Collins and Porras are clear to state in their book, their research wasn't about comparing successful companies with unsuccessful ones. Instead, they looked at competing organizations that were still in business, but where one had clearly eclipsed the other in terms of success.

All 18 companies profiled within Built to Last had these two things in common: they ingrained habits of improvement throughout their organizations and teams, and were willing to create discomfort in order to prevent complacency. And perhaps most importantly of all - these behaviours spanned many years, and therefore many CEOs. They became a part of the culture of each company, regardless of who was at the helm. This is perhaps the most critical habit of all!

...To Practice

More than two decades later, the notion of continuous improvement is still often viewed through the lens of a program for process improvement. Improvements to how things are done to make them better, faster and more efficient. This isn't a bad approach, but in today's competitive and constantly changing environment, it's simply not enough.

There is no shortage of examples that prove this point. Companies that excelled at what they did in the present, but could not capitalize on the changing tides of the future. For example:

Kodak: We all know that Kodak dominated the photographic film market for pretty much the entire 20th century. But did you know that it actually invented the first digital camera back in 1975? It gets worse. In an interview with Don Strickland, a former vice-president of Kodak, he acknowledged: “We developed the world’s first consumer digital camera but we could not get approval to launch or sell it because of fear of the effects on the film market.

Kodak had in their hands a creative and innovative new technology - something that would change their entire industry and take it to the next level, but instead wanted to protect what they had in the moment. Stability today (COMFORT) was more important to them than progress for tomorrow (DISCOMFORT). It didn't end well. Kodak filed for bankruptcy in 2012.

Blockbuster: We all know how the story of Blockbuster ends. But there's a twist that you may not be familiar with. Back in 2000, Reed Hastings (founder of Netflix) approached John Antioco (former CEO of Blockbuster) with a proposal for a partnership. Blockbuster could advertise Netflix's brand and service in their stores, while Netflix would in turn run Blockbuster online. A great idea! Unfortunately for Blockbuster, Antioco said no because he fully believed that Netflix's business model made it a 'niche business' that wouldn't survive. He was stuck in the business model of the day. Ten years later, Blockbuster filed for bankruptcy and Netflix is currently valued at a $28 billion dollar company.

You can find some more interesting details and lessons learned from Jonathan Salem Baskin's (former Blockbuster executive) article “The internet didn’t kill Blockbuster, the company did it to itself.”

Sears: Sears is a slightly different example from the two above, and a very interesting one in many ways. Creative, innovative and transformative - these aren't likely words the average person would associate with the name brand of Sears today. However, 100 years ago this would have been an accurate description of what was then called Sears, Roebuck & Company.

To put it simply, Sears was Amazon 100 years before Amazon existed.

Like Amazon today, Sears marketed itself as an 'everything store', with an unrivaled range of products (from watches to guns to ready-to-assemble house kits) sold at the best prices to be found. Sears also began as a mail-order company, selling its products to customers via its famous Sears Catalogue, well before it opened its first brick-and-mortar store. In other words, customers were able to shop from their living rooms and have their purchases delivered to their front door. Sound familiar? At one point, Sears even began selling car insurance to help supplement its auto-parts business. This move from selling goods to services is yet another example of the similarities between these two companies (e.g. Amazon cloud storage services and Amazon Prime Video).

So, where did it go wrong?

While there are a number of factors responsible for the ultimate decline of Sears, there are two in particular that relate to the topic of this post.

No focus on improvement. In 2002 a man named Eddie Lampert bought Kmart and became its Chairman. Two years later, Lampert also purchased Sears. At this time both of these companies were struggling to maintain their respective market shares. Without any focused efforts to make substantial improvements to either company, Lampert merged Kmart and Sears in 2005. In other words, he merged a weak performer with a weak performer and expected a positive result. This result never materialized. As Chairman overseeing this newly formed entity, Lampert didn't focus on the discipline needed to truly improve the performance of Kmart and Sears respectively; the habits that needed to change or be formed to make each a market leader. Instead he felt he could buy his way to success by combining both companies' key brands, as well as their vast real estate holdings.

Not only did Lampert not focus on improving the performance of Kmart and Sears, he actually began to break the companies apart; eventually splitting them into 40 separate divisions by 2009. Forty divisions that reported separately and eventually began competing against one another.

Cost-cutting instead of investing. A key criticism of Lampert was also his unwillingness to invest in both his staff and his stores. When Lampert became CEO in 2013, he continued trying to slash costs as a means of improving. He cut marquee brands and assets alike, including key real estate properties. The stores that remained continued to struggle. A number of Sears' physical stores were described as deteriorating by both staff and customers alike. This accusation gains some merit when presented with data from a Susquehanna Financial Group report citing that in 2017 Sears was spending 91 cents per square foot on upgrades to both its physical stores and online services, while its competitors were investing significantly more to make enhancements (J.C. Penny $4.13, Kohl's $8.12, Best Buy $15.36). Lampert and other senior leaders also began cutting positions and employee compensation, resulting in the loss of experienced, seasoned staff.

Interestingly, in addition to Lampert being described as strict with money and distant from company leaders, it has been said that he seldom left his home in South Florida during these turbulent times. If this is in fact true, does it sound at all familiar from the Howard Johnson story above?

Putting It Into Practice

Every organization if full of habits. In fact, one could say that an organization IS its habits. Its communication habits, decision making habits, prioritization habits, performance management habits, meeting habits and delegation/control habits, to name a few. At times, these are clearly known and understood by all because they have come about by intentional design. But more often than not, organizational habits come about by default. Not only are they not intentional, but few are even consciously aware of what these habits are and the impact they are having.

Relentless habits of improvement and choosing discomfort. What are the tangible things you are doing to make these a reality within your team or organization? More specifically:

Have you taken the time to reflect on the habits within your team or organization? Do you know what your habits are? Which ones are contributing positively? Which ones are not and why? Would other members of your team agree or would they identify different habits? These are challenging questions and require time for thoughtful reflection and discussion; let alone the time and commitment required to make changes where needed.

Continually borrowing from the future to get through today is risky business. Doing it now and then is one thing; but making it a habitual strategy can only result in failure. Therefore, in addition to your day-to-day operational habits, what habits are in place that focus specifically on investing in the future while continuing to do well today? For example, do you make it a habit to set aside a certain percentage of revenue for long-range, innovative projects or product development? How about investing in the growth and development of your staff, especially leadership development? Or regular maintenance and improvements on existing products, services or facilities? It's not enough to say that visionary companies are those that can have one eye focused on today, with the other focused on tomorrow. It's more than that. What makes a company a visionary one are the relentless habits of improvement they have in place for both the short-term and the long-term.

Complacency can be defined as a feeling of calm satisfaction that prevents you from trying harder and/or self-satisfaction accompanied by unawareness of actual dangers or deficiencies. With this definition in mind, do you see any areas of complacency within your team or organization? Any individuals, teams, divisions or structures that are rooted in the status quo and not looking for ways in which to continually improve or strengthen? Are you looking for ways to identify and combat complacency? Ways to stimulate change and improvement before the external world demands it? As noted in Built to Last, one of the most effective ways to obliterate complacency is through the use of discomfort. What change/discomfort can you create that stimulates improvement from within?

These are just some initial questions to stimulate some thinking and reflection regarding your team's and/or company's habits of improvement.

If you would like to chat about any of them in more detail, please feel free to reach out!

We'd love to hear your feedback on this post. Please send your comments to karen@karenfitzpatrick.ca

Other key concepts from this title

Clock Building, Not Time Telling