VISIONARY COMPANIES Jerry Porras – How enduring companies adapt to and drive change

In your research for Built to Last how did you go about identifying visionary companies?
We undertook extensive research to identify the underlying characteristics and dynamics common to highly visionary companies. We surveyed 700 CEOs, ensuring representative sample from every industry classification both in services and industrials. The CEOs were asked to nominate up to five companies they perceived to be “highly visionary”. From this list we identified the 20 organisations most frequently mentioned.
Since the critical issues are what’s essentially different about these companies and what distinguishes one set of organisations from another, we systematically selected comparison company for each visionary one. These organisations had been founded at around the same time and had originally produced comparable products and operated in similar markets. Comparison companies had fewer mentions in the CEO survey and needed to be successful in their own right.
We didn’t want to compare visionary companies to poor performers. That would tell us nothing. The visionary companies can be seen as the gold medal winners and the comparison companies as those that took the silver awards.
Next, we studied both visionary and comparison companies all the way back to their founding. Of the companies selected, the earliest was set up in 1812. This was Citibank (then with different name). The average founding date for all visionary companies we studied was 1897. We focused on the principles these companies used when they were small and had continued to use up to the present. We were looking for the enduring principles that guided these firms no matter what their size or age.

In talking about visionary companies you often refer to company’s core ideology. Would you explain what this is?
This says: this is who we are, this is what we stand for and this is what we’re all about. Core ideology is so fundamental to an organisation that it seldom, if ever, changes. It’s important not to confuse core ideology with culture, strategy, tactics, operations, policies or other non-core practices. Over time, all of these must change. The only thing company should not change over time is its core ideology which has two parts: core values and purpose.
The core values are the organisation’s essential and enduring tenets. They are normally three to five general guiding principles and are not to be confused with specific cultural or operational practices. company will not compromise its core values for financial gain or short-term expediency.
The purpose is the organisation’s fundamental reason for existence beyond just making money. It’s sort of perpetual guiding star but not to be confused with specific goals or business strategies.

What key principles do visionary companies follow that are different from companies you’d not consider visionary?
There are many principles. For example, visionary companies have visionary leaders who focus on building rather than leading the organisation.
These companies are characterised by core ideology and passion for change, with mechanisms in place to preserve the core and stimulate change. Three examples of mechanisms for preserving the core are values beyond profit, very tight cultures and home-grown management.
Very seldom will you see visionary company bring in new CEO from the outside.
These companies stimulate change through very big audacious goals, what we call purposeful evolution and continuous improvement. They also tend to have better alignment between their core values and how the organisation is structured.

Can you give an example of this alignment?
If one of the core values of the organisation is teamwork, what would the organisation have to look like to be aligned with that value? Obviously, its fundamental basis would have to be teams.
So you’d need to create physical setting which allows people who are in teams to sit close together and meeting rooms for team discussions.
You’d need reward system that awarded team performance over individual success. You’d need to have culture whose values supported team behaviour such as collaboration, cooperation and honest communication. And you’d need to design jobs to be interdependent rather than handled alone.

Where do companies tend to go wrong in not getting their vision right?
Let’s first be clear that by vision we mean core values, purpose and an audacious goal. Usually the problem is in the translation of the values into the reality of the organisation. That means creating strategy which is consistent with the vision and ensuring the strategy grows out of the vision rather than the other way around.
The organisation should then be aligned to be consistent with both the vision and strategy. Companies often go wrong here.

So there is danger in imposing vision from the top down?
Absolutely. The danger lies in the vision not fitting the reality of the organisation. If new chief executive is appointed and tries to impose new vision not aligned with the company’s historic core values, the organisation is not likely to buy it. That’s one important reason visionary companies seldom hire new CEO from the outside. It’s risky thing to do.

How have the long-term financial returns of visionary companies measured up?
Using the stock price as the measure of performance, we’ve traced this all the way back to 1926, creating three portfolios. One was for the stock market as whole, another for the visionary companies and third for the comparison organisations.
Between 1926 and 2001 we found comparison companies outperformed the market as whole by factor of about four to one. The visionary companies outperformed the market by around 16 to one. This sort of difference can’t be an aberration. Visionary companies bring wealth to their shareholders.

You mentioned visionary companies have very tight cultures. Getting buy-in to the core values at all levels of the organisation must be crucial.
Very much. You must have everyone on the same page, especially managers all the way down the organisation. So these companies are very careful about who they hire.
Back in the early 1970s just after I had finished college, I was looking for my first job and one of the companies I considered was Hewlett-Packard. To get job there you had to be interviewed by up to 17 people. Most of them were not looking at your technical or professional qualifications but at how well you would fit the Hewlett-Packard culture.
If you start out with people who are very consistent with the company’s value system and purpose, as they rise up into middle management they’re going to be on the same page as the senior executives.
You can’t do it all with hiring practices. You’ll also need culture that reinforces the values in variety of ways.

It’s obvious that the board of directors can be expected to support the company’s core values, but what about other non-employee stakeholders?
At board level it’s important that directors support the company’s core values even at the expense of short-term shareholder value. You need shareholders who learn what kind of company you are, knowing you might just sacrifice short-term profits in order to remain true to core values and believing this will make them more money over the longer term.
At the vendor level there is knock-on effect. Visionary companies will gravitate to vendors who match up to their beliefs.

It would seem that succession planning in visionary companies must be weighted as much to candidate’s buy-in to the core ideology as to their executive abilities.
Yes. In visionary company you have to be able to reward and promote people who are both high-performers and very consistent with the core ideology of the organisation. If you promote someone who is very high performer, but is not at all consistent with the core ideology you are hurting the organisation. In f

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