August 14, 1995
A doctor we know was dismayed at the care he received recently at the hands of an HMO’s physician. “He had no economic incentive to treat me nicely,” our friend observed. “And in the US, if there’s no economic incentive, it doesn’t happen.”
Many would argue that economic incentive is and should be the guiding genius of capitalism. Yet confoundedly, many of its greatest successes follow a different star. This was brought home in the last week by a death and a book.
In a front page obituary following the death of Grateful Dead guitarist Jerry Garcia, the New York Times observed that “within the music business, the Dead exemplified integrity in a sphere of hype and artifice… The Dead made an effort to treat their fans well. Unlike many bands, the Dead encouraged the fans to tape their concerts, even providing a place near the sound engineer’s booth for fans to set up microphones and tape recorders. The group also kept ticket prices low…. In return the Dead have held onto what is probably the longest lasting mass following in rock history…For most of the 80s and early 90s the band toured stadiums and did not play to a single empty seat; some concerts were sold out before they were advertised, purely through announcements in the Deadheads’ newsletter.”
While many in the music industry, and most industries, base decisions based on what’s profitable, fearing that any other, ‘softer’ decision framework will cost them money, the Dead opted for “integrity” (and a damn good product) –and became an outstanding financial success as well.
Fortunately, they are not alone. In their book Built to Last: Successful Habits of Visionary Companies, Stanford University professors James C. Collins and Jerry I. Porras ask a simple but profound question: “What makes the truly exceptional companies different?”
To answer it, they identified eighteen companies that are widely admired as outstanding leaders in their industry, have been through “multiple life cycles” of products or services and CEOs, and were more than 50 years old–companies like 3M, Boeing, Nordstroms, Motorola and Disney. They also identified eighteen comparison companies, silver medalists to the exceptional companies’ gold, of similar industries and age, but not ranked as highly by the CEOs they asked to identify “highly visionary” companies.
These visionary companies displayed exceptional long term market performance–more than 15 times greater than the general market, and six times greater than the comparison companies. They showed remarkable resilience, often surviving failures and near bankruptcies. They have woven themselves into the fabric of society. And, according to Collins and Porras, they share significant characteristics:
- “The builders of visionary companies tend to be clock builders, not time tellers….Their greatest creation is the company itself and what it stands for.”
- “Instead of being oppressed by the ‘Tyranny of the OR’ highly visionary companies liberate themselves with the ‘Genius of the AND’–the ability to embrace both extremes… at the same time.”
- “A fundamental element of a visionary company is a core ideology–core values and sense of purpose beyond just making money.”
- “A visionary company carefully preserves and protects its core ideology, yet all the specific manifestations of its core ideology [from strategies to products] must be open to change and evolution.”
Built to Last goes on to detail five key expressions of this underlying distinction of “preserve the core and stimulate progress”:
- “Big, Hairy Audacious Goals”–a willingness to aim high, and “bet the farm” if necessary;
- “Cult-like Cultures”–core values so strong that people love it or leave it, with no middle ground;
- “Try a Lot of Stuff and Keep What Works”–an experimental, “evolutionary” process that only looks like a strategic plan in retrospect;
- “Home Grown Management”–with few exceptions, hiring leadership from within;
- “Good Enough Never Is”–a commitment to continuous improvement.
These principles apply to the realm of environmental management as well, where the visionary companies are just emerging (and where some of Collins and Porras’ companies are leaders). While most companies struggle with compliance, and perhaps move on environmentally sensitivity, responsibility or efficiency, the new visionary companies will have a set of ecological core values as profound as the values that have guided a Sony or a Wal-Mart for 50 years. These might include:
- Zero waste–nothing results from the manufacture, distribution, use or “disposal” that doesn’t find a beneficial, and biologically benign, use;
- Zero ecological footprint–buildings that use only the energy and water that naturally falls on them, and return no more to the landscape;
- Total product stewardship–cradle to cradle responsibility for their product from production to end of life;
- Focus on production of satisfaction, rather than of “stuff”, much less profit.
“Total environmental quality” is a tall order, one that I suspect no company yet knows how to meet. But it does represent a key design challenge for business as we near the starting gate for the twenty-first century.
Some twenty-three centuries ago, Aristotle observed “Excellence is an art won by training and habituation. We do not act rightly because we have virtue or excellence, but we rather have those because we have acted rightly. We are what we repeatedly do. Excellence, then, is not an act but a habit.”