Collins, author of management classics like 'Built to Last' and 'Good to Great', speaks about great companies, managing in a networked world and leadership
What makes companies great? And how do you define greatness? These are questions that management author Jim Collins has explored for nearly 25 years now. In 1994, Collins shot to superstardom with Built to Last, a book he co-authored with Jerry Porras. The book, which aimed to identify the characteristics of visionary companies by focusing on 18 of them, went on to become a management classic.
From there on, Collins authored several other books on the theme of greatness.
Much as his work has created a profound impact on companies, it has also come in for some scathing criticism. Partly because some of the original 18 visionary companies Collins and Porras identified have slipped badly over the years, and people have questioned the relevance of the principles he outlined.
In this very rare interview, Collins talks about the significance of his work today and how the shift from organizations to networks will impact leadership. Edited excerpts:
You say that instability is the historical normal. How then do you get the confidence to say that a business enterprise is ‘built to last’?
I don’t say which companies are ‘built to last’. Instead our work is about principles that last. If you continued to live these principles, they would correlate highly with the enduring of a great company. Imagine you were studying athletes. You can’t necessarily say which of them are going to continue to be great athletes because if one of them (suddenly) doesn’t train in the same way, loses discipline, begins eating badly, doesn’t go to the track any more, they’re not gonna be great any more.
I look at our work as studying historical dynastic eras. We find companies that at a given moment or era were a dominant, dynastic enterprise. At that time, (they) met the tasks of being truly great and we study them in that era. We basically say what principles were they living that were different than others in that era that were not great. It does not predict which ones are going to remain great or which ones are going to become great.
You wrote ‘Built to Last’ in 1994 and after that global realities have changed. Would you say that the principles that you outlined 20 years ago still hold?
First, we have not discovered everything. When I think about what you learn as you go along, I view it as additive, as the idea that things you learn before don’t get overturned, but they’re just incomplete. There’s a big difference between what you saw before that was right but incomplete, as distinct from what you saw before that wasn’t right. The beauty of the Built to Last study is that we were looking for principles that cut across easily when you add up what happened across time.
We have companies that were founded in the (mid-to-) late 1800s and the early 1900s, and they were able to become great companies and remain great through an extended period of time. (Between the late 1800s and the 20th century), we had two world wars. The idea of a computer wasn’t even remotely on the horizon and you had massive social changes. Just take the amount of change that happened from the late 1800s up until the 1990s when we studied the Built to Last companies and through all of that change…the principles carried.
There’s a second part to it: the duty of the historical analysis. If you can say why that principle was there in 1880…1920… 1960…1990, then it certainly applies at any given moment in history. The second thing is, let’s take companies that are in the most turbulent environment that we could find in the world of business and we still have to have a rigorous way of looking at things, we still have to have some historical lens to know you’re not just looking at a blip.
If you were writing the book today, would the new list of great companies look any different?
Sure the list would be different. Let’s go back to the definition of a great company. First, you have to have superior financial results, principally defined as return on invested capital over an extended period of time, at least a 15-year run of truly exceptional results when you do much better investing in that company than investing in the market.
But that’s not enough. The second output of great companies…beyond the financial part, is a distinctive impact: I define it as, if you disappeared…it would leave an unfillable hole. That’s very different than just if you achieve great financial results—somebody else can just replace what you do, you’ve done nothing distinctive, you’re not great.
The third is lasting endurance: you’ve the ability to be both distinctive and deliver superior results. It means multiple generations of leadership and through multiple generations of markets and cycles and technology. Now it may not take very long to do the multiple cycles and technology or markets because they change so quickly. The critical one then becomes multiple generations of leadership and if you can’t demonstrate that you are able to be great through multiple generations, you’re not really great. I like to challenge CEOs. If your company can’t be great without you, it’s not a great company.
Those three things—superior results, distinctive impact and lasting endurance. When you look at a company like Amazon, it has a high return on capital, a distinctive role. If it went away it would really hurt, we don’t know yet. (It’s got the) next step to prove it can do well beyond Jeff Bezos.
Companies are increasingly talking of concepts like shared value and conscious capitalism. The financial crisis especially forced them to do some soul searching and redefine their purpose. Will this impact the notion of greatness?
Our research showed that those who build companies have a real shot at being great. They’re not focused on building something to last, they’re focused on building something that’s worthy of lasting. To be worthy of lasting means that you have to be built on a set of values. (These companies are) built on some sense of purpose that is not defined by economics.
R.W. Johnson first started thinking about this in the late 1800s and then his son, R.W. Johnson Jr, wrote it down in the Johnson and Johnson Credo in the 1930s: our first responsibility is to the patients, second to employees, third to the communities we affect and fourth to our shareholders. David Packard (HP co-founder) said the purpose of the Hewlett-Packard Co. is to make a contribution, a technical contribution, that would make peoples’ lives better and in order to do that, we must make a profit, but we do not exist to make a profit, we exist to make a contribution.
They have this very deep set of values: I believe it is a moral responsibility that the people who help us create this company should share in the returns of this company and that we don’t make good quality products because of a marketing strategy, we do it because we owe that to people, to the people who trust us with the things that they obtain from us.
Our world is turbulent, chaotic and out of control, therefore it is all the more important that you have to know what your values are that you’re going to use as a guidepost in that world or you’re just gonna be ripped around in a world where people are searching desperately for a sense of meaning and connection and something that they cannot be cynical about and can throw their creative energies into, and especially when they’re in networks as opposed to organizations.
You once said that we are moving to a world of networks well-led as opposed to organizations well-managed. What implications might this have on how our organizations are designed and how they function?
Peter Drucker (observed) about 60-70 years ago, we were becoming a society of organizations and that would be the building block of the world. Drucker observed the rise of the organization and then the rise of the importance of management to make those organizations work and the rise of the knowledge workforce. (Today) instead of the building blocks being organizations, the building blocks (are) networks and if networks are to the 21st century what organizations were to the 20th century, there’s another shift for organizations.
We had to think about management, but for networks we have to think about leadership. Historically, we have been confusing leadership (with) power, personality, charisma, position. None of that is leadership. I’ve always loved what James MacGregor Burns said: “True leadership only exists if people follow when they have the freedom not to." Everything else is just power.
It has three parts: you have to know what must be done; it’s not about getting people to do it, if I have enough power, I can get you to do a lot of things, (but) to get you to want to do it; and finally, it is not a science, it’s an art and all of us have different forms of artistry…(and) maybe our artistry is (about) how to get the right people in a room and asking each one the right questions.
(In) networks, you cannot rely upon position and power in the same way. The only way to organize is you genuinely have to lead. That would put a premium more on the sense of how do I get people, over who I do not have power, who are connected and dispersed, to want to do what must be done. That would be leading in a network as opposed to managing in an organization.
Wendy Kopp, founder of Teach for America and now Teach for All, is (taking) the Teach for America concept of getting young people to commit themselves to serve in our most underserved schools. She’s now taking it to the rest of the world, as much as she can (by) building a network. She has no power over kids to get them to sign up. She has no power over all the different places in the world where she’s getting people to try to form these units to make this happen, but she’s building a network. She’s not a personality-type of leader, she’s just a very authentic leader (who can) get hundreds of thousands of people to sign up to want to do what must be done. That is a marvellous example of a network well-led, as opposed to an organization well-managed.
An unabridged version of this interview can be read on www.foundingfuel.com, printed in an exclusive partnership with CKGSB Knowledge.
Neelima Mahajan is a senior journalist based out of Beijing.
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