A study of the development of successful companies will give landmark lessons to managers across Europe.
How do you know if a company will be successful in the future? Check for latest movements in the share price? Scan today's business news? Assess the current people in charge? Most of us do one or all of these, but if you listen to Jerry Porras, you are more likely to pick tomorrow's winners by burying your head in the pages of the corporate history books.
Porras, a former engineer from Texas and now Lane professor of organisational behavior and change at Stanford University, first came to prominence in 1994, when, along with his colleague, James Collins, he took a unique look at the entire historical development of 18 exceptionally successful US companies. By comparing each company with a less successful competitor through the ages, the pair were able to spell out landmark lessons about management style as well as a blueprint for building successful organisations in the future.
Now Porras is at it again. A major new study of 18 top European companies across a range of sectors and countries is under way. Preliminary results should emerge by March or April this year and the full study is expected to be published in 1999. The companies now receiving the Porras treatment are Glaxo-Wellcome and Marks & Spencer in the UK and the Anglo-Dutch pairing of Royal Dutch Shell and Unilever. Other leading names include Deutsche Bank, Daimler-Benz, Ericcson, Fiat, Philips and Siemens. The companies were chosen from over 1,000 questionnaires sent to chief executives in 17 countries throughout Europe, who were asked to nominate their top five 'visionary' companies. The original US study, called Built to Last, took five years to complete. It analysed 36 leading corporations across a range of industries from their earliest times to 1990. The analysis of Citicorp, for example, went back to 1812.
Management is obviously the key ingredient of any successful business and the research found significant differences between the management styles of the 'visionary' and 'comparison' companies. In essence, this difference is that founders of visionary companies operate in the belief that, if you build a great company, it will produce great products or services. In contrast, comparison company leaders focus on creating great products or services and allow the company to develop around it rather haphazardly. Visionary company leaders stress the importance of developing the people, structures, systems and processes needed for these products or services, and the value of this, argues Porras, can be shown when the leader dies or leaves the company. It continues to develop without him or her because the capacity to develop, he believes, lies within the fabric of the company rather than the individual. Conversely, the comparison company finds it difficult to maintain the rate of development when the leader departs because the driving forces reside primarily in the leader - not the organisation.
Critically, visionary companies are guided by a 'clear and powerful core ideology' (see box for examples) and an 'insatiable drive for progress' which prompts them to innovate, experiment and adapt. Porras suggests that the ideology remains stable over a visionary company's long life, whereas comparison companies do not possess lasting values. Core ideology, he concludes, is preserved by creating cultures so powerful that they become 'cult-like'. The cult encourages a strong sense of elitism and indoctrination, believes Porras, and the side-effect of this cult status is that people who do not share the visionary company's ideals usually leave or are rejected.
The 'alignment' of a company's goals also runs through the Collins and Porras study, by which they mean that 'all the elements of a company work together in concert within the context of the company's core ideology.
By far and away the biggest mistake managers make is in ignoring the crucial importance of alignment ... most managers we've worked with do a good job at adding new mechanisms to preserve the core and stimulate progress, but they fall short in obliterating misalignments.'
Porras freely admits that the biggest difficulties in completing his forthcoming study of European companies will be in finding strict comparisons between companies on an industry and country-by-country basis. Perhaps even more problematical will be discovering a universal method of measuring these businesses against each other. Share performance, the most convenient indicator of success, is not possible in Europe because of differences in the maturity of stock markets throughout the Continent. Then there is the problem that companies may not have been publicly quoted for similar lengths of time. With this in mind, Porras and his colleagues are currently examining the best method of measuring their performance over the long term.
Porras hopes that, after his studies of business life in the US and Europe, he can turn his attention elsewhere. 'Basically, we want to find out if all great companies throughout the world are driven by the same basic principles,' he says.
Built to Last is published by Century, price £12.99.
ROUTES TO CHANGE
How does a company become 'visionary'?
First, establish your core ideology. In Built to Last, Porras suggests that you start by articulating your organisation's core values. And he means core values.
If you articulate more than five of six, there's a good chance you're not getting down to the essentials.
Don't confuse strategies with core values.Strategies come and go as the markets change but core values hold good for ever. Once you are clear about what it is that is core, you should feel free to go ahead and change anything that is not.
I'm a middle manager, not a chief executive. What good is this study to me?
You can adapt the findings for your own work situation. You can build at least some degree of culture around a strong ideology at any level, says Porras. Many organisations don't have any core ideology anyway, so all the more reason and latitude for putting one in place in your area - just because the corporation as a whole might not have a strong core ideology, it doesn't mean your group should be deprived. It gives your staff a greater sense of meaning in what they do and a stronger sense of self-identity.
Is there any hope at all for old, blinkered corporations?
Yes, but obviously there's much to be done. There will be established processes that need to be changed in order to align with an ideology.
According to Porras, the older and larger the company, the more entrenched the misalignments. Philip Morris, Porras says, did not display many characteristics of a visionary company until the late 1940s - at about its 100th birthday.
Will these findings soon become obsolete?
In Built to Last, Porras insists that the opposite is true - if anything, their findings will apply more in the 21st century than in the 20th. Because all inspirational founders of an organisation die or leave, the emphasis must be first and foremost on building the characteristics of the organisation.
Because the trends of business organisations are towards flatter, decentralised, geographically disparate structures filled with knowledge workers, these organisations will in the future rely all the more on core ideology to hold themselves together.
Visionary vs Comparison
DISTINGUISHING THE TRULY SUCCESSFUL FROM THE ALSO-RANS
Boeing vs McDonnell-Douglas
Year founded: 1915 vs 1920 (as Douglas Aircraft)
Founder: William E Boeing (35) vs Donald W Douglas (28)
Boeing's stated core ideologies
Being on the leading edge of aeronautics; being pioneers
Tackling huge challenges and risks
Product safety and quality
Integrity and ethical business
To 'eat, breathe and sleep the world of aeronautics'
Porras' verdict: Boeing's domination of the industry can be best illustrated by the 1997 deal which saw the Seattle-based giant acquire control of McDonnell-Douglas. The deal leaves Boeing in sole control of America's large civil aircraft market and provides the company with an increasing slice of the American defence sector.
Boeing always tried to do new things such as developing the 747, for example. By contrast, McDonnell-Douglas was continually sitting back, waiting to see if Boeing was successful. Only then did it follow.
General Electric vs Westinghouse
Year founded: 1892 vs 1892
Founders: Thomas Edison (45), Elihu Thomson, (39) and Charles Coffin (48) vs George Westinghouse (39)
General Electric's stated core ideologies
Improving the quality of life through technology and innovation
Interdependent balance between responsibility to customers, employees, society and shareholders (no clear hierarchy)
Individual responsibility and opportunity
Honesty and integrity
Porras' verdict: Westinghouse, a name synonymous with America's industrial past, never really had a real sense of who or what it was. Indeed, it had no sense of its purpose for many years. By contrast, General Electric has been a typical visionary company. It has made clear mistakes, such as its initial entry into the computer sector in the 1960s (from which it withdrew years later). But it has always had a fine sense of purpose and has always been trying to improve the quality of life through technology and innovation and has continually re-invented itself.
Hewlett-Packard vs Texas Instruments
Year founded: 1937 vs 1930
Founders: William Hewlett (26) and David Packard (26) vs Clarence Karcher (age unknown) and Eugene McDermott (31)
Hewlett-Packard's stated core ideologies
Technical contribution to fields in which it participates
Respect and opportunity for HP people
Responsibility to communities in which it operates
Affordable quality for HP customers
Profit and growth merely a means to other ends
Porras' verdict: Under the founding Hagerty dynasty, Texas Instruments was a great success story. But in the 1960s, TI reversed a previously successful strategy and tried to dictate ideas from the top down. It didn't work. This is typical of the comparison company because it coincided with the departure of the founding fathers. In the past, when HP was supplying its instruments for industry, it was driven by engineers, but it evolved its emphasis on technical contribution and widened its customer base, selling more and more to the consumer.