Secrets to building great firms

 An old Asian proverb says that the first generation creates the wealth, the second generation builds it and the third generation loses the family fortune. How can we buck this trend? How do we ensure continued success in businesses or organizations?

I recently stumbled upon my copy of the 1990s book Built to Last: Successful Habits of Visionary Companies by James Collins and Jerry Porras, which was an instant classic when it first came out. I wish to share the book’s ideas, which can apply to all leaders, entrepreneurs, managers or professionals.

Collins and Porras spent six years at Stanford University researching visionary companies that are tops in their industries — widely admired by business people, with multiple generations of chief executives, been through multiple product (or service) life cycles, and have a history that spans at least 50 years — to ensure that their success stories had withstood the test of time.

The 18 visionary firms include General Electric, 3M, Hewlett-Packard, Procter & Gamble, American Express, Citigroup, Boeing, Ford, IBM, Johnson & Johnson, Merck, Wal-Mart, Walt Disney, Sony, and others.

• Myth No. 1: It takes a great idea to start a great company. Starting with a great idea might be a bad idea; in fact, some companies even started out without any specific idea and a few even started with failures. Like the turtle-and-the-hare parable, many visionary companies started slow but ended up winners. One example is the Lucio Tan Group of Companies, whose early venture in a cornstarch factory was bankrupted by two rivals: John Gokongwei Jr. and Cebu’s Ludo & Luym firm half a century ago.

• Myth No. 2: Visionary companies require great and charismatic leaders. Great firms are usually focused on building enduring institutions rather than charismatic, high-profile leaders. Some great leaders can build visionary firms, but charisma alone is not required to build visionary firms.

One example is the Bank of the Philippine Islands (BPI), a solid blue chip favored by stock investors, which has a topnotch professional team led by Aurelio “Gigi” Montinola III. Another example is China Bank, run efficiently and collegially for much of the past 87 years by the Dee family — now represented by Gilbert Dee and his nephew Peter Dee — which now has Henry Sy as the biggest stockholder.

• Myth No. 3: The most successful firms exist first and foremost to maximize profits. Profit is part of the objectives of great companies, but not the main goal. Visionary firms have core values and a sense of purpose beyond just making money, but ironically they have proven to make more money than purely profit-driven firms. An example of this is Summit Media led by Lisa Gokongwei-Cheng, a firm driven by passion for excellence and creativity in its magazines more than just profit. 

• Myth No. 4: Visionary firms share a common subset of “correct” core values. Actually, great firms sometimes have contrasting core values, and these don’t have to be “enlightened” or “humanistic.” What is more important than the quality of core values is how these great firms consistently uphold, live, breathe and express those values.

• Myth No. 5: The only constant is change. Great firms religiously uphold their core ideology and their reason for being, sometimes for over 100 years. They do adapt to change and progress, but their core ideals do not change with volatile trends or fashion. A prime example is the 173-year-old Ayala Corporation, now led by brothers Jaime Augusto Zobel de Ayala and Fernando Zobel de Ayala.  Metrobank is another example.

• Myth No. 6: Blue-chip companies play it safe. Great firms are often bold risk-takers and they have extraordinary confidence in their capabilities. Prime examples of respected blue-chip firms favored by stock analysts for their ability to grow dynamically are BDO, led by Teresita “Tessie” Sy-Coson and SM, led by her dad, Henry Sy, and her siblings; both BDO and SM are bold risk-takers in big acquisitions and grand expansions. The Lopez Group recently boldly bid P58.5 billion for PNOC-Energy Development Corp, while the blue-chip Aboitiz Group has also acquired many firms, too. 

• Myth No. 7: Visionary firms are great places to work for everyone. Great firms are only great places to work only for those who fit into their standards, culture and core ideals, but those who do not “will likely be expunged like a virus.” A prime example is the driven and hardworking organization PLDT, led by the workaholic Manny Pangilinan, who once asked this surprised writer to call him at his office near midnight.

• Myth No. 8: Successful firms make their best moves by brilliant and complex strategic planning. Instead of deft strategic planning, many visionary firms often make their best moves by undertaking trial-and-error experiments, by grabbing at opportunities that arise, or even by sheer accident. Try lots of things and keep what works.

An example is the snack foods business of JG Summit Holdings founder John Gokongwei Jr., which came about by accident because some Makati doctors had many years ago diagnosed the entrepreneur with a serious ailment. Gokongwei flew to the US for a second opinion and to attend his younger brother’s graduation. It turned out to be a false diagnosis and not a serious illness. Gokongwei serendipitously read a snack-foods industry journal while in the US hospital, called a machines supplier for an appointment, and eventually bought the machine to produce the best-selling Jack ’n Jill-brand snack foods.

• Myth No. 9: Firms need to hire outside CEOs to stimulate fundamental change. In the 1,700-year combined lifespan of the visionary firms they studied, Collins and Porras only discovered four cases of headhunting outside the companies for a chief executive officer. Those four instances involved only two companies. Insiders have proven to be a good source of fresh ideas and fundamental change; thus it is best to promote from within.

• Myth No. 10: Great companies focus mainly on beating their competitors. Great companies actually focus on continuously beating themselves, on asking how to further improve themselves nonstop and relentlessly. Even if they’ve already beaten rivals decisively, they always believe their successes are never good enough.

• Myth No. 11: You can’t have your cake and eat it, too. Great firms do not agonize or choose between either-or options like stability or progress, conservative policies or bold moves, low-cost or high-quality, investing in the future or excelling in the short-term, being idealistic or being practical, making profits or upholding values. Great companies pursue both options simultaneously.

• Myth No. 12: Firms become visionary mainly through “vision statements.” Great firms often do make visionary pronouncements or articulate their values and goals, but all those are just part of the thousands of steps in what the authors describe as “a never-ending process.”

We should not only focus on creating success or wealth, we also need to institutionalize and ensure continuity of excellence and dynamic leadership across generations. It is not enough to just be successful in our enterprises, endeavors or organizations; we should aspire for greatness and, if possible, immortality!

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