Was <em>Built To Last</em> Built To Last?

Relying on reams of historical research and survey responses from 165 CEOs on which companies they considered to be the most visionary, Collins and Porras selected a basketful of companies. Besides the stragglers, the list included American Express, Citicorp (now Citigroup), General Electric, Hewlett-Packard, IBM, Johnson & Johnson, Marriott, Philip Morris (now Altria), Procter & Gamble, 3M, and Wal-Mart -- all of which had far outperformed the general market for decades. Then they tried to distill the essential principles that made them visionary and set them apart from other, simply average companies. To set up a contrast, the authors also used a group of comparison companies in the same industries -- outfits with equally long histories but less-stellar performances.

The authors discovered that the visionary companies did certain things very differently from their duller rivals, things that in large part were more about the internal than the external and had little to do with technology or number-crunching. Among these were having "cultlike cultures"; adhering to an ideology that went beyond the simple pursuit of profits; relying on homegrown management; focusing on creating a lasting organization -- called "clock building," as opposed to "time telling"; and having the ability to see things not as either-or propositions (the "genius of the 'and,' " in the authors' words, as opposed to the "tyranny of the 'or' "). "A visionary company," they wrote, "doesn't simply balance between preserving a tightly held core ideology and stimulating vigorous change and movement; it does both to the extreme."

With those kinds of wide-ranging statements, it's not surprising that BTL still resonates with many readers today. Its ideas were clearly laid out, easily understood, and presented with entertaining examples and solid data -- a rare thing in a deforestation's worth of poorly written and largely unsubstantiated business books. Following the principles in BTL didn't require infusions of capital or Nobel Prize-level science. Rather, the authors suggested, exceptional performance was achievable by virtually anyone with a little common sense and whose heart and soul was in the right place.

It didn't turn out that way for the seven companies that have faltered since the list first came out. While the S&P 500 Index has risen 132% in the 10 years ending August 31, Motorola is down 2% from its 1994 price; Sony has risen just 20% in a decade that worshipped technology companies; and Disney has been in a long slump, dogged by the 1996 acquisition of Capital Cities/ABC (a deal Collins lauded in 1995 as "another big Disney gulp") and questions about CEO Michael Eisner's leadership. It has only recently showed some improvement.

The authors argue that these laggards are the exceptions that prove their original rules. To hear Porras tell it, for example, the seeds of Boeing's decline were planted in 1997 when it merged with McDonnell Douglas -- the laggard "comparison company" in the original BTL study. Boeing, he says, adopted its acquisition's conservative culture and abandoned its own bold approach of setting such BHAGs as building the 747. In December 2002, for instance, Boeing walked away from a BHAG when it scrapped a plan to develop a high-speed jet called the Sonic Cruiser. "I think Boeing is in a much longer-term difficulty because it has drifted away from the things that made it great," Porras says. But industry watchers say the company's travails have little to do with whether or not it's making big, bold bets. Rather, Boeing has seen its once dominant position in the aircraft industry supplanted by the more aggressive efforts of Airbus, and its reputation for integrity eroded by an ethics scandal that led to the resignation of its CEO, Phil Condit, last year.

But let's give credit where credit is due. For all of the companies that have fallen on relatively tough times, most, if not all of Collins and Porras's picks do actually seem, well, built to last. Today, every one of the 18 companies cited is still in business, still a household name, still producing lightbulbs or computers or cigarettes or services or experiences. And while Collins and Porras eschew the idea of measuring total shareholder return -- saying that if that was their goal, they'd have picked a different group -- it turns out that they're pretty darn good stock pickers.

Taken as a whole, the basketful of companies had a total shareholder return of 206% between August 1994 and August 2004, compared with 132% for the S&P over the same period. Citigroup alone has returned a breathtaking 848%. The nine companies in the comparison group that still trade today (some were sold to other companies and some went bust) returned just 32% on average. The original group included such doozies as Howard Johnson, Ames Department Stores, and Zenith Electronics -- but also Pfizer and Texas Instruments, which have walloped the "visionary" companies they were matched against.