Building your company's vision

Tags: core values, core ideology, HARVARD BUSINESS REVIEW, core purpose, David Packard, Jerry I. Porras, business strategies, BHAG, Hewlett-Packard, sense of purpose, James C. Collins, Walt Disney Company, WILLIAM J. MCDONOUGH, JOSH S. WESTON, ROBERT B. REICH, Managing Change, core value, Nike, gravel company, George Merck, Johnson & Johnson, JOHN A. QUELCH RICHARD B. FREEMAN GEORGE STALK, Bill Hewlett, DAVID K. PECAUT, Nordstrom Service, Philip Morris, Corporate social responsibility, core competence, Federal National Mortgage Association, Walt Disney, ROBERT J. THOMAS, Visionary Companies, HOLLAND THOMAS DONALDSON JAMES P. WOMACK, Company, RICHARD P. CHAIT
Content: Building Your Company's Vision by James C. Collins and Jerry I. Porras Harvard Business Review Reprint 96501
Harvard Business Review
JAMES C. COLLINS AND JERRY I. PORRAS DAVID A. THOMAS AND ROBIN J. ELY ANN MAJCHRZAK AND QIANWEI WANG N. CRAIG SMITH, ROBERT J. THOMAS, AND John A. QUELCH RICHARD B. FREEMAN GEORGE STALK, JR., DAVID K. PECAUT, AND BENJAMIN BURNETT JOHN STRAHINICH BARBARA E. TAYLOR, RICHARD P. CHAIT, AND THOMAS P. HOLLAND THOMAS DONALDSON JAMES P. WOMACK AND DANIEL T. JONES MARC LEVINSON
SEPTEMBER-OCTOBER 1996
Reprint Number
BUILDING YOUR COMPANY'S VISION
96501
MAKING DIFFERENCES MATTER: A NEW PARADIGM FOR MANAGING DIVERSITY
96510
BREAKING THE FUNCTIONAL MIND-SET IN PROCESS ORGANIZATIONS
96505
A STRATEGIC APPROACH TO MANAGING PRODUCT RECALLS 96506
TOWARD AN APARTHEID ECONOMY?
96503
WITH COMMENTARIES BY: ROBERT B. REICH, JOSH S. WESTON,
JOHN SWEENEY, William J. MCDONOUGH, AND JOHN MUELLER
BREAKING COMPROMISES, BREAKAWAY GROWTH
96507
HBR CASE STUDY THE PITFALLS OF PARENTING MATURE COMPANIES SOCIAL ENTERPRISE THE NEW WORK OF THE NONPROFIT BOARD WORLD VIEW VALUES IN TENSION: ETHICS AWAY FROM HOME IDEAS AT WORK BEYOND TOYOTA: HOW TO ROOT OUT WASTE AND PURSUE PERFECTION BOOKS IN REVIEW CAPITALISM WITH A SAFETY NET?
96508 96509 96502 96511 96504
HBR SEPTEMBER-OCTOBER 1996
by James C. Collins and Jerry I. Porras
We shall not cease from exploration And the end of all our exploring Will be to arrive where we started And know the place for the first time. T.S. Eliot, Four Quartets Companies that enjoy enduring success have core values and a core purpose that remain fixed while their business strategies and practices endlessly adapt to a changing world. The dynamic of preserving the core while stimulating progress is the reason that companies such as HewlettPackard, 3M, Johnson & Johnson, Procter & Gamble, Merck, Sony, Motorola, and Nordstrom became elite institutions able to renew themselves and achieve superior long-term performance. Hewlett-Packard employees have long known that radical change in operating practices, cultural norms, and business strategies does not mean losing the spirit of the HP Way ­ the company's core principles. Johnson & Johnson continually ques-
tions its structure and revamps its processes while preserving the ideals embodied in its credo. In 1996, 3M sold off several of its large mature businesses ­ a dramatic move that surprised the business press ­ to refocus on its enduring core purpose of solving unsolved problems innovatively. We studied companies such as these in our research for Built to Last: Successful Habits of Visionary Companies and found that they have outperformed the general stock market by a factor of 12 since 1925. James C. Collins is a management educator and writer based in Boulder, Colorado, where he operates a management learning laboratory for conducting research and working with executives. He is also a visiting professor of business administration at the University of Virginia in Charlottesville. Jerry I. Porras is the Lane Professor of Organizational Behavior and Change at Stanford University's Graduate School of Business in Stanford, California, where he is also the director of the Executive Program in Leading and Managing Change. Collins and Porras are coauthors of Built to Last: Successful Habits of Visionary Companies (HarperBusiness, 1994).
HARVARD BUSINESS REVIEW September-October 1996
Copyright © 1996 by James C. Collins and Jerry I. Porras. All rights reserved.
VISION
Truly great companies understand the difference company exists to make technical contributions for
between what should never change and what the advancement and welfare of humanity. Compa-
should be open for change, between what is gen- ny builders such as David Packard, Masaru Ibuka of
uinely sacred and what is not. This rare ability to Sony, George Merck of Merck, William McKnight
manage continuity and change ­ requiring a con- of 3M, and Paul Galvin of Motorola understood that
sciously practiced discipline ­ is closely linked to it is more important to know who you are than
the ability to develop a vision. Vision provides guid- where you are going, for where you are going will
ance about what core to preserve and what future to change as the world around you changes. Leaders
stimulate progress toward. But vision has become die, products become obsolete, markets change,
one of the most overused and least understood new technologies emerge, and management fads
words in the language, conjuring up different im- come and go, but core ideology in a great company
ages for different people: of deeply held values, out- endures as a source of guidance and inspiration.
standing achievement, societal bonds, exhilarating
Core ideology provides the glue that holds an
goals, motivating forces, or raisons d'кtre. We rec- organization together as it grows, decentralizes, di-
ommend a conceptual framework to define vision, versifies, expands globally, and develops workplace
add clarity and rigor to the vague and fuzzy con- diversity. Think of it as analogous to the principles
cepts swirling around that trendy term, and give of Judaism that held the Jewish people together for
practical guidance for articulating a coherent vision centuries without a homeland, even as they spread
within an organization. It is a prescriptive frame- throughout the Diaspora. Or think of the truths
work rooted in six years of research and refined and held to be self-evident in the Declaration of Inde-
tested by our ongoing work with executives from a pendence, or the enduring ideals and principles of
great variety of organizations around the world.
the scientific community that bond scientists from
A well-conceived vision consists of two major every nationality together in the common purpose
components: core ideology and envisioned future. of advancing human knowledge. Any effective vi-
(See the exhibit "Articulating a Vision.") Core ide- sion must embody the core ideology of the organi-
ology, the yin in our scheme, defines what we stand zation, which in turn consists of two distinct parts:
for and why we exist. Yin is unchanging and com- core values, a system of guiding principles and
plements yang, the envisioned future. The envi- tenets; and core purpose, the organization's most
sioned future is what we aspire to become, to fundamental reason for existence.
achieve, to create ­ something that will require sig-
Core Values. Core values are the essential and en-
nificant change and progress to attain.
during tenets of an organization. A small set of
timeless guiding principles, core values require no
Core Ideology
external justification; they have intrinsic value and importance to those inside the organization. The
Core ideology defines the enduring character of Walt Disney Company's core values of imagination
an organization ­ a consistent identity that tran- and wholesomeness stem not from market require-
scends product or market life cycles, technological ments but from the founder's inner belief that
breakthroughs, management fads, and individual imagination and wholesomeness should be nur-
leaders. In fact, the most lasting and significant tured for their own sake. William Procter and James
contribution of those who build visionary com- Gamble didn't instill in P&G's culture a focus on
panies is the core ideology. As Bill Hewlett said product excellence merely as a strategy for success
about his longtime friend and busi-
ness partner David Packard upon Packard's death not long ago, "As far as the company is concerned, the greatest thing he left behind him was a Code of Ethics known as the HP Way." HP`s core ideology, which has guided the company since its incep-
Core ideology provides the glue that holds an organization together through time.
tion more than 50 years ago, includes
a deep respect for the individual, a dedication to af- but as an almost religious tenet. And that value has
fordable quality and reliability, a commitment to been passed down for more than 15 decades by P&G
community responsibility (Packard himself be- people. Service to the customer ­ even to the point
queathed his $4.3 billion of Hewlett-Packard stock of subservience ­ is a way of life at Nordstrom that
to a charitable foundation), and a view that the traces its roots back to 1901, eight decades before
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HARVARD BUSINESS REVIEW September-October 1996
Articulating a Vision Core Ideology Core values Core purpose Envisioned Future 10-to-30-year BHAG (Big, Hairy, Audacious Goal) Vivid description customer service programs became stylish. For Bill Hewlett and David Packard, respect for the individual was first and foremost a deep personal value; they didn't get it from a book or hear it from a management guru. And Ralph S. Larsen, CEO of Johnson & Johnson, puts it this way: "The core values embodied in our credo might be a competitive advantage, but that is not why we have them. We have them because they define for us what we stand for, and we would hold them even if they became a competitive disadvantage in certain situations." The point is that a great company decides for itself what values it holds to be core, largely independent of the current environment, competitive requirements, or management fads. Clearly, then, there is no universally right set of core values. A company need not have as its core value customer service (Sony doesn't) or respect for the individual (Disney doesn't) or quality (Wal-Mart Stores doesn't) or market focus (HP doesn't) or teamwork (Nordstrom doesn't). A company might have operating practices and business strategies around those qualities without having them at the essence of its being. Furthermore, great companies need not have likable or humanistic core values, although many do. The key is not what core values an organization has but that it has core values at all. Companies tend to have only a few core values, usually between three and five. In fact, we found that none of the visionary companies we studied in our book had more than five: most had only three or four. (See the insert "Core Values Are a Company's Essential Tenets.") And, indeed, we should expect that. Only a few values can be truly core ­ that is, so
fundamental and deeply held that they will change seldom, if ever. To identify the core values of your own organization, push with relentless honesty to define what values are truly central. If you articulate more than five or six, chances are that you are confusing core values (which do not change) with operating practices, business strategies, or cultural norms (which should be open to change). Remember, the values must stand the test of time. After you've drafted a preliminary list of the core values, ask about each one, If the circumstances changed and penalized us for holding this core value, would we still keep it? If you can't honestly answer yes, then the value is not core and should be dropped from consideration. A high-technology company wondered whether it should put quality on its list of core values. The CEO asked, "Suppose in ten years quality doesn't make a hoot of difference in our markets. Suppose the only thing that matters is sheer speed and horsepower but not quality. Would we still want to put quality on our list of core values?" The members of the management team looked around at one another and finally said no. Quality stayed in the strategy of the company, and quality-improvement programs remained in place as a mechanism for stimulating progress; but quality did not make the list of core values. The same group of executives then wrestled with leading-edge innovation as a core value. The CEO asked, "Would we keep innovation on the list as a core value, no matter how the world around us changed?" This time, the management team gave a resounding yes. The managers' outlook might be summarized as, "We always want to do leadingedge innovation. That's who we are. It's really important to us and always will be. No matter what. And if our current markets don't value it, we will find markets that do." Leading-edge innovation went on the list and will stay there. A company should not change its core values in response to market changes; rather, it should change markets, if necessary, to remain true to its core values. Who should be involved in articulating the core values varies with the size, age, and geographic dispersion of the company, but in many situations we have recommended what we call a Mars Group. It works like this: Imagine that you've been asked to re-create the very best attributes of your organization on another planet but you have seats on the rocket ship for only five to seven people. Whom should you send? Most likely, you'll choose the people who have a gut-level understanding of your core values, the highest level of credibility with their peers, and the highest levels of competence.
HARVARD BUSINESS REVIEW September-October 1996
67
Core Values Are a Company's Essential Tenets
Merck Corporate Social Responsibility Unequivocal excellence in all aspects of the company Science-based innovation Honesty and integrity Profit, but profit from work that benefits humanity Nordstrom Service to the customer above all else Hard work and individual productivity Never being satisfied Excellence in reputation; being part of something special Philip Morris The right to freedom of choice Winning ­ beating others in a good fight
Encouraging individual initiative Opportunity based on merit; no one is entitled to anything Hard work and continuous self-improvement Sony Elevation of the Japanese Culture and national status Being a pioneer ­ not following others; doing the impossible Encouraging individual ability and creativity Walt Disney No cynicism Nurturing and promulgation of "wholesome American values" Creativity, dreams, and imagination Fanatical attention to consistency and detail Preservation and control of the Disney magic
We'll often ask people brought together to work on core values to nominate a Mars Group of five to seven individuals (not necessarily all from the assembled group). Invariably, they end up selecting highly credible representatives who do a super job of articulating the core values precisely because they are exemplars of those values­a representative slice of the company's genetic code. Even global organizations composed of people from widely diverse cultures can identify a set of shared core values. The secret is to work from the individual to the organization. People involved in articulating the core values need to answer several questions: What core values do you personally bring to your work? (These should be so fundamental that you would hold them regardless of whether or not they were rewarded.) What would you tell your children are the core values that you hold at work and that you hope they will hold when they become working adults? If you awoke tomorrow morning with enough money to retire for the rest of your life, would you continue to live those core values? Can you envision them being as valid for you 100 years from now as they are today? Would you want to hold those core values, even if at some point one or more of them became a competitive disadvantage? If you were to start a new organization tomorrow in a different line of work, what core values would you build into the new organization regardless of its industry? The last three questions are particularly important because they make the crucial distinction between enduring core values
that should not change and practices and strategies that should be changing all the time. Core Purpose. Core purpose, the second part of core ideology, is the organization's reason for being. An effective purpose reflects people's idealistic motivations for doing the company's work. It doesn't just describe the organization's output or target customers; it captures the soul of the organization. (See the insert "Core Purpose Is a Company's Reason for Being.") Purpose, as illustrated by a speech David Packard gave to HP employees in 1960, gets at the deeper reasons for an organization's existence beyond just making money. Packard said, I want to discuss why a company exists in the first place. In other words, why are we here? I think many people assume, wrongly, that a company exists simply to make money. While this is an important result of a company's existence, we have to go deeper and find the real reasons for our being. As we investigate this, we inevitably come to the conclusion that a group of people get together and exist as an institution that we call a company so they are able to accomplish something collectively that they could not accomplish separately ­ they make a contribution to society, a phrase which sounds trite but is fundamental.... You can look around [in the general business world and] see people who are interested in money and nothing else, but the underlying drives come largely from a desire to do something else: to make a product, to give a service ­ generally to do something which is of value.1 Purpose (which should last at least 100 years) should not be confused with specific goals or busi-
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VISION
ness strategies (which should change maNY Times velop new systems for reducing mortgage under-
in 100 years). Whereas you might achieve a goal or writing costs by 40% in five years; programs to
complete a strategy, you cannot fulfill a purpose; it eliminate discrimination in the lending process
is like a guiding star on the horizon ­ forever pur- (backed by $5 billion in underwriting experiments);
sued but never reached. Yet although purpose itself and an audacious goal to provide, by the year 2000,
does not change, it does inspire change. The very $1 trillion targeted at 10 million families that had
fact that purpose can never be fully realized means traditionally been shut out of home ownership ­
that an organization can never stop stimulating minorities, immigrants, and low-income groups.
change and progress.
Similarly, 3M defines its purpose not in terms of
In identifying purpose, some companies make adhesives and abrasives but as the perpetual quest
the mistake of simply describing their current prod- to solve unsolved problems innovatively­a purpose
uct lines or customer segments. We
do not consider the following statement to reflect an effective purpose: "We exist to fulfill our government charter and participate in the secondary mortgage market by packaging mortgages into investment securities." The statement is merely descriptive. A far more effective statement of purpose would be that
Core ideology consists of core values and core purpose. Core purpose is a raison d'кtre, not a goal or business strategy.
expressed by the executives of the
Federal National Mortgage Association, Fannie that is always leading 3M into new fields. McKin-
Mae: "To strengthen the social fabric by continual- sey & Company's purpose is not to do management
ly democratizing home ownership." The secondary consulting but to help corporations and govern-
mortgage market as we know it might not even ex- ments be more successful: in 100 years, it might
ist in 100 years, but strengthening the social fabric involve methods other than consulting. Hewlett-
by continually democratizing home ownership can Packard doesn't exist to make electronic test and
be an enduring purpose, no matter how much the measurement equipment but to make technical
world changes. Guided and inspired by this pur- contributions that improve people's lives ­ a pur-
pose, Fannie Mae launched in the early 1990s a se- pose that has led the company far afield from its
ries of bold initiatives, including a program to de- origins in electronic instruments. Imagine if Walt
Core Purpose Is a Company's Reason for Being
3M: To solve unsolved problems innovatively Cargill: To improve the standard of living around the world Fannie Mae: To strengthen the social fabric by continually democratizing home ownership Hewlett-Packard: To make technical contributions for the advancement and welfare of humanity Lost Arrow Corporation: To be a role model and a tool for social change Pacific Theatres: To provide a place for people to flourish and to enhance the community Mary Kay Cosmetics: To give unlimited opportunity to women
McKinsey & Company: To help leading corporations and governments be more successful Merck: To preserve and improve human life Nike: To experience the emotion of competition, winning, and crushing competitors Sony: To experience the joy of advancing and applying technology for the benefit of the public Telecare Corporation: To help people with mental impairments realize their full potential Wal-Mart: To give ordinary folk the chance to buy the same things as rich people Walt Disney: To make people happy
HARVARD BUSINESS REVIEW September-October 1996
69
VISION
Disney had conceived of his company's purpose as ite Rock Company of Watsonville, California, won
to make cartoons, rather than to make people the Malcolm Baldrige National Quality Award ­ not
happy; we probably wouldn't have Mickey Mouse, an easy feat for a small rock quarry and asphalt
Disneyland, EPCOT Center, or the Anaheim Mighty company. And Granite Rock has gone on to be one
Ducks Hockey Team.
of the most progressive and exciting companies
One powerful method for getting at purpose is we've encountered in any industry.
the five whys. Start with the descriptive statement
Notice that none of the core purposes fall into
We make X products or We deliver X services, and the category "maximize shareholder wealth." A pri-
then ask, Why is that important? five times. After mary role of core purpose is to guide and inspire.
a few whys, you'll find that you're
getting down to the fundamental purpose of the organization. We used this method to deepen and enrich a discussion about purpose when we worked with a certain market-research company. The executive team first met for several hours and generated the following statement of purpose for their organiza-
Listen to people in truly great companies talk about their achievements­you will hear little about earnings per share.
tion: To provide the best market-
research data available. We then asked the follow- Maximizing shareholder wealth does not inspire peo-
ing question: Why is it important to provide the ple at all levels of an organization, and it provides
best market-research data available? After some precious little guidance. Maximizing shareholder
discussion, the executives answered in a way that wealth is the standard off-the-shelf purpose for
reflected a deeper sense of their organization's pur- those organizations that have not yet identified
pose: To provide the best market-research data their true core purpose. It is a substitute ­ and a
available so that our customers will understand weak one at that.
their markets better than they could otherwise.
When people in great organizations talk about
A further discussion let team members realize that their achievements, they say very little about earn-
their sense of self-worth came not just from helping ings per share. Motorola people talk about impres-
customers understand their markets better but also sive quality improvements and the effect of the
from making a contribution to their customers' products they create on the world. Hewlett-Packard
success. This introspection eventually led the com- people talk about their technical contributions to
pany to identify its purpose as: To contribute to our the marketplace. Nordstrom people talk about
customers' success by helping them understand heroic customer service and remarkable individual
their markets. With this purpose in mind, the com- performance by star salespeople. When a Boeing en-
pany now frames its product decisions not with the gineer talks about launching an exciting and revo-
question Will it sell? but with the question Will it lutionary new aircraft, she does not say, "I put my
make a contribution to our customers' success?
heart and soul into this project because it would
The five whys can help companies in any indus- add 37 cents to our earnings per share."
try frame their work in a more meaningful way. An
One way to get at the purpose that lies beyond
asphalt and gravel company might begin by saying, merely maximizing shareholder wealth is to play
We make gravel and asphalt products. After a few the "Random Corporate Serial Killer" game. It
whys, it could conclude that making asphalt and works like this: Suppose you could sell the com-
gravel is important because the quality of the infra- pany to someone who would pay a price that every-
structure plays a vital role in people's safety and ex- one inside and outside the company agrees is more
perience; because driving on a pitted road is annoy- than fair (even with a very generous set of assump-
ing and dangerous; because 747s cannot land safely tions about the expected future cash flows of the
on runways built with poor workmanship or inferi- company). Suppose further that this buyer would
or concrete; because buildings with substandard guarantee stable employment for all employees at
materials weaken with time and crumble in earth- the same pay scale after the purchase but with no
quakes. From such introspection may emerge this guarantee that those jobs would be in the same in-
purpose: To make people's lives better by improv- dustry. Finally, suppose the buyer plans to kill the
ing the quality of man-made structures. With a company after the purchase ­ its products or ser-
sense of purpose very much along those lines, Gran- vices would be discontinued, its operations would
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HARVARD BUSINESS REVIEW September-October 1996
be shut down, its brand names would be shelved all know that isn't a core value around here!") Aspi-
forever, and so on. The company would utterly and rations are more appropriate as part of your envi-
completely cease to exist. Would you accept the sioned future or as part of your strategy, not as part
offer? Why or why not? What would be lost if the of the core ideology. However, authentic core val-
company ceased to exist? Why is it important that ues that have weakened over time can be consid-
the company continue to exist? We've found this ered a legitimate part of the core ideology ­ as long
exercise to be very powerful for helping hard-nosed, as you acknowledge to the organization that you
financially focused executives reflect on their orga- must work hard to revive them.
nization's deeper reasons for being.
Also be clear that the role of core ideology is to
Another approach is to ask each member of the guide and inspire, not to differentiate. Two compa-
Mars Group, How could we frame the purpose of nies can have the same core values or purpose.
this organization so that if you woke up tomorrow Many companies could have the purpose to make
morning with enough money in the bank to retire, technical contributions, but few live it as passion-
you would nevertheless keep working here? What ately as Hewlett-Packard. Many companies could
deeper sense of purpose would motivate you to con- have the purpose to preserve and improve human
tinue to dedicate your precious creative energies to life, but few hold it as deeply as Merck. Many com-
this company's efforts?
panies could have the core value of heroic customer
As they move into the twenty-first century, com- service, but few create as intense a culture around
panies will need to draw on the full creative energy that value as Nordstrom. Many companies could
and talent of their people. But why should people have the core value of innovation, but few create
give full measure? As Peter Drucker has pointed the powerful alignment mechanisms that stimu-
out, the best and most dedicated people are ulti- late the innovation we see at 3M. The authenticity,
mately volunteers, for they have the opportunity to the discipline, and the consistency with which the
do something else with their lives. Confronted ideology is lived ­ not the content of the ideology ­
with an increasingly mobile society, cynicism differentiate visionary companies from the rest of
about corporate life, and an expanding entrepre- the pack.
neurial segment of the economy, companies more
Core ideology needs to be meaningful and inspi-
than ever need to have a clear understanding of rational only to people inside the organization; it
their purpose in order to make work meaningful need not be exciting to outsiders. Why not? Because
and thereby attract, motivate, and retain outstand- it is the people inside the organization who need to
ing people.
commit to the organizational ideology over the
long term. Core ideology can also play a role in de-
Discovering Core Ideology
termining who is inside and who is not. A clear and well-articulated ideology attracts to the company
You do not create or set core ideology. You dis- people whose personal values are compatible with
cover core ideology. You do not deduce it by looking the company's core values; conversely, it repels
at the external environment. You understand it by those whose personal values are incompatible. You
looking inside. Ideology has to be authentic. You cannot impose new core values or purpose on peo-
cannot fake it. Discovering core ideology is not an ple. Nor are core values and purpose things people
intellectual exercise. Do not ask, What core values can buy into. Executives often ask, How do we get
people to share our core ideology?
You discover core ideology by looking inside. It has to be authentic. You can't fake it.
You don't. You can't. Instead, find people who are predisposed to share your core values and purpose; attract and retain those people; and let those who do not share your core values go elsewhere. Indeed, the very process of articulating core ideology may
cause some people to leave when
should we hold? Ask instead, What core values do they realize that they are not personally compatible
we truly and passionately hold? You should not with the organization's core. Welcome that out-
confuse values that you think the organization come. It is certainly desirable to retain within the
ought to have ­ but does not ­ with authentic core core ideology a diversity of people and viewpoints.
values. To do so would create cynicism throughout People who share the same core values and purpose
the organization. ("Who're they trying to kid? We do not necessarily all think or look the same.
HARVARD BUSINESS REVIEW September-October 1996
71
VISION
Don't confuse core ideology itself with coreideology statements. A company can have a very strong core ideology without a formal statement. For example, Nike has not (to our knowledge) formally articulated a statement of its core purpose. Yet, according to our observations, Nike has a powerful core purpose that permeates the entire organization: to experience the emotion of competition, winning, and crushing competitors. Nike has a campus that seems more like a shrine to the competitive spirit than a corporate office complex. Giant photos of Nike heroes cover the walls, bronze plaques of Nike athletes hang along the Nike Walk of Fame, statues of Nike athletes stand alongside the running track that rings the campus, and buildings honor champions such as Olympic marathoner Joan Benoit, basketball superstar Michael Jordan, and tennis pro John McEnroe. Nike people who do not feel stimulated by the competitive spirit and the urge to be ferocious simply do not last long in the culture. Even the company's name reflects a sense of competition: Nike is the Greek goddess of victory. Thus, although Nike has not formally articulated its purpose, it clearly has a strong one.
Identifying core values and purpose is therefore not an exercise in wordsmithery. Indeed, an organization will generate a variety of statements over time to describe the core ideology. In HewlettPackard`s archives, we found more than half a dozen distinct versions of the HP Way, drafted by David Packard between 1956 and 1972. All versions stated the same principles, but the words used varied depending on the era and the circumstances. Similarly, Sony's core ideology has been stated many different ways over the company's history. At its founding, Masaru Ibuka described two key elements of Sony's ideology: "We shall welcome technical difficulties and focus on highly sophisticated technical products that have great usefulness for society regardless of the quantity involved; we shall place our main emphasis on ability, performance, and personal character so that each individual can show the best in ability and skill."2 Four decades later, this same concept appeared in a statement of core ideology called Sony Pioneer Spirit: "Sony is a pioneer and never intends to follow others. Through progress, Sony wants to serve the whole world. It shall be always a seeker of the un-
Big, Hairy, Audacious Goals Aid Long-Term Vision
Target BHAGs can be quantitative or qualitative Become a $125 billion company by the year 2000 (Wal-Mart, 1990) Democratize the automobile (Ford Motor Company, early 1900s) Become the company most known for changing the worldwide poor-quality image of Japanese products (Sony, early 1950s) Become the most powerful, the most serviceable, the most far-reaching world financial institution that has ever been (City Bank, predecessor to Citicorp, 1915) Become the dominant player in commercial aircraft and bring the world into the jet age (Boeing, 1950) Common-enemy BHAGs involve David-versus-Goliath thinking Knock off RJR as the number one tobacco company in the world (Philip Morris, 1950s) Crush Adidas (Nike, 1960s) Yamaha wo tsubusu! We will destroy Yamaha! (Honda, 1970s)
Role-model BHAGs suit up-and-coming organizations Become the Nike of the cycling industry (Giro Sport Design, 1986) Become as respected in 20 years as Hewlett-Packard is today (Watkins-Johnson, 1996) Become the Harvard of the West (Stanford University, 1940s) Internal-transformation BHAGs suit large, established organizations Become number one or number two in every market we serve and revolutionize this company to have the strengths of a big company combined with the leanness and agility of a small company (General Electric Company, 1980s) Transform this company from a defense contractor into the best diversified high-technology company in the world (Rockwell, 1995) Transform this division from a poorly respected internal products supplier to one of the most respected, exciting, and sought-after divisions in the company (Components Support Division of a computer products company, 1989)
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HARVARD BUSINESS REVIEW September-October 1996
known.... Sony has a principle of respecting and en- somewhat paradoxical. On the one hand, it conveys
couraging one's ability... and always tries to bring concreteness ­ something visible, vivid, and real.
out the best in a person. This is the vital force of On the other hand, it involves a time yet unreal-
Sony."3 Same core values, different words.
ized ­ with its dreams, hopes, and aspirations.
You should therefore focus on getting the content
Vision-level BHAG. We found in our research
right ­ on capturing the essence of the core values that visionary companies often use bold missions ­
and purpose. The point is not to create a perfect or what we prefer to call BHAGs (pronounced
statement but to gain a deep under-
standing of your organization's core values and purpose, which can then be expressed in a multitude of ways. In fact, we often suggest that once the core has been identified, managers should generate their own statements of the core values and
Companies need an audacious 10-to-30-year goal to progress toward an envisioned future.
purpose to share with their groups.
Finally, don't confuse core ideology with the con- BEE-hags and shorthand for Big, Hairy, Audacious
cept of core competence. Core competence is a stra- Goals)­as a powerful way to stimulate progress. All
tegic concept that defines your organization's capa- companies have goals. But there is a difference be-
bilities ­ what you are particularly good at ­ whereas tween merely having a goal and becoming commit-
core ideology captures what you stand for and ted to a huge, daunting challenge ­ such as climbing
why you exist. Core competencies should be well Mount Everest. A true BHAG is clear and com-
aligned with a company's core ideology and are of- pelling, serves as a unifying focal point of effort,
ten rooted in it; but they are not the same thing. For and acts as a catalyst for team spirit. It has a clear
example, Sony has a core competence of miniatur- finish line, so the organization can know when it
ization ­ a strength that can be strategically applied has achieved the goal; people like to shoot for finish
to a wide array of products and markets. But it does lines. A BHAG engages people ­ it reaches out and
not have a core ideology of miniaturization. Sony grabs them. It is tangible, energizing, highly fo-
might not even have miniaturization as part of its cused. People get it right away; it takes little or no
strategy in 100 years, but to remain a great compa- explanation. For example, NASA's 1960s moon
ny, it will still have the same core values described mission didn't need a committee of wordsmiths to
in the Sony Pioneer Spirit and the same fundamen- spend endless hours turning the goal into a verbose,
tal reason for being­namely, to advance technology impossible-to-remember mission statement. The
for the benefit of the general public. In a visionary goal itself was so easy to grasp ­ so compelling in its
company like Sony, core competencies change over own right ­ that it could be said 100 different ways
the decades, whereas core ideology does not.
yet be easily understood by everyone. Most corpo-
Once you are clear about the core ideology, you rate statements we've seen do little to spur forward
should feel free to change absolutely anything that movement because they do not contain the power-
is not part of it. From then on, whenever someone ful mechanism of a BHAG.
says something should not change because "it's
Although organizations may have many BHAGs
part of our culture" or "we've always done it that at different levels operating at the same time, vi-
way" or any such excuse, mention this simple rule: sion requires a special type of BHAG ­ a vision-level
If it's not core, it's up for change. The strong version BHAG that applies to the entire organization and
of the rule is, If it's not core, change it! Articulating requires 10 to 30 years of effort to complete. Setting
core ideology is just a starting point, however. You the BHAG that far into the future requires thinking
also must determine what type of progress you beyond the current capabilities of the organization
want to stimulate.
and the current environment. Indeed, inventing
such a goal forces an executive team to be vision-
Envisioned Future
ary, rather than just strategic or tactical. A BHAG should not be a sure bet ­ it will have perhaps only
The second primary component of the vision a 50% to 70% probability of success ­ but the orga-
framework is envisioned future. It consists of two nization must believe that it can reach the goal any-
parts: a 10-to-30-year audacious goal plus vivid de- way. A BHAG should require extraordinary effort
scriptions of what it will be like to achieve the goal. and perhaps a little luck. We have helped compa-
We recognize that the phrase envisioned future is nies create a vision-level BHAG by advising them
HARVARD BUSINESS REVIEW September-October 1996
73
VISION
to think in terms of four broad categories: target
In the 1930s, Merck had the BHAG to transform
BHAGs, common-enemy BHAGs, role-model itself from a chemical manufacturer into one of the
BHAGs, and internal-transformation BHAGs. (See preeminent drug-making companies in the world,
the insert "Big, Hairy, Audacious Goals Aid Long- with a research capability to rival any major univer-
Term Vision.")
sity. In describing this envisioned future, George
Vivid Description. In addition to vision-level Merck said at the opening of Merck's research facil-
BHAGs, an envisioned future needs what we call ity in 1933, "We believe that research work carried
vivid description ­ that is, a vibrant, engaging, on with patience and persistence will bring to in-
and specific description of what it will be like to dustry and commerce new life; and we have faith
achieve the BHAG. Think of it as translating the vi- that in this new laboratory, with the tools we have
sion from words into pictures, of creating an image supplied, science will be advanced, knowledge in-
that people can carry around in their heads. It is a creased, and human life win ever a greater freedom
question of painting a picture with your words. Pic- from suffering and disease.... We pledge our every
ture painting is essential for making the 10-to-30- aid that this enterprise shall merit the faith we have
year BHAG tangible in people's minds.
in it. Let your light so shine ­ that those who seek
For example, Henry Ford brought to life the goal the Truth, that those who toil that this world may
of democratizing the automobile with this vivid de- be a better place to live in, that those who hold aloft
scription: "I will build a motor car for the great that torch of science and knowledge through these
multitude.... It will be so low in price that no man social and economic dark ages, shall take new cour-
making a good salary will be unable to own one age and feel their hands supported."
and enjoy with his family the blessing of hours of
Passion, emotion, and conviction are essential
pleasure in God's great open spaces.... When I'm parts of the vivid description. Some managers are
through, everybody will be able to afford one, and uncomfortable expressing emotion about their
everyone will have one. The horse will have disap- dreams, but that's what motivates others. Churchill
peared from our highways, the automobile will be understood that when he described the BHAG fac-
taken for granted...[and we will] give a large num- ing Great Britain in 1940. He did not just say, "Beat
ber of men employment at good wages."
Hitler." He said, "Hitler knows he will have to
The components-support division of a computer- break us on this island or lose the war. If we can
products company had a general manager who was stand up to him, all Europe may be free, and the life
able to describe vividly the goal of becoming one of of the world may move forward into broad, sunlit
uplands. But if we fail, the whole
You must translate the vision from words to pictures with a vivid description of what it will be like to achieve your goal.
world, including the United States, including all we have known and cared for, will sink into the abyss of a new Dark Age, made more sinister and perhaps more protracted by the lights of perverted science. Let us therefore brace ourselves to our duties and so bear ourselves that if the British Empire and its Common-
wealth last for a thousand years, men
the most sought-after divisions in the company: will still say, `This was their finest hour.'"
"We will be respected and admired by our peers....
A Few Key Points. Don't confuse core ideology
Our solutions will be actively sought by the end- and envisioned future. In particular, don't confuse
product divisions, who will achieve significant core purpose and BHAGs. Managers often exchange
product `hits' in the marketplace largely because of one for the other, mixing the two together or failing
our technical contribution.... We will have pride in to articulate both as distinct items. Core purpose ­
ourselves.... The best up-and-coming people in the not some specific goal ­ is the reason why the orga-
company will seek to work in our division.... Peo- nization exists. A BHAG is a clearly articulated
ple will give unsolicited feedback that they love goal. Core purpose can never be completed, where-
what they are doing.... [Our own] people will walk as the BHAG is reachable in 10 to 30 years. Think
on the balls of their feet.... [They] will willingly of the core purpose as the star on the horizon to
work hard because they want to.... Both employees be chased forever; the BHAG is the mountain to be
and customers will feel that our division has con- climbed. Once you have reached its summit, you
tributed to their life in a positive way."
move on to other mountains.
74
HARVARD BUSINESS REVIEW September-October 1996
Identifying core ideology is a discovery process, envisioned future should be so exciting in its own
but setting the envisioned future is a creative right that it would continue to keep the organiza-
process. We find that executives often have a great tion motivated even if the leaders who set the goal
deal of difficulty coming up with an exciting disappeared. City Bank, the predecessor of Citicorp,
BHAG. They want to analyze their way into the fu- had the BHAG "to become the most powerful, the
ture. We have found, therefore, that some execu- most serviceable, the most far-reaching world fi-
tives make more progress by starting first with the nancial institution that has ever been" ­ a goal that
vivid description and backing from there into the generated excitement through multiple genera-
tions until it was achieved. Similar-
What's needed is such a big commitment that when people see what the goal will take, there's an almost audible gulp.
ly, the NASA moon mission continued to galvanize people even though President John F. Kennedy (the leader associated with setting the goal) died years before its completion. To create an effective envisioned future requires a certain level of unreasonable confidence and commitment. Keep in mind that a BHAG is
not just a goal; it is a Big, Hairy, Au-
BHAG. This approach involves starting with ques- dacious Goal. It's not reasonable for a small region-
tions such as, We're sitting here in 20 years; what al bank to set the goal of becoming "the most pow-
would we love to see? What should this company erful, the most serviceable, the most far-reaching
look like? What should it feel like to employees? world financial institution that has ever been," as
What should it have achieved? If someone writes an City Bank did in 1915. It's not a tepid claim that
article for a major business magazine about this "we will democratize the automobile," as Henry
company in 20 years, what will it say? One biotech- Ford said. It was almost laughable for Philip
nology company we worked with had trouble envi- Morris ­ as the sixth-place player with 9% market
sioning its future. Said one member of the execu- share in the 1950s ­ to take on the goal of defeating
tive team, "Every time we come up with something Goliath RJ Reynolds Tobacco Company and becom-
for the entire company, it is just too generic to be ing number one. It was hardly modest for Sony, as
exciting ­ something banal like `advance biotech- a small, cash-strapped venture, to proclaim the goal
nology worldwide.'" Asked to paint a picture of the of changing the poor-quality image of Japanese
company in 20 years, the executives mentioned products around the world. (See the insert "Putting
such things as "on the cover of Business Week as a It All Together: Sony in the 1950s.") Of course, it's
model success story...the Fortune most admired not only the audacity of the goal but also the level
top-ten list...the best science and business gradu- of commitment to the goal that counts. Boeing
ates want to work here...people on airplanes rave didn't just envision a future dominated by its com-
about one of our products to seatmates...20 consec- mercial jets; it bet the company on the 707 and, later,
utive years of profitable growth...an entrepreneuri- on the 747. Nike's people didn't just talk about
al culture that has spawned half a dozen new divi- the idea of crushing Adidas; they went on a crusade
sions from within...management gurus use us as an to fulfill the dream. Indeed, the envisioned future
example of excellent management and progressive should produce a bit of the "gulp factor": when it
thinking," and so on. From this, they were able to dawns on people what it will take to achieve the
set the goal of becoming as well respected as Merck goal, there should be an almost audible gulp.
or as Johnson & Johnson in biotechnology.
But what about failure to realize the envisioned
It makes no sense to analyze whether an envi- future? In our research, we found that the visionary
sioned future is the right one. With a creation ­ and companies displayed a remarkable ability to achieve
the task is creation of a future, not prediction­there even their most audacious goals. Ford did democ-
can be no right answer. Did Beethoven create the ratize the automobile; Citicorp did become the
right Ninth Symphony? Did Shakespeare create the most far-reaching bank in the world; Philip Morris
right Hamlet? We can't answer these questions; did rise from sixth to first and beat RJ Reynolds
they're nonsense. The envisioned future involves worldwide; Boeing did become the dominant com-
such essential questions as Does it get our juices mercial aircraft company; and it looks like Wal-
flowing? Do we find it stimulating? Does it spur Mart will achieve its $125 billion goal, even with-
forward momentum? Does it get people going? The out Sam Walton. In contrast, the comparison com-
HARVARD BUSINESS REVIEW September-October 1996
75
Putting It All Together: Sony in the 1950s
Core Ideology Core Values Elevation of the Japanese culture and national status Being a pioneer ­ not following others; doing the impossible Encouraging individual ability and creativity Purpose To experience the sheer joy of innovation and the application of technology for the benefit and pleasure of the general public
Envisioned Future BHAG Become the company most known for changing the worldwide poor-quality image of Japanese products Vivid Description We will create products that become pervasive around the world.... We will be the first Japanese company to go into the U.S. market and distribute directly.... We will succeed with innovations that U.S. companies have failed at ­ such as the transistor radio.... Fifty years from now, our brand name will be as well known as any in the world...and will signify innovation and quality that rival the most innovative companies anywhere.... "Made in Japan" will mean something fine, not something shoddy.
panies in our research frequently did not achieve achieved one BHAG and fails to replace it with an-
their BHAGs, if they set them at all. The differ- other. NASA suffered from that syndrome after the
ence does not lie in setting easier goals: the vision- successful moon landings. After you've landed on
ary companies tended to have even more audacious the moon, what do you do for an encore? Ford suf-
ambitions. The difference does not lie in charis- fered from the syndrome when, after it succeeded in
matic, visionary leadership: the visionary com- democratizing the automobile, it failed to set a new
panies often achieved their BHAGs without such goal of equal significance and gave General Motors
larger-than-life leaders at the helm. Nor does the the opportunity to jump ahead in the 1930s. Apple
difference lie in better strategy: the visionary com- Computer suffered from the syndrome after achiev-
panies often realized their goals more by an or- ing the goal of creating a computer that nontechies
ganic process of "let's try a lot of stuff and keep could use. Start-up companies frequently suffer
what works" than by well-laid strategic plans. from the We've Arrived Syndrome after going pub-
Rather, their success lies in building the strength of lic or after reaching a stage in which survival no
their organization as their primary way of creating longer seems in question. An envisioned future
the future.
helps an organization only as long as it hasn't yet
Why did Merck become the preeminent drug- been achieved. In our work with companies, we fre-
maker in the world? Because Merck's architects quently hear executives say, "It's just not as excit-
built the best pharmaceutical re-
search and development organization in the world. Why did Boeing become the dominant commercial aircraft company in the world? Because of its superb engineering and marketing organization, which had the ability to make projects like the 747 a reality. When asked to name the most important decisions that
The basic dynamic of visionary companies is to preserve the core and stimulate progress. It is vision that provides the context.
have contributed to the growth and
success of Hewlett-Packard, David Packard an- ing around here as it used to be; we seem to have
swered entirely in terms of decisions to build the lost our momentum." Usually, that kind of remark
strength of the organization and its people.
signals that the organization has climbed one
Finally, in thinking about the envisioned future, mountain and not yet picked a new one to climb.
beware of the We've Arrived Syndrome ­ a compla-
Many executives thrash about with mission
cent lethargy that arises once an organization has statements and vision statements. Unfortunately,
76
HARVARD BUSINESS REVIEW September-October 1996
VISION
most of those statements turn out to be a muddled stew of values, goals, purposes, philosophies, beliefs, aspirations, norms, strategies, practices, and descriptions. They are usually a boring, confusing, structurally unsound stream of words that evoke the response "True, but who cares?" Even more problematic, seldom do these statements have a direct link to the fundamental dynamic of visionary companies: preserve the core and stimulate progress. That dynamic, not vision or mission statements, is the primary engine of enduring companies. Vision simply provides the context for bringing this dynamic to life. Building a visionary company requires 1% vision and 99% alignment. When you have superb alignment, a visitor could
drop in from outer space and infer your vision from the operations and activities of the company without ever reading it on paper or meeting a single senior executive. Creating alignment may be your most important work. But the first step will always be to recast your vision or mission into an effective context for building a visionary company. If you do it right, you shouldn't have to do it again for at least a decade.
1. David Packard, speech given to Hewlett-Packard's training group on March 8, 1960; courtesy of Hewlett-Packard Archives. 2. See Nick Lyons, The Sony Vision (New York: Crown Publishers, 1976). We also used a translation by our Japanese student Tsuneto Ikeda. 3. Akio Morita, Made in Japan (New York: E.P. Dutton, 1986), p. 147.
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