Is your company about to make the same mistake as many once-great companies? Here are some shocking performance updates for manufacturers who were held up as shining examples in 3 of the best-selling “corporate performance” books of the past 20 years. In this post, we’ll look at the Built to Last update, and in the next post, we’ll delve into the updates and wake-up call from the other two books.
Built to Last was released in 1995, billed as the defining management study of the nineties, showing how great companies triumph over time and how long-term sustained performance can be engineered into the DNA of an enterprise from the very beginning. Wow, heady thoughts! The research included a head-to-head comparison of companies who were “built to last” vs comparison companies in the same industry that were considered as the also-rans. Millions of business leaders embraced as holy grail the concept of the Big, Hairy, Audacious Goal (BHAG) that was introduced in the book.
There’s only one little problem…
One hundred percent of those leading manufacturers did not sustain their performance and are now significantly underperforming vs others in their industries. In fact, many of them have been left behind by the so-called “also-rans” they were compared to, which puts the kibosh on the DNA argument. Read on to see if you’re at risk of falling into the same trap they did.
Current industry leader Fortive earns twice the profit per employee of revered giant 3M.
Airbus is easily keeping pace with former leader Boeing who bought built-to -last comparison company McDonnell Douglas. The recent Max8 disasters put a new spin on being built to last, and only time will tell what their future performance will be.
Once-great GE lost almost $80K per employee last year, while the former comparison company Westinghouse has emerged from their 2017 bankruptcy after restructuring by Brookfield Business Partners. Industry leader Fortive eclipses GE’s performance, with profits per employee of $120K.
GM was considered the also-ran company, yet currently earns almost 3x the profit per employee as built-to-last Ford and is neck and neck with perceived lean leader Toyota. They all still lag industry-leading Harley Davidson who performs at twice the level of GM and Toyota and 5x the level of Ford.
Texas Instruments, the former “also ran” competitor, currently outperforms HP by 100% on the profit per employee metric.
Former “also ran” comparison company Bristol Myers Squibb earns twice the profit per employee of built-to-last Johnson & Johnson.
Merck’s $90K of profit per employee has failed to keep pace with former “also ran” comparison company Pfizer’s performance at $120K of profit per employee.
Motorola still outperforms former comparison company Zenith which was bought by LG, and it survived the turmoil of separating Motorola Solutions from Motorola Mobility. Yet from an industry perspective, Motorola Solutions earns only half the average profit per employee of their current competitors.
Samsung is the runaway high-performer in the category, earning almost twice the profit per employee of Sony. Former comparison company Kenwood merged with JVC.
So, what went wrong? Why did the wheels fall off these Built to Last companies? The research was solid, although backward-looking, and Collins and his co-authors were careful to highlight that their lists were a snapshot of history. The conclusions appeared to reflect common sense. Companies followed the advice in those books wholeheartedly. Of course, there is no single answer that explains why 100% of them are now underperforming, other than the common denominator of change which was handled poorly by most of these companies.
Therein lies the trap you may be about to fall into, because by its very nature, the “Built to Last” elements identified as success factors were carved in stone in these companies, and hence part of their downfall. Those were the days of 20- or even 50-year Big Hairy Audacious Goals, yet maintaining a blinkered and intense long-term focus in a rapidly-changing world is a sure roadmap to failure… unless it’s the right goal.
I recall your session as if it was yesterday. You asked us all to plot our “Return on People” on the chart. Unfortunately at that stage this indicator was actually negative $9,955 per employee. We immediately set a new goal and implemented the Profit Plan you outlined. I am pleased to confirm that we have now achieved $31,671 profit per employee – the highest profitability levels in the organization’s history.
Mikel Rhodes, CFO, Delta Building Products
If you survived the 2008 recession and the tumultuous years that followed, perhaps you’re confident that you too are Built to Last. Maybe you have a long-range BHAG. Maybe you too have “success factors”/”we’ve always done it this way” elements that are deep in your own corporate DNA and have worked so far. But maybe its time to look at the future, rethink your goals, and take a more contemporary 1-year/3-year/10-year approach, with very little carved in stone so that you can remain agile in the face of the massive changes coming to manufacturing within the next 5-10 years. (Ask me for the future vision of manufacturing 5.0 that I’m seeing, if you’re interested.)
When I work with clients, we take the 1-3-10 year goal-setting approach, with a rigorous 1-year execution plan. Most often, I help them set goals that are not just “big”, but “enduring”, and the primary goal is often to achieve the industry-leading profit per employee. Why? Because leading your industry on this number means 3 things:
1. You’re profitable. And with prosperity comes the possibilities to invest to stay ahead of change. If you’re consumed by profit worries today, you cannot possibly have an accurate world-view of your future. (Let’s talk how to break that cycle – it’s easier than you think.)
2. Your employees are engaged. Culture eats strategy for breakfast. When you look at the majority of companies who have a high profit per employee, they also demonstrate a strong culture. (A very wise and successful CEO once told me “I don’t worry about profit. I have 110 employees taking care of it for me”. Ask me how he achieves that level of employee focus.)
3. Your customers are loyal and profitable for you. When they are, they’ll help you see the future from their side of the table, identifying opportunities that you may not see, keeping you informed of new competitors and alternatives. Market intelligence in a fast-changing world will help you thrive in the future. (How can help your employees tell the difference between a “big” customer and one who is actually loyal and profitable? Ask me.)
Engaged Employees. Loyal Customers. Profit.
That, my friends, is how you create a company that is Built to Last. It all starts with the right goal, which is Profit per Employee, or what I like to call Return on People. Download the free 2019 Return on People Benchmark Report to get started.
In Part II, you’ll find out how one company was able to sustain their superior performance by having the type of profitability goal I’ve described above.
#1 Bestselling Author, International Speaker, and Accelerator Anne C. Graham is on a mission to help business leaders and their teams double their profit per employee – or more – in less than one year, in less time per week than they’re spending on email per day. Her book Profit in Plain Sight includes the 5-step proactive P.R.O.F.I+T Roadmap to do it. Connect with Anne on LinkedIn.