The Key to Success? Your Company Philosophy

This article is an excerpt from the Shortform book guide to "Built to Last" by Jim Collins and Jerry Porras. Shortform has the world's best summaries and analyses of books you should be reading.

Like this article? Sign up for a free trial here .

Does your business have a company philosophy? What difference does it make?

Visionary companies are guided by their company philosophy. More than mere words, this blend of their core values and their purpose keeps them focused as it drives them forward. If you want to build a business that lasts, your business needs a core philosophy.

Read more to learn the importance of a company philosophy and how to establish one for your business.

The Importance of a Company Philosophy

One of the central concepts of visionary companies debunks the myth that they must choose between paradoxical goals: They don’t put limits on themselves by being ruled by or—that is, the view that you must choose between seemingly contradictory choices A or B.

For example, the idea that a company can have change or stability, go for low cost or high quality, or invest in the long-term or do well in the short-term.

Instead, they believe in the power of and—that is, they figure out a way to have both A and B. It’s like the Chinese yin-yang symbol, where black and white don’t blend intro gray, but come together in perfect harmony.

Not being ruled by or and believing in the power of and means that companies are able to be profitable and stick to their ideals. This debunks another myth, one commonly taught in business schools: that a company’s goal is to maximize profits and keep shareholders happy.

Visionary companies believe in the power of and. For them, profitability is just one of the objectives, but not the primary objective. Without profit, visionary companies can’t exist, but it’s not why they exist. This paradox of pursuing both profit and broader aims is made possible by a company philosophy: a company’s guiding principles that have rarely changed through generations of changing leadership and that are an integral part of building a clock.

Why Visionary Companies Care About Their Philosophy

While some may dismiss a company philosophy as nothing more than words, there are two reasons they’re held in significant esteem in visionary companies:

According to social psychology, people are more likely to follow through with something when they declare it in public, so for visionary companies to have a company philosophy already sets the stage for them to act in alignment with the philosophy.
When visionary companies have a concrete company philosophy, they can make sure everyone in the organization is aligned with it.

Example: Johnson & Johnson’s Tylenol Crisis Recovery

Johnson & Johnson’s core ideology is evident in their company credo, which states the hierarchy of five responsibilities: First, to the people who use their products; second, to their employees; third, to their management; fourth, to the communities in which they live; and lastly, to their stockholders.

J&J’s adherence to their credo was exemplified in the Tylenol crisis of 1982. Seven people in Chicago died as a result of Tylenol bottles that had been tampered with. J&J responded by thinking of their consumers first: They recalled all the Tylenol capsules from the entire country, which cost them $100 million. They also launched a massive communication effort to keep the public informed. Despite losing $100 million, they profited in the long run, earning the public’s trust and becoming one of the 18 visionary companies.

In contrast, when comparison company Bristol-Myers had a similar problem with Excedrin tablets in Denver, they only recalled tablets from Colorado and didn’t communicate the issue to the public. They were entirely focused on their bottom line—and yet they haven’t profited nearly as much as J&J.

(Shortform note: Read our guide to Predictably Irrational to learn more about why J&J’s response to the Tylenol crisis increased brand trust.)

The Components of a Company Philosophy

Establishing a company philosophy is one of the fundamental steps for building a visionary company. If you’re not a CEO, you can articulate it for your own department or division, guided by your company’s core values, if it already has one. If you’re an entrepreneur in the middle of getting your business off the ground, try not to put off this exercise for too long—the sooner you can figure it out, the better.

Your company philosophy is made up of your core values (a set of guiding principles that you stick to no matter what) plus your purpose (your reason for being, beyond mere profit). To better spell out your company philosophy, start from a place of authenticity. While your values and your purpose may be similar to those of other companies, they should be a reflection of what you truly believe in..

Identify Your Core Values

When formulating your company philosophy, ask people to nominate five to seven individuals from your organization who they think are credible, competent individuals who are exemplars of the values of the organization. Then, gather the nominated individuals to discuss and identify the core values, making sure that they:

Make it clear and concise. Figure out what’s important to you, then state it in a simple and straightforward manner. For example, Wal-Mart emphasizes putting the customer ahead of everything else, and HP emphasizes respect and concern for the individual.
Limit the number. Visionary companies have between three and six core values. If you find that you have more than six, strip them down to the ones that are fundamental to your company and that will stand the test of time. Determine which ones you want to stick to, for better or for worse. You can cross out the ones you can change or get rid of if circumstances change—it doesn’t mean they’re not important. It only means they aren’t core values.

Identify Your Purpose

Then move on to the company’s purpose, which the authors believe is the more important component to guiding and inspiring an organization. The research found that some visionary companies are more explicit when it comes to stating their purpose, while others are more informal. Identify yours by:

1. Asking, “Why are we here?” What drives you beyond profitability? Get to your fundamental purpose by starting off with a descriptive statement (“We provide X services”) and then asking, “Why is this important?” five times. This repetition helps shrink a large, vague idea down to your fundamental purpose.

For example, a cement company’s descriptive statement might be, “We manufacture cement.” That mundane descriptive statement can turn into something as inspiring as, “We make people’s lives better by helping build high-quality man-made structures.”

2. Going beyond keeping shareholders happy. Increasing shareholder wealth is the go-to purpose for organizations that haven’t yet determined their true core purpose. It’s a weak purpose that isn’t enough to get people excited. To go beyond mere profit, answer: If the company didn’t have to worry about making money, what would motivate you to keep working anyway?

3. Ensuring that it’s something the company can keep pursuing, not just something to check off a list. A purpose isn’t a goal that you can attain but the driving force behind what you do. You can change your goals and move into other business areas while being guided by the same purpose.

For example, Marriott’s purpose is to make people feel at home. This began when they opened their first A&W root beer stand, where they gave people a place to quench their thirst during hot summers, and guided them as they expanded to other ventures like hotels.

Different Companies, Different Philosophies

Don’t be alarmed if your company philosophy looks nothing like those of visionary companies. In fact, Collins and Porras’s research also debunks the myth that all visionary companies are guided by the same company philosophy. While some companies share common themes—J&J and Wal-Mart are customer-centric, Ford and Disney are product-centric—there is no single theme that’s common across all visionary companies. What matters isn’t what a core ideology says; what matters is how strongly and consistently the organization adheres to it.

For example, Philip Morris adamantly, even defiantly, stuck to their ideology consisting of hard work, continued self-improvement, and freedom—people have the right and the choice to smoke. While advocating smoking may not be palatable to outsiders, those within Philip Morris lived and breathed the culture. Employees brought home boxes of cigarettes along with their paychecks.

It’s not always an easy road—it’s a challenge to try to be both pragmatic and idealistic. And visionary companies don’t have a perfect record of adhering to their values, as a handful of them have had some ethical slip-ups at some point. But compared to their competitors, they have put much more effort into articulating and adhering to their core philosophies, through good times and bad.

The Key to Success? Your Company Philosophy