Corporate Longevity and What It Takes

Strategy

By John Barrington

We have the privilege of working with two companies at present that have both endured the great depression, two world wars, multiple recessions and doubtless myriad other challenges.  One company has been in existence for almost 200 years and the other for well over 100 years.  Truly a staggering achievement. 

Research by Stratrix Group in 1996 found that the average lifespan of all firms investigated, irrespective of size, in Japan and Europe was only 12.5 years.  It may well be less today.  Just getting through the first 10 years is an enormous challenge, as this is usually the period of highest corporate 'infant mortality'.

In thinking about why some companies survive for much longer (in the case of our clients, by an order of magnitude), one is tempted to ask how they do this.  Arie de Geus[1], the father of scenario planning when he was the co-ordinator of planning for the Royal Dutch/ Shell Group, posits that it is because they focus on more than just the economic activity of producing goods and services.  Specifically, he says that those that fail to endure "...forget that their organisation's true nature is that of a community of humans".  A company is a legal fiction; any organisation is a collective of people and the internal challenge is aligning interests.  The external perspective requires a sound understanding of an ever-changing world.

The Shell researchers looked at companies that were older than Shell (founded in the 1890s), that were at least as important in their respective industries and that had weathered some profound changes in the world around them.  From 40 such companies they narrowed the list down to 27 that were studied in detail. 

From this list, they found 4 key factors to corporate longevity:

 

  • Being sensitive to their environment:  they kept their corporate radar attuned to subtle, and not so subtle, changes going on around them.  This is all the more impressive given the lack of communications technology that was available for the greater part of these companies' lives.

 

  • Having internal cohesiveness and a strong sense of identity:  no matter the diversification or spread, employees and suppliers alike felt they were all part of one entity.  There was a sense of belonging to the organisation and being able to identify with its achievements.  Career advancement and progression was from within and management's concern was for the health of the institution as a whole.  In this way, the leaders, I think, acted as trustees or custodians rather than simply managers.

 

  • Tolerance: it seemed the long-lived companies avoided exercising centralised control.  Note that the management-speak word 'decentralised' was a twentieth century invention.  The companies were tolerant of activity at the margin, such as outliers and experiments, that stretched the thinking.  Today, we would classify this third horizon activity as buying options for the future.

 

  • Conservative financing: frugality and the avoidance of risk were paramount.  Having cash in the bank not only de-risked the enterprises but gave them flexibility and an ability to act independently of what others might have been forced into doing.  The options referred to above could be funded from within and pursued with patience.

No doubt there were, in each company's case, many more factors that contributed to their longevity.  But the above list provides a thought-starter for many of today's firms, whether they be approaching 200 years or, in the case of Facebook, 20 days.

For more information, please feel free to email me at john.barrington@barrington.com.au.

 


[1]De Geus, Arie, The Living Company - growth, learning and longevity in business, 1997

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