The Living Company

The world never stops changing and in the increasingly fast-paced dynamic the only constant is change itself! Despite the changing world, stakeholders in large companies often overlook the fact that nothing is permanent. In fact, the half-life of Fortune 500 companies is only approximately twelve years: in other words, through bankruptcy, break-up, mergers or acquisitions, 250 of today’s largest companies will have disappeared in twelve years’ time.  Nevertheless those companies “which had started to expand after they had survived infancy – during which the mortality rate is extremely high – continued to live on average for another 20 to 30 years.” So says Arie de Geus, former Corporate Planning Coordinator of Shell and author of “The living company”, Harvard Business Review, March 1997.

De Geus concluded that many companies die young because their “managers focus exclusively on producing goods and services and forget that the organisation is a community of human beings that is in business – any business – to stay alive”. His research set out to learn about long-term corporate survival by studying companies older than Shell: only 27 companies worldwide had “survived” for more than 100 years and his research centred on what these 27 had in common. He found four “shared personality traits that could explain their longevity.”

Here are the four traits that lead to long-term survival followed by further implications (“et alors”):

The Living Company

Conservatism in financing

The companies did not risk their capital gratuitously. Money in-hand allowed them to “snap up options when their competitors could not”.

Sensitivity to the world around them

All the 27 companies demonstrated that they had been able to adapt themselves to changes in the world around them. They were good at learning and adapting.

Awareness of their identity

No matter how diversified they were, their employees all felt like parts of a whole. A sense of community is essential for long-term survival.

Tolerence of new ideas

The companies tolerated activities in the margin, encouraging autonomous experimentation. They recognised that new businesses may be entirely unrelated to existing businesses.

Et alors?

There appears to be a paradox of having a strong identity and yet continually adapting; however identity does not come from business and behaviours; rather it comes from “clearly stated” values. The former can change (sometimes completely) while the latter remain constant. In this context, financing conservatism should not be equated to risk avoidance. To ensure the organisation continues to live whilst the world continues to change, leaders “must place commitment to people before assets, respect for innovation before devotion to policy, [and] the messiness of learning before orderly procedures…”

In a competitive environment, companies need to be more agile, quicker at adapting and faster at learning than their competitors. Constantly reviewing the outside world, the focus is to develop potential whether that is through new business, innovation or the development of talent (individual, team and company-wide). De Geus talks of “stewardship” where leaders pass on the corporation to the next generation in the same or better “health” than it was before. In order to do so and to nurture the sense of community, leaders need to both trust others and be trusted: a particular challenge in the very fast changing and often short-term focused world of today!