Thursday, September 1, 2011
1. Manage the internal rate of change to match or exceed the external rate of change
2. Optimize the principle of self-organization (this principle implies the delegation of decision making to the lowest possible level and maximizing capabilities at every level of the organization)
3. Engage in concurrent exploitation of existing capabilities and exploration of new opportunities (this involves balancing innovation and knowledge creation with improvements in productivity process, efficiency and product extensions and enhancements)
Saturday, August 27, 2011
Of course leadership matters, and these companies thrive under astute leaders who make good business decisions. But they also seem to survive under poor leadership as long as these core principles are not violated. I'm writing today about one of the principles - drive for change while building on your core values and unique competencies. Following is a story about how two different organizations navigated through very difficult business transitions. The different approaches in implementing the necessary changes provide a good example of what a difference it makes when a leader follows this principle.
Both organizations had very strong cultures that were employee-focused: they provided good pay and benefits, including profit-sharing and a management style that included employees' opinions in the decision-making. As a result employees stayed with the firms and the companies had many employees with several decades of service. Both companies were going through a leadership transition with the retiring CEO having spent his entire career with the company. and both were also facing difficult industry dynamics resulting in a rather dismal business forecast. Company A brought in a young but well-respected leader who was president of a smaller company in the industry; Company B promoted their CFO - also young and well-respected. Both new CEOs believed their company had become too inwardly-focused and that the culture needed to change if the company was to succeed in the new competitive reality facing the firm. Both companies were more "differentiators" than "cost leaders" with products that were fast becoming commodity-like in terms of customer purchasing behavior. It is the difference in how they navigated the company through the changes they thought necessary that is the lesson.
Company A's new CEO's first action was to fire or retire much of the leadership team. Many of the people he brought in the replace them were young leaders who had worked for him in his previous company. His instructions to them were to change the culture of the company from what he saw as one of employee entitlement to one of operational efficiency. When falling sales drove the need for employee cut-backs, he saw this as an opportunity to remove many long-term employees whom he felt were barriers to change. He also shifted investments from the firm's traditional R&D focus to ones that would improve manufacturing efficiency. The people who remained in the company weren't quite sure how to be effective in this new reality: they became demoralized and lamented the loss of the company as they knew it. The new CEO never was able to turn the company around and it limped along until it was bought by a competitor.
Company B's new CEO also believed major changes needed to take place, but he went about it in a very different way. He built the case for change and presented the facts to employees. Then he used the culture of the company to drive the changes. Once employees understood the reality of the company's current situation, they were asked for their ideas and help in making the needed changes. The CEO promised he would continue to invest in the company's core competencies - that they would continue to produce new and innovative products - but that they also needed to find a way for their operations to become more efficient. Employee involvement was a long-standing tradition in the company and the new CEO used the culture to make the necessary changes rather than abandoning it. This company also needed to reduce their workforce because of deteriorating industry conditions, but did so in such a way that they still ended up on FORTUNE's list of best companies to work for. This company continues to introduce "disruptive" products, but it is also one of Toyota's prize TPS pupils.
The point of this story: Don't walk away from your past when change needs to take place. Build on it. The company's culture and core competencies are not things that never change or evolve: rather they are the building blocks used to make the changes. Change is absolutely necessary to survive over the long term - but how you change makes a difference: Drive for change by building on your company's core competencies and unique technologies rather than abandoning them. Yes, leadership matters. But it's not your particular style that makes the difference - it's your ability to practice the principles that enable company longevity.
Monday, August 15, 2011
Friday, July 8, 2011
Tuesday, June 21, 2011
Thursday, June 16, 2011
Perhaps because IBM went through some very difficult times during the 1990s they are especially celebratory now to have made it to the 100 year mark. Whatever the reason, IBM is doing a great job letting the world know about their new membership in the Century Club!
Wednesday, June 15, 2011
Monday, June 6, 2011
Stora may be one of the oldest large corporations, but there are some older institutions - several of them in Japan and many of them in either the hotel or beverage industries. Three of the oldest: Keiunkan, Hoshi and Koman are all hotels (ryokans or onsens) founded in the early 700s.
The Marinelli Bell Foundry in Italy, successor to a company in operation since the early 1000s, is considered Italy's oldest family business. The Goulaine winery in France also traces its roots to the early 1000s and is generally considered the oldest European family-owned business. However, St. Peter Stiftskeller (restaurant) in Salzburg, Austria is said to have been in continuous operation since 803.
Another of the contenders for oldest company is Tanaka-Iga, a Japanese manufacturer of items used in religious shrines and ceremonies, founded in 885. And then there's Genda Shigyo, which has been making paper bags in Japan since 771.....wonder what people carried in paper bags back in the 8th century?
Regardless of how you define "oldest company" these are interesting organizations!
Thursday, May 5, 2011
This "new" proposal for how to reinvent capitalism appears to be very similar to one of the common operating principles of most of the 100-year-old companies I have studied. These companies see themselves as part of an integrated web of relationships with their community and the other partners in their value chain; their purpose is generally described in terms of the broad value they provide rather than profitability. As Danny Miller and Isabelle Le Breton-Miller argue in their book Managing for the Long Run, "The same attributes that have long been vilified as weaknesses of [these] businesses....have actually created formidable competitive advantages for these firms." It seems we have much to learn from these old companies: Even if their practices are not what we have been teaching in our business schools, some of our leading business strategists are now identifying practices very much in line with how they have been doing business for decades.
Tuesday, May 3, 2011
This blog reminded me of the book that got me started on my study of old companies, Arie de Geus' The Living Company: Habits for Survival in a Turbulent Business Environment. In the prologue to his book, de Geus states that if you look at corporations in light of their potential longevity, most are dramatic failures - or, at least underachievers. The large, multi-national companies, he says, live an average of 40-50 years. Other studies on life expectancy of firms regardless of size indicate an average of 12.5 years. Knowing that companies can survive for well over 100 years, the implication is that a gap exists that represents wasted potential. De Geus maintains that no living species endures such a large gap between potential life expectancy and average realization. Moreover, few other types of institutions (such as churches or universities) seem to have the abysmal demographics of the corporate life form.
Why should we be concerned about premature corporate death? As de Geus comments: "The damage is not merely a matter of shifts in the Fortune 500 roster: work lives, communities and economies are all affected, even devastated, by premature corporate deaths." He, too, speculates that the reason for premature corporate death is because management focus is too narrow and short-term, forgetting that the organization's true nature is that of a community of humans in pursuit of a long-term mission.
Wednesday, April 27, 2011
These "old" companies are very aware of their changing external environment and are constantly on the outlook for adaptations they may need to make. These companies are tolerant of (and often encourage) activities "on the margin" - experimentation within the boundaries of the firm's cohesive sense of mission and purpose. When large scale innovation and change are needed, they plan and implement it very carefully based on what they have learned from the "little bets."
Sims says in these "uncertain and rapidly changing times .... little bets must become a way to see what's around the corner, or we risk stagnating." Companies that have survived over 100 years have discovered this is the way to survive throughout the times.
Wednesday, April 20, 2011
Monday, April 18, 2011
Saturday, April 9, 2011
Tuesday, April 5, 2011
Tuesday, March 29, 2011
Saturday, March 19, 2011
Most of the 100-year-old companies, however, appear to have another view regarding the role of profits in their business: they see profits as the fuel that keeps their company running rather than as their purpose or reason for being in business. As Max DePree, former CEO of Herman Miller, Inc. writes in his book Leadership Is An Art, profits are the result of the company achieving its goals. Companies that have survived longer than most tend to define their purpose in terms of what they do and how they do it; and they often admit to making decisions that sub-optimize profits in the short term. But make no mistake, these companies are astute managers of their financial resources. In fact, being conservative in their financial management (evidenced by practices such as maintaining low debt levels and building cash reserves) is one of the common traits that has enabled these companies' long-term survival.
My study of old companies indicates that in these organizations profits are seen as the fuel that enables "living" a long corporate life; core purpose is described more broadly as the value they add to society, not simply the money they make for investors or owners.
Sunday, March 6, 2011
This doesn't seem to change the opinion of the old private companies we have interviewed, however: when asked what they believe have been the most important factors in their survival, they almost universally indicate that staying private was key. They see this as a matter of being able to maintain control of their policies and practices with company values and purpose in mind rather than having to respond to the short-term demands of the financial market. An interesting question to pursue with those old companies that are publicly-owned is how successive management teams have been able to keep their decisions driven by company values and purpose without being unduly influenced by reaction of the stock market and financial investors to short-term financial performance.
Friday, March 4, 2011
Friday, February 25, 2011
It looks like we will have a whole new group of companies to add to our data base - it will be interesting to see what these 'younsters' have in common with each other and whether they differ from those companies established prior to 1900. Companies such as King Arthur Flour, founded in 1790! Headquartered in Norwich, Vermont, King Arthur Flour is now an employee-owned company using open book management methods. They report the qualities that have enabled them to survive - and thrive - for over 200 years are:
- honest enthusiasm and for what they do, which results in earned respect from all those with whom they do business;
- a culture of inclusiveness that empowers everyone in their organization as partners; and
- viewing making money as the by-product or result of doing things well, not the focal purpose of their business.