Thursday, April 30, 2015

The Corporate Longevity Model

Based on in-depth interviews and subsequent surveys of companies in business for more than one century, five factors were identified that these companies believe are important to their long-term survival. Leaders of the companies say these practices build loyalty to their company, in particular with customers and employees. They also believe their approach to doing business is difficult for others to imitate, thus aiding their firms’ ability to stay ahead of the competition. Following are brief descriptions of the five factors which, taken together, form the longevity model. Subsequent posts will describe these factors in more detail along with the unique practices employed by old companies. Though each factor will be described individually, please keep in mind that the leaders of the old companies were adamant that the factors must be implemented together if they are to sustain a firm for the long run.

Factor 1: Strong corporate mission and culture
The existence and deliberate transmittal of certain values and beliefs that form a strong corporate culture was considered a key survival factor by the old companies. Most companies had values that were developed by the founder and passed on through the generations. Certain lessons, warnings, and exhortations are described in these teachings. Though the style and content differed from company to company (for instance, not all firms had written mission or values statements), current leaders consistently affirmed the importance of their corporate credo as a primary factor in the success of their businesses. These traditional values and beliefs formed the fundamental culture of the company and are used both to enhance employee identification with the business and to attract and retain customers. Leaders of these old companies see themselves as stewards or custodians of the business and feel an obligation to manage the firm in a way that both honors the past and ensures its survival into the future. This deliberate focus on continuity of the business, rather than making a name for themselves, results in real differences in the way old companies are managed.

Factor 2: Unique core strengths and change management
The existence and protection of a particular technical specialty or core competency was a factor the old companies said was a key to their longevity. These company ‘secrets’ or special methodologies are believed to make the organization and what it offers unique. The old companies indicated the ongoing development of their special capability was also necessary. The image of old companies is often that they stick to tradition and resist change. The reality is that they adapt and successfully implement change or they would not have survived the many challenges encountered over the centuries. Long-term survival comes from continuous efforts toward change while protecting and building on core strengths – a delicate balance between tradition and change.

Factor 3: Long-term relationships with business partners
Relationships are at the core of how the old companies operate. These firms regard the maintenance of long-term relationships with customers and the development of their suppliers from generation to generation as very important to their own success. These companies truly believe they cannot maintain their success for a long period of time without this web of interdependence. The emphasis on relationships with business partners moves beyond mere economic transactions or the exchange of goods or services for financial gain, and the resulting close-knit, mutually-supportive relationships have a significant effect on the company’s ability to weather challenges as well as their ability to learn and adapt over time.

Factor 4: Long-term employee relationships Relationships are at the core of how old companies operate and the development of long-term relationships with employees is another keystone factor in the longevity framework. Many employees become lifelong, loyal members of the organization and often describe their relationship with the company as being part of a family. One of the important employee practices used by the old companies is the development of leaders from within using a deliberate process for leadership succession. A majority of these firms have already identified who will be their next leader.

Factor 5: Active members of the local community
Because the old companies see themselves as an integral part of a web of relationships (often connected to their family history and reputation), the development of relationships within the local community – both commercial and social – are seen as just as important as the development of relationships with business transaction partners. The old companies tend to be active participants in their local communities, promoting the community and developing local networks for mutual learning and benefit. They believe these connections with people in other industries at all levels of management have a positive influence on the reputation of their firm. They also believe there is a positive influence on their business that comes from the local community’s good reputation. As a result of recognizing the value provided by the society beyond their individual business or industry, the old companies invest time and resources in projects that develop and sustain their communities.

Some of these longevity factors have been described by others, such as Collins and Porras’ in their book Built to Last, Arie de Geus’ The Living Company, and Christian Stadler’s Enduring Success. However, all these studies were done on very large, publicly-owned firms. This longevity model draws most heavily on small- to medium-sized, privately-owned firms. (Though some of the companies researched were publicly-traded, they tended to be closely held with family members often involved in the company.) The last factor, community involvement, is unique to this study and, we believe, a key factor in the ability of these old companies to thrive for over a century. And it bears repeating that the old companies believe their longevity comes from the interaction of all five of these factors and the strength and endurance resulting from the interaction.

As the Henokiens Association says in the description of their organization of companies in business for over 200 years: "The specific characteristics of these old companies’ respective backgrounds and the common values which unite them – such as respect for product quality, human relationships, know-how transmitted with passion from generation to generation, and the continuous questioning of achievements – all constitute a message of hope for all businesses, especially those hoping to form the economic and social fabric of the future."

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