For Arie de Geus, the corporation is an important institution. The ultimate corporate man, Mr. Such loyalty runs in the family — Mr. In the era of career management and employability, this sort of devotion is decidedly unfashionable. Initially, as you read The Living Company, you feel a slight disappointment at the thought of Mr.
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They have been around for only years—a mere blip in the course of human civilization. In that time, as producers of material wealth, they have enjoyed immense success.
If you look at them in light of what they could be, however, most commercial corporations are underachievers. They exist at an early stage of evolution; they develop and exploit only a small fraction of their potential. Consider their high mortality rate. By , one-third of the Fortune companies had been acquired or broken into pieces, or had merged with other companies. How do we know that many of the deaths are premature?
Because we have evidence of much greater corporate longevity. And the Swedish company Stora, currently a major paper, pulp, and chemical manufacturer, began as a copper mine in central Sweden more than years ago.
Examples such as these suggest that the natural life span of a corporation could be two or three centuries—or more. The implications of the statistics are depressing. The gap between the endurance of a Sumitomo or a Stora and the fleeting life of the average corporation represents wasted potential. Individuals, communities, and economies are all affected—even devastated—by untimely corporate deaths. The high corporate mortality rate seems unnatural.
No living species suffers from such a discrepancy between its maximum life expectancy and the average span it realizes. And few other types of institution—churches, armies, or universities—have the abysmal record of the corporation.
Why do so many companies die young? Mounting evidence suggests that corporations fail because their policies and practices are based too heavily on the thinking and the language of economics.
Put another way, companies die because their managers focus exclusively on producing goods and services and forget that the organization is a community of human beings that is in business—any business—to stay alive. Managers concern themselves with land, labor, and capital, and overlook the fact that labor means real people.
What is so special about long-lived companies? They know who they are, understand how they fit into the world, value new ideas and new people, and husband their money in a way that allows them to govern their future. Those personality traits manifest themselves in behaviors designed to renew the company over many generations.
Throughout, living companies produce goods and services to earn their keep in the same way that most of us have jobs in order to live our lives. Before I discuss the characteristics of the living company in more detail, some background is in order.
In , a group at Shell set out to learn something about long-term corporate survival by studying companies older than Shell. Shell was about years old at the time, so we looked for companies that already existed by the fourth quarter of the nineteenth century, that were important in their industries, and that still had strong corporate identities.
Our team found 30 companies scattered throughout North America, Europe, and Japan that met those criteria. The companies ranged in age from to years. And 27 of them had reasonably well documented histories, including DuPont, W. Grace, Kodak, Mitsui, Sumitomo, and Siemens.
As we all know, corporate history mostly consists of self-congratulatory books and articles written by people in the company itself about the virtues of the chief executive.
The data are not always reliable. Nevertheless, we believe that those histories gave us some insights and that we learned something valuable from our study. The first thing we learned is that the average life span of a corporation is much shorter than its potential life span.
We already had an inkling of that from studying the Fortune lists, and we obtained confirming data from registries in North America, Europe, and Japan. In most of those places, the law requires the births and deaths of companies to be registered. With those three pieces of information, we could calculate the average life expectancy of companies, and we found that across the Northern Hemisphere, average corporate life expectancy was well below 20 years.
Only the large companies we studied, which had started to expand after they survived infancy—during which the mortality rate is extremely high—continued to live on average another 20 to 30 years. It appears that in the corporation we have a species with a maximum life expectancy in the hundreds of years but an average life expectancy of less than 50 years.
If this species were Homo sapiens, we could rightly say that it was still in the Neanderthal age—that it had not yet realized its potential. Neanderthals had an average life expectancy of approximately 30 years, but, biologically speaking, the human species has a maximum life expectancy of years or more.
That longevity gap is very similar to the one we found between short-lived and long-lived corporations. The corporation is still in the Neanderthal age.
It has not yet realized its potential. Stora, the most dramatic example in our study, survived the Middle Ages, the Reformation, the wars of the s, the Industrial Revolution, and the two world wars of the twentieth century. For most of its life, it depended on runners, horsemen, and ships instead of on telephones, airplanes, and electronic networks to carry messages.
Its production technologies changed over time from steam to internal combustion to electricity to the microchip. And Stora continues to adapt to an ever changing world.
What do the extraordinarily successful companies have in common? To find out, we looked for correlations. We know that correlations are not always reliable; nevertheless, in the 27 survivors, our group saw four shared personality traits that could explain their longevity. Conservatism in Financing. The companies did not risk their capital gratuitously. They understood the meaning of money in an old-fashioned way; they knew the usefulness of spare cash in the kitty.
Money in hand allowed them to snap up options when their competitors could not. They did not have to convince third-party financiers of the attractiveness of opportunities they wanted to pursue. Money in the kitty allowed them to govern their growth and evolution. Sensitivity to the World Around Them. As wars, depressions, technologies, and politics surged and ebbed, they always seemed to excel at keeping their feelers out, staying attuned to whatever was going on.
For information, they sometimes relied on packets carried over vast distances by portage and ship, yet they managed to react in a timely fashion to whatever news they received. They were good at learning and adapting. Awareness of Their Identity. No matter how broadly diversified the companies were, their employees all felt like parts of a whole.
Lord Cole, chairman of Unilever in the s, for example, saw the company as a fleet of ships. Each ship was independent, but the whole fleet was greater than the sum of its parts. The feeling of belonging to an organization and identifying with its achievements is often dismissed as soft.
But case histories repeatedly show that a sense of community is essential for long-term survival. Managers in the living companies we studied were chosen mostly from within, and all considered themselves to be stewards of a long-standing enterprise.
Their top priority was keeping the institution at least as healthy as it had been when they took over. Tolerance of New Ideas. The long-lived companies in our study tolerated activities in the margin: experiments and eccentricities that stretched their understanding.
They recognized that new businesses may be entirely unrelated to existing businesses and that the act of starting a business need not be centrally controlled. Grace, from its very beginning, encouraged autonomous experimentation.
The company was founded in by an Irish immigrant in Peru and traded in guano, a natural fertilizer, before it moved into sugar and tin. Eventually, the company established Pan American Airways. Today it is primarily a chemical company, although it is also the leading provider of kidney dialysis services in the United States. By definition, a company that survives for more than a century exists in a world it cannot hope to control. Multinational companies are similar to the long-surviving companies of our study in that way.
The world of a multinational is very large and stretches across many cultures. That world is inherently less stable and more difficult to influence than a confined national habitat. Multinationals, like enduring companies, must be willing to change in order to succeed.
These four traits form the essential character of companies that have functioned successfully for hundreds of years. Given this basic personality, what priorities do the managers of living companies set for themselves and their employees? The manager of a living company understands that keeping the company alive means handing it over to a successor in at least the same health that it was in when he or she took charge. To do that, a manager must let people grow within a community that is held together by clearly stated values.
The manager, therefore, must place commitment to people before assets, respect for innovation before devotion to policy, the messiness of learning before orderly procedures, and the perpetuation of the community before all other concerns. Valuing People, Not Assets. This inversion of traditional managerial priorities is supported by a surprising finding in our study: each of the 27 long-lived companies changed its business portfolio completely at least once.
DuPont, which is approximately years old, started out as a gunpowder company. In the s, it was the major shareholder of General Motors, and now DuPont is a specialty chemical company. Mitsui, which is about years old, began as a drapery shop. It then became a bank, went into mining, and at the end of the nineteenth century, the company moved into manufacturing. Those histories tell me that such companies are willing to scuttle assets in order to survive.
To them, assets—and profits—are like oxygen: necessary for life but not the purpose of life. Stora was in copper in order to exist; it did not exist to be in copper. These companies know that assets are just means to earning a living. A company run according to a different model scuttles people to save its plant and equipment, which it considers the essence of its being.
If such a company were in the car rental business today, for example, it would see itself as existing to rent cars.
"The Living Company" by Arie de Geus
Quotes[ edit ] Some years ago, the planning group at Shell surveyed 30 companies that had been in business for more than 75 years. What impressed us most was their ability to live in harmony with the business environment, to switch from a survival mode when times were turbulent to a self-development mode when the pace of change was slow. Arie P. The ability to learn faster than competitors may be the only sustainable competitive advantage. April 1, , Nr The business situations are familiar, the company is well organized, and employees are trained and prepared.
The Living Company