Wednesday, June 10, 2015

Longevity Factor #5: Active Community Members


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 their business transaction partners. The old companies are active participants in their local communities, promoting the community and developing local networks for mutual learning and benefit. In many cases a company and their local community are so closely associated with each other that they are seen as one and the same.

Old companies score significantly higher than young firms on every question relating to building relationships within their communities. Whether it was participating in business organizations (such as the Chamber of Commerce), building personal connections with people in other industries, or being involved in projects to promote their local community, the older firms are significant, active members of their communities. The old companies believe the connections they build with local 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. And when a crisis hits their community, the old companies are there to help. And this community support works both ways, with the community stepping in to help out a business when disaster hits, such as with 150-year-old, sixth-generation Brietbach’s Country Dining in Balltown, Iowa, which was struck by fire and completely destroyed twice within 18 months. In this case, it was the community that helped rescue the business. (You can see more of this remarkable story in the film Spinning Plates.)

Often when I talk about social responsibility with my students, they think just in terms of philanthropy, or monetary donations to non-profit organizations, and they ask how small or start-up companies can do this when they are still struggling to make money to keep the business operating. The community relationship practices engaged in by the old companies are great examples of how social responsibility and community service can be more than just financial donations to the United Way (although when able, the old companies are philanthropic as well). Often these practices take the form of supporting employees’ volunteer efforts.

Other companies have “donated” their employees to non-profits during slow times in the business cycle, thus keeping valued people on their payroll for when business turns up again while also contributing to their community. It would be difficult to overstate the loyalty and dedication to a company that these practices build in employees who see themselves helping out their community.

Wednesday, May 27, 2015

Longevity Factor #4: Long-term Employees


Relationships are at the core of how old companies operate and the development of long-term relationships with employees is no exception. Many employees of these companies become lifelong, loyal members of the organization and often describe their relationship with the company as being part of a family. Often there are multiple members of the same family working for the company and some talk about their parents and grandparents also working for the firm.

Whether talking about efforts taken to retain employees or investments in their training and development, century-old companies clearly believe retaining employees for the long-term is a differentiating factor. And it may, in fact, be a very important element in these companies’ longevity, but it does not appear to be statistically significant when compared to philosophies reported by younger companies. When testing the longevity model with young companies, they also indicated it was important to them to build long-term relationships with employees. Though young companies put slightly less importance on practices relating to employee retention, it was not a statistically significant difference. The only practice that was statistically significant in the responses of old and young companies was the effort old companies take to teach employees about company history and traditions (perhaps because younger companies don't yet have much history or many traditions).

One explanation for the lack of significant difference in old and young companies’ self-reported behavior toward employees could be that many companies now realize retaining well-trained employees is of great benefit to their business.  Another possible explanation for the similar responses to the questions relating to employee relations practices is that younger companies intend to operate this way, but have not yet been tested as to whether they will stay true to this intent during tough times. Will they use workforce cutbacks as a primary method of responding to business downturns, or will they actually keep employees on the payroll during tough times the way the older companies have? Either way, it is clear that companies surviving for over 100 years believe in practices that will build long-term relationships with employees.

There is evidence that many of the best companies, whether young or old, have realized that treating your employees well and avoiding turnover is just good business. In the 2015 FORTUNE issue highlighting the 100 best companies to work for, Geoff Colvin says: “Here’s the simple secret of every great place to work: It’s personal. It’s relationship-based, not transaction-based. Astoundingly, many employers still don’t get that, though it was the central insight of Robert Levering and Milton Moskowitz when they assembled the first 100 Best Companies to Work for list in the early 1908s. ‘The key to creating a great workplace,’ they said, ‘was the building of high-quality relationships in the workplace.’”

Old companies invest in the training and development of their employees and they are especially deliberate about teaching employees the history of their company in addition to the technologies and skills employees will need to keep the company successful into the future. Because of this investment made in their employees, the old companies make every effort to retain them. Labor economists would say it doesn’t make sense to spend company resources on employee development if you don’t expect them to stay with the firm to see the payoff for that investment.

Many of the old companies reported keeping employees on the payroll even when they didn’t have enough work to keep them busy on their regular tasks. They might do this by having them engage in maintenance work or development activities, and some firms even “lent out” their employees to non-profit organizations during slow business times. When business picked up again, these firms didn’t have to worry about recruiting, screening, selecting, and training new workers, all of which takes time and resources. The old companies choose to invest their resources in employee retention rather than replacement. Such employee retention practices build great loyalty to the company on the part of employees and enhance company performance. This is also an area where we see the interconnection of the longevity factors: If the company hadn’t been financially conservative during the good years, it wouldn’t have the resources to keep paying employees during a business downturn and thus be able to quickly respond to the upturn when it comes.

Since many of the old companies are small, they report that they can’t always compete with the pay and benefits offered by larger firms, so they find other ways to make employment with their company attractive. This may be through flexible schedules or other (often informal) family-friendly practices along with profit-sharing or bonuses when business is good. Some have gone so far as to have employee stock ownership plans – even privately-owned firms can set up such plans.

Old companies believe long term employees bring a wealth of "institutional memory" to address issues and opportunities that arise. After years with the company, employees identify very closely with the firm and its goals. Even without any type of formal ownership in the company they develop an ownership attitude - it's their company. The resulting integration of personal and organization goals and objectives has a major impact on the company’s success: employees conduct their work and use company resources as if they were their own.

This identification with the company on the part of employees is a powerful advantage for a business. But it also makes it very difficult for executives brought in from outside the company to be successful. At best, employees take a "wait and see" attitude: Will this new leader take the time to learn the company patterns of behavior or come in with the attitude that s/he has a better way? It can take a very long time for an old company to accept an outsider who joins the company in an executive position. It takes a special executive to be willing to come in and pay the dues necessary to be successful as an "outsider." As a result, most old companies only bring in an outsider to fill an executive position as a last resort.

One of the important distinguishing characteristics of the 100-year-old companies is the development of leaders from within. Most old companies reported having a systematic process for leadership succession: they like future leaders to first have experience in other companies, but they must then work from the ground up, including hands-on experience in company operations. Once leaders thoroughly understand the business and have built their own personal networks of relationships both inside and outside the company, then they are expected to think for themselves rather than blindly following tradition. One 100-year-old company’s CEO expressed that the development of his successor was his most important task - and he wasn't anywhere close to retirement age at the time he made this statement. The majority of 100-year-old companies report they have already identified who their next leader will be and are working very deliberately to develop him or her. This practice is especially important for family-owned firms.

Developing leaders from within the firm appears to be one of the key differentiating factors in sustaining a business for the long term: these old companies are concerned not just about reaping the crop for today's harvest, they are cultivating the ground for the future and this factor is especially apparent in the area of leadership development.

Thursday, May 21, 2015

Longevity Factor #3: Customers and Suppliers are True Business Partners


Old companies tend to believe they cannot maintain success without the cooperation of others, so they put a premium on actions that will retain their suppliers and customers from generation to generation. They regard working with vendors to develop the capabilities needed to continue to supply their own organization as an obligation. Continuing to provide long-term customers with the products and services they desire is seen as a responsibility. Responding to new needs or problems identified by customers results in learning and development that helps ensure the firm’s survival. Incorporating new technologies developed by suppliers and other business partners helps keep the old companies relevant. These relationships with business partners that result in mutual learning are an example of the behaviors proposed by Peter Senge in his description of “learning organizations." The learning organization facilitates competitive advantage through employee engagement in the customer experience and collaboration with key business partners, which ultimately boosts business performance. And, as former CEO of General Electric, Jack Welch states: “An organization’s ability to learn and translate that learning into action, is the ultimate competitive advantage.”

Because these old companies view the relationship with their business partners as something more than simply economic transactions or the trading of goods and services for financial gain, they are willing to share technologies and ideas that other companies would consider company-confidential. Such long-term relationships thus result in mutual learning: the willingness to learn from all transaction partners was seen by the old companies as an important factor in their firms' long-term survival. This emphasis on long-term relationships leads to a kind of symbiosis with their business partners. These close-knit, mutually-supportive relationships have a significant effect on the company’s ability to weather environmental challenges as well as their ability to learn and adapt over time. 

Old companies are significantly more likely than younger firms to emphasize their corporate values and product story when working with customers, and they also make more of an effort to see that their products are used in the best way. Further, old companies work hard to gain an understanding of key customers, using customer service and after-sales services as a way to build long-term relationships with customers - and to learn from them. Often the old companies even define their purpose in terms of helping customers accomplish their purpose.

 This emphasis on long-term relationships should not be interpreted to mean the old companies don’t also seek out new business partners: In our research, old companies placed even more importance on developing new customers than did younger ones. However, the old companies truly believe they cannot maintain their success for a long period of time without the help of their business partners. When customers and suppliers become trusted business partners, both parties are willing to share information and do favors for each other that don't necessarily have any readily apparent financial gain attached. This willingness to share information, technologies, and ideas becomes a two-way street, resulting in mutual learning and mutual success.


This longevity factor of long-term relationships with customers applies across industries. When I first started researching 100 year old companies, I thought there was a preponderance of retail organizations and it made sense that building good customer relations was an important factor in ensuring repeat business. But after building a representative data base of 100 year old companies, we found that the retail industry isn't represented at a higher rate than in the general business population. Old companies scored extremely high on issues of building long-term customer relationships regardless of industry. It may seem obvious that old companies are more likely to emphasize their corporate history, culture, and product "story" when working with customers. But it goes beyond the selling: the old companies were significantly more likely than younger firms to make every effort to see that their products were used in the best way. This involvement in how customers utilize the company's offering is what leads to learning opportunities for future changes and improvements. Thus the old companies are able to survive upheavals in their industry, advances in technology, and other environmental and social changes that leave their competitors behind.

When I attended IBM's 100th anniversary celebration as a guest speaker, I sat in the back of the room for the opening keynote address. As one of IBM's corporate leaders talked about the company culture that enabled them to survive for the last century, one item she mentioned was their long-term relationships with customers, which led to mutual learning and success. Without any prompting – or knowledge of who I was and what I did – the gentleman sitting next to me leaned over and said: "Our company has been an IBM customer for 80 years and I can tell you what she's saying is absolutely true. They work with us all the time on problems we have and help us find ways to address them."

By viewing their relationship with business partners as something more than the exchange of goods and services for financial gain, old companies have built a supportive network that reaps great benefits in the long run and have helped ensure, not only survival, but success, for over a century. As Swedish investor Marcus Wallenberg says: "Established firms have a huge advantage in the marketplace because of their strong customer and supplier bases."

Wednesday, May 13, 2015

Longevity Factor #2: Protect and Build on Core Competencies


The second factor in the longevity model is how old companies develop their unique strengths.
Whether we're talking literally about a secret sauce, such as with the McInhenny Co. and their Tabasco sauce, or using the term to refer to a particular technical specialty or core competency, most of the companies that have survived for over 100 years attribute their success to the accumulation over time of some specialized knowledge, skills, or technology. The old companies believe their company ‘secrets’ or special methodologies make the organization and its offerings unique. Such a differentiation strategy sets them apart from the competition and is difficult for others to imitate, thus giving the company a sustainable competitive advantage. This approach to business, which offers differentiation from the competition and is difficult for others to imitate, is consistent with J.B. Barney’s resource-based theory of competitive advantage.

The beliefs held by the old companies that they have unique core competencies, that their products or services were difficult to copy, and that their offerings had a strong appeal other than price are not significantly different from those of a majority of younger firms. However, the old firms were more likely to build on their special skills or technologies in every aspect of their business, including the fine details of their offering, how they train and educate new employees, how they work with suppliers, and how they convey their uniqueness to customers as part of the sales process. Another area where management of strengths is unique among the older companies is in how they build on their core competencies over time. Though the old companies say there are some things that should not change (in product quality, raw and processed materials, and production and sales methodologies), they also report they are constantly working to improve their operations as well as develop and improve their core competencies. Members of the corporate century club know what is unique in their DNA and they cherish, protect, and build upon it.

These old companies are not dinosaurs – they would not have survived through world wars, economic depressions, globalization, changing social and cultural mores, and quantum leaps in technology that created whole new industries (and obsoleted others) if they did not innovate and change. But it is how the old companies go about changing that seems to make the difference. Collins & Porras described this unique approach to change in their book Built to Last: “Visionary companies display a powerful drive for progress that enables them to change and adapt without compromising their cherished core ideas.” 

Old companies tend to take a long time when implementing major change. Because they want to carefully balance the old and the new, they feel they must first affirm their traditional past before altering what is necessary or embarking on something new. This balance of tradition and innovation is a carefully choreographed process designed to honor the past while recognizing the need to change in order to survive. Even though approaching change this way takes longer to implement, it appears to be a significant factor in their successful adaptation over time. By taking the time to first honor what was good about the past, then educating all constituencies (including employees, suppliers, and customers) of the need for change, as well as offering the training and development necessary for participants to update skills and technologies to change along with the company, the old companies are able to move forward keeping their support systems intact. As a college professor, I could not help but notice that these change management practices used by the old companies follow all the principles of successful change implementation taught in business courses. It is rewarding to see that sometimes what we teach is confirmed by successful, real-world businesses.

Old companies have precious histories and a heritage they protect at all costs. However, they do not stubbornly observe their traditions without challenge: it is their ability to change by first affirming their traditional past and then altering what is necessary – the balance of tradition and innovation – that enables their long lives.  This means it often takes them a long time to make major changes, but that is the way these companies successfully adapt over time. 

The longevity lesson: Don't walk away from your past when change needs to take place - build on it. (Don't throw out the baby with the bathwater, if you will.) A company's culture and core competencies are not things that never change or should not evolve: rather they are the building blocks to be 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 – it make take longer to make the change, but will be far more effective in the long run. 



Monday, May 4, 2015

Longevity Factor #1: Strong Corporate Mission and Culture


The existence and deliberate transmittal of values and beliefs that form a strong corporate culture is considered a key survival factor by the old companies. In many of the old companies these values were developed by the founder and passed on through the generations. Similar to the idea of a “relatively fixed core ideology” identified by Collins and Porras in their book Built to Last, these values and beliefs function as the fundamental business guidelines for the firm and provide the core ideas around which members of the company identify. Most of the old companies have strong oral traditions they represent in sayings such as “When the store is open there’s always a Fabiano on the floor.” Or “The customer is always #1 – that means you call them by their name.” Or “We don’t play pricing games – we offer a good, first deal.” Some were simply common sayings such as “We follow the Golden Rule” or “Be fair and honest.”

The mere existence of a corporate credo or mission statement, however, is not a characteristic distinctive to old companies: Though 88 percent of the old companies surveyed had some sort of mission statement, so did 85 percent of younger firms. There are, however, some significant differences in the content of the old companies’ mission statements and in how they use this sense of purpose and values to manage the company and shape their corporate culture.

The old companies place more importance on relationships with their business partners, in their credos and also tend to include statements about the special technologies or skills that make their company unique. It is in the area of utilization of the company’s mission, however, that the old firms showed the most differentiation from other firms. The century-old companies score higher on every aspect of credo utilization, placing great emphasis on actually managing according to the credo. In other words, the old companies really live their mission statements – these aren’t just some words developed for their website because having a mission statement is currently a popular management practice. As the current owners of Burdine’s Five and Dime in Harrisville, West Virginia put it: “The store's philosophy remains just the same as it was when K.C. first opened its doors a century ago: treat each customer special while striving to maintain a friendly shopping experience. Today, every customer is greeted warmly, with our employees understanding that treating others with civility is more important than making a sale.” *

The old firms are also more intentional about sharing their credo with others, teaching it to employees as well as discussing it with customers and other business partners. The special values of the founders or other significant historical leaders of the businesses and their beliefs about how business should be conducted form a strong culture in the old companies, one that employees identify with – it simply becomes “the way things are done around here.” Woe to any manager who tries to cut corners or act contrary to the established values: employees in the old companies act as a sort of corporate anti-body that overcomes the potential infection.

Leaders of the old companies expressed a strong intention to carry on their mission and culture into the future: It was clear this isn’t just how the business was managed in the past and for today, but that a framework has been established for continuity into the future. As a current partner in the 185-year-old law firm Curtis, Mallet-Prevost, Colt & Mosle says: “Everyone sees themselves as trusted advisors to their clients, rather than big-shot attorneys, which is similar to how lawyers thought of themselves centuries ago. The firm isn’t trying to make the most money or become the largest company. There’s a commitment to continue what has come before.”

The importance of corporate culture was also seen in the way the old firms place more emphasis than younger companies on their brand identity. The old companies pay great attention to how their company or brand name is represented. They make sure there is consistency in the way the brand is used and want the brand to be prominent in their products, facilities, written materials, and wherever the company or its major offerings are represented. Name and reputation mean everything to these companies so they guard it carefully.

Though cultures in these companies are very strong, the specifics of the culture vary among the members of the corporate century club. There is, however, one common cultural aspect of the old companies: a conservative approach to managing finances. These firms are very reluctant to go into debt as a way of funding their business even if this means slower growth. (One leader recounted with glee how he had ignored the advice from a Lehman Brothers consultant that his firm was under-leveraged and that they should take on more debt.) This reluctance to take on debt, along with the practice of putting a priority on profitability over growth, results in a majority of companies over 100 years old being small- to medium-sized businesses.

These conservative financial practices also mean these companies tend to be very profitable. For instance, the average net profit for old Japanese companies studied was 5.5 percent. According to statistics from the Japan Ministry of Finance, the average profitability for all Japanese companies during the same period was 2.7 percent. Christian Stadler’s study of old European firms showed profit margins over time were more than 10 percent higher than comparison firms.

The old companies operate with a level of leanness and efficiency – one could say frugality – not often seen in younger firms. (This is one area where a common stereotype of old companies is actually true.) This frugality in running the business enables the company to set aside money in prosperous times in order to weather the lean years. This approach to financial management also means money is available to internally fund new opportunities when they arise, thus not having to rely on external sources of financing or having to convince others of the value of an initiative. The old companies are able to respond quickly, when necessary, to take advantage of opportunities they see as well as invest in innovations others may not see as viable. This approach to financial management is well described by Arie de Geus in The Living Company: “Long-lived companies were conservative in financing. They were frugal and did not risk their capital gratuitously. Having money in hand gave them flexibility and independence of action. They could pursue options that their competitors could not. They could grasp opportunities without first having to convince third-party financiers of their attractiveness.”

The benefit of this approach to managing finances is evident in the 125th anniversary video posted on brokerage and investment banking firm Stifel’s website: “While many firms faltered, our fiscal responsibility allowed us to flourish during the financial crisis of 2008. Not only did Stifel not require a government bailout, we were able to capitalize on opportunities and position ourselves for continued success.”

A fundamental objective of these firms is survival, and staying financially sound is a means to this end. But for these company leaders making a profit is not an end in itself: it is the means to sustain their business. Nick Benson of The John Stevens Shop in Newport, Rhode Island, stone carvers established in 1705 and still going strong 300 years later, says the business has survived for two reasons: He’s not concerned about making big bucks and he cares deeply about his work. “We don’t care about the money as much as we care about the product. I’m inspired by the legacy I’ve received.”

This is the profit paradox of these old companies: though they don’t define the purpose or mission of their company as making money, yet they are very profitable. In their book Built to Last, Collins  and Porras also described this different view of profits on the part of long-lived firms: “Profitability is a necessary condition for existence and a means to more important ends, but it is not the end it itself…..Profit is like oxygen, food, water, and blood for the body; they are not the point of life, but without them, there is not life.” As one CEO reminded me, profit is the result of doing well what they do as a company, not their goal.

Old companies talk about the purpose of their business in missional terms. Whether it's to make great places to work (office furniture manufacturer), enhance human life (pharmaceutical company), or provide a bit of sunshine to every customer's day (candy store), the purpose of these old companies is clear and meaningful.  They talk about their purpose all the time - with employees, with customers, with suppliers, their local community, academic researchers, and pretty much anyone who will listen. They love what they do and it shows.


* All quotations come from company websites except as indicated.

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."

Wednesday, April 29, 2015

Survival is the Ultimate Corporate Performance Measure


Following is the introduction to my book, tentatively titled "Survival is the Ultimate Performance Measure: Management Practices of the Business Century Club."  I will be posting chapter excerpts over the next few weeks and would appreciate feedback. Do you think it's worth publishing? Any ideas of publishers who might be interested? Comments and suggestions are welcome.

Introduction
Most firms do not live as long as they could. Various studies indicate the average life span of companies today is 12 to 15 years. And the lifespan of top companies is shrinking. The average lifespan of companies on the Standard & Poors 500 Index has decreased by more than 50 years in the last century: The average age of S&P500 companies was 67 years in the 1920s but just 15 years in 2013. Experts have posited that the natural lifespan of a corporation could be as long as 200 to 300 years. There are currently 44 members from throughout the world in an organization called the Henokiens Association where membership is based on company longevity (the minimum period of existence is 200 years), permanence (the family must be owner or majority shareholder of the company and the founding family must still manage the company or be a member of the board), and performance (the company must be in good financial health and up-to-date). Even in a country as young as the United States there are a number of companies (well over 1,000) that have survived for more than 100 years. When evaluating company performance in terms of years of existence versus possible longevity, one can’t help but draw the conclusion from these statistics that most firms do not live up to their potential.

A premise of this book is that a fundamental objective of the firm, though often unstated, is survival. Profits are necessary for survival, but they are not the ultimate goal of a business –think of profits as the fuel that keeps a company’s engine running, not its destination. Or, as Arie de Gues explains in the prologue to his book The Living Company:

“Like all organisms, the living company exists primarily for its own survival and improvement, to fulfill its potential and to become as great as it can be. It does not exist solely to provide customers with goods, or to return investment to shareholders, any more than you, the reader, exist solely for the sake of your job or your career. After all, you, too, are a living entity. You exist to survive and thrive; working at your job is a means to that end. Similarly, returning investment to shareholders and serving customers are a means to a similar end for IBM, Royal Dutch/Shell, Exxon, Procter & Gamble, General Motors, and every other company.”

Why be concerned about corporate longevity? Gary Hamel, who the Wall Street Journal has ranked as the world's most influential business thinker and Fortune magazine has called "the world's leading expert on business strategy," wrote in his WSJ blog that when companies die prematurely it is to the detriment of society at large. His point is that time enables complexity and that organizations grow and prosper by turning simple ideas into complex systems. And the process of turning inspiration into value takes time, proceeding as it does through iterative cycles of experiment-learn-select-codify. If poor executive decisions prematurely interrupt this process, a society may lose the benefit of the original idea – as well as others that it may have engendered. This isn’t an argument to insulate a company from failure, he says, but rather a reason to “imbue organizations with the capacity to dynamically adjust their strategies as they pursue a long-term mission.”

Hamel points out that corporate failure often means the collapse of an entire ecosystem, a point also made by de Geus:“The damage [caused by the premature death of a company] 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. There is something unnatural in the high corporate mortality rate; no living species, for instance, endures such a large gap between its maximum life expectancy and its average realization. Moreover, few other types of institutions – churches, hospitals or universities, for instance – seem to have the abysmal demographics of the corporate life form.”

de Geus’ conclusion is that companies die prematurely because managers focus exclusively on the economic activity of producing goods and services, forgetting that an organization’s true nature is as a community of humans. In the words of Ian Davis, former managing director of the multi-national management consulting firm McKinsey & Company: “Corporate endurance should not be an end in itself. That said, in a very real sense, survival is the ultimate performance measure.”

What enables some companies to defy the odds to continue operating for a century or more while others succumb to an early death? In general, businesses are overwhelmingly small- and medium-sized enterprises and privately-owned – both over 95 percent, according to the U.S. Census Bureau. Previous research on corporate longevity has been conducted on large, mostly publicly-owned companies with very small sample sizes (Collins & Porras, 1994; Pascale, 1990; Hall, 1997; de Geus, 1999; Grossman & Jennings, 2002; Stadler, 2007; Kwee, 2009). For this reason, the research I embarked on with my Japanese partner Makoto Kanda focused on small- and medium-sized, privately-owned firms. If we wanted our research to be useful to companies desiring to thrive for the long run, the practices needed to be relevant to their situations.

The longevity practices described in this book are based on ten years of research in both Japan and the United States. The work started by conducting case studies on several old companies in Japan and the United States from which we built a theoretical longevity model. This model describes the practices the case study companies said led to their survival for over a century. To test the theoretical model, a survey of 125 questions was developed based on its key factors. This survey was administered to 90 Japanese companies over 100 years old. Survey responses confirmed that old companies believed the practices described in the theoretical model were important factors in their longevity. The survey was then administered to the 7,000 companies in the Chuo Ward of Tokyo, Japan – both old and young – to see if the behaviors described in the longevity model were a unique approach to business used by old companies. A number of statistically significant practices of old companies emerged from this research.

When presenting the results of this research at academic conferences, the question most often received was whether these behaviors were unique to Japan: was the longevity model really just a Japanese business model and not something that would work in the United States or other economies? After taking several years to construct a data base of U.S. companies over 100 years old[1], we were able to test the theoretical framework for its relevance in the United States: the same survey was translated into English and sent to U.S. companies over 100 years old. Not only did the results of this research confirm that the longevity model was valid in the United States as well as Japan, old U.S. companies indicated that many of the significant practices were even more important than did their Japanese counterparts.

It should be noted that, though these practices correlate with companies in business for over a century and many of them are distinctive when compared to those of younger companies, they cannot be said to be causal: I cannot say that implementing these practices alone will guarantee your company’s survival for the long run. And, just because the practices are statistically significant, this does not mean all old companies exhibit all of the practices described.

Though I don’t want to bore the reader with a lot of academic research terminology, I do want to give assurance that the longevity practices described in this book are not just my ideas for better business management – they are based on objective research. I readily admit that these practices do coincide with my beliefs about how business should be conducted, which is likely why I became so interested in this research line. However, it is worth noting that the behaviors described in the longevity model are also reflective of some recent 21st century management theories such as stakeholder theory (defined as “obtaining a competitive advantage through the development of close-knit ties with a broad range of internal and external constituencies”) and that of shared value (defined as “the policies and operating practices that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions in the communities in which it operates”), which has been called the next evolution of capitalism. These old companies that have thrived for over 100 years have been successfully practicing a way of doing business that creates shared value and enables their own survival long before it was proposed as an evolution of capitalism.

It was only once I began preparing a presentation for IBM on their 100th anniversary that I realized every job I ever had was with a company that was over 100 years old. So perhaps it was my own work experience that formed my beliefs about the role a company should play in society. Regardless of the source of the ideas regarding this integrated approach to managing a business, I am happy to say the research confirms that the practices that are good for all stakeholders are also the ones that enable an individual firm’s survival.



[1] I wore out several student researchers in the process of compiling this data base: special thanks go to Elizabeth Cohen, Kurt Goldsby, Alison Meshkin, and Katelyn Rumsey.