Thursday, October 16, 2014

When It Comes To Change, Slow and Steady Wins the Race for Old Companies

Yes, old companies change and even innovate - they wouldn't have survived for over 100 years if they didn't. However, my research shows that the change process they use is quite different than that used by younger companies. Many might say they are too slow to change, but in the long run this seems to work to their advantage.

In his book The Living Company Arie de Gues explores behaviors of very large, very old companies. He says these companies are tolerant of "experiments on the edges," meaning corporate headquarters doesn't try to control or drive all the change within the firm.  When one of the "experiments" proves to have value, then it can be implemented on a wider basis.  This idea is similar to Peter Sims idea of "little bets" explained in his book Little Bets: How Breakthrough Ideas Emerge from Small Discoveries. In a recent article on corporate longevity in the McKinsley Quarterly former managing director Ian Davis observes: "A company that learns to adapt and change to meet market demands avoids not just the trauma of decline or an unwanted change of ownership but also very real transaction and disruption costs."

The vast majority of 100-year old companies are small to medium-sized firms that may not have a lot of room for experimenting on the edges or the capacity to support many little bets. So how do they go about innovating and changing? Many have different products from when they began and some are in completely different industries. Those that have stayed with their core product or service have still had to adapt to quantum changes in technology, global competition, vastly changing social and cultural mores over the last century. First, they constantly seek small, incremental improvements and adaptations. Second, they keep abreast of trends both within and external to their industry. Then, when it is determined that major change is needed, they take their time to carefully plan and implement the change.

My research indicates that old companies take a significantly longer time to plan a major change than do younger firms.  The reason they take time when making moving the company in a new direction is that they want to bring their constituents along with them, so they make the effort to explain the need for change to employees, suppliers, and customers in order to convince them of the necessity for the new approach.  In the process of explaining the need for change, the leaders are mindful of honoring all that was good about the past even though that may not be what is needed for the future. Leaders also make clear that, though what they do as a company - or the the way that they do it - may change, the core values of the firm will not change.

Because old companies take time to make major change, the casual observer often may not even notice that they are changing.  Perhaps this is why so many people think of old companies as dinosaurs - watching the fast development of entrepreneurial firms is far more exciting.  Well, the old companies may be slow-moving, but they definitely are not dinosaurs. And old companies may not be as exciting as new start-ups, but many more of them will still be around decades from now. To once again quote Ian Davis: "Survival is the ultimate performance measure."

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