Tuesday, November 11, 2014

How Do You Teach Relationships?

When I am explaining my research on the behaviors of old companies to people I often remark that the secrets to corporate longevity aren't exactly what we teach students in business school. Not that what we teach is unimportant - leaders in the old companies need to understand the basics of good management the same as every other business leader. It's just that what sets these old companies apart - and what appears to have resulted in their ability to thrive over the long term when others have failed - isn't the focus of most business courses: Relationships.

When I meet with leaders of the "corporate century club" they readily identify with this factor (I was even told by one CEO that I didn't emphasize it enough in one of my papers). But when I present my findings to academic peers at professional conferences, this is the factor on which I receive the most push-back - they are skeptical and sometimes downright dismissive. When I show them the research results, they question my methodology. Prior to obtaining data from 100-year-old U.S. firms that confirmed this factor, the most common response was that the "relationship" factor was a cultural anomaly of Japanese firms. Why this resistance to accepting the fact that 100-year-old firms survive because of their relationships? Perhaps it's time to instill more psychology and social science into our business courses. Business, it appears, is not a purely quantitative science. Yes, it requires technical knowledge, but that has to be supplemented with an understanding of people and society.

When I talk about "relationships" I mean a firm's relationship with employees, customers, suppliers, local communities, and even the environment. In all these areas the old companies were significantly more likely to emphasize the importance of long-term relationships and to engage in behaviors that would build and maintain these relationships. In case studies it was apparent that the old companies cherish these long-term relationships in a way that often didn't make short-term financial sense: continuing to carry products in their offering that long-term customers wanted, even when they lost money on the sale; keeping employees on the payroll even when there isn't any work for them to do (one firm lent employees out to local non-profits when orders were down); working with long-term suppliers to help them learn new technologies so they could continue to be a business partner on a new venture; investing in local community enhancement projects that had no apparent short-term (or even long-term) return to the company; engaging in leading-edge environmental sustainability practices simply because they believed it was the right thing to do, not because they could prove a return on investment. How do we teach such things?

It is my belief that leaders of these companies see themselves as stewards of the business who have been entrusted with protecting and building it for the next generation. (One likened his role to that of the servant in the parable of the talents). These companies also clearly see their firm as one player in a web of interconnected relationships that depend on each other to survive, through mutual learning and support. They have been practicing "stakeholder theory" long before it became a term for considering more than just the owners or investors when making business decisions. And they have proven the success of this approach through survival over a period of time when most of their competitors have long disappeared.

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