Wednesday, May 27, 2015
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
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
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.
Monday, May 4, 2015
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.” *
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.