Wednesday, December 23, 2009

Can We Increase Company Longevity?

Humans have learned what behaviors increase longevity: a balanced diet, regular exercise, monitoring blood pressure and cholesterol, etc. By identifying, monitoring and acting on the right factors, the average human life span has increased over 80 percent in just one century. (According to a 2004 publication by Hewitt Associates, life expectancy was 40 in the early 1900s and 75 years at the turn of the century.) If the life expectancy of a person can increase through the identification of longevity factors, why can't a company's?

Various studies indicate the average life span of firms is 12 to 15 years, that 40 percent of all newly-created companies last less than 10 years, and of those who survive the first 10 years the average life expectancy is 40 to 50 years. Yet some companies "live" one hundred years and more. Perhaps a reason for so many premature deaths is that corporations have not identified and cultivated the factors needed to increase longevity. If we can identify common factors that old companies share, might young companies who want to "live long and prosper" also incorporate these practices?

Monday, December 21, 2009

"Family" Connections

Not all old companies are family-owned, but a significant number are privately-held. The majority of 100-year-old local companies I have studied indicate that remaining private is a key factor in their survival over the long term. Yesterday (December 20, 2009) Fisk Johnson, the 5th generation of his family to run S.C. Johnson & Son, Inc., ran a full-page ad in Parade magazine that explains well the thinking of these companies:

"[Being a family company] means that we don't report to Wall Street. The decisions we make come down to caring for you and the world we share not what analysts want to hear. And quite frankly, that doesn't always mean doing what's easy. But when I go to bed at night, I know what were trying to do is right.....To us, family is more than a relation. It's our inspiration....Times may have changed since my great-great-grandfather started SC Johnson, but the inspiriation behind what we do remains exactly the same."

This thinking reflects de Gues' proposition that companies are human communities, rather than pure economic machines. When company leaders feel this type of "family" obligation to their customers, employees and other stakeholders, it appears to lead to the type of business decisions that lead to long-term company success.

Saturday, December 19, 2009

Why Study Old Companies?

For several years I have been interested in learning about very old companies (those with at least 100 years of independent operation) to see if there are any common behaviors or strategies they employ which have led to their longevity. My curiosity regarding "old" companies began while I was the Executive Vice President of Strategy at Herman Miller, Inc. I attended a conference where Arie de Gues spoke about his time in strategic planning at Royal Dutch Shell and was able to have a conversation with him about research they had done on very large, old companies. (In 1997 de Gues published The Living Company: Habits for Survival in a Turbulent Business Environment describing the results of this work.) de Gues maintains that the average life expectancy of a Fortune 500 company is 40-50 years and asks why some are able to "live" for 200 years and more.

Once I left corporate America to become a college professor, my interest in the question of why some companies are able to live very long lives whereas others "die" young was renewed. While leading a group of students on a May Term in Japan, we heard a lecture from a Japanese professor on research he had done on very old Japanese companies. (The Japanese even have a word for such companies: shinise.) Unlike de Gues' research, Makoto Kanda's work focused more on small to medium-sized companies rather than very large enterprises.

I am now engaged in research on 100-year-old companies in the United States. I have student researchers working on building a data base and have developed a survey instrument to use with identified companies. Preliminary results indicate there are advantages not only to the company owners and investors when a company survives for a long period of time: employees, customers, suppliers and communities all appear to benefit from company longevity. I will publish progess on our research on this blog.

I am also very interested in hearing about companies readers know of that are over 100 years old. Are there things new companies can learn from the "century club" that might ensure their own survival beyond the average company lifespan? What do you think - does age matter?