Tuesday, November 25, 2014

Old Companies Are Environmental Sustainability Leaders

Who knew? Being an environment sustainability leader is a distinguishing factor of old companies I didn't expect - in fact we didn't even ask about companies environment efforts in our research. We should perhaps have had a clue based on how committed the old companies are to their communities as well as the fact that they have an attitude of stewardship regarding sustaining their business. But the fact is, I came across this factor by accident.

One of the courses I teach is Managing for Environmental Sustainability. In prepping for the course I ordered a new book I thought would be good for our business students called "Green to Gold: How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage" by Daniel Esty and Andrew Winston. In the book they have a list of companies they consider forward-thinking in the area of sustainable business practices, which they call "wave makers." As I was reading through the list I recognized a number of them were also in my data base of 100-year-old companies! Most people (including me) assumed that a "green" strategy was something new and entrepreneurial rather than something embraced by old, established businesses.

The more I thought about this, the more sense it made: the stewardship attitude of leaders in the old companies means they see their role as one of preserving the firm for future generations. It's a logical extension of this behavior to include preserving the environment for future generations. Their environmental sustainability strategies likely flow from the old companies' sense of social responsibility to their communities (see previous blog post). It may also stem from these companies' frugality: "green" projects often require an up-front investment that saves money in the long run. Since these companies intend to be around for the long term, they know they will benefit from the investment.

Once I began looking for it, I saw this leading edge attitude toward environmental sustainability in almost every 100-year-old company I studied. When I visited the 200-year-old cruise ship manufacturer Meyer Werft last summer, their head of R&D mentioned that the company was working on the development of fuel cell technology to power ships. He said they didn't expect it to be viable for 20 years or so, but they were investing in the project because they felt it was the best way to address the issue of how to power big ships in an environmentally responsible manner. (He even hinted that it might lead to a new business for them if they could sell fuel cell 'engines' to other large ship manufacturers.) With a 20-year investment and just the belief that it is the best solution to an environmental issue, who other than a very profitable 200-year-old company would make such an investment? This is an amazing example of the innovative strategies of old companies: just because they are old doesn't make them dinosaurs; they innovate and change or they wouldn't have survived for so long. It is their strategy of stewardship that approaches innovation, including in environmental sustainability, in a manner that ensures their viability into the future. Not all creativity needs to be destructive.

More confirmation of the longevity and environmental sustainability connection came with the 2015 list of the "Global 100 Most Sustainable Corporations in the World," an index prepared by the Corporate Knights organization. Forty percent of the U.S. firms on this list are over 100 years old. Compare that to the fact that less than one percent of all U.S. companies are that old. Further if I define "longevity" as companies that are over 90 years old, 50% of the U.S. companies on this list are long-term sustainability leaders.

Monday, November 24, 2014

Company and Community, A Mutually-Supportive Relationship

Old companies see their local communities as an important partner in their ongoing success. Because company leaders see the firm as an integral part of a web of relationships (often connected to family history and reputation), their relationships within the local community are just as important as those with business transaction partners. These community relationships include support of social organizations as well as those with business and government groups.

Old companies tend to be much more active participants in their local communities than other firms, promoting the community and developing local networks for mutual learning and benefit. They believe these connections with people in other industries and across generations have a positive influence on the reputation of their firm and they also see the positive influence on their business that comes from the local community's good reputation. I have numerous stories from my case studies of companies investing in their community in projects such as revitalizing their downtown, building programs in local schools, supporting various non-profit organizations, giving employees time to serve on local government commissions, etc. Most of these efforts were long-term investments and most had little or no immediate (or even long-term) financial benefit to the organization. The old companies see this involvement as an obligation that comes with being a part of the local community, but they also believe that such investments pay off in non-tangible benefits to the organization in the long run. These benefits may show up as mutual learning around new technologies and opportunities outside the company's industry contacts, or building a reputation that helps attract the best employees, or in streamlined government approval for local infrastructure projects.

Local communities are often the first to see the adverse effects of a company's demise, whether through failure of the business or its acquisition by another firm. Loss of jobs, loss of tax base, and loss of support for local organizations can be devastating to a community.

Old companies recognize the value of the community outside their business or industry and invest time and resources in projects that develop and sustain them. They see themselves as important members of their communities and wouldn't even consider pulling out and moving to another state or country for a tax break or lower labor costs. They know that a vibrant local community benefits their company and the community understands that a healthy, successful company benefits them as well.

In my research, old companies scored significantly higher that other firms on every question in the survey relating to building relationships within their communities. Whether it was participating in business-related organizations such as the Chamber of Commerce, building personal connections with people in other industries, or being involved in projects that build and promote their local community, the older companies clearly see themselves and their communities as one.

Thursday, November 20, 2014

Are Your Suppliers True Business Partners?

Another piece to the mutually supportive network built by 100 year old companies is that of their suppliers. As with their relationship with customers and employees, old companies see their connection with vendors as something more than economic transactions and they believe the maintenance of these relationships with their suppliers from generation to generation is an important factor in their long-term success. This commitment to retaining suppliers requires investment on the part of both entities to each others' success: the old companies work with suppliers to develop capabilities that are necessary to continue to support their organization in the future, and in return suppliers share their new technologies and ideas. Mutual learning results in mutual long-term success. This only works if the two parties are true business partners. Knowing the company's intent to stay around for the long term eases any qualms a supplier may have about making investments in development of future products.

So what type of behaviors result from old companies' long-term relationships with suppliers? Besides communicating their intent to build long-term relationships with business partners, the old firms were significantly more likely than younger companies to share information about their business with suppliers. This includes information about their production and sales processes, about products and services, as well as information about customers and markets. Further, they make an effort to understand their suppliers' business strategy and processes.

Supplier relations is one area in our research where old U.S. companies showed weaker support than the old Japanese firms. Though 100 year old companies in both countries indicated a strong intent to build long-term relationships with their suppliers, Japanese firms were more likely to actually engage in the behaviors that would ensure such longevity. Though these behaviors were reported as important by old companies in both countries, old Japanese firms were significantly more likely to exchange information about production, sales, products, services, customers, and markets with their suppliers.

The importance of this web of interconnecting, mutually-supportive, long-term relationships between companies and their customers, suppliers, employees, and communities cannot be overstated when trying to describe the factors contributing to corporate longevity.

Tuesday, November 18, 2014

Long-Term Customer Relationships Are More Than Economic Transactions

As I mention over and over in this blog, relationships are at the core of how old companies operate. These companies truly believe they cannot maintain their success for a long period of time without the cooperation of their business partners.Today's focus is the relationship these firms build with their customers. The relationships the old companies build with their customers from generation to generation has a significant effect on the firm's ability to weather difficult times as well as to learn and adapt over time. The old companies understand that they are part of a large, interdependent system. This holistic view of their role in the value exchange leads the old firms to see their relationship with customers as something more than mere transactions or the trading of goods and services for financial gain. When customers 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. (I often describe this phenomenon in terms of Peter Senge's "Learning Organization.")

This longevity factor of the 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, I discovered that the retail industry isn't represented at a higher rate than in the general business population and even manufacturing companies scored extremely high on issues of building long-term customer relationships. 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 mentioned was their long-term relationships with customers that led to mutual learning. Without any prompting - or knowledge of who I was and what I did - the gentleman 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.")

So what are the behaviors that the old companies engage in that help them build these long-term relationships with customers? Here are just a few of the old company behaviors that were significantly different from those of younger companies:

  • They work hard to gain an understanding of their key customers and their needs
  • They respond quickly to customer complaints and see customer service as an important opportunity to talk with customers (not just to fix the immediate problem)
  • They build long relationships with customers through after-sales services
  • They make every effort to ensure their products are used in the best/correct way and provide customers with useful information that will help their learning
  • They make a point of learning from their customers, but also collect information on customer and market needs in ways other than direct contact with current customers
  • They work hard at satisfying and retaining existing customers, but also work at developing new customers for the future

By viewing their relationship with customers as something more than mere economic transactions or simply the exchange of goods and services for financial gain, old companies have built a supportive network with their customers that reaps great benefits in the long run and has helped ensure not only  survival, but success, for over a century.

Friday, November 14, 2014

Want Your Company To Survive for the Long Term? Develop Leaders from Within

In previous posts I have mentioned the emphasis 100-year-old companies place on employee retention. They 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's goals and develop an ownership attitude - it's their company. This 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 comes in at an executive position. It takes a special executive to be willing to 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 distinguishing characteristics of the 100-year-old companies is how much time and effort they spend developing leaders from within. One CEO expressed that identification and 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. 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. After leadership candidates understand the business inside and out and have built their own personal networks, then they are expected to think for themselves rather than blindly following tradition.

The majority of 100-year-old companies report that they have already identified who their next leader will be and are working very deliberately to develop him or her (along with other upper level managers). Can your firm say the same? This appears to be one of the key differentiating factors in sustaining a business for the long term: these 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.

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.

Monday, November 10, 2014

It's All In the Secret Sauce

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 and skills. They believe these company "secrets" or special methodologies make their organization unique and not only differentiate them from the competition, but make it difficult for others to imitate, thus giving them a sustainable competitive advantage. 

The belief held by the old companies that their products or services were difficult to copy and that their offerings had a strong appeal other than price wasn't significantly different that that of many younger firms. However, the old firms were more likely to indicate that they build on their unique characteristics in every aspect of their business - into the fine details of their offering, how they train and educate new employees, how they work with suppliers, and how they convey this uniqueness to customers as part of the sales process.

Another area where management of core strengths was unique among the older companies was how they build on their strengths over time. They report having some things that do not change in product quality, raw and processed materials, and production and sales methodologies; but they also report constantly working to improve their operations and develop their core competencies, even in the best of times.

Members of the "corporate century club" know they are special, and not just because they have managed to survive world wars, economic depression, huge advances in technology, globalization, and major shifts in social and cultural preferences: they know what is unique in their DNA and they cherish, protect, and build upon it.

Friday, November 7, 2014

Culture Is Everything

In previous posts (such as The Profit Paradox), I've talked about the importance of an overriding mission that describes the purpose or reason for old companies being in business. Strongly related to this characteristic is the importance of culture for the ongoing survival of 100-year-old companies. Though their cultures vary (the only common factor we found was that of financial conservatism), old companies' emphasis on maintaining the culture that they believe has led to the firm's continued success is significantly different than that of younger firms. Not only is this commitment to their culture shown in the time and effort the companies take to teach employees (and customers and suppliers) about their values and beliefs, the importance of their corporate culture was also seen in the way old firms placed more emphasis on brand identity and consistency in how their brand is evidenced in products, services, and facilities.

The values and beliefs that form a company's culture function as the fundamental guidelines for how the firm operates and provide the core ideas around which employees identify. In many of these old companies, the values and beliefs that formed the company's culture were developed by the founder and passed on through the generations. Though the style and content of the old company cultures differ from company to company, current leaders consistently confirmed the importance of their unique culture as a primary factor in the long term success of their company.  These values and beliefs form the fundamental culture of the company and are used to enhance employee identification with the business, thus integrating organizational and individual goals and objectives and building strong employee loyalty.

Current leaders of old companies in both the United States and Japan showed a significant commitment to managing the company according to the culture that had been developed over the past century. Top managers in the old companies were significantly more likely to be personally involved in teaching the culture to employees than were leaders in younger companies. And leaders in the old firms strongly indicated their intent to see that the culture continued on to the next generation through careful development of managers and selection of future leaders who understand and are committed to operating the company with the same values and beliefs.

Tuesday, November 4, 2014

Old Companies Survive By Being Financially Conservative

Frugal, lean, little (or no) debt - all of these terms describe a majority of the businesses that have "lived" for over 100 years.  They survive by saving up money during good years to help weather the lean ones and also to fund new opportunities when they arise without depending on external sources of financing. They finance new initiatives internally whenever possible, even if this means slower growth. Managers in these old companies tend to see themselves as stewards or custodians of the business and feel an obligation to manage the firm in a way that ensures its survival into the future rather than making a name for themselves through bold, risky actions. (One CEO gleefully told the interviewer how he ignored the advice a Lehman Bros. consultant had once given him about leveraging his business more.)

Though the old companies don't share similar cultures, there are some common behaviors that stem from this financial frugality. Many of these companies do not pay their employees high base salaries, but most of them share the wealth with employees in good years through bonuses or some other method of profit-sharing. Though they may not have the deep pockets of larger businesses in their area, these companies provide great support to local organizations such as the Little League, Rotary, Boys & Girls Club, etc. with time and donations.  Products and services offered by these firms tend not to be at the low end of the industry's price range, yet customers feel they receive good value. Suppliers seem to understand that the value of having a long-term customer is more important than getting the highest price. When they do need to go for outside financing, they don't usually have any trouble getting it (and at a favorable rate).  Perhaps their frugal tendency is also one of the reasons so many old companies engage in environmental sustainability efforts - they see these investments as a great way to save money in the long run.