Saturday, June 24, 2017

How Century Club Companies Balance Tradition and Change

I just returned from Stockholm, Sweden where I presented a paper at the 2017 International Academic Conference on Business on how enduring companies manage to both stay true to their culture and traditions while also managing change. Though these companies have very strong commitment to their values and culture and the core strengths that enabled their success, they would not have survived the changing economic, social, and cultural conditions taking place over 100-200 years if they hadn't found a way to change and adapt. So how do they manage this balancing act?

Roger Martin, one of the people whose opinions I value (director of Monitor Group consulting, dean of the Rotman School of Business, author) and asked to review my book, suggested that I needed concrete examples of how companies manage this balance since it is so difficult - that the failure to successfully navigate change is the downfall of many previously successful companies. So last summer I spent my time (in between chemotherapy treatments) doing case studies of Century Club Companies on how they manage this balance between longevity factors #1 (strong corporate culture and values) and #2 (protecting & developing core strengths/change management). This paper is the result. I hope you enjoy it!

Managing for Long-Term Success: Balancing Tradition and Change

Vicki R. TenHaken
Hope College
41 Graves Place, Holland, MI  49423


A longevity model developed from research on companies over 100 years old in the United States and Japan (Kanda and TenHaken, 2014; TenHaken 2016) describes five factors underlying these organizations’ long-term success:
1.              Strong corporate mission and culture;
2.              Unique core strengths and change management;
3.              Long-term relationships with business partners;
4.              Long-term employee relationships; and
5.              Active members of the local community.

Century Club companies have strong corporate cultures and unique strengths that lead to a consistent sense of purpose over the long term. But these companies would not have survived over 100 years of economic, social, cultural, technological, and other challenges without adapting and changing. So how do they then manage to change and adapt with the times while maintaining their culture and the very capabilities that enabled their longevity in the first place? Longevity factors #1 (strong corporate culture) and #2 (unique core strengths and change management) require a delicate balancing act: One cannot build a strong culture and protect unique strengths without dedication to a broadly supported purpose, but such laser-like internal focus can get in the way of the transformations needed to stay relevant with changing realities.

How do Century Club companies achieve this balance of continuity and change? How do strong culture companies avoid becoming too internally focused? Are there actionable practices young companies could employ to help them navigate this delicate equilibrium? One company managing to do a rather remarkable job at this balancing act is Herman Miller, Inc. (founded in1905), a recognized innovator in furnishings for work, healthcare, education, and living environments. Following are the results of case study interviews conducted with several company executives on this topic (TenHaken 2016).

Herman Miller CEO Brian Walker started the conversation: “In part we are able to balance our commitment to tradition and the need to change by relying on our business partners, specifically outside designers. They come from many different backgrounds and fields of knowledge and prevent us from being too internally- or industry-focused. Second, our design tenets and corporate values play a major role, since they enable us to manage forward while being grounded in the principles that enabled our success. Though certain practices may change, the principles behind them stay solid and absolute. Last, we work hard to have a congruent culture but are insanely open to any and all ideas. Therefore, the most important job for our leaders is often to be good editors. We work as a team to come to a consensus when evaluating ideas based on many differing fields of expertise. We don’t rely on financial goals or market research to make the decisions, which would certainly be easier, but not nearly as robust. This healthy collaboration is a key balancing practice.”

So, stay grounded in the organization’s culture, values, and core strengths, but avoid an overly internal focus and remain open to challenging ideas—easier said than done. Subsequent conversations with Ben Watson, Herman Miller’s Executive Creative Director, and Don Goeman, the company’s Senior Vice President of Research, Design, and Development, elaborated on these ideas. Their very backgrounds exemplify one of the practices they feel is important in maintaining the company’s balance between tradition and change: Goeman is a lifelong HMI employee (30-plus years) and Watson is fairly new to the company (5 years). Though these executives sometimes pull each other in different directions, they agree it is important for the company to have a combination of new blood and long-term employees in leadership positions. Rather than bringing in a new leader and wiping the slate clean or having a leadership team filled only with lifetime employees who have not experienced other companies or industries, they believe a combination enables a good balance of tradition and change. This mixture of old and new works only if the new leaders make a point of learning the culture, respecting and honoring past traditions, and are committed to becoming good stewards of the company. If an executive from the outside comes in with a personal agenda that challenges the culture, intending to make a name for him/herself, the corporate white blood cells will kick in and expel the infection. As Watson remarked, “the culture itself is more important than the leadership.” Conversely, long-term employees need to be open and willing to listen to suggestions from the new people about things that need to change if the company is to succeed into the future.

Protecting the Culture and Building Core Strengths
As with many Century Club companies, Herman Miller spends a great deal of time teaching its history and culture to employees, as well as with all their business partners. Organizational culture is described as a system of assumptions, values, norms, and attitudes developed and adopted by members of an organization that help them determine acceptable behavior—or “how things are done around here” (Schein 1984). At Herman Miller, one can find these “Things that Matter,” their corporate values, all over the company website and in various pieces of information, including product literature and sales proposals. These principles are taught in new employee orientation and management development programs. Managers reference the principles daily, particularly in decision-making. Adherence to the principles is part of a manager’s performance evaluation. Every few years company leaders gather to discuss these values to make sure they have a common understanding of them and to enhance or elaborate on certain ones, if necessary, to make them relevant for current conditions. “These are things we all believe in and principles we can imagine D.J. De Pree [the company’s founder] would sign his name to,” says Watson.

Some Herman Miller traditions, such as the Watercarrier celebration, are designed specifically to ensure the continuity of the culture. This event celebrates employees who have served the company for 20 years or more. Herman Miller uses the term Watercarrier because “in the life of an American Indian tribe, the Watercarrier was one of the most important and respected positions. Water, like food and air, is essential for survival. Corporations…can become sustaining institutions like tribes. They can be the source of belonging; they can be the locus for achievement; they can be a real life- and work-support system” (De Pree, 1992). During the celebration, all company Watercarriers are reminded that it is their obligation to be tribal storytellers, teaching other employees about the company culture by sharing their own experiences.  “Brian [the company CEO] spends a lot of time planning what he says at these events, because this is something special that needs to be protected—it’s like a movement, sort of spiritual in a way,” says Goeman. “These ceremonies extend the culture and bring renewed attention to the things that matter.” In 2015, there were over 1,700 Watercarriers at Herman Miller, a little less than one-fourth of all employees worldwide.

Companies can construct training programs, disseminate speeches by the CEO, and sponsor other programmed activities, but Goeman says what really maintains the culture is a lot of people telling personal stories in their own, genuine way as they have casual conversations in the course of doing their work. He references author and consultant Larry Prusak, who says the greatest impact on transferring culture occurs through storytelling, something former Herman Miller CEO Max De Pree recognized when he began the Watercarrier tradition in 1987. This practice of encouraging and honoring long-term employee relationships is a good example of a program any company could initiate to carry out factor #4 in the longevity model. The inscription next to the Watercarrier sculpture at Herman Miller’s corporate headquarters states this intention: “The tribal watercarrier in this corporation is a symbol of the essential nature of all jobs, our interdependence, the identity of ownership and participation, the servanthood of leadership, the authenticity of each individual.”

Identifying the Need to Change
OK, so define, protect, and build your culture and core competencies. But how does a company with a strong culture resist the tendency to become so comfortable with the way things are that they miss the need to change? How do these companies avoid becoming insular and overly focused on internal behaviors and practices? Especially when things seem to be going fine, why rock the boat by seeking change?

Many Century Club companies, especially smaller firms without the luxury of in-house research groups, rely heavily on long-term relationships with their business partners and others in their community (longevity factors #3 and #5) to help keep them attuned to changes on the horizon that could affect their business. Even with a robust internal research capability, Herman Miller is no different in this regard: “I think it is extremely important to be open to provocation, to listening, to looking outside the company or outside our industry, not getting too stuck inside our walls,” says Watson. “The leadership team spends a lot of time with customers,” explains Goeman. “We are assigned to different accounts, customers, markets—and are responsible to bring knowledge back to the team.” The organization expects everyone, not only the leadership team, to have a significant and rich network, says Watson. “So I’m networking with external designers, and IT people are networking with leaders in that realm, as are our social media people, and so on. And that’s everyone’s responsibility. We expect people to share what they learn, and they can expect they will be listened to. We are dedicated to design and innovation and developing networks, and every aspect of our business has a creative, outward reach.”

Herman Miller’s ability to identify when change is needed is certainly aided by two of its core competencies—research and design. These values not only institutionalize the search for innovation and the expectation of change, but also provide a natural connection to the creative world. “Creative people are the best assimilators of cultural change,” says Goeman. “We have a company that looks to evolve and abandon itself to new ideas from the outside in—this has been a big reason for our longevity.” Organizations such as Herman Miller have been described as possessing constructive organizational cultures (Kotter and Heskett, 1992). Constructive cultures promote individual curiosity, motivation, cooperation, and adaptability. So part of the puzzle of how strong culture companies are able to survive and change is likely the type of culture and core strengths that are at work.

Despite this predisposition for research and innovation, the company leaders readily admitted that many of the major changes at Herman Miller over the last 100 years were born in times of crisis. Change is easier to embrace when survival is at stake. Whether it was the changing way people lived and worked in the early 20th century that pushed the company into modern design or the company’s imminent bankruptcy that forced the need to try something different in 1930—moments of crisis provide pressure to change. Whether the company was moved to diversify in the early 2000s because of an over-capacity in the office furniture industry or because of the far-sightedness of the company’s leaders—who’s to say?  The combination of a pressing external need and an internalized willingness to consider change yielded a transformation in both cases.

Recognizing a need to change and figuring out what to actually do, however, are two different things. How does the company make these very difficult decisions about which new ideas to pursue? “There are so many aspects to consider when evaluating new ideas,” says Goeman. “We’re pretty good at deferring, or allowing some of the voices that are strong in certain areas to be vocal there—and other areas self-balance around them. I always want to know what problem is being solved. Ben adds an understanding of our brand, artfulness, and beauty. Other team members add other perspectives. We recognize each other’s strengths, but that doesn’t mean we don’t push back. Only a healthy collaboration allows a balance of forces.”

Watson adds, “For this approach to be successful, you have to ask all the voices around the table to participate, to have an open conversation. We realize there are many experts in different domains at any table, and you have to realize when you’re not the expert and let the appropriate people make those decisions or lead in those moments. There’s a comfort in the ebb and flow of collaboration rather than a dictatorial control.”

The company’s nearly 70 years of experience with participative management helps make collaboration a productive process at Herman Miller (Frost 1996). Leaders understand they can’t just dictate something and expect it to happen—or to have it become accepted and repeated. “Decisions come out of consensus, but we’re not a democracy,” says Goeman. “Not everyone has an equal voice on all matters—we each need to know when to defer to people who know more than we do.” Watson explains that a consensus culture “means you may be asking 97 people around a table what they need. Many things will be in conflict, but in the end a decision needs to be made. Editing, by its very nature, means you have to make a decision. If all you do is listen and gather information, you end up with a stagnant mess. Not making decisions gets you nowhere. But at the same time you have to be clear that you are making decisions based on principles and not on a whim or some personal bias or opinion.”

Building consensus takes time and patience and the ability of individuals to engage in productive dialogue on important issues with differing viewpoints. But taking this time up front pays off in the long run. Most Century Club companies say they take a long time to change, but it is this up-front investment in consensus building, rather than a leader dictating change, that makes the difference in successfully implementing and sustaining innovations, particularly those that may challenge tradition. A decision process based on things such as financial measures or market research can be clearer and certainly easier than a consensus-building process. For many organizations financial goals or constraints become the main factors considered when editing ideas and proposals. “To get deeply engaged in the values of the company and constantly revisiting the founding principles is a time-consuming endeavor, but it’s necessary to make sure the principles forming our culture actually guide decision-making, not just at the top, but throughout the company,” observes Watson.

At one point in the conversation, the Herman Miller executives were asked to respond to typical research questions about ways various authors have suggested companies generate innovative ideas. Using a standard Likert-type survey scale of 1-5, they were posed questions such as:
·       To what extent does the company invest in exploration of new ideas vs. exploitation of current strengths?
·       To what extent are ideas for new products/markets/etc. generated internally vs. coming from business partners outside the company?
·       To what extend does the company have a tolerance for “experiments on the edge” by business units or individual employees vs. central control?
·       To what extent does the company practice a “little bets” approach to innovation vs. going for the big idea?

Watson remarked that no matter how hard he thought about these questions, he always ended up answering with a 3. He said, “For instance, we have to make long-term, big bets that are risky; but we also have to do many—many— little bets. It’s a teeter-totter, and though you’re never 50/50 at any one point in time, it goes back and forth and you find the equilibrium. But you must keep the balance, and achieving this becomes part of our decision-making process because we recognize the value in both ends of the scales.”

Clark Malcolm (Herman Miller’s long-term writer, editor, and storyteller) observes that it is this very “both/and” nature of the company’s culture that enables such balance. Answering a 3 on these questions is not an average of the two ends of the spectrum, but truly a process of including both positions in one answer. “Both/and” isn’t an easy or comfortable place to reside for an individual or an organization. Many companies and their leaders don’t have the patience or the fortitude to try to maintain such a precarious stance. (One question the company often asks when interviewing potential employees is “How comfortable are you with ambiguity?”) Living with “both/and” takes intent, an understanding of all the complex factors involved, and a willingness to address the difficulties that will be encountered.

Herman Miller’s core competency of design has given them a history of experience with “design thinking” as a way to solve problems—long before it became a popular term used to describe a formal method of organizational innovation and change—and it certainly helps them with this process of both identifying the need to change and deciding what new initiatives to implement.

Implementing Change While Protecting the Culture
History is replete with examples of firms in the same industry where some survive and others have been unable to compete because they are unable to adapt to changing conditions. The ability of an organization to systematically adapt itself to changes that take place in the business environment is one of the primary sources of a sustainable competitive advantage (Kotter and Heskett, 1992). Many companies know they need to change, certainly when faced with a crisis. And most come to a decision, one way or another, about what needs to be done. But how do Century Club companies implement new ideas while staying true to their culture and tradition? Can any culture stay constant over time, given the changing environment experienced by a company that has been in business for over 100 years?

As discussed earlier, having a clear statement of company values that everyone understands is a crucial component in bringing about change in Century Club companies because it provides the baseline of stability from which to launch new initiatives. However, Herman Miller’s executives agreed that in order to implement certain changes, there are times when they need to question and challenge the practices stemming from their values. Watson explains: “How we carry out our principles may vary, but the values that form our culture cannot be compromised.” When modification of a practice is necessary, the leadership team spends significant time discussing and reaffirming, sometimes elaborating on, the intent and values behind the company’s basic beliefs. “Then we come to the table and have a debate, balancing our differing perspectives and trying to understand why some of the practices we have used to carry out those core principles might need to change,” says Goeman. “Our core principle of transparency and openness tells us we have to engage and be thoughtful about communicating the ‘why’ behind a new way of doing things,” adds Watson. “Over 100 years ago Herman Miller began as a small furniture company in West Michigan. Today, with more than 8,000 people, less than half of them in Michigan, how we implement the company’s principles needs to vary but the principles themselves are sacred cows—the ‘Things That Matter.’ For the company to survive, the practices used to carry out our values may differ by geography, by type of business, and over time,” says Watson. All the “discussion around the table” is to make sure the changing practices are in alignment with the core principles.

Once a decision is made to implement a major new initiative, especially one that involves altering a practice some might see as challenging a core principle, the hard work begins. Having what is termed a constructive corporate culture may predispose an organization’s members to be flexible and adaptive in response to changing environmental conditions, but care must still be taken in how a change is implemented. Herman Miller’s leaders make of point of communicating the change (sometimes ad nauseam, according to Watson), being as transparent as possible—at every level in the company and at every step along the way—about what needs to be done and why.  They build the case for change, explain the rationale behind the selected solution, and describe how the new approach will be implemented—including who will be affected and what accommodations will be provided.

Goeman says the company does a fair amount of research about how organizations learn, always trying to improve this process. Former long-time company consultant Carl F. Frost constantly preached to leaders of the company that they need to first build understanding of why a change is needed and what the new practice involves, and then provide good rationale for why employees should accept the new way of doing things, before they can ask for employees’ commitment to a new initiative (Frost 1996). “We also have the benefit of [former CEO] Max De Pree being a great thinker about leadership,” says Watson. “We are able to learn from him, not just through his actions, but through his writing (De Pree 1989 & 1992). This helps future company leaders tremendously.”

What actionable practices can help a company achieve the tricky balance between tradition and innovation if it wants to survive over the long term? Here are a few:

·       Protect, build on, and strengthen your core competencies—those things that make your company special.
·       Nurture and pass on your traditions and culture, both at the top and throughout the organization.
·       Build corporate memory and preserve culture through employee tribal storytelling.
·       Have employees throughout the organization develop external information networks.
·       Be open to new, even radical ideas and develop ways to bring them into the organization.
·       Listen to all voices that have something to say.
·       Develop collaborative decision-making skills in your leaders.
·       Be clear about your core principles that will not change, and make sure management behavior and decisions reflect them.
·       When new initiatives are to be implemented, particularly if long-accepted practices must change, take the time to explain why the change is necessary but reinforce commitment to key values and principles.
·       Communicate, communicate, communicate—yes, over-communicate—in order to build organizational understanding, acceptance, and commitment to new realities. 

Leaders of Century Club companies see themselves as stewards of the organizations entrusted to them. Their ambition is first and foremost for the successful survival of the company, not personal recognition. Protecting the traditions and culture of the company while navigating the changes needed to move the company into the future is a delicate balancing process. Drawing on the web of relationships that form the very essence of these companies, it is truly the interplay of all five factors in the longevity model that enable a Century Club company’s long-term success.


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