Secrets of Corporate Longevity

Built to LastIt is yet again Friday, and maybe time for some off topic thoughts for the weekend. One of the best books about corporate development in my bookshelf is Built to Last by Jim Collins, of Good to Great fame. The book outlines the results of a six-year research project into what makes enduring great companies.

According to the author, lasting companies have taken leadership roles in their industries, offering innovative products and services and consistently outsmarted rivals. What makes the research interesting is that Collins compares and contrasts visionary companies with their rivals.

Free-market economists tend to dismiss the value of corporate longevity. Joseph Schumpeter’s term “creative destruction” is interpreted as a messy but effective way of delivering valuable innovations and progress.

SchumpeterNo rational person in a free society, Schumpeterian economists say, would want to frustrate innovations that makes existing products and companies obsolete by bringing prosperity and benefits that replace them to the broader population. They add that no rational person in a free society would want to prevent new entrepreneurs from using existing assets more productively.

However not all destruction is creative and not all creativity is destructive. The default of a company is not damaging only for its stakeholders. Sometimes, it may also be an inefficient way of innovating in the economy or an industry, because it breaks up established institutional structure and destroys tangible assets, such as R&D know-how and strong consumer and supplier relationships. A company that learns to adapt and change to meet market demands avoids not just the trauma of decline or an unwanted change of ownership but also very real transaction and disruption costs.

What does it take for a company to survive through generations, for decades or for centuries? Long lived companies do good in society and fill a greater purpose than their own mission statements. They establish roots in communities, they provide stability and employment and as workers grow up through the business and retire, they provide a link through generations. People around such companies believe in them and their purpose to exist, and therefore strengthen their ability to survive. This sort of responsible ethics we nowadays label corporate social responsibility, or in short CSR.

Sandviken machineIn my native Sweden, the company Sandvik, today a global high-technology engineering group in tools, was founded in 1862 and was first in the world to succeed in using the Bessemer method for steel production on an industrial scale.

Sandvik was established in the small town of Sandviken in rural Sweden and dominated the development of the town into a small city. Sandvik’s first overseas arm was in Birmingham, where the company each year provides the city’s official Christmas Tree. The company cares about its people and then the people for generations care about its longevity. This is the utter opposite of today´s “startup and exit” culture of many young entrepreneurs.

Oldest CompaniesOne of the oldest companies in the world is the Japanese hotel Nishiyama Onsen Keiunkan founded in 705, listed in Guinness Book of Records. Looking at larger organisations in the world, the list on the right is commonly considered to be accurate.

For more thoughts on the topic, here is a link to the highly readable document “Built to Become – Corporate Longevity and Strategic Leadership*, by Professor Robert A. Burgelman at Stanford.

In the video below, Financial Times explores corporate longevity through the example of businesses in Hong Kong.

Secrets of Corporate Longevity

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