The list of corporate centurions clearly establishes that corporate longevity has no relation to the nature of the industry. The list of corporate centurions includes firms in all types of industries such as oil, automobile, engineering, banking, financial services, computers, consumer goods, power equipment, distribution, telecommunications, tires, automobile components, transportation, reprography, newspapers, beverages, movie studios and so on. The list includes companies which have started in basic engineering such as Bobcock (boilers) or dominated modern engineering such as Lockheed (aircraft engines). The list includes highly specialized, mono-industry companies such as Ford or highly diversified, multi-industry companies such as GE. The range of companies includes companies which have more or less retained the original ownership and those which have seen complete changeover into public or third party hands. It also emerges that while inflection of new technologies provides opportunities for new firms to break into big league (for example, Microsoft and Google) even companies in basic industries can protect and grow their turf. Whichever way the universe of corporate centurions is sliced, it would appear that certain characteristics of corporate and leadership vision, strategy and execution rather than any industry characteristics or ownership biases have influenced corporate longevity.
Other examples
Japan is an example of country with several contrasting facets. Several mega corporations have reached or are reaching the centurion status on the planks of technology and globalization. Yet, there are reportedly thousands of companies which are over 100 years old which employ fewer than 300 people. This adds another dimension indicating that corporate sustainability could be a function of niche, however small it is. In fact, in the tradition bound Asian countries it would not be uncommon for tradition to play a large part in corporate longevity. By staying small, not going public, not pursuing big cities or big markets, nurturing community relations and keeping know-how within the family small companies have managed to sustain themselves over decades. It is, however, creditable that many Indian corporations have ventured big despite lack of national independence until 1947 and have become worthy corporate centurions. Some companies belonging to Tata and Birla groups and other corporations such as ITC have demonstrated that corporate longevity could occur despite alien occupation. Many of the companies have been in basic industries such as steel and engineering or even in threatened industries such as cigarettes and tobacco. There is now a whole new generation of post-independence companies in India which are bound to become worthy corporate centurions.
That said, for the few scores of companies that have been so longstanding and successful globally, there have been thousands of companies which have either collapsed beyond revival or seen a complete transformation in their business moorings. As the IBM centenary essay observed, within the US, of the top 25 industrial corporations in 1900, only two remained on that list at the start of the 1960s. And of the top 25 companies on the Fortune 500 in 1961, only six remain there today. Some of the leaders of those companies that vanished were plain unlucky while others made choices that turned out to be poor. But the demise of most came about because they were unable simultaneously to manage their business of the day and to build their business of tomorrow. In fact, it appears that most companies find it easy to establish and grow themselves in the initial years rather easily but find growth beyond the mid-teens challenging and daunting. Part of the reason is that there is no repository of techniques or cookbook approach to corporate sustainability and longevity. As with a human being who can live for 100 years based on healthy lifestyle practices which are behavior driven, corporations also find that leadership and managerial behavior that focuses in healthy corporate lifestyle leads to corporate longevity. More importantly, the body of knowledge that enables corporate longevity emerges from an alert observation of external competitor behavior and a wise interpretation of organic developmental experience. Fortunately, however, the several names listed in the earlier discussion typify corporate and leadership behaviors that foster customer centricity, adaptability, innovation, people orientation and globalization as critical drivers of corporate longevity.
Customer centricity
Customer centricity is at the core of corporate longevity. Customers come in multiple forms and hues. From an individual consumer utilizing a product or service to a firm requiring equipment and to a society needing an institutional service the spectrum of customers is indeed vast. Customer centricity means not only making the current customer happy with outstanding quality and service of existing products but also creating new customer loyalties by offering products and services not perceived openly by the customers. To be able to fulfill the first objective, companies must realize that customers have choices; even in industries which are subject to current monopolies, customers would eventually have choices. Continuous improvement in products and services is therefore mandated independent of monopoly position. To be able to fulfill the second objective, companies must focus on how consumer needs can be fulfilled through new products and services or how a completely new need can be structured through breakthrough products or services. For example, for a doctor diagnosis of the internal condition of the patient’s body remains the fundamental purpose. As a company specializing in medical diagnostics progresses from X Ray machines to CAT Scan to PET Scan to MRI Scan equipment, each with superior imaging capability the primary need is better fulfilled, and the company remains for the long term. If the medical devices company considers that an even more fundamental purpose of the doctor is disease prevention, the company may deploy entirely different modes of technology, be it genetics or molecular biology, to develop gene types that are prone to develop specific diseases or biomarkers that predict specific diseases and even develop preventive vaccines. The potential for customer centricity is infinite, and is limited only be corporate creativity.
Adaptability
Thomas J Watson Jr, the second chief executive of IBM said, “I believe that if an organization
is to meet the challenges of a changing world, it must be prepared to change everything
about itself, except its beliefs.” The history of IBM demonstrates the adaptability of the corporation to change despite the apparent success that its pioneering status brought to the corporation. For example, IBM invented the desktop personal computer and dominated the industry. Yet, it took a bold decision to exit the personal computing business years ago losing billions of dollars of revenue to refocus more vigorously on mainframe computers and other new technologies and services. The core commitment to enhancing the thinking and execution capability through computing power, however, remained. Pepsico has demonstrated its adaptability by recognizing early on the need for health foods and integrated new non-beverage businesses in its fold. The core commitment to meeting the day to day living needs remained unchanged, if at all only expanded to cover also drinking water and breakfast cereals. ITC in India recognized the futility of fighting India’s national concerns of the 1960s and 1970s in terms of national importance and redefined its business. As a result, ITC not only expanded its fast moving consumer goods business to cover new business segments such as branded packaged foods, personal care products, education & stationery products, lifestyle retailing, safety matches, and incense sticks, but also entered new industry segments such as hotels, paperboards, paper and packaging, agribusiness and information technology. A core commitment to become more positively connected with society, and reduce negative connotations of cigarette business underlined many of such strategies. Adaptability requires the leadership to be emotionally disconnected with their strategic successes when the time to move to a new future beckons. Adaptability also requires the institutional development of a corporation so that corporation can outlive its founders and successive CEOs. IBM says it has been able to outlive its great founders and CEOs because the founders created a culture that enabled IBM grow on certain differentiating characteristics that made IBM, IBM.
Innovation
Commoditization is every firm’s or industry’s closing call for profitability, establishing the inevitability of competition and supremacy of markets. From steel to smart phones, commoditization has become an inescapable trend. Commoditization does not spare even high technology companies; in fact, the higher the technological sophistication the greater is the risk for commoditization. Companies have only one weapon in their armory to fight commoditization – innovation. Innovation is not an issue of a new product or service, or even of a new technology. Innovation is a broader concept of a company moving into the future based on a whole combination of new needs, new products and new services in a holistic sense. Innovation is not a short term fix for a company’s growth needs. Rather it needs to be a corporate culture that consistently invests in science and technology and finds new ways of deploying them for identifying and fulfilling customer needs. R&D expenditure is an enabler of a company’s innovation effort while the patent estate is a marker of the company’s innovation output. Neither is, however, adequate as an end unless genuine value is built for consumers. Innovation is rarely organic. Multi-functional collaboration, open source networking and multi-industry integration help build greater value. Robotic surgery is a great example of previously incompatible domains of engineering and medicine merging with each other; for example, the application, by three IBM engineers in 1981, of the newly invented excimer laser to remove specific human tissue without harming the surrounding area and do so on an extremely minute scale—a process that became the foundation for LASIK and PRK surgery. The painless procedure, which changes the shape of the cornea, has improved the vision and quality of life for millions of people around the world. The ultimate innovations are perhaps yet to come in, whatever be the industry sector one considers. Society’s needs and expectations are continually increasing. Today’s super computers are expected to compete with the sharpest of human minds. Infrastructure is expected to be built completely earthquake and tsunami proof. Industry is expected to be completely environment friendly. Innovation will increasingly be the true hallmark of leadership vision, strategy and execution, going forward.
People orientation
All through the centuries of industrialization, people have been at the core of competitive business development. A great company will be fortunate to have not only talented employees but also understanding investors, supportive bankers, collaborative vendors and suppliers, loyal customers, and appreciative regulators. People, in many ways, constitute the core of a company’s business. A company’s people orientation would need to extend far beyond how it cares for its employees; it would need to be displayed in its dealings with all of its stakeholders, and the broader society. Honesty, trust and transparency of behavior and communication help build people relationships. Companies at times tend to view relations and results as two poles of management. In matter of fact, however, there can be no results without relationships. Even competing companies achieve successful outcomes in contentious negotiations through the rapport that principal negotiators develop based on fair principles of negotiation. The need for co-employees of a company to achieve results through relational skills than transactional efforts cannot be overemphasized. The convergence of relations and results would happen when a company’s culture aligns thoughts, talks and actions of all across the organization transparently, and integrates company’s values and employees’ beliefs based on a shared agenda. IBM’s organizational talent processes from the very early years emphasized customer relationships, and organized development of people to stay focused on customer service. Emphasis on relationships does not mean lack of confrontation or differences when circumstances compel. An ability to advocate change and gain acceptance is a significant facet of the success of corporate centurions.
Globalization
Globalization is an essential requirement of leadership and longevity. There appear to be five distinct phases of globalization over the last century. The case study of India is an interesting one. Globalization of the early decades has been the first phase which focused on entering new markets, especially less developed countries like India, often with limited investments and with somewhat dated, early generation technologies to benefit from local demand. The second phase involved a counter-trend of moving away from such less developed markets as governments became socialistic and began nationalizing foreign enterprises in sectors such as oil, moving out foreign companies from certain disparate sectors such as computers and beverages and limiting growth in certain sectors such as FMCG and pharmaceuticals. The third phase involved post-liberalization reentry on a large scale based on major investments and relatively new generation technologies. Market making emerged as a new objective of the third phase of globalization. The fourth phase has seen a completely different paradigm of foreign enterprises seeking emerging markets that were previously less developed markets, in search of factor advantages as well as cost and time arbitrage. Probably, the fifth phase of globalization is now set to commence as emerging markets come on their own and become hubs of innovation in their own right but also suffer from the impact of inflation and relative cost equalization. The statement on globalization by IBM in its centenary essay assumes significance in the emerging context: “We have learned that national origin is less important than the indigenous value you create everywhere you choose to do business. Certainly this starts by creating jobs, making local investments, paying taxes and bringing products and services to new buyers. But it goes beyond that. Our history teaches us the difference between entering a market and making a market. The latter requires working with leaders in business, government, academia and community organizations to help advance their national agenda and address their societal needs. It requires building real skills in the local workforce and enabling new capabilities among its citizenry - being a force for modernization and progress. All of this means we must think differently about long-term commitment and investment. And, as the world becomes flatter, it also means that we have to be particularly thoughtful and progressive in helping every part of the world adjust to and participate in global integration”.
Corporate longevity
Corporations exist to serve customers and shareholders in one sense, and to take care of employees in another sense; however, in a holistic sense they exist to grow as responsible members of society, helping the society become better in the process. As manmade instruments of progress, corporations have the ability to last perpetually. Yet, it is a matter of concern that many corporations struggle to grow confidently beyond their mid-teens. As the 100 year history of IBM shows a corporation can overcome seismic shifts in technology and environment to remain in leadership position by a corporate behavior that emphasizes customers, adaptation, innovation, people and globalization. It also requires corporations to stay focused on the long term despite the pressures and compulsions of the short term. The lessons are particularly relevant for an India Inc that is set to play a larger global role.
Posted by Dr CB Rao on July 17, 2011
1 comment:
The list of corporate centurions referred to in the article span a variety of industries and striking for the range of market cap ~ 100,000 fold from Exxon down to Central Federal Corp! While the five drivers of longevity identified in the blog must have certainly contributed to the success of these stalwarts, there are likely to be additional factors unique to each organization dictated by vagaries of each industry and do or die decisions faced by key executives in these organizations. It would also seem logical to conclude these companies have grown "smartly" be it weathering financial downturns or evolving in spite of adversity in contrast to their erstwhile competitors. While longevity is one important metric, it would be equally if not more interesting to assess the relationship between longevity and wealth creation in this cohort and as an extension comparable data from non US companies to discern cross border nuances in adapting to change and cultural factors that are determinants of corporate longevity.
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