The Art of Corporate Endurance

From a young age we are taught to be fast.

As kids, we are rewarded for being the athlete with the greatest speed. At university, we are examined under time pressure. And in business life, CEOs incentivize and promote those senior executives who can get new ideas to market more quickly than competitors.

But what if speed is the wrong measure for success?

What if, instead of being fast, what matters is endurance – the ability to sustain competitive advantage longer and more dominantly than others?

The art of endurance can be studied in some of the world’s oldest companies. Take GKN, a British multinational on the FTSE 100 that makes auto parts and aero-space materials. The company has been around for over 250 years. It started life as an ironworks company, pursued vertical integration by entering coal, eventually moved into pressed steel wheels before diversifying into front wheel drive technology and beyond.

Or take Harris Corporation, an American telecommunications company founded in 1895. At a time when some of the world’s biggest newspaper companies are getting digitally disrupted, Harris exited the sector long ago but moved into adjacent industries. Having started out manufacturing printing presses it now focuses to high tech electronics and communications solutions, delivering over $5billion in annual revenue and 14,000 employees.

The art of endurance is increasingly rare. Over the last 50 years, the average lifespan of S&P 500 companies has shrunk from around 60 years to closer to 18 years. For each company that has lasted more than a century, there are countless more that have failed. Recall the glory days of Polaroid, Kodak, and the F. W. Woolworth Company – companies that were once the best in their field but failed to untangle themselves from deeply embedded routines, and fatally flawed resource allocation processes.

If we rethink corporate success as survival in the face of rapid, globally competitive change, then here’s the question: what does it take to sustain competitive advantage? What qualities of culture and individual leadership allow some companies to endure where others crumble under the pressure? To answer this question, I turned to the history books and extracted 4 lessons from those who have succeeded and failed.

Beware the dogma of founders.  Edwin Land founded Polaroid in 1937. He was as famous for his visionary commitment to instant photography as he was for his autocratic style and dogmatic beliefs. Land deeply believed in Polaroid as a technology-led company committed to expensive, long-term technology projects. That makes him sound like Google. But he was also zealously committed to the physical instant print and matching the quality of Polaroid prints with the 35mm product. His singular belief was both his greatest strength and weakness.

Cultivate wasted time. There is an enormous gulf between ironworks and aerospace. Companies that survive build structures and systems that allow them to waste resources. The secret is to find safe structures to waste time and money. It seems paradoxical at first, but companies need slack resources to be efficient with capital allocation over the long term.

In the early 2000s, IBM (founded in 1911) had an Emerging Business Opportunities process which identified and invested in a portfolio of growth opportunities. Many of these cannibalized existing revenues but were pursued regardless. IBM built special structures to ensure these businesses could succeed independently of the parent company, and without the residual effects of being associated with IBM’s culture.

Talk to your customers. Good product managers are in continuous conversation with their customers. But many senior executives lose touch with the humble customer as they get closer to the C-Suite.

In a recent meeting I had with senior executives at a multinational retail bank, none of the top management team could remember the last time they had sat down with a randomly selected retail customer. It’s crucial that decision makers who own budget are in touch with what customers think about the front-line product and user experience. If they aren’t, they act in blind faith: a dangerous place to be.

Don’t just build competencies, build dynamic capabilities. A firm can buy competencies, but capabilities are harder to develop and are the key to sustaining competitive advantage. Take Southwest Airlines as an example. It has clear competencies in being able to turnaround aircraft quickly, and manage a low cost operating model. These competencies are hard to imitate, but they can ultimately be replicated with time and money. Other budget airlines like RyanAir and Easyjet offer similar competencies in Europe.

Capabilities, by contrast, relate to structures and routines of decision-making at the most senior level of the organization. The rigor, culture and logic around these decisions are incredibly important, hard to develop, and almost impossible to change when they become dysfunctional. Enduring companies have dynamic capabilities. That means they have a culture of decision-making that is data-driven, customer-oriented, and adaptive to change.

When we slow down and think about what it means to be successful, endurance may be a more prized possession than raw speed alone. Consider what it takes to be big in 100 years, not just 100 days.

Source: http://blogs.hbr.org/2014/04/the-art-of-corporate-endurance/