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LEE Dong-Hun

Corporate Longevity

LEE Dong-Hun

Mar. 16, 2005

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The idea of corporate longevity first surfaced in 1982 through publication of an interesting analysis on the subject by Japan's leading business weekly Nikkei Business. Surveying the sales and assets of Japan 's top 100 listed firms, it discovered that they had an average life span of 30 years. According to another finding in 1999 by the same publication - surveying companies by market capitalization ranking - Japanese companies normally enjoyed seven peak performance years. However, another survey, by Business Week magazine of the US, showed a more surprising result: an analysis of 1000 top global companies (in market value) demonstrated that the top 100 firms' business peak years generally lasted fewer than five years.

Tom Peters, in his book "Thriving on Chaos," (1987), wrote that two thirds of the 43 companies mentioned in his earlier book "In Search of Excellence" (1982) had either failed or were merged with other companies. Competition was so fierce even the world's leading companies had difficulty running for more than five years. Of the companies that have so far been listed in the Dow Jones Industrial Average since 1884 (the year when the stock price index was first introduced), only General Electric (GE) was still in it. According to the Nihon Keizai Shimbun, Nikkei's sister publication, a company's average life span in 1982 was 30 years. Today, it is merely five years.

Business company is a living creature. They grow and mature, but if not properly nurtured, they wither and disappear. So they must constantly transform themselves to stay in life. Promoting change can guarantee longevity. DuPont, the world's leading chemical maker, marked its 200th anniversary in 2002. That year was also the centennial anniversary for 3M. Ford Motors turned 100 years old in 2003.

Even long-living companies can disappear suddenly. IBM, which will be celebrating its 81st birthday this year, suffered its worst luck in 1993 when Lou Gerstner was appointed its new CEO. Nokia began its life as a pulp and paper maker in 1865, expanding its business further into rubber and TV manufacturing in 1967. Only in 1992 did it cut itself loose from other business lines to focus on telecommunications.

What is the secret of corporate longevity? Existing researches suggest that companies over 100 years old are those that have successfully transformed themselves. In his book "The Living Company ," Arie de Geus, management theorist and head of planning at Royal Dutch Shell, analyzed 27 companies that were over 100 years of age, among them DuPont, Kodak, Siemens, and Unilever. He concluded that four factors were behind their longevity: 1) susceptibility to environment, 2) a strong identity, 3) openness to new ideas, and 4) conservative capital management. In their book "Built to last: Successful Habits of Visionary Companies," Jim Collins and Jerry Porras argued that only companies that tried hardest to change strove most to improve, and ceaselessly continued making promising products turned out to be the most respected survivors.

The secret of GE's longevity appears pretty straightforward: it has always remade itself to meet new technologies or market demands. On the surface, the present-day GE may look the same as it was a century ago, but that's deceptive. It has stepped out of business offering low returns, and moved into business bringing high returns. GE started as an electronic company but today derives its profits mostly from capital business. DuPont owes its longevity to catching up with changes and transforming itself based on these changes. Basically, there are three principles behind its longevity. First, DuPont operates a sensorial system that grasps the faintest sign of change. This system is embedded in the entire process of product development. The second principle is early investment and early market roll-out: this seizes the best timing available to maximize on value from information gathered. DuPont's products have ranged from rubber to resin to fiber. Indeed, they have become common nouns today thanks to DuPont. Third, all this has been possible because DuPont's ability to operate a self-denial mechanism, which allows it to make fundamental changes by rejecting itself when change becomes necessary.

Corporate longevity's DNA would include future-oriented management, ceaseless innovation, and adaptability to change. Short-term approaches often lead to failure, or to big losses following small gains. Kensil , a New York partner of the world's leading consulting firm KPMG, claims that the conditions for longevity include agility to perform better than rivals. Management strategist Gary Hamel has summarized the present age as turbulence and resilience. It means corporate environment changes so fast that companies require extreme flexibility to cope with new situations.

Companies survive by responding flexibly to changes that are rapid and often opaque. They sense war, recession, political or technological upheavals before they arrive. They respond to changing situations by adapting to new circumstances and enhancing capacity to learn. They create environment that ensures stable growth and high returns. Companies attain longevity by cutting fat and staying trim. But even the most efficient organization turns bureaucratic as time goes by. They must therefore remove nonessential parts in order to focus on future-oriented transformation. The speed of transformation that companies must seize will continue to accelerate as digitalization and globalization move ahead. This is why the concept of corporate longevity will stay as long as business companies find themselves adapting to changing environment in order to stay alive.

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