Author: Claudio Feser
Publisher: John Wiley & Sons, 2011
ISBN-13: 9781118149928, 202 pages
Businesses, like people, follow a natural life cycle: They’re born, they grow, they live and they die. Only 15 percent of all firms reach 30 years, and only 5 percent make it to their 50th anniversaries. Yet some organizations defy the odds, continue to produce and contribute many decades beyond an expected life span. These “serial innovators” go through a constant series of changes, perpetually reinventing and adapting themselves to shifting markets and environments. McKinsey executive Claudio Feser delves into economics, sociology, neuroscience and psychology – one chunk at a time using the connective framework of an engaging business novella. He sets out to help you understand what drives long-lived companies to outperform and outlast their competitors. getAbstract recommends this imaginative, wide-ranging book to executives seeking a strategy for discovering the corporate fountain of youth.
Extending the corporate life span
When new CEO Carl Berger arrived at American Health Devices (AHD), an international corporation, he found a fragmented management team, lagging innovation, declining earnings and pending lawsuits. His wife, Gwen, led him to a friend who was researching corporate longevity.
If you compare a list of America’s top 50 corporations in 1960 and the top 50 in 2010, you will see that two-thirds of the firms ranked in 1960 don’t appear on the 2010 list. Stronger, more agile newcomers overcame several of the vanquished firms – Mobil, RCA, General Foods. Like humans, most companies follow a natural life span of birth, growth, maturity and death. Half of all publicly listed companies die within a decade; only 15 percent of all firms reach 30 years and only 5 percent make it to their 50th anniversary. Those firms are “serial innovators.” This picture of corporate mortality aligns with Joseph Schumpeter’s “creative destruction” theory of economic evolution. Yet corporate death isn’t necessarily inevitable. The remains of declining firms often hold the seeds of new growth and new businesses. If you understand what causes deterioration, you can develop reasonable clues about how to prevent it and how to secure a longer, more productive life for your business by making use of the newest information.
Facing the danger of “rigidities”
Carl told his executives about his ideas for quality improvement, innovation and expansion, but they weren’t in sync. He turned to behavioral economics to help him align his ideas.
As companies age, they develop rigidities that block them from changing and adapting. A firm that tastes early success tends to create “mental models” that keep it operating in a rut and may prevent it from evolving. Firms with “rigid organizational constructs” – hierarchy, bureaucracy, rules and processes – stagnate. This codified approach can lead to “ossification” and “inertia.” Rigidities tend to begin at an individual level and then morph into “organizational rigidities” that mire companies in the past, paralyzed, blind to the changes necessary to survive. To bring about real change and innovation, managers first must understand what prompts employees to behave as they do. Three “individual rigidities” hamper people’s thoughts and actions: “mental biases, lack of (task-specific) self-confidence and inflexible brain connections.”
Carl had his team gather fresh data from clients. He replaced executives and launched an “Open” sourcing strategy. It faltered because staffers were locked into old ideas…