THE longevity of a company is of critical importance to any society. Profitable companies continually provide goods and services to a community as well as much-needed employment. Unfortunately, the average life span of a multinational corporation is only 40 to 50 years. A third of the companies listed on the Fortune 500 in 1970 had already vanished by 1983. They had either been acquired, merged, or split up. A study showed that the average life of firms in Japan and Europe was only 12,5 years.
I recently reviewed the list of approximately 40 companies that were listed on the then Rhodesia Stock Exchange between 1946 and 1952. Some 60 years later, I could only identify two companies that are still listed on what is now the Zimbabwe Stock Exchange; the rest have either closed shop or are operating at significantly reduced capacity.
The question is, why did some companies survive where others failed? BP Shell is an example of a company that has had a long life. Its origins date back to 1890, but more than 100 years later, it still exists. It started as just an oil company but is now into nuclear power and metals. Other examples are Mitsubishi and Suzuki.
These Japanese companies started in 1868. As a nation we should not let corporations die. It affects communities, jobs, suppliers, customers and economies at large. As the current generation of business leaders grows companies, they honour the decades invested by those who have gone before us. It is therefore appropriate for us to consider the attributes of a company geared for long term survival.
- A company geared for longevity is one that has a “memory of the future”.
The term “memory of the future” can be somewhat contradictory. This is because you can only have a memory of the future if you have experienced the future. Too many managers do not respond to change in the right way because they have not pre-meditated the different scenarios that may exist in their businesses in the future. They have not visited the possible future scenarios as part of their brainstorming and planning processes. For instance, managers should project possible future scenarios and come up with survival strategies for those scenarios e.g:
- The increase of duty on imports by 10%
- The weakening/ strengthening of the rand against the US dollar
- Timing of elections (There are some businesses that actually make more money during an election year, than in a normal year)
- Increased competition from Asian markets
- An increase in the cost of energy
A management team geared for long-term survival will have to visit possible future scenarios and develop a memory of the future. Arie De Geus in his book The living Company, says: “Management need Perception when trying to guide their company through turbulent times …the act of perception is not simply a matter of collecting information or dates. Perception requires the deliberate effort by management groups within the company to visit their future” and develop time paths and options.
The more memories of the future we develop, the more open and receptive we will be to signals from the outside world.”
What memories of the future have you for your organisation? When change happens, will your response time be quick because you would have visited the future? After dollarisation (February 2009), many companies suffered due to lack of foreign currency. Very few had adequately premeditated a future scenario where the Zimbabwe dollar might no longer be in use.
- A company geared for longevity is a company with a strong sense of cohesion and identity.
This is a company whose employees feel they are all part of one entity and have a sense of belonging. You may think that should be the primary responsibility of the human resources (HR) manager, however, the entire management should be equally concerned. It is important to give your HR manager prominence in the organisation. He or she should not be seen as an administrative person in the background. This is critical because change management has a lot to do with people management!
The Mitsui Group of companies was founded in the 1600s in Japan. The founder, Takatoshi Mitsui, died in 1694, but he left rules and guidelines which became values his employees embraced in 1945 after World War II.
Because the Mitsui companies had been supporting imperial Japan, the American government issued a directive that they be dissolved. They were immediately liquidated. Today there are approximately 30 operating companies that originated from the original Mitsui group of companies that are part of the same group. These companies had a common identity and cohesion that enabled them to re-group and re-establish themselves.
- A company geared for longevity is a company that is tolerant.
A tolerant company is one whose management is willing to take risks and won’t rush to centralise everything (i.e allows for innovation). There is a need to balance “empowered” people and the effective control of the business.
Management needs to be cautious when restructuring or downsizing. It is detrimental to get rid of the brains of the organisation, because when the upside comes, you will need them. One should be careful of seeking maximum profits in the short term by downsizing, while losing the flexibility of a change in direction, if need be. Such companies are traditionally conservative in financing and will not at any time be heavily geared or in debt.
In conclusion, the longevity of companies is fundamental to economic growth and stability. It is in everyone’s interest to be part of a winning and profitable business. In our current economic environment greater attention needs to be given to the above attributes to ensure the sustainability of our businesses.
- Tapiwa Chizana is a partner in Deloitte & Touche Chartered Accountants. He writes in his own capacity.