What exactly is a corporation? What is its expected life? And how can it survive and prosper? While these questions may seem simple or even trite, we wonder how many CEOs and Directors actively consider them in the face of seemingly endless calls upon their time and attention.
Yet, if they do not do so, they almost certainly increase the risk of their own business’ demise, because very few of them are in a position to change or materially influence their operating environment, and so they must adapt to it.
The Harvard Business Revue (HBR) recently published an article, entitled “The Biology of Corporate Survival”, which should give any senior executive pause for thought. Its authors, having studied the longevity of some 30,000 US public companies over a 50-year timespan, found evidence that the probability of such a company being delisted within the next 5 years because of bankruptcy, liquidation, M&A or other reasons was one in three- a rate apparently six times higher than 40 years ago. Of course, the complacent will say: “But our company will be one of the survivors”. Why?
The HBR article’s core argument is that companies “die” younger and more frequently “because they are failing to adapt to the growing complexity of their environment”. Terms such as “globalization”, “disruptive technology” and “Uberization” are tossed around as a supposed sign of the speaker’s intellectual sophistication; but they are often uttered without any real thought as to what they mean, or whether they are relevant to a particular business.
In North America and most of Europe and Asia, businesses may no longer have to fear the direct consequences of war or invasion, perhaps the ultimate “disruption”, yet they do face constant challenges and threats. What will differentiate those who survive and thrive, from those that languish and “die”?
As the HBR article’s authors argue, in order to survive, any business has to be seen and managed as a complex adaptive system, in which how its various members (the “agents”) interact leads to outcomes that can reconfigure the entire system (called “emergence”) and generate “feedback”, which then continues the cycle. Of course, businesses do not exist in isolation, so they are always being impacted by the behaviours of other, external complex adaptive systems.
Consider the (re)insurance industry. In its accepted modern form it is not much more than 300 years old (if we taking the founding of Lloyd’s as a marker). This is, theoretically, some 10 generations; which, for its human participants may seem to provide some comfort that they face reasonable odds of “survival”. Then consider that, at an industry or functional level that may be so, but at an individual company level, that is simply not the case. Yes, Lloyd’s has survived (albeit not without a few “near death” experiences); and there are companies that proudly trace their history back almost 200 years, or even longer. However, they are the exception. In reality, the ability of any one business to survive has always and will continue to depend upon characteristics that make it “predator” rather than “prey”, or at least able to form defensive alliances that help to reduce the threat of annihilation.
At Awbury, we are students of many disciplines, as well as believing that it is important in a systematic way constantly to review and re-assess whether our strategies, products and techniques, as well as knowledge base, remain “fit for purpose. We do not see ourselves as predators (nor prey!), because we believe that co-operation and partnership are ultimately much more successful as an approach to long-term survival and prosperity; but that does not mean that we are not paranoid! Threat (and opportunity) assessment are a fundamental strand within our corporate DNA.
The Awbury Team