National Learning Institute

Does your organisation pass the longevity test?

Over recent times, we've seen organisations such as Arthur Anderson, World Com, Enron, Lehman Brothers and many more disappear.  In fact, of the top 25 industrial corporations in the United States in 1900, only two remained on that list at the start of the 1960s, and of the top 25 companies on the Fortune 500 in 1961, only six remain there today. Can we place the blame on the GFC (e.g. Lehman Brothers) or lack of corporate governance (e.g. Enron) or perhaps, poor leadership?   These may well be the excuses, but they are not the causes. So, what leads to organisational longevity?

Arie De Geus (who worked for Royal Dutch Shell, founded in 1890) writing in "The Living Company" suggests that companies are "living entities" that can survive and thrive for centuries if they focus on several aspects of their character and operations.

What are these characteristics?

Well, take IBM as one example - celebrating 100 years this year - who are on a new wave of success after going through some turbulent times over the last decade.  Now, in the 1960s the casual observer may have put their success down to IBM's mainframe services.  In the 1990s, the same observer may have seen their world dominance of the PC market as the reason for success.  In both cases, those observations would be wrong.

What has led to IBM's success over the last century?  Leadership, charisma, long term thinking?

A recent Wall Street Journal special supplement (June 16, 2011) celebrating IBM's 100 years, provides some interesting insights about its longevity:

• On leadership - "We have learned not to confuse charisma with leadership. In business, there are archetypal examples where the genius of a founder created tremendous good fortune - at least in a company's opening act. The cult of personality is seductive"
• On culture - "Watson's (the founder) most enduring contribution to business was his intentional creation of something that would outlast him - a shared corporate culture"
• On values - "Watson showed how the basic beliefs and values of an organisation could be perpetuated - to become its guiding constant through time. Values therefore force choices: Whom you hire. The ways you serve the customer. How you develop talent at all levels. Which businesses you create, enter and exit, and when. How much risk taking you promote"
• On direction - "We have never defined IBM by what we make, no matter how successful the product or service"

Does IBM's DNA reflect characteristics De Geus referred to?  Here's a précis of his four characteristics:

1.     Sensitivity to their environment - long-lived companies sample, learn, and adapt to what is going on around them.

2.     Persona - they are cohesive and have a strong sense of identity based on the ability to build a shared community.

3.     Tolerance - they are patient, generally decentralized, with widespread decision making authority, and tolerant of "non-core" activities on their periphery (which may well become tomorrow's core).

4.     Frugal - they are conservative with their money, which they use to govern their own growth and to give them options.

What about some of the iconic companies of today?  Will they survive?  Do they pass the longevity test?  Pick your favourite icon or one that is based in your region (or perhaps your own organisation) and see if it passes the test.

As a proud Australian, I have some concerns for another proud Australian, Qantas.  One of Australia's iconic companies, Qantas is the second oldest commercial airline in the world (established in 1920).  And like IBM in previous decades, they now seem to be going through some turbulent times.

Will their core values see then through these tough times?

As Jim Collins and Jerry Porras point out in "Built to Last", "Visionary companies ... had a number of common characteristics; for instance, almost all had some type of core ideology that guided the company in times of upheaval and served as a constant bench mark."  Does Qantas have such a core ideology?

Qantas have built their public reputation on safety.  Many will remember the famous quote by Dustin Hoffman as the character Raymond in the film "Rain Man" who insisted on only flying "Qantas because they have never had a crash".  In fact this appears to be an urban myth, as Qantas, particularly pre the jet age, has had a number of crashes over its long history.

As reported in Matthew Benn's book "The Men Who Killed Qantas", whilst safety was a major consideration, concern and priority for the founders, in fact the company was built on innovation, service and employee perseverance.

Are these same core values still guiding Qantas?  What's happening with them today?  What are Qantas' plans for the future?

Are they consciously focusing on De Geus' four characteristics for longevity - sensitivity to their environment, persona, tolerance and frugalness?

To help your assessment, here's a snippet of recent events regarding Qantas and its future:

• They are (or have recently been) in protracted disputes with three sectors of their workforce - pilots, engineers, cabin crew.
• Their safety record has been tarnished with a number of near misses over the last two years.
• Qantas has again slipped down the rankings of the world's best airlines. In the annual Skytrax World Airline Awards, it was named the world's eighth-best airline, down from number seven in last year's awards. The airline has dropped every year since 2008, when it was named the world's third-best carrier.

And finally, Qantas may be losing some support from the Australian public.  In a poll conducted by the Sydney Morning Herald in conjunction with the World Airline Awards article, of 13,365 people who voted, 45% selected Singapore Airlines (SIA) as their preferred carrier (and SIA do not operate domestically), while only 12% selected Qantas.

And then there's the competition.  The newcomer to the domestic market, Virgin Australia, is rapidly gaining market share.  Their target is 30%.  To help achieve this, they are forming an alliance with Singapore Airlines (No. 2 most popular airline in the world), to provide access for domestic customers to SIA's international frequent flyer program.

So what of the future for Qantas?

CEO Alan Joyce, announced that Qantas would be making some major changes.  Key amongst these are;

• a global network of mega alliances and
• a push into Asia (where salaries and costs are cheaper) to capture growth in premium-priced travel within the region.

It will be interesting to view the results of this strategic change in direction.  Will Qantas be celebrating 100 years in 2020?  Are they taking heed of what Moid Siddiqui, author of "Soul Inc." suggests, "... the real time for a test of values is when a company is not doing well.  Downturns must be faced by holding values steadfast, not by compromising them".

And what of your own organisation?  Does it pass the longevity test?

• Is your organisation sensitive to its environment? - Remember, long-lived companies sample, learn, and adapt to what is going on around them. What changes has your own organization made over the last ten years as a result of its learning?
• Does your organisation have a persona that is cohesive with a strong sense of identity based on the ability to build a shared community?
• Is your organisation tolerant? - Is it patient, generally decentralized, with widespread decision making authority? Tolerant of "non-core" activities on its periphery?

• Is your organisation frugal? - Is it conservative with money, which it uses to govern growth and to provide options? (Be careful not to confuse "frugal" with "cost-cutting" - the former is proactive and looks to provide business growth, whilst the later is reactive and looks to only control costs)

It's perhaps somewhat easy for us to look at history and analyze why an organisation has succeeded or failed.  It's a little more difficult to make future judgments or predictions now - but isn't that the key imperative of the CEO?