Why do mature companies die or grow frail and get eaten?
After all, once they have passed through the helter-skelter of childhood and have attained stability after the hectic days of early formation, why don’t they just live on forever?
This was a topic that interested Arie de Geuss of Royal Dutch Shell and he asked a similar question to one that led to a breakthrough in medical science almost four centuries ago – could the same hold for how we look at corporations?
Death as a subject
In 1662, John of Graunt built tables of mortality for the city of London, listing for each year the numbers of deaths by cause. This required not just the collection of data about death, itself a valuable exercise, but also required him to think in terms of categories of causes of death. Although many of the categories have changed over time, this process of thinking once set in motion, led to steady revision and improvement.
For example, from the year 1632, Graunt lists these as the top five causes of mortality:
Chrisomes*, and infants 2268
Flocks†, and the small Pox 531
*Infant mortality before 1 month of age
†Means “sediment”, but it is unclear what Graunt meant by this in conjunction with Smallpox
This systematic approach paved the way for tracking and intervention, and gave birth to the science of demographics and enabled epidemiology to develop.
You could say that Graunt was a necessary and key player in the development of modern medicine.
The Mortality of Companies
In his analysis of companies in terms of mortality, de Geuss created categories from the data that led him eventually to conclude that companies die because they develop learning disabilities – they became deaf and blind, and stopped learning – and therefore eventually succumbed to external forces that they were unable to notice or against which to marshal an appropriate response in time.
I view this in terms of Organizational Learning (OL) – which is why I describe my occupation as “Knowledge Management and Organizational Learning”, and I break it into five major components:
- Stimulus-Response Learning
- Vicarious and Promiscuous Learning
- Scenario Planning
- Ongoing Professional Development
- Innovation Intent
This is the kind of thing that even an earthworm can do, but which many organizations seem to lack.
If an earthworm touches an electrified wire, it eventually learns to avoid the wire, no matter which part of its body did the touching. In contrast, some companies will repeat the same mistake over and over again, seemingly needing to reiterate the same mistake several times with each and every business unit and team before the message finally gets through and becomes part of its adaptive repertoire.
Being smarter than an earthworm should not be that difficult for a corporation made up of smart people, but it means that internal communications and repositories are done in such a way that if one part of the organization makes a mistake or encounters something that poses a risk, that all other units and geographies have access to that same information in a way that they can actually use (and do!).
This turns out to be more difficult than one might assume and the “plumbing” side of providing email, portals, knowledge-bases, and content management are only about a third of the solution. The remainder is a corporate culture that is able to learn across divisional boundaries, and for this you need both leadership and vibrant Communities of Practice
Many organizations never get this far, and die because the rock that they stubbed their toe on last year, came back and hit them in the head this year.
Vicarious and Promiscuous Learning
Once one has evolved past the realm of Annelids, the next big advantage is to learn from other people rather than needing to take the lumps yourself. This saves money and time, and is therefore a direct competitive advantage.
Rome learnt from Carthage, apprentices learn from their tradesmen, and hopefully a company can actively look for examples of what to do and what not to do by observing others. Except where patents and copyright are an obstacle, the keyword is to “shamelessly borrow” ideas and then modify them to fit localized conditions.
This is best done by the leadership team, and by the Communities of Practice who can effortlessly dig their roots into the pool of expertise and experience that lies outside the organization but within their domain of excellence. When an SME comes back from attending a trade show or seminar they can mutate the ideas to suit the organization and spread them throughout the organization via the interdepartmental CoP structure.
Just achieving this stage will provide a significant competitive advantage and add decades of life-expectancy.
So far we have dealt with the past and the present, and the next evolutionary phase is to consider the future beyond the next departmental quarterly review. Scenario-planning is a toolset that attempts to break at least partially free from the learned helplessness and practiced defensiveness that Chris Argyris outlines as part of “Single-Loop Learning“. By posing “what if” scenarios, there is the possibility, if you are nimble, to catch yourself before the auto-protective blinds come down and to notice the stealthy approach of a hidden predator, or surprise yourself with an outcome that was unexpected.
This is the playground of the giants mainly, because everyone else is too busy “just surviving” to look several years down the pike and try to make out the fuzzy shapes on the horizon or in the shadows. The irony is that it can lead to complacency (look at BP and the recent gulf of Mexico debacle), in the same way that seatbelts and airbags led to less careful driving in some people.
Scenario-planning requires a mix of dogged fact-finding and logical step-wise thinking, systems-thinking, and imaginative brainstorming. Plenty of DIY books exist on the topic, but usually a firm needs external help at least in the beginning. It also requires a mix of culture and technique that is frankly beyond most firms. After producing various scenarios and plotting the likely outcomes, and then working back to find solutions, it requires a very peculiar kind of management culture to stare the scenarios in the face and put money and executive sponsorship behind remedial action.
Although this is a critical component of achieving and maintaining longevity, its very success is a risk, since dodging future bullets makes a firm more likely to become complacent and also to value the process less. People in westernized countries are less likely have their children immunized because they have forgotten or have never experienced the real diseases – dodging them makes them seem less like the killers they are.
Ongoing Professional Development
Another dimension in successfully competing is simply having better skills and intellectual assets than your competitors. This runs the gamut of identifying people with better SKAs than your competition, to acquiring and keeping them, to putting them to work more efficiently and effectively than the next company in your market space. However, time passes, things change, tools rust, and if you want to keep ahead of the competition, having a workforce composed of people who actively pursue their own ongoing professional development is surely the best.
This is also the key element in forming a CoP, and without a culture of ongoing learning, the intellectual assets of a company will slowly gather dust and be buried.
The absence of a vibrant and concerted effort to maintain professional expertise is an early sign of cognitive degeneration in a firm, and a harbinger of senescence. If your staff don’t actively pursue their own ongoing professional development, you are already a dead-man walking.
The final dimension is the desire for change, and perhaps the hardest of all to achieve.
As companies age, like people, they tend to grow more conservative in outlook and more comfortable with the tried and true over the new and exciting.
This is a perfectly logical risk-aversive approach since most novelty, most innovation either fails or is deleterious. Mutations, for example, seldom produce an improvement – usually they just result in cancer. So sticking to what has already proven to work adequately is a very safe bet – in the short term.
However, this leads inevitably to rigidity in the face of change and decreased ability to formulate new solutions when the old ones no longer apply. Think of this in terms of bacteria – over time bacteria will acquire resistance to existing medications no matter how effective they were originally, and unless novel attacks are discovered, eventually the bacterium starts gaining ground and flourishes.
For this reason one has to have a deliberate intent to innovate, to test out new approaches and ideas before the old ones are exhausted and overrun.
However, this requires a cultural environment in which experimentation is supported, controlled, and encouraged. An early warning sign is if mistakes are typically punished rather than treated as learning opportunities – If punishment is the first and foremost reaction, then you have a safe bet that there is little innovation and the firm is already gathering moss and accumulating risk.
A word of caution is appropriate here – Major innovations don’t typically come from individual work, nor from steady evolutionary refinement over time, but from importing mature ideas from other domains and collaboration between people and across domains and organisations.
If individual work is rewarded and there is a winner-take-all culture, you already have a massive handicap.
Studying the causes of death in firms serves two valuable purposes – knowing the facts of death itself, and the formation of a classification on which to build remedial efforts. This provides a framework against which to take preventative and generative action, and with careful action, a firm can greatly extend its productive lifespan.
Most of the steps require a cultural component, and all require leadership and executive support that can look beyond the next quarterly earnings. But for those companies that have the character and desire, the processes listed can provide not just a new lease on life, but significant competitive advantage.
Matthew Loxton is a Knowledge Management professional and holds a Master’s degree in Knowledge Management from the University of Canberra. Mr. Loxton has extensive international experience and is currently available as a Knowledge Management consultant or as a permanent employee at an organization that wishes to put knowledge to work.