The Living Company


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The average Fortune 500 Company today can expect to enjoy a run of about 40 to 50 years. That may sound like a respectable life span until you learn there are large and small companies in the World that have been around for two, three and even four centuries .
What’s the secret to their longevity ?
Long-lived companies don’t focus solely upon economic activity. Instead , their goal is to build a community that grows & thrives beyond the individual contributions of each generation.
The idea may sound radical but it’s the foundation for a variety of other institutions including Churches, Universities, and even armies that were established centuries ago & continue to flourish today. These institutions & their corporate counterparts exhibit the behaviour & select characteristics of living organisms. They learn, develop an identity, build relationships with other life forms, grow and eventually die. They are, in fact, living entities.
Living companies, like all organisms, exist primarily to survive & fulfil their maximum potential. Just as work is a means to an end for you, making money by producing goods & services is a means to an end for a living company. Their end is to live.
They stay alive by
· Learning & choosing to adapt to their environment

· Creating strong identities as tightknit communities

· Paying attention to their relationships with both members & external agencies

· Controlling their growth by spending money frugally.

Understanding how a company can be a living entity is a first step towards increasing its life expectancy.
The enclosed document captures Some Impressionistic takes how a living company learns, develops a strong identity, nurtures relationships & evolves to a ripe old age.

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The Living Company

  1. 1. Some Impressionistic takes from the book of Arie De Geus “The Living Company “ Habits for Survival in Turbulent Business Environment by Ramki
  2. 2. • Unique contributions to management thinking because the source of their thinking is experience rather than concepts • Arie de Geus worked for Royal Dutch/Shell for 38 years, from 1951 to 1989 • Chairman of Netherlands – British Chamber of Commerce from 1981 - 1988 • The Queen of Netherlands appointed him an Officer as the order of Orange Nessau in 1988 • Head of an Advisory Group To The World Bank from 1990 – 1993 • Advised many government & private institution , lecture throughout the world. • The author include on influential in the Harvard Business Review article "Planning as Learning" • He is a visiting fellow at London Business School • Board member of the Nijenrode Learning Centre in the Netherlands. About Arie De Geus
  3. 3. This book raises a fundamental question, "What are companies & what are they for?" Whereas the standard answer is that companies are organizations that carry out economic processes to produce goods or services, he argues that such narrow thinking leads to management practices and priorities that are detrimental to everyone--from shareholders to employees to stakeholders--often leading to the demise of firms. Today's scarce resource is knowledge, which is created by a company's human assets. As a result, management's top priority must be the optimization of human resources and its knowledge-creation ability to ensure the longevity of the firm. The author explores the theme of organizational learning and identifies four key elements to organizational survival and renewal:  Sensitivity to the environment (a company's ability to learn and adapt),  Cohesion and identity (a company's innate ability to create a community and a persona),  Tolerance (the ability to build constructive relationships with other entities), and  Conservative financing (the ability of a firm to govern its growth and evolution). Together, these four factors are essential to growth and viability. Prelude
  4. 4. What is a Corporation? • Defined as: “A large company or group of companies, recognized by law as a single unit.” ~Oxford Dictionary
  5. 5. Two Views Companies can be viewed in two different ways  See a company as a Machine for making money.  Alternatively see a company as a living being. Implications of these two views  Machine for making money Vs.  Living being – illuminates a host of core assumptions about Management & Organizations
  6. 6. • Described as: An organization that is viewed as a “Community of human beings that is in business – any business – to stay alive.” ~De Geus What is a living company?
  7. 7. Evolution Seeing a company as a machine implies that it is fixed, static. It can change only if somebody changes it. Seeing a company as a Living being means that it is evolves naturally. Identity Seeing a company as a machine implies that its only sense of identity is that given to it by its builders Seeing a company as a Living being means that it has its own sense of identity, its own personhood Company -Machine Vs. Living being- 1/3
  8. 8. Empowerment Seeing a company as a machine implies that its actions are actually reactions to goals & decisions made by management.. Seeing a company as a Living being means that it has its own goals & its own capacity for autonomous action. Renewal Seeing a company as a machine implies that it will run down, unless it is rebuilt by management. Seeing a company as a Living being means that it is capable of regenerating itself, of continuity as an identifiable entity beyond its present members. Company -Machine Vs. Living being 2/3
  9. 9. Human Capital Seeing a company as a machine implies that its members are employees or, worse , “ Human resources” humans standing in reserves, waiting to be used. Seeing a company as a Living being means leads to seeing its members as human work communities. Learning Seeing a company as a machine implies that it learns only as the sum of the learning of its individual employees. Seeing a company as a Living being means that it can learn as an entity, just as a theater troop, Jazz ensemble, or championship sports team can learn as an entity. Only Living beings can learn Company -Machine Vs. Living being 3/3
  10. 10. Life Expectancy of a Corporation Assuming business is a living entity the average life expectancy of Fortune 500 Company is 40-50 years However, this study only included companies that had already survived their first 10 years, commonly a period of high corporate mortality. A study by Stratix Consulting Group calculated the average life expectancy of firms in Japan and much of Europe, regardless of size, at 12.5 years. Another study indicated the average life span of companies to be 12-15 years. It is worrying to look at the above figures and imagine the average life of a company to be so short.? On the other hand, some organisations are still around after very long periods of time.
  11. 11.  For example, Beretta, the Italian firearms maker is 500 years old Givaudan, the Swiss perfumery was established in 1895.  A 2009 study by Tokyo Shoko Research Ltd  Among nearly 2 million (1,975,620) firms in Japan 21,066 firms were founded more than a century ago  8 firms founded more than 1,000 years ago  Osaka-based construction company Kongo Gumi topping the list with 1,431 years of history (until its liquidation in January 2006).  Regarding the reason for longevity of Japanese firms, they focused on their core businesses by accumulating & developing unique skills & know-how, management based on the trust of stakeholders, a professional CEO system & conservative management.  Companies die because their managers focus on the economic activity of producing goods and services and forget that their organisations' true nature is that of a community of humans” Life Expectancy of a Corporation
  12. 12. Longevity was not linked to… Return on investment Material assets What is the purpose of the Corporation ? Longevity
  13. 13. Learning
  14. 14. Why is there such a discrepancy? “Living companies produce goods and services to earn their keep in the same way that individuals have jobs in order to live” ~De Geus
  15. 15. Living Companies Very good at managing for change in the marketplace Understand: Who they are How they fit into the world The value of new ideas & people
  16. 16. Traditional Economic View: Sources of wealth are land, capital, labour  In age of land Wealthy if had land  In age of capital Wealthy if amassed capital  In age of knowledge Labour is valued Capital is no longer scarce Knowledge is the scarce production factor value of learning From the Capitalism to Knowledge Society
  17. 17. How do companies anticipate the need for change? Why doesn’t a company see what is happening?  Managers are stupid  We can only see when a crisis opens our eyes  We can only see what we have already experienced  We cannot see what is emotionally difficult to see  We can only see what is relevant to our view of the future
  18. 18. Anticipate & Learn to understand the signals for change A Swedish company -Stora , has been existing Seven centuries of political greed, social upheaval & wars, including two world wars. The firm’s survival is a testament to it’s abilities to learn & adapt. Learning begins with the ability to anticipate & see change coming This means the organization must have the agility & awareness of all the forces that might affect it. Awareness is only the first step, however the firm & people must be able to adapt to those changing forces. Over the centuries, Stora moved from Copper mining to forest exploitation, iron smelting, Hydro power & eventually to paper, wood pulp & chemical production. As the product changed, so did its technology, process and its capability. The company depended upon management that saw political & social changes coming & helped to meet those changes Living companies learn
  19. 19. Why Companies fail ? The reasons are : Some companies simply denied the signals were there. Others found change so painful they resisted changing until a crisis hit. Some younger companies simply didn’t have the experience to recognize the signals in front of them. Perhaps the best explanation, however, is that most companies see only those signals that relate to their views of the future . As per David Ingvar – a Swedish researcher , the human brain creates time paths for future activity. These time paths make up what Ingvar calls “ Memories of the Future” . They help the organization & its management to decide what information is relevant. Information must relate to one of your time paths for you to perceive it.
  20. 20. Managers miss signals because they don’t relate some information. Like Political upheaval in an foreign country , to their time paths. As a result, they can’t help their organizations adapt to the changing environment. Look for change all around you. Create many memories of the future. One way to do this is to develop scenarios Most companies make the mistake of trying to predict the future. It is futile to ask “ What is going to happen to us in the future ?” Instead, the firms should ask – “ if such and such happens, what will we do ?” Create Scenarios that will help you to adapt to change. Why Companies fail ?
  21. 21. Building scenarios & How ? -1/2 Scenarios are imaginative stories about the future. They are discussions & documents that explore a variety of new ideas & views. Scenario building begins by examining the ways in which World- wide events might affect your business or industry. For example, say the World is going to run out of oil. As an oil company, what steps do you take today to prepare for this scenario ? For inspiration, talk to people whose perspectives differ from your own. Read widely outside your immediate business concerns. Don’t try to create a separate scenarios for each global event, incorporate several events into one scenario. Optimally, you want to end up with only a few scenarios. The best thing is to have only two so that managers are forced to choose between them.
  22. 22. Building Scenarios & How ? (2/2) Document the scenarios & review them with your team/ Managers. The team’s inputs & their insights will enlighten you, & the process will improve the judgement. Present the outcome Scenarios to others in your organization, If you have done your job well, the results will disturb them. You will be asking people to think about the unthinkable. Quite likely they may resist this intrusion into their business thinking. Don’t get discouraged. Scenario building has proved more accurate than prediction as a lead on the future.
  23. 23. Process – The memory of the future Process No 1 The specific things that I –or we-can do to keep developing a memory of the future are – listed down the points. Process No 2 Pluses. The Specific things that I –or we can do to build on the potential pluses are – Listed down the points Process No 3  The possible things that could happen in my field – or my team’s or my organization ‘s field- In the future are - Listed down the points. Process No 4 The potential pluses of these things happening could be : Listed down the points Process No 5 – Refreshing my memory of the future Process No 6- responding to the memory of the future – building on positives Process no 7-Managing potential minuses - Listed down the points
  24. 24.  Not many large companies survive the test of time  Several Japanese corporations were founded in the 17th & 18th Centuries, among them Mitsui, Sumitomo and Daimaru ( a departmental store).  Mitsubishi & Suzuki date back to the 19th Century.  Few large North American companies have ancient histories.  Among those that have survived more than a century are DuPont, Hudson Bay Co., , W.R Grace and Kodak.  Europe boasts a number of Old companies.  In fact, one U.K trade associations, the Tercenternarians Club , accepts only member companies over 300 years old.  Most, however are relatively small family firms.  Royal Dutch/Shell, a multinational Dutch & English enterprise, dates back to the 1890s.  A study by that firm found only 40 large corporations worldwide older than itself Few Corporations Beat the Odds
  25. 25.  Shell study of companies older than Shell (=100 years) 27 in detail, of 40.  Why did they survive?  Sensitive to their environment (in harmony with the world around them – tuned to what was going on).  Cohesive, with a strong sense of identity. (People felt part of them – community - managers chosen from within - "stewards").  Tolerant (of activities on the margin - experiments, eccentricities... - did not exert overly centralised control).  Conservative in financing (frugal, money in land - could pursue options their competitors could not) Features of Long lived companies
  26. 26. Decision making is a Learning Activity  Most people view decision making as sequential activity. First you learn, then you make decisions.  Actually , learning & decision making involve same process.  Making decisions at meetings goes through four stages.  Perceiving Perceiving Embedding Concluding Acting
  27. 27. Decision making is a Learning Activity Perceiving- Someone becomes aware of news outside the course of business, such as a drop in sales or competitor’s new product, and calls a meeting to discuss it. Embedding- At the meeting, people release the new to their understanding of the business world & exchange their views on how to address the issue. Concluding – Once information has been shared, meeting participants decide on an action plan. Acting- The plan is implemented. When you learn, you also perceive, embed, conclude and act. Every act of decision making is a Learning Process
  28. 28. Learning  According to Swiss behaviourist Jean Piaget people learn in two ways”  Assimilation  Accommodation  Assimilation involves adding information to your storehouse of knowledge. When you look up the answer to a question, for example, you are learning by assimilation.  Most companies make decisions this way.  When interest rates go up, for instance, banks use this information to make decisions about deposits, loan transactions, and other bank business.  They become aware of the increase ( perceive), relate it to their operations (embed), decide how to use it ( conclude), and implement their decision ( act).
  29. 29. Learning  By contrast, learning by accommodation involves changing the way you think or the way you do business.  This type of learning that characterizes long-lived companies .  Assume you own a real estate company & you learn about the interest rate hike.  Unlike the bank, you cannot afford to simply apply this information to your existing operations.  You may decide to get rid of part of your project portfolio, delay or change the nature of individual projects, reorient your work force, or even bring on a partner.  You will still perceive, embed, conclude and act, but in the end you have changed the way you do business.  Learning by accommodation is more difficult than learning by assimilation.  By simply absorbing information means that somewhere along the line you will miss critical signals. “A leader who learns is a leader who is unsure”
  30. 30. Decision making & Learning Essence of Learning is discovery through Play Present decision making in organisations... Is slow Closes out options Depends on learning by experience, rather than learning by simulation Breeds fear
  31. 31. Persona (Identity)
  32. 32. Only Living beings Learn Is a Company a “Thing” or a “ Persona” ?  Play and learn  The “persona”  Goal oriented  Conscious of itself  Open to the outside world  Alive, but finite  Distinction between persons & things  Things are impacted by events but do not decide to make things happen
  33. 33. Companies are more than the Sum of their parts  Companies like people, differ from each other.  Each has an identify made of various experiences, values & characteristics.  Imagine you’re a member of a team. Other people join & leave over the years, but the team remains and, in fact, handles increasingly challenging projects over time.  The same is true of companies.  People come & go , but the company grows & develops beyond the contributions of the team members.  This is part of a company’s character.  A strong character enables a company to maintain its identity over time even when its employees leave & capital assets change
  34. 34. Living beings Vs. Things  All living beings have character including companies.  They have wills & make choices  Things on the other hand, such as rocks or money do not have wills.  They are impacted by events, but do not choose how to respond.  Living beings are further distinguished by from things because they share the following characteristics.  Goal Oriented  Sentiment  Open  Limited life span
  35. 35. Goal Oriented  They want to live as long as possible & develop their potential.  Companies for e.g. –act to preserve themselves & expand the scope of their activities.
  36. 36. Sentiment, Open & Limited Life span Sentiment  They are conscious of themselves.  For companies, self awareness means knowing who is a member & who is not.  A subsidiary or division is a member; a supplier is not. Open  They receive input from & exert influence on, the outside world.  People & ideas constantly come & go within companies.  The company’s actions, in turn, affect the world around it. Limited life span  They live & dies . So do companies
  37. 37. Values- Should you Compromise ?  A living company constantly questions its own value system in relation to the society in which it operates.  Sometimes it’s not a good fit.  Many companies pulled their operations out of South Africa in 1980s because the government’s repressive apartheid policy clashed with their Corporate values.  German psychologists William Stern , who studied value systems, believed that corporations & societies have a weak influence on each other in the present.  Their long-term effect on each other, however is considerable.  If you do remain, however stay faithful to your company’s core values.  You should never sacrifice your values & identity.
  38. 38. Choosing to Stay  When communists took over Ethiopia in the 1970s, Shell continues to operate despite life-threatening situations.  Anyone with western ties was susceptible at any time to torture & murder.  Nevertheless, the Manager of Shell Ethiopia chose to stay,  Each morning he counted employees as they walked through the door, dispatching emissaries to find those who are missing.  If they’d been kidnapped by the regime, he went to the ministry of War office & threatened to stop supplying the army with oil unless they employees are released.  As result, Shell lost only one employee during this time.  The company outlasted the revolution & was there to help the country rebuild.
  39. 39. Company into a Community  Two types of Corporations today  Economic companies- Exist primarily to maximize profits & assets for a group of investors & managers. Employees are tightly controlled so they’ll produce the greatest return on investment. As result, people feel little loyalty to the company or trust in its Managers.  The other type of Corporation is a self- perpetuating community, & people are valued members of that community. Profitability is simply means of achieving the company’s real goal; to live long & be everything it can be
  40. 40. Ecology Ecology is the relationship between organisms & their surroundings, The forthcoming details show how sharing information, tolerating diverse activities within a company, and dealing with threats are part of the company’s ecology.
  41. 41. Titmice & the milk bottle
  42. 42. In U.K at the turn of the century, milkman used to deliver their product to customers’ homes in uncapped bottles. Birds particularly Titmouse and the Red Robin, learned to siphon off the cream that rose to the top of the bottles. Between the two World wars, dairy distributors began capping the bottles with aluminium seals. By the 1950s, the entire Titmouse population had learned how to pierce the seals. Robins , on the other hand, were stymied. Titmice learned as species because they are social birds, moving from garden to garden in flocks of eight or ten for several months. They teach each other through the process of Social Propagation, passing knowledge from individual group. Robins, by contrast, are territorial. Males stake out turf and prevent other males from settling on it. This limits the opportunity to share knowledge that would benefit the species. Spreading the word
  43. 43. In short, the Titmouse went through an extraordinarily successful institutional learning process. The red robins failed, even though individual robins had been as innovative as individual titmice. Moreover, the difference could not be attributed to their ability to communicate. As song birds, both the titmice and the red robins has the same wide range of means of communication: colour, behaviour, movements, and song. Learnings from this… Employees /Teams that flock seem to learn faster. They increase their chances to survive & evolve more quickly.
  44. 44. Share information through Flocking A living company knows that its growth depends upon the growth of its people. When they become more skilled, knowledgeable and effective, the company benefits. Moving individuals around an organization allows them to share their experience on a wide scale. This is called Flocking Summary/ Take away-The Titmouse and the Milk Bottle
  45. 45. Flocking  Innovation as individuals or community  Social propagation - established process for transmitting a skill from individual to company  Mobility - individuals move around rather than settling in isolated territories
  46. 46. Social Propagation  Does Mobility mean only that you move an individual from group to group ..or  Can it also involve groups & teams that move from situation to situation ?  It probably means both.  Innovative companies are run by the teams.  Teams have higher capacity to learn than individuals  Complex decisions are made by teams  Learning is influenced by the Power to act on their common interest .  This would be ideal “ Flock”
  47. 47. Job Mobility  What are the options the company has  Option 1- Employees be thoroughly trained to do a particular job & once perfected left in place so that they provide a ROI of their training.  Option 2- We move employees around many jobs during their career & allow them to accumulate experience .  The first option is analytical- it sees the company as a combination of machines & labour to produce highest possible proceeds at minimum costs  The second option sees the company as a self- perpetuating work community. Each employee has an ultimate potential, & it is in the company’s interest to help the individual reach that potential.
  48. 48. How to enhance Flocking ?  Make sure your job training/ developmental programs being together unlike individuals: people from different backgrounds & various units.  Give them real-world issues to work on.  Encourage participants to collaborate on problem solving.  Use these programs to move people forward in your company.  Job Mobility is essential to Flocking, and sharing information actually speeds up the learning process.  Create Management teams from all decision making levels, mixing together specialties, skills and mandates.  Have them work on common problems.  Move them around from situation to situation.  Above all, give people space enough to innovate, make mistakes & share what they learn.
  49. 49. Innovation & the Dilemma of freedom  Innovation & Flocking require “ Organizational space”- freedom from control, from direction and from punishment for failures.  Conversation must be free and candid – without fear of reprisal.  Employee movements must be largely self-determined, no one can command.  This is terrain where managers fear to tread  In many companies creating space is seen by most managers as losing efficiency , or even losing cohesion  Worry is so agonizing, the average manager is inclined to err on the side of control.
  50. 50. Tolerate a diverse range of activities  If you’ve ever worked in a garden, you know that occasionally you have to prune a plant.  How do you do it determines the end product.  Pruning hard strips & forces growth into their buds.  This policy of low tolerance & tight control may yield spectacular results but leaves the plant vulnerable to disaster.  Alternatively, you might choose to leave more of the stems on the plant, including weaker shoots.  This high-tolerance strategy may not produce prize winning results, but your plants will be better prepared to weather inclement conditions.  The same principle applies to companies.  Admittedly, high tolerance wastes resources, but it prepares a firm to cope with environmental change & leads to continuous, gradual restructuring.
  51. 51. Diversify by Tolerance –(1/2)  W.R.Grace moved from trading in Fertilizer, Sugar & Tin, to founding Pan American airways, to its current status as a Chemical producer since its inception in 1854.  Its diverse history typifies long-lived businesses.  These living companies adapt to environmental change without losing their corporate identity because they tolerate activities in the margin.  Small, seemingly unrelated businesses that are given the space & resources to grow.  When environments change, these small enterprises help the larger entity survive.  Tolerance companies can absorb more new people & ideas.  They are open systems.  They require patience, which is one reason they are not more popular.
  52. 52. Diversify by Tolerance- (2/2)  Most companies are familiar with diversification by dictum, not by tolerance.  Dictating diversity isn’t as successful a technique because the choices originate at the top rather than from the margins & are usually financed by investment.  By contrast, diverse activities in tolerant companies require minimal financing because they evolve gradually within the company
  53. 53. Become Tolerant  If you want to increase the tolerance level of your company  Begin by letting go of the helm.  No one steers a living company.  Instead, the company takes one step at a time- decision, action, observation  Before taking a new step, check out the conditions of the moment.  You create your own path as you walk it.  You can see where you’ve been but not where you’re going.  Encourage everyone in the company to walk that path.  Create an environment that lets them to do so. Life is a path that you beat while you walk it
  54. 54. Tolerance of New Ideas  The Managers /Leaders must:  Understand the values & traditions of the company  Keep the company alive  Let people grow within the community  Place commitment to people before assets
  55. 55. Take action to protect firm’s health- (1/2)  Companies, like all living entities, suffer from threats to their health.  Threats can be big or small. Collective or individual, internal or external.  A proposed acquisition threatens a company’s health , so does a disgruntled employee.  Internal threats are often created by a company’s actions.  When corporation's downsized earlier this decade, many lost the loyalty of remaining employees who feared for their own jobs.  Detached & angry employees can do a lot of damage to a company.  M & A pose a real external threat, especially the first few years after the M & A.
  56. 56. Take action to protect firm’s health- (2/2)  Cultures are overhauled or eradicated.  Individuals come & go  Merged personnel don’t trust each other  Living companies evaluate threats instead of automatically rejecting all of them.  They manage some threats & embrace others.  They have a choice.
  57. 57. The M & A Threat  Royal Dutch oil company & the British firm Shell Transport & Trading merged in 1907.  50 years elapsed before the two companies integrated .  The organizations was finally revamped into one interlinked unit in the mid 1905s.  When Royal Dutch/Shell acquired Billiton, a medium-sized metal company, twenty years later , the integrated multinational had no trouble absorbing the smaller company  Billiton, however , was overwhelmed by Shell’s superior size & strength.  The merger process triggered automatic resistance mechanisms that ultimately undermined the union.  Within a decade, all Billiton’s senior managers left despite efforts by Royal Dutch/Shell to leave the metal company’s management in place .  In the end, both companies lost. Billiton in effect died & Shell was unable to reap the benefits it might have contributed.
  58. 58. Identifying Parasites  Intruders also have a choice.  An intruder can choose self-interest or symbiosis.  When an intruder chooses self-interest, it can permanently damage the host entity.  For E.g. – a certain genus of snail suffer from a parasite that invades its tentacles, causing them to swell. The swollen sensors attract the attention of birds that prey on the snail.  Similarly a Senior Manager who manipulates a situation to enhance his image at the expense of others damages the whole organization.  If a company starts to engage in self-destructive acts, ask yourself, “ Whose interest is served by this act?” .  Look for the parasite .
  59. 59. Choosing Symbiosis  All individuals who stand to gain from trying their fate to an organization will cooperate.  A key distinction between members & intruders or parasites is the way they leave the company.  Parasites exit on their own terms instead of through “Normal” channels.  They leave when it serves them best, regardless of the effect on the company.  Members, on the other hand, retire.  One way to protect your firm’s health, therefore, is to give new entrants to your company a reason to choose membership status over a parasite relationship.  Set a context for mutual cooperation.  Hire people whose goals appear to be harmonious with those of your company.  In other words, practice preventive medicine.
  60. 60. Evolution
  61. 61. Money is important Entrepreneurs with high debt/low equity underperform Long lived companies have money in hand “Stewards, not gamblers” Long term survivor does not define life in economic terms, but in evolutionary terms. Conservatism in Financing
  62. 62. Conservative Financing Saves Life- ( 1/2) Long lived companies engage in conservative financing. They are careful about borrowing & investment capital. They let their ability to generate funds dictate how fast they grow. Although this strategy does not limit options early in a company’s growth, ultimately it is less constraining than growth through borrowing. Borrowing allows a lender to dictate a company’s life-or-death status.
  63. 63. Conservative Financing Saves Life- ( 2/2) A review by the Baring venture fund of ten unsuccessful start-ups it invested in during the 1980s revealed that nine of them were highly dependent on short-term debt. Five of these went under when banker “ pulled the rug” By contrast, conservative financing ensures having enough money on hand to act independently. Living companies trade short-term results for long- term flexibility, revolution for evolution.
  64. 64. The most critical question living companies face is, how can a company satisfy lenders & shareholders who want short-term results & still be committed to a strategy for long-term growth? There is no easy answer to this. To a living company, shareholders are not members of the community. They are external stakeholders, much like Unions, Suppliers, Customers, Government and local community. The company maintains harmony with all of them but realizes it is not necessarily in its best interest to obey them. Still companies have a responsibility to maximize the shareholders’ investment. Companies that respond to a crisis by sacrificing capital rather than people are vulnerable to repercussions. Striking a Balance
  65. 65. The High cost of Dying Premature corporate death is costly. Communities are torn apart. People lose jobs. Retired employees lose their pensions. Customers & Suppliers are set adrift. Entire nations can be at risk because private companies often play a role in building the infrastructure of developing countries. Shareholders, too suffer when company dies. In their 1994 study of visionary companies, James Collins & Jerry Porras found investing $ 1 in such a company in 1926 & reinvesting all dividends increased shareholder value over 15 times the general market- not a bad return for a company that didn’t put profits first.
  66. 66. Power & Learning Companies that limit power to their upper levels inhibit their learning capacities & slows growth. Living Companies encourage institutional learning by decentralizing power. Shell for instance, created a matrix in which “ Nobody can make any decision on his or her own, by anybody on his own can stop a decision being made “. The idea of decentralization threatens economic companies. The argue that distributed power slows action. There is no evidence that this is true although it does take longer to reach conclusions. Economic companies argue that people won’t produce results unless given authority. Once individuals have that power, however, many are disinclined to distribute it to other. They become more controlling & the company suffers for it.
  67. 67. Historical Precedence The idea of distributed power is not new. The United States Constitution was devised to redistribute power from a single entity to a society. Companies need a similar system of Corporate Governance, one that provides continuity without granting absolute power to anyone, including shareholders. Concentrated power means no freedom. Without freedom, you cannot share knowledge. Without knowledge your cannot learn The Alternate is to develop an Ethic of Power
  68. 68.  What if we thought about a company as a living being, rather than just a series of monetary assets?  Seeing a company as a machine implies that it is fixed, that it will eventually run down, and that its people are straightforward (human) resources.  Living companies evolve naturally because people generate change, they regenerate naturally, and can learn as entities.  Living companies have four components:  Learning: sensitivity to the environment and an ability to learn and adapt  Persona: cohesion and identity as aspects of an innate ability to build a community  Ecology: tolerance, decentralization, and an ability to build relationships with other entities  Evolution: ability to govern its own growth effectively, including conservative finance  The average company lifespan is 40 years, with humans lasting 70. They die early because the thinking and language of management are too narrowly based on economics. They forget that their organization's true nature is that of a community of humans.
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