A New York Times article, Lessons in Longevity From I.B.M., by Steve Lohr used IBM reaching the 100-year old mark to call attention to practices that contribute to an organization’s longevity. A noteworthy point made is that past success can impede future success. The article seems to suggest that all companies will lose their dominance and only a few will be able to survive beyond the dominance they once held. Although this may be a common occurrence it should not be concluded that it is inevitable!
As Arie de Geus reported in his 1997 book, The living company: Habits for survival in a turbulent business environment, “the average life expectancy of a multi-national corporation—Fortune 500 or its equivalent—is between 40 and 50 years…A full one-third of the companies listed in the 1970 Fortune 500, for instance, had vanished by 1983—acquired, merged or broken to pieces.” Based on what Arie de Geus reported regarding the lifespan of companies versus people, we can’t help but wonder why individuals (on average) can expect to live into late 70’s and human activity systems (which corporations are) are lucky if they make it to their 40’s. In large part the answer lies in the fact that humans can last longer than machines, because people can learn and correspondingly adapt. Consequently, managing corporations as profit machines limits the survivability of the enterprise—it diminishes viability.
A Leading Indicator
As Lohr stated “not so long ago, I.B.M.’s corporate survival was at stake. In the early 1990s, it nearly ran out of money. Its mainframe business was reeling under pressure from the lower-cost technology of personal computing.” Seemingly what this statement conveys is that money is the leading indicator of survivability or that profitability ensures viability.
As explained in a previous post, of course many tout the importance of money advancing the notion that ‘cash is king’. No doubt cash is a key factor, but it is not the only factor! Nor is it the leading factor! Profitability does not ensure viability.
In an ever-changing environment—where the future is not the past in some repetitive fashion—it is essential to sustain ones’ viability. Yet most place their focus of attention on maximizing near-term profit, as if the long-term is simply the sum of a series of short-terms. The fallacy of this profit-above-all-else thinking is illustrated in the failure of yet another pillar of egoistic capitalism, General Motors. A corporation—like so many others—wherein the long-view was the wrong view! GM put profitability before viability and inevitably had to be placed on government life support to avoid death.
In regards to IBM, it is not that the idea of computer technology ran its course it is that IBM ran out of ideas regarding future technology. They held onto the idea that maximizing profit through mainframes was ‘the thing’. The leading indicator is not that they ran out of money, it is that they ran out of ideas long before they ran out of money! They ceased being a company focused on the improvement and innovation of both product and process—as known as quality—and turned attention to solidifying the organization as a mainframe-providing profit maximizing machine.
Seemingly those in authority believed that because they were reaping so much from the mainframe idea of the company they hadn’t the need to learn. Little did they realize that time was running out on the idea they were holding onto—they didn’t know that (business) ideas have a finite life span!
In other words, those in authority at IBM limited the organization to being a mainframe company. This impeded their ability to perceive of a future industry beyond mainframe computing. As Lohr noted, “Evolving beyond past success is a daunting task for companies in all industries.” As the saying goes nothing fails like success!
Since change/learning shapes our tomorrows, doesn’t it make sense to be open to the possibilities sooner than later?
It is not inevitable that corporations must face death before recreation can occur. Nor is it the way of quality leadership. If management is focused on quality then they will have a company poised to improve and to innovate both product/service and process. They will have a company committed to progress not one blindly bent on maximizing short-term profitability.
Future is a progression of Ideas
Had IBM focused attention and commitment to quality—improving and innovating computer technology rather than maximizing profitability of mainframes—they likely would have avoided a near-death-experience. The former creates an entirely different mindset than the latter, prefiguring a capable culture. Consequently they would not have tied the enterprise to the (limited) life of one idea.
Sustaining competitive advantage is not about attaching oneself to the current profit-generating idea but about maintaining and improving the capability to create and then innovate the next idea while at the same time delighting customers with existing products/services.
Since in a dynamic world order and change are complementary, not mutually exclusive, it is the wise leader that effectively and simultaneously can sustain both order and change toward enhancing the organization’s viability. Holding both order and change in mutual relation requires vision. Doing otherwise, the organization will find itself in a world wherein it is incapable of existing—it no longer is a viable enterprise.
If a person is not committed to ensuring that the organization is capable of meeting the yet to be determined challenges of tomorrow then can he/she be the person who should lead? Those who wait for a crisis to emerge before thinking about a future different than the present lacks the thinking abilities—systems thinking, statistical thinking, critical thinking, strategic thinking—to insightfully lead.