Shorter life spans and diminished lifetime value constitute a strong trend—but not an inevitability. The same can be said about the relationship between growth and mortality. While it is ever tougher for companies to sustain viability and performance, there is also a broader spread of outcomes—and there are examples of companies that manage to successfully endure (such as Procter & Gamble, Johnson & Johnson, Coca-Cola, and Disney).
Many CEOs intuitively sense the challenge of accelerated mortality. Not long ago, for example, one of Asia’s emerging global-challenger companies asked us what governance arrangements would best ensure its survival and prosperity for the next 100 years.
So what can corporations do now to strengthen their long-term resilience without undermining performance? We have a number of suggestions based on our own research and the work of others on systems resilience.
Detect early-warning signals. The bare-minimum condition that will enable a company to adjust to changing circumstances is an external orientation and an awareness of change signals and their significance. The dominant logic that sustains success in slow-moving environments can easily become a mental filter preventing corporations from seeing threats to their viability. Similarly, when a company focuses on rapid change in a volatile environment, it can easily miss more slowly unfolding signals that indicate vulnerability in the longer term. Such an external orientation is as much about mind-set as it is about acquiring crucial information before it is too late.
Adapt your strategy to your environment. Imperative to safeguarding the future is surviving the present. Today’s great variety of business environments means that the same approach will not work everywhere; for example, the planning routines of classical strategy will not work in dynamic and unpredictable industries. Our research confirms that companies that match their strategic approach to their specific environment survive with the highest total lifetime value.
Run and reinvent. Environments are not only more diverse, they are also more dynamic than they were in the past, meaning that circumstances change much more rapidly and unpredictably. It is therefore essential not only to get the match right between the situation and the approach to strategy and execution, but also to ensure that the company can regularly retune itself to changing situations. Most companies today need to both run and reinvent themselves continuously, in each part of their business.
Aim for resilience on all time scales. While immediate business risks should not go unaddressed, increasing dynamism across industries may have caused many companies to adopt an excessively short-term focus. This is reflected in the recent emphasis on achieving agility and adaptability, as well as in the growing tendency to assess leaders in terms of annual or even quarterly performance. While all these measures promote short-term survival, they can also lead to the neglect of longer-term horizons. Our research shows that companies need to be resilient on all time scales. Put another way, they need to be able to sustain their adaptiveness in order to avoid becoming “disposable” corporations.
But don’t confuse persistence with performance. While company life span is an indicator of total lifetime value, simply enduring does not guarantee increased value creation. If a company cannot achieve sustained performance, it shouldn’t persist just for the sake of it. A successful exit may be better than languishing and slowly burning up resources.
Based on the Bruce Henderson Institute’s multiarmed-bandit simulation; we included a mortality condition and examined lifetime profits. See Reeves et al., Your Strategy Needs a Strategy.