A recent article in the Harvard Business Review publishes the finding that US firms now are de-listed at an average age of 32, down from 55 years 40 years ago.
The authors apportion this to the increasingly complex business environments - more diverse and interconnected – and less predictable. They believe companies are dying younger as they fail to adapt to their business environments, and may misread them. So they select the wrong strategy. They fail to support a viable approach with the right capabilities.
We publish the Business Trends Library, a comprehensive database, where the major trends result from interactions of trends from many business areas. Certainly in this way the interconnectedness is increasing – but far less predictable is a function only of considering trends in a particular business area. Impacts can increasingly come from outside what a firm considers its business environment that it should monitor.
The authors argue that companies are similar to biological species, which form complex adaptive systems – and much can be learnt from such biology to make companies more robust to withstand unexpected shocks coming from their business environments. This may well be true, but to make much impact we must not under estimate the capabilities a firm would have to install. In terms of the world’s most advanced organisation, the UK Admiralty (in continuous existence since Henry VIII) one or more members of the Lords Commissioners would need to be such a biologist - and the rest trained in the principles. Other such experts would have to be brought in, and stationed appropriately among the ships and fleets and network or shore establishments round the world. This can be difficult. A failure of the planning function in firms, to which the authors allude to in places, is that planning experts are brought in with ranks around Captain or Commander – only to find they can make little impact among the Admirals. It is not an alternative to taking steps to understand your business environment appropriately – though additional capabilities are needed here too - with the same problems as cited for planning. The Lords Commissioners would be very attuned to any war environment, with departments of naval intelligence and chart making – far exceeding the equivalent in modern firms. The authors give little insight in how to correct the defects in reading the business environment.
Some of the authors’ descriptions are relevant to understanding the business environment - such as the behaviour of complex adaptive systems, and the nested concept.
The authors advise looking beyond what the firm owns and controls, so enlarging the business environment that the firm recognises and monitors. The Business Trends Library suggests the more this approaches a comprehensive database the more likely you are to reduce surprises. Firms may baulk at creating a comprehensive database themselves – but joining with others to do so in pre competitive research is an option, or to accessing an existing database.
The authors advise to expect surprises but take steps to reduce uncertainty. Both can be done as in the last paragraph. The Business Trends Library concept of producing Constant Trends from Historical Analysis gives trends controlling several hundred basic activities of man, providing scenarios for each, which then in turn react with each other – from which the surprises can be distilled.
The problem then can be where the revealed surprises impact negatively on a industry, people in firms concerned don’t want to know. They are in love with their industry, don’t welcome bad news, and rationalise, say, that once the current recession is over everything will be OK. Early identification of the ‘surprise’, realistic scenarios of its progress, monitoring of data against the scenarios may build up realism.
The authors report difficulty in predicting the progress and impact of new technology. They suggest monitoring and reacting to mavericks and start-up competitors. The Business Trends Library’s Constant Trends sets a technology agenda - for most Constant Trends need technologies to keep them going. The authors suggest innovation impacts and diffusion are increasing so time to saturation in the product cycle is shortening. Business Trends Library: yes, but issue is of firms being able to jump from one product to its successor - for there are few examples of firms doing it regularly over successive changes in management.
The authors suggest you build a best practice of other competitors, while accepting that your own business model will be superseded at some point – and scenario how this may occur. They suggest change often comes from the periphery of an industry. The Business Trends Library finds it can come from further a field, especially for major trends such as the migration of manufacturing out of the advance countries. The authors suggest firms should collect Weak Signals of such change - the Business Trends Library can supply the Weak Signals.
The authors advocate creating Feed Back Loops is necessary – such as monitoring data against scenarios. Feedback detects changes in the business environment – so does the Business Trends Library.
The authors conclude that rising corporate mortality is a threat with increasing complexity of the business environment. A paradigm shift in management thinking is needed. Understanding principles of robustness can make a difference between survival and extinction. Business Trends Library: given the business environment can be addressed, and robustness may help, the following problems remain:
References
M Reeves, S Levin, D Veda, The Biology of Corporate Survival, Harvard Business Review 94, Nos 1 & 2, Jan - Feb 2016, p46
Business Trends Library, Planning & Control Investments Ltd, www.BusinessTrendsLibrary.co.uk Email