Economic Growth

What is the life expectancy of your company?

Mark Goodburn
Global Head of Advisory, KPMG International
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The average life span of today’s multinational, Fortune 500-size corporation is 40 to 50 years.

For anyone in leadership at a corporation of any size, that should be a sobering statistic. That means the company you’re tasked with leading has a 50/50 shot at making it past what we mere mortals call middle age. A further sobering statistic tells us that almost 50% of the Fortune 500 from 1999 had disappeared from the list just ten years later.

Yes, a number of these entities are acquired, merged or split up into smaller companies. Many of them, however, are relegated to the graveyard of failed corporations. And in many cases, when companies perish, one of the contributing factors is that management clung desperately and stubbornly to the status quo.

The perils of complacency

“Status quo bias” is a cognitive preference to keep things the way they are. In many ways, it’s human nature. To an extent, we all exhibit this bias under certain circumstances. In business, this preference for the current state of affairs can be particularly strong when a company is at the top of its game.

No matter how successful your organization, the prospect of making a shift in your business strategy, possibly at a time when it is winning in the market, can be downright alarming, especially when you have competitors breathing down your neck and shareholders and analysts to satisfy each quarter.

Henry Ford versus the horse breeders

When faced with a difficult business decision, it often feels easier to make no decision at all. Some of history’s greatest leaders have struggled with bouts of indecision or, worse, complacency. It’s what happens when an organization romanticizes the source of its revenues and is reluctant to adapt to shifts in technology or consumer demand. As we have all heard, when Henry Ford started mass producing the Model T in 1913, there were many horse breeders and carriage manufacturers who felt the same way.

It’s the perspective that is exemplified in the phrase, “But we’ve always done things that way.” It’s this insensitivity to the greater business environment that has helped seal the fate of scores of companies, including high-profile examples such as Borders, Blockbuster and Eastman Kodak.

We’re living in complex, fast-moving times. There are multiple business transformation triggers in play at the same time and with equal force – triggers such as globalization, shifts in technology, the challenges of regulatory compliance and shifts in customer demand. A recent survey of more than 900 business leaders uncovered the following deep insights about CEOs grappling to balance the need for short term performance with the imperative of long term strategic planning to transform their business:

  1. The right strategic vision is critical – In addition to anticipating what your customers are going to want, you need to define the depth and scope of the changes and redesign your internal processes and broader ecosystem.
  2. Execution is the hardest part of transformation – More than half of all companies undertaking transformation will fail to achieve their desired outcomes. One of the most common stumbling blocks is underestimating the operating model refinements that will be required across the organization.
  3. Beware leaders who are clinging to past or current successes – This is the hypnotic siren song of the status quo. Transformation needs to be a continuous, never-ending process rather than a distinct ‘event’.

Perhaps counter-intuitively one common feature I see in corporations which survive beyond middle age is a willingness to constantly change, to innovate and stay ahead of the competition, not simply rest on their current success. I find myself agreeing with Disney CEO Bob Iger’s view that “The riskiest thing we can do is just maintain the status quo.”

Author: Mark Goodburn is Global Head of Advisory, KPMG International

Image: A view shows the headquarters of French building materials company Saint-Gobain at La Defense business district in Courbevoie, outside Paris, December 8, 2014. REUTERS/Jacky Naegelen

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