Even brands built to last need a nimble strategy to thrive and endure
No iron law states that a business will keep growing, even one renowned for excellence
Until fairly recently, if you asked someone to describe their idea of an established world-class European business, it seems likely that Volkswagen would get a mention.
Still the world’s second-largest carmaker by volume, despite a diesel emissions scandal that came to light in 2015, VW is a brand that suggests solidity, reliability and engineering soundness; a company which, like its products, is built to last.
So it is startling to read reports of possible factory closures, with job losses and 10 per cent pay cuts, for the first time in Volkswagen’s 87-year history. This sort of thing is not supposed to happen, not at this company, anyway. Yet there is no iron law that states a company will keep growing — even one with a deserved reputation for excellence.
For VW and its auto sector peers, the emergence and rise of electric vehicles — and, in particular, cheaper subsidised Chinese models — has shaken up the market. It has been an unavoidable disruption.
And, when a company is apparently successful and powerful, there can be a delay before the leadership makes necessary changes. “Some businesses remain hesitant to disrupt themselves,” says David Bach, president of the IMD business school in Lausanne. But investors will notice. “Capital markets can be ruthless, and may be better at picking winners than some managers,” he points out.
Sometimes, new leadership is required to reinvent a business, as happened at Microsoft, when Satya Nadella helped lead a process through which an ageing software business became a reinvigorated technology giant, at the leading edge of the AI revolution.
Perhaps introducing (or, rather, reintroducing) a spirit of entrepreneurship can boost the longevity and growth prospects of an established business.
Monique Boddington, associate professor at Judge Business School at the University of Cambridge, agrees that the adaptability of entrepreneurs is a quality that can help a business of any size.
But that adaptability may not always take the form of (self-)disruption, she adds.
“When you think about new technologies, are they really disruptive or are they in fact iterative? Look at the success of Nvidia [the dominant chipmaker],” she says. “They were never really disruptive, even if they have ended up taking over an industry. It was iterative development. I was using their chips when I was playing computer games decades ago.”
Companies can also renew themselves by “bringing the outside in” — sometimes labelled “open innovation”.
Big pharmaceutical groups have, by necessity, survived in part by acquiring or partnering with start-ups and smaller companies that have developed new treatments — Pfizer’s work with BioNTech to develop a Covid vaccine is an obvious example.
The toy company Lego sustained itself by encouraging inventiveness among its fans and customers, co-creating new products and services.
The deceptively simple sounding verb “pivot” is sometimes used to describe what companies need to do to survive and grow.
The implication is that a more or less dignified leap can be made from one form of activity to another. But, for a large company, or even the individual, pivoting is not necessarily straightforward. Other approaches have been suggested over the years. Some have advocated a “blue ocean strategy”, finding new and perhaps uncontested markets.
Chris Zook at consultants Bain & Co argued for an intelligent focus on the core of the business, perhaps building on growth opportunities in adjacent markets.
Julian Birkinshaw, formerly at London Business School but now dean of the Ivey Business School in Canada, has shown how corporate venturing — that is, encouraging new business ideas internally — can reap rewards.
In the 1980s, a team of planners at Shell, the oil giant, studied companies that had been around and survived even longer than it had (the company was about 100 years old at the time).
This study led to the publication in 1997 of the Harvard Business Review article, later a book, called “The Living Company”, by Shell’s former head of planning Arie de Geus.
The central question was: why do so many companies die so young? “Few other types of institution — churches, armies, or universities — have the abysmal record of the corporation,” de Geus wrote. “What I have come to call living companies have a personality that allows them to evolve harmoniously,” he went on.
“They know who they are, understand how they fit into the world, value new ideas and new people, and husband their money in a way that allows them to govern their future.”
De Geus found that “living companies” welcomed new ideas: “The long-lived companies in our study tolerated activities in the margin: experiments and eccentricities that stretched their understanding. They recognised that new businesses may be entirely unrelated to existing businesses and that the act of starting a business need not be centrally controlled.”
In Europe, worries about corporate longevity and performance are not confined to the VW boardroom. It is a matter of concern for the EU as a whole. The prescription, contained in Mario Draghi’s report on competitiveness, published in September, is for more investment and a better co-ordinated capital market.
But, to survive and grow, businesses also need what General Chance Saltzman, head of the US military’s Space Force, has called “competitive endurance”. This is the quality displayed by the longest living companies.
