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Conservatism in Financing — that is, “The companies did not
risk their capital gratuitously. They understood the meaning of
money in an old-fashioned way; they knew the usefulness of
spare cash in the kitty.”
Sensitivity to the World Around Them — that is, “They always
seemed to excel at keeping the feelers out, staying attuned to
whatever was going on. . . . they were good at learning and
adapting.”
Awareness of Their Identity — that is, “No matter how broadly
diversified the companies were, their employees all felt like parts
of the whole. The feeling of belonging to an organization and
identifying with its achievements is often dismissed as soft. But
case histories repeatedly show that this sense of community is
essential for long-term survival. Managers in the living com-
panies we studied were chosen mostly from within, and all
considered themselves to be stewards of the long-standing
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enterprise. Their top priority was keeping the institution at least
as healthy as it had been when they took over.”
Tolerance of New Ideas — that is, “The long-lived companies in
our study tolerated activities in the margin: experiments and
eccentricities that stretched their understanding. They recog-
nized that new businesses may be entirely unrelated to existing
businesses and that the act of starting a business need not be
centrally controlled.”
When an enterprise with broad internal capabilities consistently
performs better than its competitors, it will endure the challenges of
changed conditions and sustain its success. Commercial enterprises,
and many public ones, are expected to continue to deliver value over
long periods. Some public enterprises, such as organizations created
to build a hydroelectric generating facility, may be expected to
operate as long as their services are demanded; after that they may
cease to exist. However, during their operating life, they are indeed
expected to be effective. Commercial enterprises are most often
expected to continue to deliver value in spite of changes in demands
and market dynamics. Stakeholders of various kinds — capital
providers (“owners”), employees, customers, supporting dependent
public entities, and the society in which the company is located —
expect to continue to receive benefits over the long haul.
A dominant perspective among employees, investor/owners, and
societies is that enterprises are expected to deliver long-term value
to all concerned parties from their operations. Only special-purpose
organizations created to deliver one-time project results, or complet-
ing single tasks, fall outside these expectations. Such enterprises are
still expected to be effective, albeit during a limited period. However,
the long-term implications of their results may be more important
than completing the project itself on budget and on schedule.
For companies worldwide, ownership valuation is often based on
the expected future income stream, and this creates expectations for
long-term performance. Nonetheless, expectations for some financial
markets that base their judgments on quarterly results make the con-
trary seem to be the case. In these cases, prospects frequently are for
short-term incomes to be dependable, and preferably increasing faster
than general economic growth — and many seem to expect this
growth to continue permanently. Clearly, on the average, that is im-
possible. Only a few unusual organizations have achieved such
growth for extended periods.
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The expectation for any successful enterprise, no matter the
external conditions, is that its performance will be consistently strong
and enduring and that the enterprise will exist in the long term
without deterioration. Achieving such a feat requires that the
enterprise consistently be operated effectively to achieve its goals —
all around and in all its operational areas. It must also be able to
create new directions and strategies when markets and conditions
change, for some several times within a single year. However, as
business statistics show, durable performance may be the exception.
Average life expectancy for companies listed on the New York
Stock Exchange is less than 30 years, and many are operated
shamelessly or fraudulently to enrich top management or an inner
circle without regard for other stakeholders (Kleiner 2003). Many
companies go through a traditional life cycle, in the end becoming
aging and doomed. Such a demise often results from avoidable
management decisions and internal conditions that jeopardize
effectiveness. As a result, few companies become centenarians. Also,
many enterprises that have become large, such as GE and Alcoa in
the United States, Mitsubishi in Japan, and many more have experi-
enced periods of higher than normal successful operation and
growth. However, the challenge is to make that performance last
without disastrous downturns by maintaining enduring and consis-
tent effectiveness. That requires management teams that have the
enterprise’s best interests at heart, by not being overly egotistic or
narcissistic.
Sustained long-term viability and success in competitive environ-
ments require above-average — or even unusual — performance. In
these environments, performance below some competitive threshold
will lead to loss of market, customers, and profits, and will end in
ultimate demise. However, some ineffective enterprises are able to
continue operation in narrow market niches or geographical areas or
in other areas with high cost of entry. These are exceptions, and the
normal enterprise must exert considerable effort to be better than its
average competitors to survive.
Durable successful performance depends on consistent and
competitive effective behavior that rests on the enterprise’s ability
to learn and adapt quickly and innovate faster than its com-
petitors. Such effective behavior can only be achieved when knowl-
edge and other IC assets are managed systematically and deliberately
and coordinated closely with current enterprise direction and
intents.
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