Wednesday, December 4, 2013

The Shinese Factor of Longevity

When reading the IBM article about longetivity, it struck me how a 100 years, is considered a really long time for a company to last. Because when I think of the oldest companies in India, my mind immediately jumps to companies founded during the British rule - book stores like Higginbotham's that has been running in pretty much the same way since the early 1800s. So I wondered how being a 100 years old is a big deal? But a little more research led to to some statistics that showed the proportion of companies that last only for a short period of time:
- One-third of the firms in the Fortune 500 in 1970 no longer existed in 1983. [1]
- Big names such as Microsoft was not born till 1975
- Walmart,one of the biggest companies, was founded in 1962

And this also led me to these statistics about the oldest companies in the world:
- Among the companies that were more than 100 years old, 89.4% of them employed less than 300 people.
- Among the companies that are more than 200 years old, 56.13% are Japanese companies [2]

So does this mean that its easier for companies to have a long life if its size is small?
Also what is it about Japanese companies that make them survive many different situations - be it the world wars or industry revolutions - and continue to survive?

In the "Lessons in Longevity from IBM" they have one central message - to build on your past. And the Japanese companies in the aforementioned list - Kongo Gumi, Hoshi Ryokan etc. are all hotels. So they can benefit from building on their past - literally as well as knowledge wise. And another industry that features often in this list is the brewing industry. One thing that is common in both these industries - hotels and brewing - is that nothing has changed majorly in either of them, and they continue to survive over the years - building on their past.
The Japanese companies credit their longevity to having an adopted son-in-law that can carry on the company over the years. They have a term for this - Shinese.
In the international business and economics Research Journal of 2008 [3], the researchers compared Us and Japanese companies that are older than 100 years to see what are the common characteristics that made them survive for so many years. It can be summarized as:
1. Clarity and continuity of corporate culture and values
2. Learning systems built on relationships
3. The ability to balance tradition and innovation through gradual change
And in the first point Japanese companies prefer to keep the business within the family and claim that that is the reason for their long existence.

These three guidelines, in my opinion, expand upon the IBM thumb rules for longevity.

So, with all these companies that have been in existence for more than 100 years, be it a hotel or a brewery, they can survive for many years by following these guidelines. But what do they do when the industry as a whole is in danger? What do hotels do if something like airbnb becomes mainstream? What can breweries do if they keep building on their knowledge and have a clear company cultural values, if the industry for brewed drinks is becoming obsolete, or if there is no demand in the future with everyone moving to a more health conscious drink?

While the strategies mentioned before and in the IBM article apply to maintain the existing state of companies, it still wouldn't work in situations where the industry that these companies operate in disappear.


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