ENTREPRENEURSHIP: The secret to a lasting legacy
02 April 2014
by Blair Burmeister
The lifespans of top US companies are growing dramatically shorter, according to an Innosight study of the S&P 500 Index. The report shows that the pace of technological change, the emergence of global competitors, and pressure from start-ups are increasingly threatening some of the most iconic corporations.
According to the report, the 61-year tenure for the average firm in 1958 narrowed to 25 years in 1980 to 18 years in 2011.
The MIT Technology Review reports that since 2002, Google, Amazon, and Netflix have joined the S&P 500 while Kodak, the New York Times, Palm and Compaq have all been forced off, essentially by changing technology.
America’s top personal computer maker, Hewlett-Packard, was dumped in September last year from the Dow Jones Industrial Index – the list of 30 blue-chip stocks picked to reflect the essential makeup of the US economy.
Says the MIT Technology Review: “HP is a case in point. It sells PCs, notebook computers, and printers. And people just aren’t buying as many of those as before. Instead, they’re shifting to the fastest-spreading consumer technologies ever, smartphones and tablets. HP’s business – though still huge – has started to shrink.”
Creative destruction
Richard Foster, lead director of Innosight and acclaimed author, helped popularise the idea of creative destruction – the process by which large companies eventually get crushed by innovations made elsewhere. The term is credited to the Austrian-American economist Joseph Schumpeter who studied the formation and bankruptcy of companies in Europe and the United States in the Forties.
Foster argues that to stay big, companies need to be willing to exit old businesses and enter new ones – and do it quite boldly. He explains that the lifespan of a corporation is determined by balancing three management imperatives: running operations effectively, creating new businesses which meet customer needs, and shedding business that once might have been core but now no longer meet company standards for growth and return.
What are companies doing differently to survive?
Dr Martyn Davies, CEO of the Frontier Advisory, a research, strategy and investment advisory firm that assists clients to improve their competitiveness in emerging market economies, recently spoke in Johannesburg at the presentation of the findings of the 2014 Barloworld Logistics Supply Chain Foresight survey titled: The rise and fall of customers and companies.
In his presentation, Davies spoke about Schumpeter’s theory of creative destruction and highlighted the importance of innovation to combat the trend (as Foster does). He also put emphasis on the value of having strong personalities that drive success within organisations and explained that perseverance and relentlessness are qualities that you’ll find in many of the winners.
What the winners can teach us
According to Davies, entrepreneurs can learn from what successful companies like LG, Apple and Naspers, and even successful economies like Singapore, have in common. These traits set highly successful companies apart:
- A sense of purpose and mission.
- A disruptive business model.
- Companies can only truly thrive from an enabling and high performance economy.
- Strong personalities driving the success – sometimes at any cost.
Finweek