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How do the great companies manage to stand the test of time?

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How do the great companies manage to stand the test of time? Christian Stadler of Fortune points out that it's rare for a business to live long into its golden years. With that in mind, he offers a guide to how a company can improve its odds of survival.

Stadler explains: "For the last six years, I have led a team of eight researchers in a study of some of Europe's oldest and best companies. We asked: what distinguishes companies that managed to perform at a very high level over very long periods from others that do not perform as well?

"Reading through corporate histories, collecting material in archives, and interviewing 34 CEOs, chairmen, and board members, a counterintuitive story emerged: the greatest companies do not excel through radical innovation or daring transformations, but adapt to a constantly changing environment by being intelligently conservative. They religiously apply what we call the 'five principles of enduring success'."

These are as follows:

1) Exploit before you explore. Great companies make the most of each innovation. Stadler gives the example of Glaxo, who refused to sell Zantac, an ulcer treatment, as a cheap "me-too" product:

"Launching five years after SmithKline's bestselling Tagamet, the company decided to charge a premium. When sales reps visited doctors, the high price tipped them into believing that Zantac was a major advancement. Unconventional, but it helped to make Zantac the best selling drug of all time."

2) Diversify into related businesses. Leaders are under pressure to focus on their core business, but they should remember that related industries could offer excellent opportunities for building their capabilities.

3) Manage your finances conservatively. Stadler says: "In our personal lives we put money aside in good times to be ready when we fall on hard ones. Companies are less likely to be that conservative. Growth is simply too great a temptation and, prior to the financial crisis, corporate leaders were expected to show an appetite for risk.
"The great companies we studied never fell for such shortsightedness."

4) Remember your mistakes. While stories of success play an important role in motivating and inspiring employees, the great companies make a point of learning from their errors and enshrining them in their history.

5) Manage change in a culturally sensitive manner. "No company survives for many decades without going through major transformation," insists Stadler. Although change is never easy, great companies handle it with an eye on culture.

The author explains: "Efforts to change a company will not succeed against the will of its employees. The first important step in any significant change is to listen to the organisation, then to communicate plans, and only in a final stage to implement change. That might stretch the process out, but will ensure success in the long run."

Source
5 Ways To Keep Your Company Alive
Christian Stadler
Fortune

 

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