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The Company Life CyclePrintable Version
I believe it is mainly a question of culture. Company longevity requires thinking beyond short term profit. It requires not having profit as your main driver. The western business model aims for short to medium term gain. The trap here is that the number of years considered as making up a short term or a medium term is itself decreasing dramatically as time passes. We can safely estimate that the company life cycle worldwide will become shorter still, as the world rushes to emulate the western business model.
Getting Shorter and Shorter
The company life cycle is getting shorter and at an increasingly faster pace. The average life span of a company listed in the S&P 500 index has decreased by more than 50 years in the last 100 years, from 67 years in the 1920s to just 15 years today, according to Professor Richard Foster from Yale University.
Professor Foster also predicts that by 2020, more than three-quarters of the S&P 500 will be companies not known to us today. In the UK only 10% of the companies that were listed on the FTSE100 30 years ago exist today.
At the other extreme in Japan, there are more than 20,000 companies that are more than 100 years old, with a handful that are more than 1,000 years old, according to credit rating agency Tokyo Shoko Research.
Stages in a Company’s Life Cycle
I am listing below in simplistic form my interpretation of the stages in a company’s life cycle.
- Start up with a competitive edge – innovative product or service or location
- Expand on geographic location of clients – regional and global expansion
- Product range expansion – more customers – selling more to existing customers
- Merger & acquisition or transition to next generation or different ownership
As company life cycles become shorter and change accelerates these stages are now merging and overlapping making it immensely more difficult to think about business planning in a linear and progressive manner.
As all new business starts with some competitive edge or niche market the challenge is to maintain that in the face of the onslaught of ever faster innovation and change. The speed we are all experiencing in business activity also means that decision making and reaction time must be faster. This implies that vertical hierarchies no longer work as well as they used to. This is an issue as the larger the business grows the greater the number of management levels.
Business Going Digital
Economic growth is being driven by the technology sector. The major expansion in company numbers is in the tech industry. Moreover traditional companies are also on-boarding technology and increasingly becoming more dependent on it for critical functions such as the supply chain or the interface with clients.
Lifestyle changes are dramatically influencing business models. People world-wide are now interacting via social media, digital networks and mobile devices. Businesses are following their clients into the digital world. This has considerably quickened the speed of communication and change in all industries as a result.
Competing on Technology and Speed
In view of technology’s vital role as part of industry, it has now become an area where competition is at its harshest. The acceleration of change and shorter life cycle of companies has resulted in aggressive competition also on design, innovation and marketing. Increased employee mobility causes a leakage of the know-how on these soft skills from the organisation.
A competitive edge built of soft skills is costly and time consuming in the making but easy to lose.
Lifestyles and business models have changed and continue to change. These two factors also feed into each other producing hybrid results. The traditional company life cycle stages have been superseded. Tech companies and technology driven industries are competing on speed of communication and delivery.
Delivery has now moved to wherever the client can be reached on their mobile device. Competitive edge through innovation based on product service or location is short lived.
How to manage all this disruption & chaos? By definition these forces defy management. Flexibility, fewer management levels, technology, constant innovation and quick reaction times will certainly help but the future has just become more unpredictable than ever before.