Indeed, why should one even
think of building a business that survives for a hundred years?
Look at the Exhibit below.
Whereas human lifespans have increased over the last 50 years
and today the average longevity in the developed world is close to 80 years,
corporate longevity has been shrinking steadily. Over the same period,
corporate lifespans have shrunk from over
60 years to less than 20 years, and are projected to shrink further in the next
decade.
Another key marker to look at
is the five-year mortality risk for corporations. From less than 10% fifty
years back, today the five-year mortality risk is 33% in many sectors.
Therefore, we can no longer
cast aside the need to look at building blocks for corporations that will
outlive the founders and be a legacy for future generations.
Of course, management gurus
and thinkers have provided us with many frameworks, business models, and
templates for sustainability.
So, what is new?
Martin
Reeves of the Boston
Consulting Group has an interesting model that is as refreshing as it is
counter-intuitive.
The model is the human immune system. The immune system
that has evolved over anthropological
time periods has some distinct characteristics.
Redundancy –
the human system has multiple redundancies. If one layer fails, there is
another to take over. As a simple example, nature has provided us with two
lungs and two kidneys. From a clinical perspective, one each would be just
fine. When you look at a highly complex system like the brain, you will find
that an average person utilizes only a fraction of the cognitive capacity.
Most of you would have traveled in a Boeing 747 or an Airbus 340 – two
aircraft having an impeccable safety record. Both have four engines.
Technically, both can fly with two engines. Pilots undergoing training in a
simulator are trained to fly the plane on one engine under certain conditions.
The apparent redundancy reduces the probability of total failure to a very
small figure.
In contrast, the Dreamliner
or the 787 which has larger windows, two engines, and a lot less redundancy to enhance efficiency, has had to face numerous
problems and to date has not been able to address them fully. In 2016, the
Federal Aviation Administration ordered fixes on General Electric engines used
on some Boeing 787 Dreamliners calling the measure “an urgent safety issue.”
Yes, the plane can fly on one engine. The fact remains that the 787 is yet to
find a place among the safest planes to fly.
Modularity –
conventional wisdom treats the human body as a closed system. However,
breakthroughs in stem cells and genetic engineering are bringing us ever closer
to treat the human body as a modular system. Cornelis Vlasman and his team
have shown through their prototype OSCAR
that living organisms can be “built.” OSCAR is the size of a human hand and consists
of clickable modules grown from human
cells. A modular approach in stem-cell technology could see breakthroughs
in the treatment of dementia and Alzheimer’s in the next few years. Cells taken
from a living brain can be “grown” in a lab and re-planted to take on the role
previously played by diseased cells.
Modularity in economic and
organizational design ensures adaptability
and evolution to meet changing demands. A modular
architecture specifies the interfaces
between functions or processes or components or even industry structures either
as strategic intent or as an emergent outcome so that one can build a large
range of component variations into the system without having to make changes in
the functions or processes and without having to change the interfaces.
We can see modularity all
around us – from computer components to automobile subsystems to the units that
make up a modern kitchen. We insulate
organizational process in a way that autonomously creates inter-dependencies. We create functional
silos that inevitably lead to personal fiefdoms.
Organizations
with modularity are increasingly abandoning hierarchies for “roles” and interchangeable
functions. In fact, the rapid rise of Japan as an economic superpower had much do
with the concept of job rotation. Even today, Japanese corporations exhibit
modular characteristics more than their counterparts in the OECD countries.
Diversity – 98% of our DNA
structures are the same. With the 2% that are different, each of the seven
billion people on this planet is unique. As complex as the universe is, we have
within each of us an equally diverse and complex set of subsystems. If we want
to look for diversity in all its myriad forms, we need to look no further than
the human system.
Thomson Reuters reported in
September 2016 that based on an analysis of the practices of over 5,000 companies worldwide, diverse companies (not necessarily
diversified companies) create more innovative products, happier customers, and
better financial returns. The study found companies that consciously embraced
the concept of a diverse workforce consistently outperforming their peers.
The report
could not have come at a more appropriate moment for search giant Google and its parent company Alphabet. The world’s most valuable
company which handles trillions of queries every year and accounts for 80% of
all Internet searches could not make the cut when it came to diversity (Source: Fortune). 71% of the company’s
employees are male, 57% of U.S. employees are white, and men hold the vast
majority of technology and leadership position (Source: Fortune and Company Domain
information). A mere 2.4% are black, 1.8% are mixed race, and less than 1% are “other.”
The company
is reinventing itself in correcting this shortcoming. Proctor & Gamble, Cisco, Microsoft, and Johnson &
Johnson all make it to the top 25. Time will tell whether Google and Alphabet
can catch up. Many are skeptical because the initiative to improve diversity
has not come from the leadership.
Prudence – the human system
clearly outperforms any other system when it comes to resource optimization.
The speed with which the central nervous system rushes impulses, messages, and
resources (oxygen, blood, antibodies) to a part where they are needed the most
is beyond imagination.
Organizations
that consistently beat the odds show the same level of prudence. How has Southwest been able to ride the severe
storms that have driven many large players out of business? You will see the
single-minded pursuit of prudence (cost leadership), modularity (having only
one type of aircraft), and embeddedness (service is deep rooted in the
organization’s culture).
There you
are. If you wish your organization to be around for a hundred years or more,
just think of the human system. Implement the principles of redundancy, diversity, modularity, adaptation, prudence, and embeddedness.
You can
watch Martin Reeves’ TED talk here:
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