Companies As Living Organisms

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In a world of economic and geopolitical confusion, the key to sustained growth lies in strategies that span centuries, not just fiscal quarters. The question that inevitably emerges is how to transform an organization into a ‘Living Company,’ one that perpetually evolves, learns, and thrives.

The concept of the ‘Living Company,’ as established by Arie de Geus, pivots around the crucial principles that distinguish 100+-year-old companies from their short-lived counterparts. This essay presents an in-depth analysis of de Geus’s work. The nine key takeaways in this essay serve as guiding principles for businesses desiring longevity and prosperity.

In 1983, Royal Dutch Shell commissioned a study of companies older than Shell and large enough to be important in their industry. They wanted clues on how to run their own business. Looking for large companies older than Shell would mean going back into the first years of the Industrial Revolution! They found 40 such companies and called them living companies. 

Success that lasted centuries, the research team learned, came down to how living companies managed three things:

  1. Their people
  2. Their information
  3. Their money

I devoured this book and extracted nine lessons we can use to prepare our companies today for uncertainty tomorrow. 

9 Lessons from Living Companies

Purpose and process are two different things.

Living companies recognize they don’t exist to sell widgets or offer services. They sell widgets or offer services to exist. Success is defined as surviving and thriving to the maximum potential of that company. It needs to be good at what it does to achieve this, but this is only a means to an end.

Strategy is something you do, not something you have.

Strategy is not a cerebral process that results in a document everyone follows. Strategy emerges out of the day-to-day doings of business. This “doing” is an act of learning. Management is, therefore, the art of setting the context and process for this act of learning.

People must feel secure in a company’s identity.

If companies do not embrace learning how to learn, they will suffer the long-term effect of learning more slowly than their competitors. They must, therefore, overcome the barriers we discussed earlier, especially the deeply ingrained attitude that “learning means you didn’t already know it.” Companies must make employees feel secure enough to reveal themselves safely and speak up without fear of retaliation.

Learning isn’t a case of filling up a tank; learning is a process.

Top-down training is dead. Learning is a bottom-up process. You can’t force someone to learn something. You can only create the conditions for it to take place.

Birds that flock together learn faster.

A zoologist made a fascinating observation when studying British songbirds between the two world wars. Titmice and red robins habitually fed off the cream that rose to the top of glass milk bottles that milkmen delivered to citizens living in the UK countryside. To prevent this from happening,  the UK dairy distributors added aluminum seals to the bottles.

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The titmouse population flourished as they figured out how to pierce the seals. The red robins did not. This baffled the zoologist because both species of songbirds had the same wide range of communication means: color, behavior, movements, and songs.

The answer was eventually discovered through observation: the titmice move from garden to garden in flocks of 8-10 birds, remaining intact as a group but moving around for two to three months. The red robins, by contrast, are territorial, remaining in one place for extended periods. Birds that flock, concluded the zoologist, seem to learn faster.

Enable your people to flock by encouraging role mobility and providing means to socialize with people across your organization (not just their function or pod).

Tolerant rose pruning leads to longer-lasting rose bushes.

Another lesson we can learn from nature comes from the rose gardener. People who grow roses have two choices: 

  1. Prune hard and concentrate all the plant’s power into a few stems for a shot at growing the biggest and brightest roses on the block, but risk losing the entire plant to shocks like an unnaturally late frost. 
  2. Allow the plant to grow more stems and buds, which may not grow to be the biggest or brightest roses (because the plant must distribute energy across more stems) but gives the plant a better chance of surviving as it continuously restructures itself in response to shocks.

Imagine the rose plant is your company. When external shocks like a new competitor or rising inflation threaten to destroy your entire company, those companies that have allowed more ideas to flourish (see lesson #4 from the Built To Last companies) are more likely to survive the shock.

Business systems that deliberately introduce diversity (for example, testing out new products like 3M’s Post-It-Notes), even at the expense of short-term proceeds, have greatly enhanced chances of survival.

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When external shocks can destroy your entire company, it’s best to be the prudent pruner—allowing new ideas to flourish, even at the expense of short-term gains with familiar ideas, leads to long-lasting companies. 

Distribution of power leads to better decision-making.

Decisions without actions to carry them out are meaningless. Organizations that distribute power more widely are at an advantage because the very people who will help in carrying out decisions are involved earlier in the process of making them. 

Mo’ money aint mo’ motivation.

Pay is a negative hygiene factor. While inadequate pay breeds dissatisfaction, there is a compensation threshold that, when crossed, doesn’t actually increase motivation. Shared vision, commitment to personal growth, trust, and care between the company and the individual are needed to motivate people further.

Conservatism in financing secures the future.

Having cash in reserve provides living companies with the flexibility to grab opportunities. In other words, don’t gamble for quick wins. Keep your powder dry for when the god of opportunity presents themself.

And there you have the nine lessons we can learn from living companies:

  1. Purpose and process are two different things.
  2. Strategy is something you do, not something you have.
  3. People must feel secure in a company’s identity.
  4. Learning isn’t a case of filling up a tank; learning is a process.
  5. Birds that flock together learn faster.
  6. Tolerant rose pruning leads to longer-lasting bushes.
  7. Distribution of power leads to better decision-making.
  8. Mo’ money aint mo’ motivation.
  9. Conservatism in financing secures the future.

The Blueprint for Sustainable Success

The blueprint for a living company lies not in fleeting trends or momentary victories but in the enduring lessons gleaned from companies that have stood the test of time.

From nurturing an organizational culture that prioritizes learning and adaptability to prioritizing long-term survival over short-term gains, these nine lessons encapsulate the essence of a living company. Notably, they underline the importance of recognizing purpose beyond profit, fostering an environment conducive to innovation, and practicing fiscal conservatism for enduring success.

As we venture into an increasingly unpredictable business landscape, the principles of the ‘Living Company’ may be more relevant than ever, reminding us that longevity in business is less about the constant pursuit of more and more about the conscious choice to adapt, learn, and evolve.

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