The first in a series of blogs that examine the drivers of business success and failure and how present-day organizations can learn from history.
Where we are now: A shrinking competitive landscape
Something is definitely different. Companies you remember from your past are now gone. Companies you didn’t hear about until yesterday are now worth a billion dollars.
There was a time when established companies survived and thrived for generations, some for more than a century. Over time, this elite group of companies shrank, and the current pace of technological evolution threatens to shrink it even further to a mere handful of behemoths that know how to innovate.
Why did this happen: No time for mistakes
Enterprises face growing global pressure to innovate, reduce costs and create value for their customers, employees and shareholders.
The pace of business change is more rapid than ever, with enterprises struggling to succeed in the face of growing competition, regulations, geo-political crises, climate change, and ever-increasing customer expectations in an increasingly digital world.
There was a time when organizations could afford to make mistakes since the decision / feedback and impact loop was much longer, in many cases it was many quarters to in some cases a few years. Mainly driven due to the lack of consumer choices, awareness, lower expectations, and affordability, this meant companies weren’t rewarded for innovating, delivering effectively or marketing aggressively.
Companies had the leeway and safety net to get over failed products or deliver sub-optimal services and yet continue to succeed and grow.
Those are the days are long gone. In today's hyper competitive landscape, even a small mistake can lead to a huge drop in stock value and erosion of brand.
Today’s customers don't just expect more—their expectations also change very quickly.
Today’s customers don't just expect more—their expectations also change very quickly.
One false move = disappearing organizations
This creates a growing churn in the global enterprise landscape, with successful new players emerging by creating revolutionary products and generating customer value. Companies that fall behind simply cease to exist. An analysis of the Fortune 500 from 1955 and 2021 shows that only 52 companies appear in both lists—just over 10% in the 1955 list exist today.
Likewise, looking at trends in the S&P Index, in 1965, corporations had been in the index for an average of 33 years. By 1990, average tenure had narrowed to 20 years, and it is forecast to shrink to 14 years by 2026. At the current churn rate, about half of today’s S&P 500 firms will be replaced in the next ten years.
At the current churn rate, about half of today’s S&P 500 firms will be replaced in the next ten years.
Companies in the index increasingly tilt toward technology, finance, communication and healthcare, demonstrating a shift in the world economy from manufacturing to service.
Hybrid sectors are emerging wherein companies leverage creative destruction by combining traditional sectors with pathbreaking technologies and innovative processes to create new products and even new businesses.
For example, niche players in the automobile sector like Tesla combine traditional manufacturing with digital technologies, and Amazon leverages technology to broaden the scale of retail.
Framework for survival: The creative destruction revolution
Austrian economist Joseph Schumpeter (1883-1950) coined the term "creative destruction," a theory of economic innovation and business cycle. Schumpeter believed that innovative entrepreneurialism is a revolutionary disruptive force that sustains economic growth even as it destroys companies that once enjoyed monopolistic power derived from previous technological, organizational, regulatory, and economic developments.
At the same time that creative destruction boosts productivity, efficiency and economic competitiveness for companies, it improves living standards for consumers and uplifts society as a whole.
Two obvious examples are the transition from horse carts to internal combustion vehicles and electric vehicles and the transition from fixed lines to cell phones and the ubiquitous smart phone.
Buying your corporate survival: revolutionary vs evolutionary innovation
Revolutionary creative destruction isn’t the only way to succeed: Some companies build long-lasting success via evolutionary innovation—adapting swiftly to new landscapes, sensing opportunities and taking calculated risks.
Revolutionary creative destruction isn’t the only way to succeed: Some companies build long-lasting success via evolutionary innovation.
I’m talking about companies like P&G, Walmart, Volkswagen, and Disney. They are typically large corporations that leverage their strengths, make step-by-step incremental improvements, and continue to evolve.
These companies often struggle with revolutionary innovation, given their size and the fact that they have much more to lose if radical changes go sideways or if the timing of changes are not right.
For this reason, they often take an M&A route to stay competitive and reduce the risk to their business.
Companies that neither come up with revolutionary products nor leverage their strengths to sense and capitalize on opportunities tend to slowly (or quickly) become insignificant and perish.
They are subsumed by creative destruction and evolutionary innovation.
The journey so far, and where we are going
Past corporate revolutions and evolutions created corporate winners and losers. Uncertainty and potential advancement are two sides of the same coin.
Companies that learn to foresee revolutionary and/or evolutionary opportunities and can realign their organizations and business models to drive value for themselves, their consumers and their stakeholders will continue to survive and thrive.
Having an historical perspective on these changes over time can be invaluable:
After all, as Winston Churchill famously said,
“Those that fail to learn from history are doomed to repeat it.”
In the next few blogs, we will examine corporate winners and losers, learning from the winners’ successes and the losers’ failures in exploiting each era’s opportunities and challenges.
By taking our journey across multiple eras, we will understand our current state and postulate on what success will look like in the future.
We will look at the:
- Industrial Era, circa 1760-1950, which was driven primarily by manufacturing
- Consumer Era, from the 1950s-1980s, which saw the growth of consumerism and the transition to a service-driven economy
- Information and Communication Tech Era, from the 1980s to 2010, which gave us the technology boom
- Digital Era, from 2010 to 2020, when enterprises began their digital transformation
- Beyond Digital, from 2020 to who knows?
For each era, we will look at the:
- Economic landscape: market conditions, discoveries and inventions, opportunities, regulations, and geo-politics
- Business model landscape: corporate strategy modes and the operating models that helped companies successfully execute their strategies
- Consumer landscape: the evolution of consumer choices, expectations and aspirations
On the business model landscape front, we will also focus on strategic business dimensions to give us insights into what successful companies do beyond strategy and operations:
- Vision and purpose
- Adaptability and resilience
- Risk adoption
- Operational efficiency
- Customer centricity
By the way, customer centricity is probably the most important dimension, and is essential to all other dimensions.
Customer centricity is probably the most important dimension, and is essential to all other dimensions.
Examining each era through the lens of these dimensions will help us understand why some companies succeed while others fail when faced with similar economic landscapes, opportunities and consumer behaviors.
Before we go back in time, I’ll share these words from Robert Penn Warren:
"History cannot give us a program for the future, but it can give us a fuller understanding of ourselves, and of our common humanity, so that we can better face the future."
Churchill and Warren’s wise words are very apropos for understanding the evolution of business success. I would argue that business success results from the enduring desire of humans to innovate and conquer new frontiers using the lessons of history to guide us.
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