Corporate life and death

by Stuart Crainer

History provides clear and unequivocal lessons on the longevity of corporations.

The first is that companies which come up with world changing or industry defining ideas are rarely able to repeat it. Henry Ford created the first car making colossus in the first two decades of the twentieth century but, in terms of market share, the company has been in decline ever since. Having changed the world, it was never able to pull off the same trick again.

The second related lesson from history is that companies do not have lengthy life expectancies. At a time when average life expectancy is now approaching 100 years — for those born today in the industrialized world — companies can expect to bite the corporate dust much before that.

Most die in their infancy. Only a handful of business ideas make the leap from the back of a cigarette packet to actually becoming a business. Of these only another small percentage evolve into profitable companies which last more than a few years. And then companies fall by the wayside, are taken over, peter out. There are many ways for companies to fail to last the distance.

Look down the high street to get some idea of commercial reality. I am in my fifties. If I walk down a high street shopping area I will encounter perhaps one or two retail names which I can remember from my youth. Many weren’t even in existence only three or four years ago.

So, companies die. (And, if that sounds bleak, the good news is that for every corporate death there are a myriad of commercial births.)

The trouble is that companies continue to behave as if these facts of life and death simply didn’t exist. As people become older they have to learn to live differently. Eventually, they hopefully come to terms with their mortality — and those that fail to do so will spend their time raging pointlessly against the dying of the light.

Companies age badly. They hold on to old glories. They insist they could still be contenders even as the new champions disappear into the distance holding their crown. In my mind I could still play a crucial midfield role for Manchester United, but it is not going to happen and is something I have come to accept. Companies pretend otherwise. They think the flames of past innovative glories can be rekindled. Lightning will strike again.

Look at Apple. It is a fantastic story. It was at the vanguard of the first computer revolution and then, after a period in the commercial abyss, was led to the promised land of reinvention by Steve Jobs. Its iMac, iPod, iPhone and iPad changed the world.

Thanks to its brilliant achievements, Apple now sits on a vast cash pile and has thousands of bright young designers beavering away at coming up with the next world-changing product.

History suggests this won’t happen. To accept this likely reality, Apple should do four things. First, it should spin off its R&D activities. Imagine a company called Apple Inventions which took Apple’s much lauded belief in design purity and creative brilliance and was a standalone business, offering these skills to whoever wanted to pay for them.

Second, it should milk the commercial potential of its existing core products with huge energy. Leveraging iTunes alone should keep Apple in profits for years to come.

Third, it should put its cash pile to good use as Apple Investments. It has incredible expertise in developing products and bringing them to market. It could invest in start ups throughout the world and bring these skills to bear in creating new companies. Quickly, the world would be full of mini Apples so that the commercial cycle could start again.

Apple as we know it would cease to exist. The fourth thing Apple could do is to re-open its new and glittering HQ as a museum to the company’s historical genius. Afficionadoes and Steve Jobs wannabes would flock there.

The writing is on the wall. A recent HBR blog by Juan Pablo Vazquez Sampere of IE Business School makes this clear. Sampere observes: “Unfortunately for Apple, the strategic shift to engaging in classical competition instead of continuing leading the industry doesn’t have a good prognosis. In these situations, the incumbent almost always fails — and one of the early signs of failure is the incumbent’s inability to make sense of the competitive environment.”

We are all mortal and so, too, are the great corporations of our times.

Stuart Crainer is co-founder of the Thinkers50 and author of The Management Century.