Start-ups rarely survive their second birthday. Even established firms in the UK and the US average a life of only fifteen years. So how can your company build and sustain success for decades to come?
Professor Alex Hill has conducted thirteen years of groundbreaking research into a clutch of organisations that have outperformed their peers for over 100 years – from NASA to the New Zealand All Blacks, from Eton College and the Royal College of Art to the Royal Marines and the Royal Shakespeare Company. In his new book, Centennials, Professor Hill shares the twelve traits that have set these organisations apart for over a century, from the way they analyse success and failure to their approach to finding the best people and the brightest new ideas. In so doing, he identifies the strategies and habits that you can employ in your company to create a strong, stable core and ensure the same long-term prosperity while remaining dynamic. In short, he shows you how to build a promising enterprise into an enduring, great organisation.
In this interview, I speak to Professor Alex Hill, Director of The Centre for High Performance (a collaboration between senior faculty at the Universities of Kingston, Duke CE, London Business School and Oxford). We discuss how some of the world’s longest living companies have endured, and how we can do the same.
Q: Why did you become fascinated with centennial organisations?
[Prof Alex Hill]: My response may be a tad lengthy, but it’s critical to fully appreciate the journey I’ve traversed. I began my career at a large-scale engineering company known as T.I., which stands for Tube Investments. This enterprise was the origin of renowned entities such as Raleigh bikes. They sponsored my university education and for a decade, I had the opportunity to run multiple businesses for them.
During this period, I found myself embroiled in a world that revolved around a very short-term perspective. The emphasis was not just on meeting daily or weekly targets, but at times, even hourly objectives. We’d scramble around in the middle of the month, trying to secure enough sales to meet our target. This immediate focus sometimes led us to borrow from the future, to fill the present. Although we knew we were creating a more substantial void to fill later, it was the nature of the work.
Eventually, I decided to tread the path of my father and exited the industry. I enrolled at Oxford University to undertake three years of research. I found myself transitioning from an extremely short-term world into an environment where the focus was primarily long-term. The environment, based around colleges, was more relaxed and unhurried. The pace was different – no hourly targets here – with a collegiate atmosphere that placed greater importance on future implications.
Midway through my life, while working as an academic, I was prompted by my father’s words, asking me what I wanted to leave behind. I pondered on what my life’s work was really about and after some introspection, I realised I relished being in the company of high-performing individuals and aiding their progress.
Subsequently, I began working with people such as coaches and mentors. I had the chance to work with someone who was closely associated with the New Zealand All Blacks and was guiding the coaches of the Olympic teams in the lead-up to the London Games. This individual introduced me to something intriguing happening within UK Sport, the funding body for the Olympic teams, and encouraged me to delve into it.
I ended up collaborating with Peter Keen, the first performance director of cycling. Peter, being a psychologist, had initially worked with Chris Broadman and played a significant role in securing the first medals in cycling. He was later tasked by UK Sport to replicate his successful model across all their teams.
Peter devised an investment model that projected a team’s medal haul, and these predictions would guide the allocation of funds. The primary goal was to enable Olympians to train full-time and focus on winning medals. Peter shared his transformative journey with us, even including the worry that haunted him – the sustainability of his model. He admitted he was keen to learn from the arts, a sector that had been successfully managing sustainability for centuries.
This was a pivotal moment for me. I realised that my passion lay in the realm of high performance, irrespective of the context, and the sustainability of such performance was a fascinating query. This question is invariably present in the minds of leaders in great organisations.
I remember a conversation with the lady in charge of the Royal Shakespeare Company, who likened her responsibility to carrying a delicate vase across an ice rink. A pervasive sentiment among high-performing organisations is the fear of failure. I sought the opinions of numerous high performers on who they admired or found interesting and surprisingly, none mentioned a business.
This led me to explore why businesses, in spite of numerous studies highlighting their short-lived nature, are not perceived as sustainable high performers. The insights gleaned from this research, and the subsequent publication, revealed why businesses tend to be short-term oriented and how long-standing great organisations operate contrary to conventional business wisdom.
Q: Can you talk about the concept of stewardship?
[Prof Alex Hill]: To understand this better, let’s travel back in time, focusing on the evolution of corporate America as an example. The initial major corporations were family businesses, constructed with the intent of longevity and continuity. They were built to be bequeathed, akin to the great establishments in India such as Tata, and even in Japan. The emphasis wasn’t merely on scaling to sell, but on nurturing the business to be transferred across generations.
This mindset instigated the consideration of the long-term vision, encompassing not just the maximisation of performance during one’s tenure but also leaving a lasting legacy for the subsequent generations. The perspective shifted towards planting seeds for the future, cultivating a mentality that spanned across multiple generations. This approach embodies the essence of stewardship, and it plays a crucial role in the longevity of an organisation.
Undeniably, joining a flourishing company vastly differs from joining a struggling one, just as there’s a significant contrast between building a company with the intention to sell and constructing one with the goal of passing it on.
Q: Does the notion of always getting bigger harm corporate governance and stewardship?
[Prof Alex Hill]: One of the crucial chapters in this discussion is titled “Get Better, Not Bigger,” illustrating the concept that sustainable growth is achievable, but it requires meticulous planning. It entails the formation of numerous small entities that collaborate harmoniously. Indeed, the game-changer for US corporations was the advent of electronic share trading in the 1970s. This technological breakthrough led to a surge in the volume of trading and share ownership, causing a shift in people’s perception of corporations. Suddenly, they started speculating about companies, a trend that hadn’t been as prominent before.
Consequently, the notion of exponential growth became all the rage. Typically, when you ask a business person about their progress, their immediate response tends to revolve around growth figures – ‘We’re 20% up from last year’ – under the assumption that growth equates to robustness and sustainability. However, empirical evidence doesn’t support this assumption.
Interestingly, during my observation year at Eton, I asked a staff member if they ever intended to expand the institution. Their perplexed reaction was intriguing. They asked me, ‘Why would we want to grow?’ The question made me realize that once growth ceases to be the primary objective, it allows the spotlight to shift towards aspects like sustainability, longevity, nurturing a strong culture, and attracting top-notch talent.
Hewlett Packard, at its inception, lived by the mantra, ‘Never grow faster than you can attract great people.’ A compelling study conducted by Start-Up Genome on several thousand start-ups in the States revealed that a common downfall was rapid growth. One entrepreneur likened getting venture capital funding to strapping a rocket onto a car; if the car isn’t stable, secure, and ready, it leads to a disaster. Similarly, hiring salespeople prematurely can indicate a probable failure because you’re still figuring out your direction. Thus, the sustainability of the business gets compromised.
Q: How are enduring businesses better for society?
[Prof Alex Hill]: ...what we need is a balanced blend. I find the analogy of a forest to be quite fitting. For a forest to thrive long-tem, there needs to be stalwart oaks providing a robust structure. Amidst these towering trees, you witness a cycle of growth and decline, certain elements flourish while others fade, but the overarching solid framework remains intact. These enduring, long-term institutions form the backbone of our society.
Whenever a society is subject to excessive cycles of boom and bust, instability ensues. Therefore, I envision these enduring organizations as the sturdy structure, amidst which various elements can emerge, grow, decline and even disappear. Consider Silicon Valley as an ecosystem; it requires a degree of stability around which innovation and change can happen. But the entire ecosystem shouldn’t be in a constant state of upheaval. Hence, the importance of maintaining this equilibrium is paramount.
Q: What policies can result in more enduring businesses?
[Prof Alex Hill]: I believe the challenge arises when you’ve built a company and experienced rapid growth. It’s incredibly invigorating and feels like a huge affirmation that you’re on the right path. The fast-paced environment of rapid growth is exhilarating, stimulating, and gives you immediate feedback that you’re succeeding. However, this contrasts with more stable, long-term environments, which, although geared towards sustainability and longevity, may not have the same level of dynamism or provide the same thrill.
There is a specific type of person you’ll often find in these long-lasting organisations: thoughtful, future-oriented, introspective, and often self-critical. There’s a recurring type of personality – let’s call them ‘Petes,’ after Pete from the Olympic teams. You’ll find a ‘Pete’ in every enduring organisation. These individuals are focused on making a positive impact in the world and serving the organisation rather than seeking personal gain.
For instance, the former Olympic coach of the hockey team mentioned in an interview how he was asked to develop a plan for the next 100 years. Such a request reflects how these organisations frame their challenges and objectives differently.
That being said, the thrill of growth is undeniable. Hence, different organisations will attract different people. However, I believe that our current policy and societal measures of success have become a bit skewed towards entrepreneurial ventures, potentially overshadowing the importance of long-standing organisations. We perhaps aren’t supporting or valuing these enduring institutions as we should.
This could start to impact us, as the success of any entity fundamentally depends on its ability to attract funding and talent. If we fail to recognise the importance of these long-term institutions, my concern is that at some point they might not receive the necessary support, leading to potential societal issues.
Q: What is the role of wisdom in enduring businesses?
[Prof Alex Hill]:
I delved into the dynamics of successful sports teams, meticulously studying Manchester United under Ferguson. My research spanned the entirety of his reign, resulting in a comprehensive spreadsheet featuring every player and coach who served under him. This allowed me to calculate the collective years of Manchester United experience within the club. As this sum expanded and hit the 250-year mark, the club started to flourish. It later hit 300 years, where it remained steady. Then came Ferguson’s departure, Moyes took over, let go of the entire coaching team and dismissed the veteran players. Consequently, the club suffered a loss of 150 years of experience within just 18 months, a blow from which they haven’t yet recovered.
Drawing upon this, one can ponder, what is the cumulative institutional experience we possess? To add depth to my study, I compared this scenario with Barcelona Football Club. I found that when they appoint a manager with ample experience but devoid of Barcelona or Ajax-specific knowledge (as their culture heavily rests on Ajax), the outcome is invariably suboptimal. On the other hand, when a manager familiar with the Ajax or Barcelona ethos is at the helm, success follows. This indicates the significance of collective knowledge within an organisation.
It appears that certain aspects remain constant—your purpose, stewardship, and openness—acting as your guiding principles. However, the presence of expertise, nervousness, and accidents serves as catalysts for movement and change. A balance between guidance and motion is crucial. Exemplary direction without expertise, nervousness or the occurrence of accidents, can lead to stagnation and decline. Conversely, hastening in an incorrect direction sets you up for disaster.
Interestingly, enduring organisations do not resort to disruption when adversity strikes. Instead, they reconnect with their core. This approach is evident in Japanese management, where most of the longest-lasting organisations exist. In the face of organisational failure, the CEO remains in place. This approach contrasts with American institutions, where the immediate reaction is usually to replace the CEO. In Japan, the belief is to preserve stewardship, trusting that the incumbent CEO, familiar with what went awry, is best positioned to steer the ship back on course. Stability is maintained at the core, while disruption is allowed around it. Too often, organisations try to disrupt their way out of problems, which can sometimes send them in an erroneous direction.
There’s an inherent human instinct to think in terms of generations. Becoming a parent or grandparent tends to extend our viewpoint to consider the future of our descendants. I would even argue that those who didn’t harbour this perspective may not have been as successful in passing down their genes. Entrepreneurs, I’ve noticed, are initially consumed by the exhilaration of rapid growth and vast wealth, but often shift towards introspection later. When they step away from their venture and observe its failure, they’re inclined to ask, “What was my mistake?” I believe that most people, even if they initially deny it, inherently aspire to establish something enduring.
Once this transition occurs, a fascinating transformation begins within long-standing, prosperous organisations. You’ll notice a dichotomy where certain aspects are immutable, while others are in a perpetual state of change. These organisations resemble a healthy multi-generational family. They harmoniously blend the enthusiasm of youth with the wisdom of the aged, creating a dynamic and cooperative atmosphere. After all, who would want a neighbourhood solely comprised of teenagers or exclusively of the elderly? A healthy mix cultivates a vibrant and intriguing community.
This concept applies to organisations as well. Aiming for organisational longevity requires fostering a mix of youth and age, novelty and tradition. You need the institutional memory of the “grandparents” along with the fresh perspectives of the younger members. In many long-standing organisations, you’ll observe a structure reminiscent of communities, with teams of five embedded within larger groups of 15, which belong to broader communities of 50, housed within sites accommodating 150. This structure is strikingly consistent. These sites often exist near a couple of others, facilitating mutual support and enhancing collective resilience.
Every unit in this structure is steered by “parent” figures, providing guidance and assistance, while the “grandparents” offer further support. But there’s always a contingent of young mavericks who challenge the status quo, reminding everyone to adapt and evolve. This dynamic interaction shapes a vibrant and resilient organisational culture.
Q: Why is openness important to businesses that endure?
[Prof Alex Hill]: This may seem a bit counterintuitive, but Silicon Valley is a prime example of the principle I’m about to explain. So, once it becomes clear that your company’s future hinges on attracting and retaining both financial resources and talent, an intriguing question arises for business leaders: would the descendants of your grandchildren want to work for you? Are you cultivating an organisation that appeals to succeeding generations? After all, if your goal is to sustain your business for a century, that’s essentially four generations considering an average 25-year gap between generations. You must appeal to and retain four generations of talent, while securing the patronage or investment of four generations of consumers or investors.
To attract such resources, you must inspire trust. Transparency is essential for trust because people can’t trust what they don’t understand. Delving into the realm of neuroscience, there’s compelling research around the hormone oxytocin. Administering oxytocin makes people more likely to lend money to strangers because it enhances trust. Oxytocin, which bonds mothers to their newborns, fosters trust and bonding. Remarkably, lending money to someone also elevates their oxytocin levels, making them more likely to repay. It’s a virtuous cycle: if I trust you, you’re more likely to trust me, and vice versa. This dynamic is evident in leadership: if leaders trust their team, the team is more likely to reciprocate that trust. It’s also a familiar pattern in personal relationships: the ability to trust again often marks the success of a subsequent relationship after a breakup.
When we translate this into an organisational context, the message is clear: if you want the world to trust you, they need to comprehend what you’re doing and why. Being open and transparent is crucial. An illustrative example is Pixar’s journey in creating the first digital animated film. The Pixar founders, coming from academic and research backgrounds, believed in openly sharing their discoveries through conferences and papers. As a result, they attracted talent who were excited by their work, along with funding. Their competitors, who opted for secrecy, lost out.
An interesting anecdote comes from a tour I took of Nissan in Japan during the 1990s. When asked why they were revealing so much, they replied, “Because you’ll always be behind us.” In other words, by the time you catch up with what they’re sharing, they would have moved on to the next innovation. Plus, releasing current ideas creates a push for new ones.
Silicon Valley follows this openness principle as well. Many entrepreneurs work for several firms in the valley before establishing their own, often funded by the firms they once worked for. This creates an ecosystem where talent and funds circulate. Additionally, when the media descended upon Silicon Valley and broadcast its stories worldwide, the region attracted an influx of investors and talent. So, in a sense, openness fuels a virtuous cycle of trust, talent, funding, and innovation.
Q: What can we all do, from tomorrow, to make our businesses endure?
[Prof Alex Hill]: Balancing short-term survival with long-term success is a challenging feat. To have a long-term future, you must first survive in the short term. But, altering ingrained behaviours to suddenly adopt an authentic purpose seems quite a task. Successful, enduring companies often have a clear purpose from their inception which becomes interwoven with their ethos. Retrofitting a purpose can be difficult, as exemplified by Facebook’s ongoing attempts that often struggle to gain credibility.
It might not seem groundbreaking, but a long-term guiding principle is paramount. In many ways, the money you’re earning is merely a means to survive and fulfil your purpose. As your organisation grows, the concept of stewardship becomes increasingly crucial. Stewards are not defined by their job titles or positions but by their embodiment and transmission of your values and principles.
Taking the Manchester United example, during Sir Alex Ferguson’s tenure, the receptionist was the embodiment of the club’s values, making a lasting impression on all who walked in. Identifying such individuals is essential, and they need to have a long tenure in your organisation. At Eton, it’s the house masters who serve in this role for 13 years, echoing the role of sergeants in the army. Their years of experience are crucial, akin to parenting, which demands unwavering commitment for the initial, intense 15 years at least. From my research, I found that these critical individuals typically constitute about a quarter of your staff.
As your organisation matures, consider how these ‘parent’ figures can transition into ‘grandparent’ roles. Established companies tend to keep valuable individuals who, after fulfilling crucial roles, stay on to mentor the next generation and intervene when necessary, akin to grandparents. It’s also common for enduring companies to keep tabs on departed employees, maintaining contact, and often inviting them back, augmenting their institutional knowledge with fresh external experiences.
Undeniably, a clearly defined purpose and stewardship are essential, but you also need truly exceptional people. Great organisations typically follow a ‘recruit, don’t manage’ approach. The equation for performance as suggested by the Olympic team is performance = talent x environment, highlighting the importance of both talent and environment. Focusing on recruitment, these organisations often forgo traditional CVs and interviews. Instead, they prefer to engage potential hires on projects, gradually drawing them in, and continually learning from them. Identifying who’s the best in the world at a particular skill and trying to engage them is more their style.
Recapitulating, if the quality of your recruits drops, it’s a clear sign of trouble. Therefore, maintaining purpose, fostering stewardship, and recruiting exceptional talent are critical to both short-term survival and long-term endurance.