5 Signs Your Company Is On the Wrong Track

Last Updated May 11, 2011 9:15 AM EDT

I'm a big fan of studying history, not just because I grew up in Europe but because I think it's a healthy antidote to hubris. Most of the mistakes you see today - excessive leverage, lack of strategic focus, overweening CEOs - have been made before, and often. B-schools tend to focus on the case studies, watching strategy in action, which exaggerates the importance of the short-term.

So Christian Stadler's book, Enduring Success, based on his study of some of Europe's oldest and best companies, makes a refreshing change. Here is an examination of some of the reasons why companies have been successful over the very long term. With a team of researchers from the University of Bath and Innsbruck University, Stadler examined how 18 European companies "survived and prospered" for more than 100 years, overcoming the Great Depression, two World Wars and two oil crises.

Not surprisingly, some of his insights into what gives companies longevity directly conflict with lots of the axioms that people hold dear today. His findings:

1. Innovation isn't everything.
Glaxo has been around since 1861. It's longevity has much more to do with exploitation rather than exploration, Stadler notes.

Its early success derived from dried baby milk, a product it had not invented. In 1981, it likewise scored a hit with Zantac, a latecomer to the antacid market. What the company lacked in innovation, it more than made up for with marketing expertise. By contrast, its competitors invested heavily in R&D, to the point that they were far less profitable and, eventually, easier to acquire.

2. Go where the customers are.

While Stadler isn't a fan of sprawling conglomerates, his study does validate strategic diversification - especially into emerging markets. His poster child for this is the French concrete company, Lafarge, founded in 1833. The building of the Suez Canal twenty years later represented a big challenge for the fledgling firm but heralded the beginning of expansion across Europe, then North America, the Middle East and India.

By contrast, Ciment Francais, founded in 1846, stayed home, dwindled and disappeared. Today Lafarge is the second largest cement manufacturer in the world, placing tremendous emphasis on sustainability. Long term seems to be in its genes.

3. Celebrate your mistakes.

The errors companies make - misses and near-misses - are usually swept under the carpet. But Stadler argues it's better the enshrine them in the corporate mythology. His example here is Shell which was nearly led astray by an over-mighty CEO whose flirtation with Adolph Hitler nearly proved disastrous for the firm. Never again, the board determined, could any single individual be so powerful - and they put the structures in place to curtail executive power. This is a lesson BP has yet to learn.

4. Cautiously embrace change.

Stadler is a hawk when it comes to re-engineering. His star companies do change, of course, but cautiously, slowly and strategically. They're strikingly skeptical of management fads. (One wonders if they were also less dependent on consultants.) Comparing AEG's evangelical adoption of cost-cutting reorganizations with the slower, more thoughtful evolution of Siemens, Stadler argues that truly successful businesses "approach change in a culturally sensitive manner that requires patience to work through."

5. Take a cautious approach to cash management.

What strikes me about these lessons is that they all imply a very risk-averse approach to cash management. And, although most of the successful companies Stadler studies are publicly traded, their prime focus is never exclusively on profit. They have a confident sense of purpose and a strikingly secure sense of their relationship to society as a whole.

Donald Rumsfeld once famously commented that America is full of the people who got on the boat to leave Europe. That, he implied, was why the U.S. is so entrepreneurial and willing to take risks.

But reading Stadler's study poses an interesting question: when those entrepreneurial refugees did get on the boat, did they leave something important behind?

Further Reading:

Ancient oak photo courtesy of Flickr user Anguskirk C.C.2.0
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    Margaret Heffernan has been CEO of five businesses in the United States and United Kingdom. A speaker and writer, her most recent book Willful Blindness was shortlisted for the Financial Times Best Business Book 2011. Visit her on www.MHeffernan.com.