By Suvi Nenonen
Something funny is happening to life expectancies. We humans are living longer and longer: according to the United Nations, a New Zealand girl born today is expected to live for more than 83 years – a whopping increase from her English medieval ancestor who had a 50-50 chance of reaching 30.
But exactly the opposite development seems to be taking place among companies. According to Yale research, the average lifespan of an S&P 500 company has plunged from comfortable 67 years in the 1920s to a mere 15 years. This means that 75 percent of the S&P 500 list will be replaced by new firms by 2027.
So, if you are like me, and work for an organisation that has been around for more than 15 years, an uncomfortable thought starts to emerge: is my company about to die? And if the answer is yes, what should we think of it?
It is not a shame to get acquired
Unlike humans, companies can “die” in many ways: the legal entity we call a firm can cease to exist through bankruptcy, when it is merged with another company, or when it is gets acquired. In fact, the most common reason behind companies vanishing from the face of the earth is not going bust; it is mergers and acquisitions.
When you start investigating popular texts about acquisitions, an interesting polarisation of advice becomes evident. The books targeted to managers in established companies are all about how to be a savvy acquirer. If you google tips about how to be a savvy acquisition target, you will find hundreds and hundreds of articles targeted to start-up companies: “the top tips to get big spenders to acquire your start-up” and so forth.
However, there is a veritable void when it comes to explaining how larger companies should handle getting acquired. But based on the S&P 500 analysis we know that this happens, and it happens often.
So, perhaps the strategists in established organisations ought to consider a more balanced view on acquisitions, starting from the rhetoric: less talk about ‘hostile takeovers’ and ‘retaining independence’ and more clearheaded consideration of the facts.
Could it be that your organisation would actually be better off as a part of another company? In a business context, independence has some intrinsic value – but we tend to vastly overestimate it in this individualistic time of ours.
Extreme antidote to change resistance: going belly up?
Despite mergers and acquisitions explaining a fair share of the increasingly short corporate lifespan, some casualties are truly that: companies going belly up.
Our feelings and vocabulary about bankruptcies are surprisingly similar to funerals: disbelief, regret, sense of lost, anger, sense of failure. I am very sympathetic to the human suffering caused by bankruptcies, but I have encountered too many large organisations that would do everyone a favour if they just transitioned to the happier hunting grounds.
The pace of change is increasing, and unfortunately not all established organisations are that well equipped of face these changes.
Theoretically speaking, companies are a fantastic way to organise human action for delivering outcomes that surpass what anyone could achieve alone. However, nothing says that old firms are per se better in conducting this fundamental function than new ones. Quite the contrary: when the processes get too complicated and the C-suite consist of executive vice presidents of status quo and chief change resistance officers, then it is quite clear that it would make sense (to employees, customers, society, and in the long run, also to the shareholders) to scrap this organisation, salvage the parts that are still valuable and start another one afresh – sans the historical baggage.
Very few of us are in a position to single-handedly decide the fate of our companies, and closing down firms in a managed fashion is, well, very difficult to manage.
But if the evidence is mounting that your company is a dead firm walking, ridden with resistance to change when the need to change is palpable, then you should consider walking away. And don’t feel bad if you decide to leave: you are, in fact, just helping the crucial process of creative destruction.
Associate Professor Suvi Nenonen works at the University of Auckland Business School’s Graduate School of Management and teaches in the MBA programmes. Her research focuses on business model innovation and market innovation.