Most Companies Will Die Before Their Fiftieth Birthday
It’s a medical truth—chronic diseases are the most deadly and costly threat to human health. In the US, they’re responsible for 70% of deaths and 86% of healthcare expenses each year, according to the CDC. Diagnosing and managing these illnesses early can drastically reduce both numbers.
The same concept applies to countless companies, except the disease is complacency and the ideal treatment is innovation. As a new EY report explains, most companies today will not live beyond their fiftieth birthday. John Chambers, ex-CEO of Cisco, believes that 40% of today’s leading companies will not survive another decade.
“Today’s disruptive environment is ripe for new markets and opportunities,” writes EY Global Vice Chair, Markets Uschi Schreiber in conjunction with this month’s EY Innovation Retreat in San Francisco. “Every industry and government body must rethink how to connect to their clients and constituents.”
To take but one example from the ever-shifting tech landscape, in 2010 the US Federal Aviation Authority estimated that there would be 15,000 civilian drones in use by 2020. Right now, at least that many are sold every day.
As it becomes increasingly challenging to envision the future, conventional diagnoses and remedies that have led to past achievements just don’t apply any more. Previous success can lead to “a collective cognitive myopia,” explains London Business School’s Gary Dushnitsky. “It’s hard to see beyond something that you’ve excelled at for the last 15 or 20 years.” So what is a health-conscious executive to do? Recognizing the risks of present-day stagnation is only the beginning of successful self-preservation therapy.
In 2010, the US Federal Aviation Authority estimated that there would be 15,000 civilian drones in use by 2020. Right now, at least that many are sold every day.
“A lot of companies want to move to a new culture of innovation and entrepreneurship but there’s a reason that incumbent companies become incumbent,” argues author and “Innovation Activist” John Kao. “They’ve mastered a lot of skills: managing complexity; managing resources; attracting talent. These are necessary for the today business but leaders need to understand that they are really managing two agendas and their job is to adjudicate between them.”
The R&D team offers a natural place to foster this life-saving new culture, but internal obstacles may hinder the cure. Even on a team tasked with developing new products, it can be difficult for members to recognize external trends, pursue opportunities not directly related to the company’s standard market, and move quickly enough to benefit from new models.
Corporate venture capital (CVC)—which broadly refers to company investment in external startups and fields—is seen by many leaders as a potent dose of innovation. CVC addresses the critical importance of bringing the outside in, incorporating talent and ideas that are by their very nature foreign to the organization and crucial to its adaptive survival. Investing in exterior entities affords large companies an opportunity to experiment with more agile processes, daring projects, and cutting edge tech and to apply these lessons to the best practices of the organization as a whole.
“When done right, CVC can be a hugely powerful spur for innovation and growth,” explains Bryan Pearce, EY Global Venture Capital Leader. “These investments, when managed effectively, can help company leaders identify new opportunities for growth; new ways to find and excite their customers; and new ways to transform a legacy business so that it is future fit.”
Companies set up CVC funds that look like standalone incubators, strategy department sub-units, more traditional VC equity models, and many other structures. And while the type of CVC dosage will vary from company to company, it’s clear that the most robust organizations build up their defenses well before the most destructive afflictions come knocking. Jan Timmer, the former Philips CEO, printed up a mock newspaper declaring “Philips Goes Bankrupt!” as soon as he became president in 1990.
Exercises like these inspire companies to access the knowledge and capabilities that will help fend off infirmities and remain fit. “Create a story about a future that you want to avoid and then make it detailed and graphic,” John Kao says. “You have to find a story that tunnels under all the intellectual shields, denial and complacency and rattles the emotions.” And while imagining the story of a company’s demise might not be enjoyable, it’s the ideal first step towards ensuring its continued health.
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This article was produced on behalf of EY by the MaxCo Advisors marketing team and not by the MaxCo Advisors editorial staff.
MaxCo Advisors, April 2016