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The survivors: the companies that have lasted 100 years have used intelligent conservatism

How can a company survive and thrive for more than 100 years?

To learn the source of enduring greatness, I directed a 10-year research project on some of Europe’s oldest and best companies. By studying the performance of these companies over the very long term, we identified four key factors that accounts for their success. 

Given a constantly changing business environment, it is obvious that companies can only thrive if they repeatedly modify their strategies and organisations, but the greatest companies radically distinguish themselves in the ways they do this.  Although it seems counterintuitive, they adapt successfully because they are intelligently conservative.

The 18 companies in our study fall into two different groups. We started our research by identifying large European companies that had survived for a minimum of 100 years and outperformed the general market by at least a factor of 15 over a period of 50 years. 

Only nine large corporations were able to pass this test - Siemens, Nokia, Allianz, Legal & General, Royal Dutch Shell, GlaxoSmithKline, HSBC, and Lafarge. We call these companies the 'gold medallists'. In fact, on average they outperformed the market by a factor of 62. 

In a second step we chose a comparison company for each gold medallist. Ideally the comparison company started business around the same time, in the same country and the same industry, with also an above-average performance for most of their history but did not achieve the same status as the gold medallists. The comparison companies outperformed the market by a factor of 10. 

The four principles may seem counter-intuitive to a certain extent. Some important concepts seem to be missing. Why, for example, doesn’t innovation play a more important role? What about heroic leaders? Are a company’s core values not crucial to its long-term survival? In the end it does not matter what we think or have been told, the data provides the answers. 

Consider the role of corporate culture, which some experts believe is a key variable in long-term success. And it is an important factor with some explanatory power, but it does not discriminate well between degrees of success. Siemens, for example, has a strong culture that can be traced back to company founder Werner von Siemens, but so did AEG, its comparison company for 90 years. 

The data tells us that culture is important – as all top companies and most comparison companies have a strong culture – but that a strong culture does not distinguish the good from the great company. 

The four principles represent fundamental ways of approaching business competition. They are not specific tools or techniques, and none of these are available to help companies to adhere to the principles. Various tools and techniques can be applied though. 


1 Exploit before you explore

Historical analysis of the companies reveals a clear pattern: top companies are more efficient but not necessarily more innovative than their comparison companies. 

The top companies emphasise exploitation at the expense of exploration, though they do not neglect exploration, incremental innovation is certainly vital to long-term survival.

Nonetheless, efficiency is even more critical to sustained high performance. Companies can compensate for a lack of exploration capabilities by being more efficient exploiters but they are not able, over the long run, to make up for a lack of exploitation capabilities through better exploration. 

The contrasting tales of Glaxo and Wellcome illustrate this point. Wellcome was a veritable innovation machine from its earliest days in 1880. When Henry Wellcome started a business together with Silas Burroughs he wanted to make a name for himself as a medical pioneer.

Scientists in its research labs did not seem to mind if their findings were used for commercial ends but this was apparently not their primary concern. What they really cared about was groundbreaking research and publications.  Commercial exploitation clearly was secondary. 

At Glaxo the story was very different. Exploitation became a part of Glaxo’s DNA as exploration became part of Wellcome’s DNA.

Glaxo began to grow after Alec Nathan purchased a patent to produce dried milk. Rather than investing in glamorous new products he emphasised efficient use of existing lines, especially dried milk.

With relentless attention to detail Nathan designed a well organised marketing campaign and became the brand leader in Britain. This was an early instance of Glaxo exploiting a technology developed by someone else.


Building on this tradition Glaxo’s most dramatic later success was Zantac, an ulcer medication introduced in 1981.  Zantac was a triumph not of research but of marketing.

When Glaxo was finally ready to launch Zantac - five years after the launch of SmithKline’s best-selling ulcer medication, Tagamet - it had had no remarkable scientific or medical advantage over Tagamet; rather it was a similar product but packaged in lower dosages that better controlled side effects.   

According to conventional wisdom “me-too products” would never gain more than 50 per cent market share. The apparent disadvantage of arriving second in the ulcer market could also be viewed as an opportunity. 

As the pioneer, SmithKline had already invested to educate doctors about the new type of ulcer medication. Glaxo’s sales people therefore were able to concentrate on promoting the benefits of Zantac versus Tagamet. Glaxo decided to put a premium on Zantac to stress its superiority over Tagamet. 

While SmithKline invested more heavily in R&D and generated more patents during that time, Glaxo fared much better in terms of sales and profitability. 

In 1995 Glaxo took over Wellcome, one of the world’s most innovative pharmaceutical companies. The merger allowed Glaxo to apply its marketing power and revitalise several Wellcome products such as Retrovir and AZT for HIV infection, and Wellbutrin, an antidepressant. Interestingly enough this was not the first time Glaxo bought exploration capabilities.  In 1969 it had acquired Allen and Hanburys to change from a producer of milk powder into a pharmaceutical firm. 

We observed the market’s preference for exploitation over exploration again and again across our sample.


2 Diversify, but do it carefully

In strategy, successful diversification exploits economies of scope by combining related businesses. Other types of diversification tend to be less successful. 

A glimpse at recent history shows us that lots of discipline is needed to stick to such a pattern. In the 1960s and 1970s consultancies, gurus, and academics suggested that companies needed to expand their portfolios to dampen the impact of cyclical businesses. Many companies were happy to oblige. 

The logic of the conglomerate was compelling. Empirical research, albeit focusing on short timeframes, supported the rationale. Unfortunately a rude awakening followed for those who engaged in such misguided, expensive diversifications. 

Well-known examples are BP’s disappointing experiment with fish farming, Daimler-Benz’s disastrous adventure in aerospace, CGE’s (later called Vivendi) almost fatal forays into entertainment and media, and many more. 

Today we know that these acquisitions were doomed to fail as very few companies have the resources and capabilities to compete successfully in many diverse industries. 

Few people today would dispute that conglomeration is a poor strategy. More controversial is the notion that the antidote - companies focusing on a single business or set of capabilities or competences - does not seem any better when viewed from a long-term perspective. 

As happened with the conglomerates in the 1960s, empirical evidence seems to support a narrow focus. Single-business companies perform very well in the short run. When we observe these companies over several decades, however, a different picture emerges. Many of the single-business companies cease to exist. Once their primary offering reaches the end of its life span the only alternatives are decline, merger, or sale.    

Great companies understand that they need to prepare for tomorrow even if this means sacrificing a portion of today’s profits. 

French cement producers Lafarge, for example, diversified into related products and foreign markets as early as the 19th century. Its comparison company, Ciments Francais, on the other hand, remained in its home market and focused on a narrow product line.

For much of their histories, the companies had similar size and performance until the environment changed after the first oil crisis of the 1970s. Ciments Francais stumbled but Lafarge excelled on the basis of its diversification and today remains a top industry performer.

Lafarge's first step abroad was a large contract to deliver 110,000 tonnes of lime for the construction of the Suez Canal in 1864. Other foreign projects followed.  After the Second World War Lafarge used the cash generated by post-war growth to speed up internationalisation and diversify into related industries like aggregates and ready mixed concrete.  When the oil crisis ended the building boom in France Lafarge had activities in 15 countries. Growing business in the developing world thus compensated for the slowdown in France. 

For Ciments Francais the situation proved quite different. Originating as a producer of Portland cement in northern France in 1846, the firm remained almost exclusively French for the next 100 years. 

Ciment Francais was a well known innovator within the cement industry but was reluctant to venture beyond. Mergers did not change either the company’s attitude or its dependence on a single business.

In 1971 Ciments Francais united with Poliet et Chausson to become the largest cement producer in France. The oil crisis soon rocked this partnership, however, as the main market in the Paris region declined by 40 per cent between 1974 and 1979. The company never recovered.

In 1992 the biggest shareholder, the French bank Paribas, determined that its investment had reached maturity and sold a 40 per cent stake of Ciments Francais to Italcementi. Ciments Francais thus fell prey to the internationalisation strategy of another company. 

Lafarge provides us with a simple and powerful insight:  pursue a strategy that generates returns in a given business environment and diversifies risk while at the same time preparing for a future of ongoing change. This means alternative products and geographic regions need to be perused.  Ciments Francais failed to learn this lesson and lost its independence.


3 Have a long memory

Powerful experiences often develop into enduring stories that are passed on from generation to generation. Successful companies, naturally, have good stories to tell, and they tell them constantly.

This practice helps motivate people and inspires them to act in ways that produced success in the past and are likely to continue it in the future. The top companies in our sample are particularly skillful in this task. 

Glaxo, for example, never tires of retelling the story of Alec Nathan’s successful marketing campaign for dried milk.  Company leaders drew on this story explicitly eight decades later in the extremely successful introduction of Zantac.  

CEO Sir Paul Girolami referred repeatedly to Nathan when planning the Zantac campaign. Girolami’s successor, Sir Richard Sykes, was equally taken by the founder’s story. He often told it and kept a picture of Alec Nathan in his office. 

The top companies also remember times of struggle and are focused on avoiding the mistakes in their past. By learning from these mistakes, the companies transform their difficulties into investments in the future.   

When Shell, for example, undertook a major reorganisation in 1964 it decided to reject consulting advice to implement an American model of clear accountability and a strong CEO. The reason: it sought to avoid similar mistakes the company had made on the eve of the Second World War. 

Shell’s comparison company BP failed to learn from its own history and repeated several mistakes from earlier times that thrust it again into crisis. 

The architect of Shell was Sir Henri Deterding, who rose to lead the company for 31 years after 1905. Under his firm control, Shell became one of the main rivals to the great American oil companies that emerged from the Standard Oil Trust.

Deterding’s strong personality and impressive record gave him a position of unchallenged power inside Shell. This generally benefited the company but the troubled politics of the interwar years illustrated the downside of such a commanding leader.

Following the 1917 revolution in Russia, the Bolsheviks nationalised the oil industry, and Deterding, like many other oil industry leaders, became strongly anti-communist. He felt more strongly than most, however, and proved willing to endorse controversial measures to counter the enemies of capitalism. 

When Adolf Hitler came into power in Germany Deterding believed him the right man to oppose the communists. He visited Germany frequently and eventually married a German. In principle he would have been prepared to help finance the Nazis though he retired in 1936 before Shell became involved. 

Following the Second World War, executives of Shell remembered this near brush with infamy and traced it to Deterding’s dominance atop the company.

In 1964, this lesson was institutionalised when the board rejected advice from McKinsey & Co. to install an American-style CEO. Instead, the board installed a Committee of Managing Directors (CMD) as the top executive authority in the company.  The chairman is only marginally more responsible than other members of the CMD. 

These arrangements continued for decades. Only recently, following a crisis triggered by the company’s overstatement of its oil and gas reserves, did the company opt for a classic CEO leadership model. Jeroen van der Veer, the first CEO, however, was a strong team player and extremely unlikely to attempt to become another Deterding. 

BP, in contrast, appears not have learned from one of its most dramatic experiences, the nationalisation of its assets in Iran in 1951. Overnight the company lost 70 per cent of its assets. 

Although it received compensation two years later following a coup in Iran, BP failed to diversify its asset base significantly in the following decades. 

At the end of the 1990s BP once again came close to disaster with the decline of its major assets. The company embarked on a new elephant-hunting policy and has become heavily dependent on sites in Russia and other former Soviet Union states. In a politically sensitive industry, BP’s strategy amounts to taking on high risk. It may be rewarded but it may also again experience the downside of depending too much on a relatively narrow asset base. 


4 Be conservative about change

Schumpeterian logic tells us that creative destruction is the only way to survive in modern capitalism. Change is inevitable and it’s better to lead change than follow it - at least that’s conventional wisdom.

Great companies beg to differ. They go through radical change only at very selective moments in their history. Jumping onto every new management wave is not for them. They use their core values and principles as guidelines and approach change in a culturally sensitive manner that requires patience to work through. When major change is unavoidable, these companies engage their entire organisations. 

A story highlighting how a cautious, conservative approach facilitates success is HSBC’s acquisition of the Midland Bank. 

In acquiring Midland Bank in 1992 HSBC created one of the largest financial institutions in the world.  The group headquarters was relocated from Hong Kong to London and for the first time HSBC had a considerable base in the UK retail market. A long-term process was set in motion where HSBC transformed from a corporate bank into a retail bank. 

HSBC took a cautious approach to the acquisition and integration, beginning with its initial investment in 1987, when it acquired a 14.9 per cent stake in Midland Bank. At the time it was not decided whether this would result eventually in a full merger. 

HSBC saw it as an opportunity to get to know both the European market and the Midland Bank. At the top level HSBC managers sat on Midland’s board, and vice versa. This enabled the two institutions to gain a detailed high level understanding of how each of them operated. 

The two banks also started to co-ordinate business development across Europe, with one party withdrawing from a particular country while distributing its products through the branches of its partner. Staff were exchanged to help learn about each other’s cultures and processes. 

When HSBC finally took over in 1992 many of Midland’s top managers left. This was not disruptive, however, as Midland’s performance had not been strong and the rank and file was ready for new leadership.

HSBC installed some of its own people but also moved up some middle managers from Midland. Decision-making power was moved down to the branch level. Individual accountability replaced the old committee-based style. While this disturbed a few traditionalists, most employees had gained familiarity with the HSBC way prior to the merger.

Meanwhile, HSBC’s policy of promoting from within boosted the morale of middle management. A strong positive signal for Midland staff was the composition of HSBC’s group headquarters in London. Of the 450 employees, 200 came from Midland. 

Overall HSBC’s acquisition of Midland is a good example of how a company can also implement tough changes if top management is prepared to take its time and engage people in the process. The new Midland management invested ample time to engage people, to explain new ways to them. Constant, clear communications kept employees informed.


Read a version of this article at Harvard Business Review.

Christian Stadler is Professor of Strategic Management and teaches Strategic Advantage on the Executive MBA and Strategy and Practice on the Executive MBA (London). He is also author of Enduring Success

Follow Christian Stadler on Twitter @EnduringSuccess.

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