The Hindu Business Line : From business to institution

The leadership has to view the company from a more complete and long-term perspective. It has to take the company from being merely a ‘business’ and make the crossover into an ‘institution’.

V. K. Madhav Mohan

There are businesses and businesses! They make billions of dollars in sales and profits and, therefore, command vast resources and great power. And yet, few of them earn universal respect and admiration.

Fewer still survive for more than a few years. Many are acquired or merged with other business. Others simply fall by the wayside and plod along as also-rans. Some disappear when profits evaporate and yet others are overwhelmed by debt.

The seminal research conducted by Dutch manager and researcher Arie de Geus (author of The Living Company) some two decades ago uncovered the interesting concept of corporate mortality. Companies, it seems, also enjoy life expectancy just like human beings do. (The life expectancy of an Indian currently stands at 69.25years: http://indexmundi.com/india/life_ expectancy_at_birth.html).

The life expectancy of a company in North America, Europe and Japan, according to de Geus, stood in the range of 20-30 years. After this period, ceteris paribus, companies would be susceptible to a natural tendency to die.

In a recent interview, de Geus revealed that he had revised the corporate life expectancy of companies in Europe and Japan to 12.5 years. That means companies in these geographies are subject to the laws of entropy after 12.5 years if adequate leadership interventions are absent.

Business focus

The dynamics of the 21st century seem to have accelerated corporate mortality! If companies are to ward off corporate mortality they have to transcend what I call the “business concept”. The business concept is a narrow focus on “making money”.

Many business owners concentrate only on the profits from every transaction to the detriment of everything else. This is a fatal flaw. Every organisation is a living entity that has many needs of its own that have to be fulfilled. Neglecting processes, quality, people, capability building, product pipelines, risk assessment and management, succession planning and capital budgeting to name a few, guarantees that corporate mortality is hastened.

This is like a chain smoker who invites cancer into his lungs! Organisational longevity and survival create cash flows in the future that must be guaranteed.

The present value of these cash flows is so huge that no stakeholder can ignore them. The short-term business concept ignores this wealth. CEOs who are rewarded only on quarterly results are actually speeding the organisation towards premature corporate death. In fact, a sole focus on quarterly results beckons Yama into corporate boardrooms!

To overcome corporate mortality, CEOs and business owners have to commit to an organisational fitness and rejuvenation programme. Somewhat akin to an ayurvedic panchakarma programme on an ongoing basis!

Make the crossover

The leadership has to view the company from a more complete and long-term perspective. It has to take the company from being merely a ‘business’ and make the crossover into an ‘institution’.

The Miriam Webster online dictionary defines an institution as, “a significant practice, relationship, or organisation in a society or culture.”

Inherent in this definition is the importance that an institution occupies in the community. That importance is derived from its stature as an entity that appeals to the nobler aspects of humanity. This, in turn, is based on a commitment to ethical conduct, quality and fairness to all concerned.

When a business makes the crossover to an institution the focus shifts automatically to sustainability of results through capability building.

The CEO and the business owners then start thinking and behaving like the farmer who wants to ensure that his golden goose continues indefinitely to lay golden eggs.

Organisational priorities are then accorded primacy over personal priorities of the leadership. Co-leadership principles are adopted. Many more promising managers are empowered and assigned leadership responsibility.

Investment in people, processes and product development and research is increased. Collaboration assumes more importance than competition. Quarterly results are balanced with annual results and their alignment with 3 year plans. Risk mitigation is on top of the CEO’s agenda.

So is compliance and corporate social responsibility. No threat to long-term survival is left unaddressed. Businessmen evolve into leaders and statesmen.

Paradigm shift

Making the move from business to institution is of course a paradigm shift. To engineer such a fundamental transformation the CEO and business owners need to adopt the following mantra: “The organisation is not here to serve us; rather, we are here to serve the organisation.”

No matter what his short-term results, the CEO’s reputation and future career depend critically on his contribution to his present employer’s long-term health. Savvy CEOs will of course realise instantly that their own future lies in the organisation’s survival and success.

That means converting the company from a mere money-making machine into an institution that lives long, is respected for its values and admired for its consistent results.

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