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Can Elephants Dance?
So, how might large firms survive and retain leadership in an increasingly Darwinian world?
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I was finishing a talk at Cambridge on entrepreneurship, when the former Vice Chancellor asked why large organisations find it so hard to behave more like startups. It’s a question I have asked myself frequently, often in frustration at some fresh incident of corporate stupidity, bureaucracy or politics.
It is easy to be overcritical of large companies and to idealise startups. There are few large companies and many startups. Big companies are typically large because they were at some point innovative or risk-taking. To persist, large companies must retain real strengths and some competitive edge. Most startups fail, often for good reason. Those which succeed often enjoy a dose of luck or fortuitous timing. Yet the future increasingly belongs to young companies.
Success and size seems inevitably to engender complexity and risk aversion. Bureaucracy develops and responsiveness slows. Few large organisations retain the ability to innovate consistently. As a result, big companies seem to have a life-span. Only 12 per cent of firms in the Fortune 500 in 1955 were still in the index in 2016.
Few large corporates develop the ability to reinvent themselves and hence sustain themselves over the long term. GE used to be the prime example of this rare skill, but even GE looks vulnerable to the laws of corporate gravity just now as it drops out of the Dow for the first time since the index was created in 1896. Lou Gerstner recounted his reinvention of IBM by pivoting from hardware to software in a book entitled Who Says Elephants Can’t Dance?
As technology cycles accelerate, the life expectancy of large firms is shortening. The average lifespan on the Fortune 500 has fallen from nearly 60 years in 1960 to less than 20 years today. Eight of the world’s ten most valuable firms were set up in my lifetime, and three of them (Facebook, Alibaba and TenCent) in just the past 15 years.
So, how might large firms survive and retain leadership in an increasingly Darwinian world? How might large companies remain agile and learn to dance?
The Tata Group, like GE and IBM, has demonstrated the ability to change over time and remain a leader for more than a century. Based on my experience at Tatas, corporate longevity results from achieving two subtle balancing acts. First, enduring corporate success needs strong central strategic direction and yet, simultaneously, requires widely devolved initiative and responsibility. Second, any large organisation must have well-defined operating processes, which by design reduce the scope for variability, but at the same time corporate survivors must encourage experimentation, innovation and calculated risk-taking. The firm must be capable of taking bets big enough to make a difference while falling short of bet-the-company in case things go awry.
While hard-nosed strategy and tight processes are essential, what really makes a difference is two connected human factors. Leadership and culture.
A great leader articulates direction, choses a team with boldness and diversity and allocates resources against key priorities. He or she inspires yet sets limits. He or she delegates, trusts and holds colleagues accountable. Above all, a great leader engenders a distinct culture in which people conform to the highest standards and yet are empowered to try new things.
It is a great leader creating a motivating culture that permits a corporate elephant to dance, and to behave more like a startup.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.