Few companies last more than a generation. Those that buck the trend seem to master new challenges with apparent ease. How do they do that?

The wonder of eternal life began more than 1400 years ago. In 578, Shigemitsu Kongo left his Korean homeland to work on the Shitennoji Temple in Osaka. His passage to Japan turned out to have farreaching consequences. Now in its 40th generation, the Kongo clan continues to build the most beautiful and solid shrines and pagodas in the country. The current president of the company, Masakazu Kongo, sees Kongo Gumi’s uniqueness in the fact that his company does not merely erect sacred buildings, but inspects and repairs them and - after destruction by war, fire, or natural catastrophes - rebuilds them. “Our temples will last for a thousand years,” the 55-year-old builder promises, “and we feel a special responsibility to make sure that they do.”

In the 20th century, the average time period after which half of the 100 largest corporations in the world ceased to exist was 75 years, according to business historian Leslie Hanna at the University of Tokyo. Additional studies support her finding. For example, in 1983, about one-third of all companies that were on the Fortune 500 list in 1970 had already gone out of business. Startups have an even shorter lifespan. One-fifth of all new companies in upper Bavaria never reach their second anniversary, according to a local study. In France, according to the labor ministry, half of all startups fail within five years. “There is no reason why a company shouldn’t last forever,” says Jochen Röpke, an economist at the University of Marburg, Germany. “However, they must have the ability to learn and to renew themselves continuously at all levels.”

Drink from the Fountain of Youth

What is the secret of companies that seem to drink from the Fountain of Youth and thus avoid the founding-growth-maturity-crisis cycle? What of companies that seem to thread their way between rigid unbending principles and flexible adaptation to new conditions based on strategic analysis? “An active market strategy with regard to differentiation, innovation, and quality increases the probability of survival dramatically,” according to Burkhard Schwenker, CEO of Roland Berger. He distinguishes four processes:

• Extension of core competencies: capabilities are applied to related products;
• Diversification: the portfolio of products and services is expanded;
• Radical rejuvenation: tired parts of the business are sloughed off; forward-looking ones are developed further;
• Internationalization: existing products are brought to new markets and regions.

Strategy for success

The strategy for success at Merck KGaA is to find new profit centers using existing competencies. In 1668, Friedrich Jacob Merck, the forebear of the oldest research pharmaceutical and chemical company in the world, bought what later became known as the Engel Apothecary in Darmstadt. In the mid-19th century, one of Merck’s descendants isolated and purified chemically and medically active plant extracts. This particular capability became the cornerstone of the company’s industrial production. At the turn of the 20th century, Merck was already producing 10,000 different drugs and specialty chemicals. In the aftermath of World War I, the company lost its numerous branches around the world, among them the now completely independent Merck & Co. in the United States. After World War II, Merck laboratories began to develop, among other things, corticoids, antibiotics, beta-receptor blockers, and anticancer substances.

In 1967, the company added a completely new branch: research into liquid crystals for LCD monitors, an area in which Merck is today a world leader, and which yields an amazing return on sales of 50 percent. In 2004, the company tripled its aggregate income to $898 million after taxes. “Merck has just concluded its most successful business year in its 336-year history, thereby confirming its strategy of focused diversification,” according to Bernhard Scheuble, the company’s Chairman of the Board. He promises to continue this sort of active portfolio management. “We can make acquisitions at any time, and we see an entire array of possibilities,” he says.

Their ability to strike a balance between stability and transformation is what enables very old companies to meet new challenges successfully. “Evolution is an interplay between conservatism and change,” according to Ulrich Witt at the Max Planck Institute for Research into Economic Systems in Jena, Germany, and he sounds a warning about strategic volatility. “Companies tend to continue with the tried-and-true, and for good reason,” says Witt. “Making choices implies loss, and it takes a certain solidity to be able to afford to do that.” On the other hand, phases of stability that persist for too long may be a harbinger of corporate death. In the final analysis, permanent competition between products, organizational forms, and even systems will ensure that only competitors that are able to adapt to new circumstances will survive.

A global player during the last 50 years

Transformation by internationalization is the strategy of the London-based HSBC Group. With 232,000 employees, total assets of almost $1.3 trillion, and 10,000 offices in 76 countries, it is not only the second largest financial company in the world, but also the one with the most branches. “Fifty percent of HSBC’s profits are made while I’m asleep,” jokes Group Chairman Sir John Bond about his company’s slogan, “The world’s local bank.” The history of this company is intimately linked with the British Empire. It was founded in 1865 as the Hong Kong and Shanghai Banking Corporation, whose purpose was to finance the burgeoning trade between Europe and the Far East.

HSBC only became a global player during the last 50 years. Since its acquisition of the British Bank of the Middle East (1959) it has been steadily building its worldwide presence. Since then, it has become one of the most active participants in the Chinese market, where it acquired the Bank of Communications in September 2004. “Our strategic challenge is to find countries with above-average economic growth, and then to attract the most profitable customers there,” Bond explains. HSBC always proceeds according to the same pattern. It acquires the second to fifth largest bank in a region to gain a toehold in the market. Then it subjects these acquisitions to the most detailed scrutiny. “We treat our stockholders’ money the same as we do our own,” says Bond.

In spite of its strategic agility, the continuing success of the bank group remains a mystery even to its chairman. “The average life expectancy of a person in the West is about 78 years,” Sir John estimates, “that of the company is only five.” But what exactly does average mean? Miracles happen all the time - at least if they are guided by the right strategy.

The full version of this article has been published in our executive magazine "think:act". It can be downloaded here (PDF, 351 KB).

If you have any questions or concerns, please feel free to contact us