The power of enduring companies (1)
“We should not underestimate the significance of large, enduring firms”
Joseph
Schumpeter focused his attention largely
on new businesses and their role in eating the breakfast of
established companies. But in my view, “intrapreneurs”—risk
takers on the inside—are just as important as entrepreneurs in
promoting new ideas and new technology.
One
Swedish company that supports this point is Atlas Copco, an
engineering business that has been in our family’s portfolio since
1873 and is still one of the leading global players in pneumatic
machinery and mining equipment. I remember my grandfather, when he
was chairman, citing it as an example of a business that had been
able to reinvent itself over and over again. In the early days, for
example, Atlas sold materials for railroad construction, but that
activity was hit hard by the recession of the 1870s. Fortunately,
other innovations came through, notably in pneumatics, while the
company later was nimble enough to acquire patents from Rudolf Diesel
to make diesel engines.
Much
depends on the attitude of the owners, board, and top management. In
my opinion, it’s their strong duty to foster a culture of constant
innovation that drives its own creative destruction on the inside. A
related issue is a willingness, when things look bad, to find ways of
breathing new life into and rebuilding even very old companies. It’s
not easy, but in my experience it’s possible, with the right
determination, to take the long view, persevere, and succeed in what
seems to others a hopeless situation. It’s not always necessary to
break up companies or introduce innovations from the outside to stay
ahead of the game. Established firms have a huge natural advantage in
the marketplace because of their strong customer and supplier bases,
their long-term shareholder structure, and their deep reservoir of
capable people.
We
have stuck with many businesses where we were confident that doing so
would create value in the long run. The capital markets need
investors who recognize that the innovation cycle is often measured
in years and that you can’t create successful product portfolios
with a short-term view. In our part of the world, the presence of
dominant long-term owners on the share registers—investors who feel
a responsibility toward companies in difficulty—is an advantage.
When those shareholders take the lead in a restructuring, other
institutions tend to follow.
Owners
and boards who are in it for the long term must choose their leaders
according to the challenge at hand; there are appropriate skills for
a restructuring, but different ones will be needed when expansion is
called for. It’s vital for a chairman to be closely in touch with
the CEO—on boards where I am chairman, I speak to the CEO a couple
of times a week. I also think boards ought to stay informed on
operations, immersing themselves in specific investment decisions
rather than just talking about long-term strategy. Nordic boards have
been quite successful in doing that.
All
in all, we should not underestimate the significance of large,
enduring firms. From society’s perspective, think of what I call
“the rings of the water”: the indirect business generated by a
large corporation like Ericsson through small suppliers, service
contracts, technology spin-offs, and the like. Sometimes we are too
philosophical about losing large businesses and forget the economic
impact on these networks.
Marcus
Wallenberg is
chairman of SEB (Skandinaviska Enskilda
Banken). These commentaries
were adapted from interviews conducted
b
Ian Davis, former
managing director of McKinsey, and McKinsey
Publishing’sTim
Dickson.
No comments:
Post a Comment