The risks companies face today aren’t the same old risks of a competitor having a cheaper product or doing business in a third-world country. The key risk to a company is that it won’t remain current and innovative in today’s quickly changing business environment – and that directly impacts a company’s longevity.
In researching this phenomenon, I came across an interesting briefing by Scott Anthony, Patrick Viguerie, Evan Schwartz and John Van Landeghem at Innosight. Based on their presentation, additional research and my experience leading companies from the boardroom, I’d like to share how I think this impacts the board and corporate governance/enterprise risk.
First, we need to understand what has been happening and how it is changing. Corporate longevity is getting shorter and shorter: in 1964 a company on the S&P 500 had an average tenure of 33 years. By 2016 that had been cut in half to just 16 years.
Based on this trajectory, the average company by 2027 will last just 12 years. This becomes all too clear when you realize iconic companies such as DuPont, Ryder Systems, Alcoa and EMC are no longer part of the S&P 500. They are being replaced by companies such as Facebook, PayPal, Hologic and Regeneron.
Similarly, in 1996 the NYSE listed 7,322 companies; 20 years later, that figure was only 3,611. Companies are not surviving, falling to acquisitions, going private and bankruptcies. So the question for management and the board is: how do we avoid becoming one of those casualties?
The Innosight research points to two specific ways companies are changing and surviving: focusing on changing customer needs, and coming up with strategic interventions to avoid becoming irrelevant. Companies can’t continue with business as usual, looking at their competitors as their greatest threat. They can’t continue to apply existing business models to new markets, ignore disruptive competitors and fail to adequately invest in new growth areas.
Unfortunately, recent surveys by Innosight confirm that executives continue to expect their competitors to be the same and have woefully underinvested in digital technologies. So how can companies ensure their own survival? My advice is as follows:
1. Dedicate time to understanding the periphery of your business so you can see where new competition or business models may emerge. Look at where other new companies are coming from, even if they aren’t in your space, and look for ways to spot early warning signs of change
2. Focus on your customers’ behavior. If they aren’t shopping in the same way they used to, you shouldn’t be selling to them in the same way you used to
3. Rather than continue your existing strategy, look to future-proof your company by investigating marketplace trends and how they might apply to your company. Work backward from the future to today
4. Look for new growth opportunities for your company, outside the core, and properly fund that track. Maintain your core business but add tangents and peripherals to sustain growth
5. Realize that inaction is more costly than making the wrong choice. Inaction will certainly lead to your company becoming stale and stagnant. You won’t get 20 years to recover from missing out on an opportunity to transform your business.
Ideas and recommendations you may want to suggest your board incorporates into the annual board calendar include bringing in outside speakers once or twice in the calendar year. It could be a lunch speaker on a specific topic such as cyber-security or artificial intelligence. You may also want to add a ‘working strategy discussion’ dinner and bring in external industry speakers such as consultants to give an external view of the competitive dynamics.
It is also valuable to invite two or three of your largest shareholders to join the meeting to share their external perspective on your company and its industry. These external speakers spur insights and engagement for the board, CEO and leadership team.
Future-proofing your company should start in the boardroom with a strategic commitment to innovation and digital transformation. Start by looking at your board and asking whether the people in the room are capable, experienced and have the entrepreneurial mindset to help you transition your company to a new business model or innovation.
The board will value exposure to the executive team. Creative destruction can lead to innovative construction and strengthen your business to stay competitive and relevant.
Betsy Atkins, a founder of Bajacorp, is a three-time CEO currently serving on the boards of Wynn Resorts, SL Green, Schneider Electric and Volvo Car
