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Lessons From Century Club Companies: Managing for Long-Term Success

The Rabbit Hole is written by Blas Moros. To support, sign up for the newsletter, become a patron, and/or join The Latticework. Original Design by Thilo Konzok.

Summary

  1. The author walks through some of the common characteristics of companies that have survived 100+ years

Key Takeaways

  1. Several of the oldest known continuously-operating companies in the world are Japanese. Seven were founded prior to the year 1,000. The size of companies in the database of Japanese firms over 100 years old clearly proves that firms do not have to grow large to survive. In fact most shinise are small- to medium-sized, private (often family-owned) businesses. This revelation especially impressed me, considering how ingrained the maxim of “grow or die” has become in modern management theory.
  2. A premise of this book is that a fundamental objective of any organization, though often unstated, is survival.
  3. de Geus concludes that companies die prematurely because managers focus exclusively on economic activity, forgetting that an organization is a community of humans.
  4. Survival is the ultimate performance measure.
  5. Century Club companies have thrived for over 100 years by successfully practicing a way of doing business that creates shared value and enables their own survival long before such ideas came to be described as the next evolution of American capitalism.
  6. The leaders of the case study Century Club companies were adamant that all these factors must be implemented together to sustain a firm for the long run: together they form a mutually reinforcing web of sustainable business practices.
    1. Factor 1: Strong corporate mission and culture. Present leaders of Century Club companies see themselves as stewards or custodians of the business and feel an obligation to manage the firm in a way that both honors the past and ensures its survival into the future. This deliberate focus on continuity, rather than making a name for themselves, results in real differences in the way old companies are managed.
    2. Factor 2: Unique core strengths and change management. Long-term survival comes from continuous efforts to change while protecting and building on core strengths—a delicate balance between tradition and change.
    3. Factor 3: Close relationships with business partners. Relationships are at the core of how the Century Club companies operate. These firms regard the maintenance of long-term relationships with customers and the development of their suppliers from generation to generation as crucial to their own success. These companies truly believe they cannot maintain their success over decades and even centuries without such a web of interdependence. The resulting close-knit, mutually-supportive relationships heighten the company’s ability to weather challenges as well as to learn and adapt over time.
    4. Factor 4: Long-term employee relationships. It is difficult to overstate the importance of “institutional memory” built up over time that resides in long-term employees. Century Club companies also tend to develop leaders from within, using a deliberate process for leadership succession.
    5. Factor 5: Active members of the local community. There is a notable absence of talk about profits or financial strength. The old firms showed the most differentiation from other firms in the ways they live up to their mission statements.
  7. There is, however, one common practice the old companies share: a conservative approach to managing finances. These firms are very reluctant to go into debt as a way of funding their business. The Century Club companies also place more importance on profitability than growth.
  8. Frugality in running the business enables the company to set aside money in prosperous times to help weather the lean years. This approach to financial management also means money is available to internally fund new opportunities when they arise, thus avoiding external sources of financing, or having to convince others of the value of an initiative. With cash reserves, the Century Club companies are able to respond quickly to take advantage of opportunities they see, as well as invest in innovations others may not see as worth the risk of going into debt to finance.
  9. This is the profit paradox of Century Club companies: though they don’t define the purpose or mission of their company as making money, they are very profitable.
  10. Respect heritage, but don’t let it rule. We have always been able to change with the times.
  11. Mars Inc. (1911) We depend completely on the strength of our relationships—with our consumers, with fellow associates, suppliers, distributors, and the communities in which we live and work. We believe we only achieve the best results if we are unselfish in these relationships and give a fair return.
  12. The willingness to learn from all partners is seen by the old companies as an important factor in their long-term survival. Century Club companies truly believe part of the reason for their success comes from their long and deep relationships with customers and suppliers. This emphasis on long-term relationships leads to a kind of symbiosis with their business partners.
  13. understanding what their best and most innovative customers are doing.
  14. The connection between employee training investments and long-term employment is well documented
  15. Developing leaders from within the firm appears to be one of the key differentiating factors in sustaining a business for the long term. The old companies are concerned not just about reaping today’s harvest, they are cultivating the ground for future crops. This factor is especially apparent in the area of leadership development.
  16. What did seem important was that leaders follow the principles of longevity, including embodying the corporate culture and its values, and having a stewardship approach to running the company so it survives to the next generation.
  17. Every privately-owned Century Club company interviewed said staying private was key to their longevity.
  18. One thing we learned from the Century Club companies: the first step is deciding that survival is the ultimate goal. From there, the five practices forming the longevity model can help you reach it.

What I got out of it

  1. Learning more about the 5 key factors of the century club companies is not surprising – simple, but not easy! Strong mission and purpose, long-term / win-win relations with all stakeholders, a focus on survival before anything else, and an ability to change and adapt

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