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TECH TALK: The Company: Arie de Geus

May 6th, 2004 · 1 Comment

Arie de Geus worked at Royal Dutch Shell for 38 years and is widely credited with originating the concept of the learning organization. His book, The Living Company: Habits for Survival in a Trublent Business Environment, considers the Company as a living entity and tries to address the issue of longevity in companies.. From the book description: Most companies do not survive the upheavals of change and competition over the long haul. But there are a few remarkable firms that have withstood the test of several centuries. What hidden lessons do they hold for the rest of us? Arie de Geus reveals the key to managing for a long and prosperous organizational life.

Arie de Geus writes:

In the world of institutions, commercial corporations are newcomers. Their history comprises only 500 years of activity in the Western world, a tiny fraction of the time span of human civilization. In that time, as producers of material wealth, they have had immense success. They have been the major vehicle for sustaining the exploding world population with goods and services that make civilized life possible. In the years ahead, as developing countries expand their standards of living, corporations will be more needed than everYetthe average life expectancy of a multinational corporation Fortune 500 or its equivalent is between 40 and 50 years. Human beings have learned to survive, on average, for 75 years or more, but there are very few companies that are that old and flourishing.

But there are some companies which do last long Royal Dutch Shell being one example. Arie de Gues was part of a team which studied the question of corporate longevity and what factors were common to the survivors. He takes up the story:

We found four key actors in common: Long-lived companies were sensitive to their environment. They were cohesive, with a strong sense of identity. They were tolerant. They were conservative in financing.

It did not take us long to notice the factors that did not appear on the list. The ability to return investment to shareholders seemed to have nothing do with longevity. The profitability of a company was a symptom of corporate health, but not a predictor or determinant of corporate healthNor did longevity seem to have anything to do with a companys material assets, its particular industry or product line, or its country of origin.

I now see the for components [common to long-lived companies] this way:

1. Sensitivity to the environment represents a companys ability to learn and adapt.
2. Cohesion and identity, it is now clear, are aspects of a companys innate ability to build a community and a persona for itself.
3. Tolerance and its corollary, decentralization, are both symptoms of a companys awareness of ecology: its ability to build constructive relationships with other entities, within and outside itself.
4. And I now think of conservative financing as one element in a very critical corporate attribute: the ability to govern its own growth and evolution effectively.

Like all organisms, the living company exists primarily for its own survival and improvement: to fulfill its potential and to become as great as it can be.

Everything the company does is rooted in the two main hypotheses of this book: the company is a living being, and the decisions for action made by this living being result from a learning process.

Peter Senge adds in the Foreword to the book: Seeing a company as a living being implies that it creates its own processes, just as the human body manufactures its own seels, which in turn compose its own organs and bodily systems. Is this not exactly how the informal organization of any large company comes into being? The networks of relationships and communication channels essential to anyone doing any job are indeed created by the people themselves.

Once we recognise that the Company is indeed a living being, our perspective, we will see an emergence at work, where the whole is much greater than the sum of its parts (people and processes).

Tomorrow: Peter Drucker


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