Author: Arie de Geus

Publisher: Harvard Business Review Press

What: A somewhat idealistic vision of corporate organisations but with interesting elements for department stores

Why it is important: Many of the characteristics of Living Companies can be found within department store companies, especially within IADS members. In these times of reinvention, reading with a fresh eye this theory (which did not get old) can be helpful for strategists and HR.

Aries de Geus worked for 38 years at Royal Dutch/Shell, where he developed the concept of “learning organisation”. His book “The living company” is the result of his career-long reflection on the reasons why only a handful of companies managed to exist more than the average Fortune top 50 companies’ lifespan of 50 – 60 years, and the lessons that can be learnt.

What are “living” companies?

De Geus, a second-generation executive at Shell (founded in the 1890s) realized that he and his colleagues took for granted that their firm would never die, an idea that was contradicted by statistics. Only a handful of companies in history, such as Stora (Sweden, 700 years old) or Sumimoto Group (Japan, founded in 1590) managed to survive more than a century.

The theory supporting his book is the belief that managers focus too much on producing goods & services and by doing so forget about their company’s organisation itself, as a social body. He identified 4 common traits to all these long-lasting companies:

• They are sensitive to their environment (learn, react and adapt to the context),
• They are cohesive and promote a sense of identity,
• They are decentralised,
• Financing new projects are carefully assessed and evaluated (conservative financing).

Such companies are adapting to any new context without compromising their core identity because they focus on maintaining and growing their organisation to its full potential, instead of simply maximising their revenue.

To be able to do so, these firms developed the capability to interpret any kind of information, in order to make the best-informed decisions (de Geus argues that historically, wealth started by being generated by land, then by capital, and finally by knowledge. As of today, there is no example of companies that failed due to a lack of natural resources: they failed because they could not interpret changes and adapt to a new context).

Implementing the scenario-planning capability at Royal Dutch / Shell

The goal was not to predict the future, nor to make plans that invariably ended up becoming constraints and commitments. For de Geus, the objective was to work on various real-time scenarios, acting as an eyes opener for decision-makers without being fairy tales. This approach helped to assess decisions without taking too many risks (which is still often the case today: directors and managers make decisions and experiment directly with reality, instead of making simulations).

The author describes in the central part of the book his approach and implementation of the scenario capabilities within Royal Dutch / Shell, and how he addressed resistance from the various teams involved.

Going further: not having a strategy, “doing” the strategy

For German researcher William Stern, each living being has an undifferentiated wholeness, with its own character, the persona. The persona is characterised by:

• A goal: it wants to live as long as possible to realize its potential,
• A self-consciousness,
• The ability to understand the outside world and interact with it,
• The knowledge that its lifespan is finite.

De Geus uses this theory for companies and explains that the concept of persona applies to firms, allowing all its members (teams) to share the notion of membership to such an organisation, the choice to share a common fate. He also explains that there are 2 types of companies:

• “Economic” companies, which maximise profits and minimise resources used to do so. People are considered as assets in such organisations, and the membership level is very low (translated by low levels of loyalty and commitment),
• “River” companies, which primarily share a purpose to a community. Profit is seen as a mean and not an end. Companies such as Mitsui, or Deutsche Bank, which were both virtually destroyed after WWII but survived and thrived in the post-war period thanks to the support of their communities, are examples or river companies.

“River” companies are able to progress because not only they understand and interpret their environment, but because they process the information in a valuable way for their survival, thanks to 3 mechanisms:

• Innovation is favoured at all levels (individual or collective),
• Information is flowing freely between teams
• Interaction and mobility are encouraged.

This helps such companies to learn on a constant basis, instead of steering. In other words, “do” their strategy rather than “have” a strategy. In de Geus’ vision, money for such firms is not an end, but a tool: profit is part of the equation to survive, along with other elements, such as people, mission, and place in the society as a whole.

Buy it on Amazon here: The Living Company Amazon