THE LIVING COMPANY by Arie de Geus

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					THE LIVING COMPANY
         by
    Arie de Geus
          Who is Arie de Geus?
• Arie de Geus make unique contributions to manage-ment thinking because the
  source of their thinking is experience rather than concepts
• Arie de Geus worked for Royal Dutch/Shell for 38 years, from 1951 to 1989
• Chairman of Netherlands – British Chamber of Commerce from 1981 - 1988
• The Queen of Netherlands appointed him an Officer as the order of Orange
  Nessau in 1988
• Head of an Advisory Group To The World Bank from 1990 – 1993
• Advised many government and private institution , lecture throughout the
  world.
• The author include on influential in the Harvard Business Review article
  "Planning as Learning"
• He is a visiting fellow at London Business School
• Board member of the Nijenrode Learning Centre in the Netherlands.
ECONOMIC COMPANIES VS. LIVING COMPANIES
Discipline and Cohesion: are maintained     Discipline and Cohesion: are based on
   hierarchical control, often highly          through the trust that results from the
   centralized.                                understanding that both the company
                                               and its members will adhere to their
                                               obligation of mutual development of the
                                               potential.
Entry-level Recruitment: handled by the     Entry-level Recruitment: seen as a rite of
   numbers, and seen as filling the            passage, representing the first moment
   necessary positions to best serve the       for testing the fit between the new
   asset base of the company.                  member and the community.
Executive Recruitment: often brought in     Executive-Level: usually promoted from
   from the outside.                           within the organization.
Governance: Sacrifices its people when      Governance: Sacrifices assets over people
   necessary to maximize profit and            when necessary to ensure the
   shareholder value.                          company’s long-term survival, even at
                                               the expense of the shareholder.
Learning Abilities: centralized control     Learning Abilities: trust allows space and
   reduces the space in the organization,      tolerance both inside the hierarchy and
   and thereby, it’s learning abilities.       towards the outside world, resulting in
                                               higher levels of institutional learning.
  ECONOMIC COMPANIES VS. LIVING COMPANIES

Arie de Geus identifies two different types of commercial companies in existence today,
distinguished, among other factors, by their primary reason for being in business.
To explain the difference, de Geus borrows from evolutionary theory

             ECONOMIC COMPANY                                       LIVING COMPANY
Definition: corporate "machine"                       Definition: Living work community

Purpose: the production of wealth for a small         Purpose: longevity; the development of its own
   inner group of managers and investors-                potential.
   producing maximum results with minimum
   resources.
Management priority: optimization of capital          Management priority: optimization of people to
  assets to maximize profits, using people as a         increase the company’s potential, with profit
  means to that end.                                    as a means to that end.
Employees: "outsiders," recruited for their skills,   Employees: members of a community, which
  who work with their eventual exit in mind.            holds certain values in common. The
  They trade their time and expertise for               company will help the members to reach
  money, and feel little loyalty to the company.        their individual potential, because it is
                                                        understood that this is in the company’s self-
                                                        interest.
      ONLY LIVING BEINGS LEARN
•   Play and learn
•   The “persona” represent body and soul together
         - Goal Oriented, it want live as long as possible and realize
           the development of its potential from its talent and aptitudes
         - Conscious of Itself, a persona can perceive itself as “I”,
           although it is composed of parts of elements, which are
           personae in their own right
         - Open To The Outside World, element from the outside-such
           as food, bacteria, dust, light, and sound constantly enter
           the human system. At the same time, s persona is constant
           relationship with the outside world, in the sense that
           every experience represents one more exchange in lifelong
           dialogue with the force of the world around it
         - Alive, But Finite Lifespan, one day it is born and one day it
           will pass away
LIFESPAN OF A COMPANY
 Average life expectancy of Fortune 500
  Company is 40-50 years.

 1/3 of Fortune 500 companies in 1970 had
  vanished by 1983. (13 years!)

 Recent study 1996 Stratix consulting
  group - Amsterdam - average life
  expectancy of all firms, regardless of
  size, is 12.5 years (Japan and Europe).
   Features of Long Lived Companies

  Shell study of companies older than Shell (.100 years) 27 in
  detail, of 40. Why did they survive?
1. Sensitive to their environment (in harmony with the world around
     them – tuned to what was going on).
2. Cohesive, with a strong sense of identity. (People felt part of them
      - community
      - managers chosen from within - "stewards").
3. Tolerant (of activities on the margin - experiments, ccentricities...
     - did not exert overly centralised control).
4. Conservative in financing (frugal, money in land – could
      pursue options their competitors could not)
               Memory of the Future
How do companies anticipate the need for change?
Why doesn’t a company see what is happening?

• Managers are stupid
• We can only see when a crisis opens our eyes
• We can only see what we have already experienced
• We cannot see what is emotionally difficult to see
• We can only see what is relevant to our view of the future
                    Learning Processes
    Prediction                      Planning               Scenario Planning




•   Insatiable Demand for      •   Producing
    Predictions                    Uncertainty trough
                                   prediction
•   Management View take s     •   Anticipating possible
    future as “Falistically”       future and preparing
    given                          for them
DECISION MAKING AS A LEARNING
          ACTIVITY

                   Perceiving




     Acting                          Embedding




                   Concluding



Learning by Assimilation Vs Learning by Accommodation
FLOCKING
    The Titmouse and the Milk Bottle
Innovation as individuals or community
Social propagation - established process for
 transmitting a skill from individual to
 company
Mobility - individuals move around rather
 than settling in isolated territories
            The Tolerant Company
• Tolerance wastes resources
• Letting things “happen” at the margin
• Diversification by tolerance vs diversification by
  Dictum
• Parable of Chilean Potato
• Intolerant companies live long and do well IF they have
  control over the world they live in
       The Corporate Immune System
 Corporate body, like human body, needs immune system
 Limit to openness and tolerance
 Mergers and acquisitions…
  - like infections
  - failure rates around 50-75% (Porter)
 Parasites
  Can exist anywhere in corporate host body
 Members will retire, whereas parasites will serve for their
  own sweet time and leave by different route.
 Money is not enough of an incentive but money
  needs a lot of attention in a living company
      Conservatism in Financing

• Money is important
• Entrepreneurs with high debt/low equity
  underperforms
• Long lived companies have money in hand
• “Stewards, not gamblers”
• Long term survivor does not define life in
  economic terms, but in evolutionary terms
• Cost of “company deaths”
CONCLUSION
   Profit is not a guarantee for a long live company but it is
    the symptom for a health company
   You will still not have institutional learning until you
    develop the ability to flock that needs two criteria: mobility
    of people and mechanism of social transmission
   The decision for action made by this living being result
    from a learning process
   Company should not all live forever, but a reduction
    corporate mortality seem advantageous
   Any movement to the philosophy of the living company
    will take time, it will evolutionary rather than revolutionary
BOOK REVIEW

     GOOD TO GREAT                                COMPETING FOR
     (2001) Jims Collins                          THE FUTURE
     “LEVEL 5 LEADERSHIP”                         (1994) Gary Hamel and
                                                  C.K Prahalad
                                                  “KNOWLEDEGE”
                              THE LIVING
                               COMPANY
                            (1996) Arie de Geus    THE FIFTH
                            “THE COMPANY           DICIPLINE (1990)
                                                   Peter M Sange
BUILT TO LAST (1994)          IS A LIVING
                                                   “THE LEARNING
Jims Collins and Jerry           BEING”
                                                   ORGANIZATION”
I.Porras
“ CULTURE AND
DICIPLINE”
THANK YOU FOR YOUR
KIND ATTENTION
COMPETING FOR
THE FUTURE
(1994) Gary Hamel and
C.K Prahalad
“KNOWLEDEGE”
Managing for Profit or Longevity
 Is there a choice?
Economic or “puddle” company
 - a viable choice
 - hard to be a learning organisation
Living or “river” company
 - high/low (flow) but permanent
 - self perpetuating, maintains identity
 - ROI still important
   Managing for Profit or Longevity
  Is there a choice?
• Economic or “puddle” company
  - a viable choice
  - hard to be a learning organisation
• Living or “river” company
  - high/low (flow) but permanent
  - self perpetuating, maintains identity
  - ROI still important
Economic Companies vs. Living
Companies
 Discipline and Cohesion: are maintained hierarchical        Discipline and Cohesion: are based on through the trust
     control, often highly centralized.                          that results from the understanding that both the
                                                                 company and its members will adhere to their
                                                                 obligation of mutual development of the potential.


 Entry-level Recruitment: handled by the numbers, and        Entry-level Recruitment: seen as a rite of passage,
     seen as filling the necessary positions to best serve       representing the first moment for testing the fit
     the asset base of the company.                              between the new member and the community.

 Executive Recruitment: often brought in from the            Executive-Level: usually promoted from within the
     outside.                                                    organization.
 Governance: Sacrifices its people when necessary to         Governance: Sacrifices assets over people when
    maximize profit and shareholder value.                      necessary to ensure the company’s long-term
                                                                survival, even at the expense of the shareholder.

 Learning Abilities: centralized control reduces the         Learning Abilities: trust allows space and tolerance
     space in the organization, and thereby, it’s learning       both inside the hierarchy and towards the outside
     abilities.                                                  world, resulting in higher levels of institutional
                                                                 learning.
• http://strategic-manage.com/?p=21

				
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posted:11/30/2011
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