David Stodder
November 1998, Volume 1 Number 2
Transitions and the Fortune 500
Outside-in management will be the key to long-term corporate longevity
A few years ago, the Harris Corp. commissioned a study coincident with its centennial anniversary in 1995. The research team, which eventually included Pulitzer Prize-winning business historian Alfred Chandler and editors of the Business History Review, investigated the founding dates of the firms that were on the Fortune 500 at that time. It turned out that there were about 70 Fortune 500 companies that started operations before the onset of the Civil War. In fact, there were three companies on the Fortune 500 that were founded while George Washington was still president and three founded before Benjamin Franklin and others even met to write the Constitution. (The oldest Fortune 500 company is Corestates Financial, once the Bank of North America, founded in 1781.)
These firms had not only endured the tumult of war, including the dislocations associated with both World Wars, Korea, and Vietnam, but they also had weathered extraordinary economic transformation, including the transition from the laissez-faire economy of the last century to the more regulated environment of today. In addition, they persisted in the face of technological upheavals (railroads, telephones, and automobiles) and social transformation (urbanization and immigration).
There is a lesson here about how we can think about change. For all that is said about market turbulence, firms can endure and prosper in the face of immense change. I am all for the excitement and social benefits that come with an economy in which small businesses and entrepreneurs can make a big splash, but let's not forget the rest of the story.
About half the firms on the Fortune 500 were founded in one 50-year period, from the 1880s to the 1920s. They arrived at a time marked by immense transitions in transportation and communications and benefited from the restructuring of the economy as it grew more dependent on mass production, mass communication, and mass distribution. They were ready to take advantage of a great moment in history, whether or not they appreciated the impact of their activities.
Now, of course, we sense that we are in the middle of another great transformation. Technology compels us to replace mass production with mass customization; it recommends individualized communications over mass communication. Land is trumped by information, and intellectual assets contribute more value than physical assets. Over and over we see evidence of the transforming importance of the network. Ideas of efficiency are being altered because connectivity has greater importance than ever before. We see the impact of the globalization process; the consolidation currently taking place in the banking industry underscores the point that, as one executive told me, "If you are comfortable, all you are doing is making yourself a target." The ingredients are there for another cohort of companies to rise to the top of corporate leadership.
Technology alone doesn't guarantee success, however, as proven by Ampex's failure to exploit its videotape skills or Xerox's failure to commercialize its windows-and-mouse technologies. Sustainable success depends on more than innovations in products and features. Consider that Coca-Cola, often regarded as the world's most profitable company, was founded more than 100 years ago (in 1886) and continues to earn its profits primarily from the same basic product: sugar water. It does that by extending the reach of its product to new markets, riding the globalization wagon farther and faster than most business planners fathom. Coca-Cola's experience demonstrates that it's not only product but process and perspective that contribute to sustainable success.
What might those winning processes and perspectives be about in the future? Of all the factors, the ability of the firm to manage from the "outside-in" rather than from the "inside-out" will be among the most crucial. Taking a less inward focus forces a firm to become more intelligent about customers and, as Peter Drucker often phrases it, noncustomers. Companies will have to give priority to understanding the structural forces at work, not just for periodic strategic reviews but for everyday appreciation of market direction and tactics. They will have to integrate data about competitors and competing technologies across industries and geography. In effect, the successful organization will be driven by intelligence about the world outside itself.
Although movement in this direction has begun, it has not been fast enough. One CEO admitted that his senior executives had only a "sketchy" understanding of the impact that negotiations among international agencies would have on their different lines of business. His was a Fortune 500 firm of some longevity, and he was convinced that his new priority on environmental factors was not just a recommendation for the next 100 years, but for the next 100 days.
