The Life Period of Companies

One of the first multinational business organizations, the British East India

Company, was established in 1600.(1) After the British East India Company, came the Dutch East India Company, founded in1602, which became the largest company in the world and remained so for nearly 200 years. (2) Even though these companies had armies to protect them, they no longer exist.

What the East India Company and the Dutch East India Companies demonstrate is that all companies have a life cycle. Whether it’s one year or a hundred years is irrelevant: in the end, they will all be relegated to history. Some of them, however, live longer than others. Technology, consumer behavior, innovations, politics – even the weather might affect the life span of a company. Like their human creators, all companies are born, live, offer some benefits, make mistakes, and die. And, as with humans, all companies are mortal. Nothing lives forever, including giant companies.

The average lifespan of a company listed in the S&P 500 index of leading U.S. companies has decreased by more than 50 years in the last century: from 67 years in the 1920s to just 15 years today, according to Professor Richard Foster at Yale University. (3)

Today’s rate of change “is at a faster pace than ever” says Foster. He claims that there will be la lot of new companies in the Fortune 500 which we haven’t heard of yet.

Nishiyama Onsen Keiunkan is a hot spring hotel in Hayakawa, Yamanashi Prefecture, Japan. Founded in 705 A.D. by Fujiwara Mahito, it is the oldest hotel and one of the oldest companies in operation. In 2011, the hotel was officially recognized by the Guinness World Records as the oldest hotel in the world. It has been in continuous operation over 52 generations of the same family (including adopted heirs) for over 1,300 years. (4)

On the one hand, there are thousands of companies that live only 15 years,  while on the other, there is a company  which is1300 years old. So, the big question is how does a company cheat death?

History is full of companies, which we thought would never go bankrupt, but did. For example, Nokia, Lehman Brothers, and Enron. In the case of Enron 69 million dollars disappeared and in the case of Lehman Brothers, an estimated 700 billion dollars vanished. It took years to recover from these economic disasters.

Today, Apple is the biggest company in the world, which it wasn’t just 15 years ago. What made them number one? While there may be hundreds of factors involved, we’ll focus on 4 of them and their effects:

-Innovation

-Customer Behaviors

-Management And Organization

-Harmony

Without question, the most important factor is innovation: that is, the ability to do something different, something new, and something useful.

At the end of 90s, Nokia was the biggest cell phone company in the world. Everything looked great for them. Their biggest rivals were Ericson and Motorola, which are also no longer leaders in their field. In my opinion, Nokia’s biggest mistake was a lack of innovation. They repeated themselves. The Nokia 3310, 3210, 3320, etc., were all technically the same phones with only minor differences among them.

This mistake was the result of greed and a lack of courage. In 2004, Nokia had a 3.8 billion Euro budget for Research and Development (R&D); Apple had under 2 billion, a much lower sum. (5) Although Nokia failed, it spent more money than Apple in 2004. Hence, we might say that another reason for success is creativity! Steve Jobs was incredibly creative and his creativity took him far ahead of his times, leading to incredible success.

After Apple’s huge jump, Nokia announced a smartphone 7710 on 2 November 2004. But for Nokia, it was loo late. History remembers and writes about those who come first. Apple became the first company to create the useful touchable screen phone and continued to deliver creative device after creative device, from the I Pad, to the I Watch, to Apple TV, and more.

But, ironically, Apple has started to fall into the same pattern as Nokia at the beginning of 2000. The latest I Phones are almost the same as their predecessors, with only a few minor differences, like 1 % more battery, extra head phones, ports, etc. Will they continue to dominate the cell phone market, or will a new innovator snatch it from them? We’ll just have to wait and see.

Customer Behavior

Another major factor which affects the life span of companies is customer behavior. Sony and Samsung are excellent examples of this.

From the 70s to the millennium, people wanted durable, long lasting products. Whether for economic or technological reasons, or some combination of both, consumers wanted to keep their home technologies as long as possible. At a certain point, however, technology started to move faster than ever. Every year, new technology led to new products being released on the market, and the differences between older and new products was huge.

Along with great advertising, Samsung and LG started to produce excellent and totally different TV units for the home. TVs which people had owned for years instantly became outdated. It didn’t matter how strong and solid your TV was. Quality television became available only on the new units.   Suddenly, everyone needed a new TV. And, as a result of new technology, they weren’t very expensive.

Management And Organization

A company that wants to survive a long time must be well organized and systematic. If we look at successful companies, it is evident that they hire the best people in their field. At the other end of the spectrum, however, is a “Family Business,” which, for obvious reasons, is the easiest type of company to establish. There are advantages and disadvantages to family companies.  Some family companies dosent trust the foreigns. But they shouldn’t forget that 2 Steve of Apple (Jobs and Wozniak) weren’t family. But harmony of them brought success to Apple.

Although companies don’t generally need to spend much effort on collaboration anymore, instruments to achieve collaboration have been developed in the last 25 years. As with TTO and Technoparks, Technology transfer, also called transfer of technology (TOT), is the process of transferring (disseminating) technology from the places and ingroups of its origin to wider distribution among more people and places. Technoparks do the same thing. These places might help companies to achieve harmony.

At the end of the day all companies will die. But some of them which play the game wisely, will last longer than others. Some of the instruments needed to achieve this are education, creative marketing, the ability to follow follow world trends, and effective R&D.

How are you going to achieve success?

References

  1. “GlobalInc. An Atlas of The Multinational Corporation” Medard Gabel & Henry Bruner, New York: The New Press, 2003. ISBN 1-56584-727-X”. Archived from the original on 2003-12-22.
  2. ^ “Archived copy”. Archived from the original on 2015-02-07. Retrieved 2015-07-05.
  3. https://www.bbc.com/news/business-16611040
  4. https://en.wikipedia.org/wiki/Nishiyama_Onsen_Keiunkan
  5. https://www.statista.com/statistics/267821/nokias-expenditure-on-research-and-development-since-1999/

Author: Ahmet Bhattacharji Avsar

Posts created 28

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