I remember when the original article came out in the Harvard Business Review and how much I enjoyed and learned from it. Years later, I took the book out of the library and did my usual notes. Just this past week, I thought of it again and went back over it.
Arie de Geus was head of Shell's Strategic Planning Group, where he made important advancements to the ideas of portfolio analysis (i.e. Directional Policy Matrix) and scenario planning. He was a very forward thinking businessperson and has a lot to teach us. Thinking about businesses which have survived for a century or more is certainly one way to understand what sustainability must mean within, at least, an economic context.
The Living Company: Habits for survival in a turbulent business environment by Arie de Geus
Boston, MA: Harvard Business School Press, 1997
ISBN 0-87584-782-X
Introduction by Peter Senge
(viii) At the heart of this book is a simple question with sweeping implications: What if we thought about a company as a living being?
This raises the obvious question: What is the alternative view of a company if we do _not_ see it as a living being? The alternative view is to see a company as a machine for making money.
(2) A recent study by Ellen de Rooij of the Stratix Group in Amsterdam indicates that the average life expectancy of all firms, regardless of size, measured in Japan and much of Europe, is only 12.5 years. I know of no reason to believe that the situation in the United States is materially better.
(3) Companies die because their managers focus on the economic activity of producing goods and services, and they forget that their organizations' true nature is that of a community of humans. The legal establishment, business educators, and the financial community all join them in this mistake.
(6-7) Four key factors of long-lived companies
1. sensitive to their environments
2. cohesive, with a strong sense of identity
3. tolerant of activities on the margin: outliers, experiments, and eccentricities within the boundaries of the cohesive firm, which kept stretching their understanding of possibilities
4. conservative in financing, frugal and do not risk capital gratuitously
(9) 1. Sensitivity to the environment represents a company's ability to learn and adapt.
2. Cohesion and identity, it is now clear, are aspects of a company's innate ability to build a community and a persona for itself.
3. Tolerance and its corollary, decentralization, are both symptoms of a company's 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.
(20) As we will see in this book, the essence of learning is the ability to manage change by changing yourself - as much for people when they grow up as for companies when they live through turmoil. The pioneering learning theorist Jean Piaget called this form of change "learning through accommodation." Its essence, he said, was to change one's internal structure to remain in harmony with a changed environment.
This gives us an entirely different imperative for corporate success. A successful company is one that can _learn_ effectively.
NB: The narrowness of corporate learning: only investment bankers
(22) But managers who perceive change early should spend more time on a far more useful question: What will we _do_ if such-and-such happens?
(23) To our relief, we found that no company we studied, in all of our literature research, had ever failed because its key natural resource was depleted. Yet many companies had switched away from their original natural resource base of their original business.
(24) What gave the companies the ability to accomplish this [react and change]? We will return to that question throughout this book, for it depended on all four distinctions of a living company: its adaptiveness to the outside world (learning), its character and identity (persona), its relationships with people and institutions inside and around itself (ecology), and the way it developed over time (evolution). We could see that the most accessible of these capabilities, and the one which often came first, was learning. The long-lived companies were _sensitive_ to their community and their environment. This sensitivity was not soft or driven by social responsibility. It was driven by the living company's self-interest.
(30) These crises tend to follow the same generic pattern.
At some point, as prospects worsen, the damage or danger becomes evident, and a consensus, grudgingly or not, develops about the inevitability of change. When that happens, there is little time left. Because there is little time, few options remain open. They are not necessarily the best options; they are limited to those that require little _time_ to implement. Almost by definition, these tend to be the tough options, devastating to morale and difficult to pull off with corporate identity intact: improve cash flow drastically, cut costs, cut capital expenditures, cut staff. The crisis is a self-reinforcing cycle. The more deeply you become enmeshed, the more options you must forgo, and the more you run out of time - which cuts your possibilities further and enmeshes you more deeply in the crisis. To act by foresight would surely be superior….
_In short, to act with foresight, the company must act on signals, rather than on pain._
(34-35) Important: David Ingvar, neurobiologist at University of Lund, Sweden, discovered that the brain creates time paths into an anticipated future and accumulates a "memory of the future: "We perceive something as meaningful if it fits meaningfully with a memory that we have made of an anticipated future." Normally, we anticipate favorable future 60% of the time and only 40% of the time are our futures "dire." Ingvar suggests this is a filter on information overload.
Boston, MA: Harvard Business School Press, 1997
ISBN 0-87584-782-X
Introduction by Peter Senge
(viii) At the heart of this book is a simple question with sweeping implications: What if we thought about a company as a living being?
This raises the obvious question: What is the alternative view of a company if we do _not_ see it as a living being? The alternative view is to see a company as a machine for making money.
(2) A recent study by Ellen de Rooij of the Stratix Group in Amsterdam indicates that the average life expectancy of all firms, regardless of size, measured in Japan and much of Europe, is only 12.5 years. I know of no reason to believe that the situation in the United States is materially better.
(3) Companies die because their managers focus on the economic activity of producing goods and services, and they forget that their organizations' true nature is that of a community of humans. The legal establishment, business educators, and the financial community all join them in this mistake.
(6-7) Four key factors of long-lived companies
1. sensitive to their environments
2. cohesive, with a strong sense of identity
3. tolerant of activities on the margin: outliers, experiments, and eccentricities within the boundaries of the cohesive firm, which kept stretching their understanding of possibilities
4. conservative in financing, frugal and do not risk capital gratuitously
(9) 1. Sensitivity to the environment represents a company's ability to learn and adapt.
2. Cohesion and identity, it is now clear, are aspects of a company's innate ability to build a community and a persona for itself.
3. Tolerance and its corollary, decentralization, are both symptoms of a company's 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.
(20) As we will see in this book, the essence of learning is the ability to manage change by changing yourself - as much for people when they grow up as for companies when they live through turmoil. The pioneering learning theorist Jean Piaget called this form of change "learning through accommodation." Its essence, he said, was to change one's internal structure to remain in harmony with a changed environment.
This gives us an entirely different imperative for corporate success. A successful company is one that can _learn_ effectively.
NB: The narrowness of corporate learning: only investment bankers
(22) But managers who perceive change early should spend more time on a far more useful question: What will we _do_ if such-and-such happens?
(23) To our relief, we found that no company we studied, in all of our literature research, had ever failed because its key natural resource was depleted. Yet many companies had switched away from their original natural resource base of their original business.
(24) What gave the companies the ability to accomplish this [react and change]? We will return to that question throughout this book, for it depended on all four distinctions of a living company: its adaptiveness to the outside world (learning), its character and identity (persona), its relationships with people and institutions inside and around itself (ecology), and the way it developed over time (evolution). We could see that the most accessible of these capabilities, and the one which often came first, was learning. The long-lived companies were _sensitive_ to their community and their environment. This sensitivity was not soft or driven by social responsibility. It was driven by the living company's self-interest.
(30) These crises tend to follow the same generic pattern.
At some point, as prospects worsen, the damage or danger becomes evident, and a consensus, grudgingly or not, develops about the inevitability of change. When that happens, there is little time left. Because there is little time, few options remain open. They are not necessarily the best options; they are limited to those that require little _time_ to implement. Almost by definition, these tend to be the tough options, devastating to morale and difficult to pull off with corporate identity intact: improve cash flow drastically, cut costs, cut capital expenditures, cut staff. The crisis is a self-reinforcing cycle. The more deeply you become enmeshed, the more options you must forgo, and the more you run out of time - which cuts your possibilities further and enmeshes you more deeply in the crisis. To act by foresight would surely be superior….
_In short, to act with foresight, the company must act on signals, rather than on pain._
(34-35) Important: David Ingvar, neurobiologist at University of Lund, Sweden, discovered that the brain creates time paths into an anticipated future and accumulates a "memory of the future: "We perceive something as meaningful if it fits meaningfully with a memory that we have made of an anticipated future." Normally, we anticipate favorable future 60% of the time and only 40% of the time are our futures "dire." Ingvar suggests this is a filter on information overload.
(36) The message from this research [on stored time paths] is clear. We will not perceive a signal from the outside world unless it is relevant to an option for the future that we have already worked out in our imaginations. The more "memories of the future" we develop, the more open and receptive we will be to signals from the outside world.
NB: We need to imagine a variety of different futures to be open to the one that we should be building NOW, which is where the only possible future starts.
(44) Unfortunately for a conventional manager, the scenario approach presupposes that the future is plural. Scenario planning requires managers to abandon the one-line approach, the assumption that there is only one predicted future to concern oneself with. In scenario planning, there is always more than one scenario.
(48) An uneven number gives the manager an unfortunate escape route; it's too easy to bypass the scenarios' implications by picking "the one in the middle," the compromise future that is seen as an alternative to the extremes. Two is probably a good number for scenario exercises; it forces the manager to make a choice between them and thus to think through the ramifications of both of them.
(56) Leadership has as little to do with learning as decision making does. Indeed, when a leader says, "I learned something I didn't know before," it detracts from his or her ability to appear certain and thus to inspire confidence. A leader who learns is a leader who is unsure.
(59) As it happens, these four elements - perceiving, embedding, concluding, and acting - are seen by various psychologists as the defining elements of learning. Whether they are managed effectively or not doesn't matter. _Every act of decision making is a learning process._
… _Learning by assimilation_ means taking in information for which the learner already has structure in place to recognize and give meaning to the signal.
(60) When we learn by assimilation, says Piaget, the lectures and books of conventional school learning are sufficient. But learning by accommodation requires much more. It is an experiential process by which you adapt to a changing world through in-depth trials in which you participate fully, with all your intellect and heart, not knowing what the final result will be, but knowing that you will be different when you come out the other end. This interrelationship with the environment actually makes you grow, survive, and develop your potential.
(64) All three writers [Winnicott, Holt, and Papert] had essentially the same theme: the essence of learning is discovery through play. A decision-making process that accelerated learning could do so only by making skillful use of playing…
D. W. Winnicott first published his book _Playing and Reality_ in 1971. In it, he coined the idea of a "transitional object." Play, he reasoned, is always conducted with a thing in hand: a toy. Girls play with dolls, boys with Lego sets, and toddlers of both sexes with Fisher-Price toys.
Playing with toys is very different from playing a game or playing in a sport. There is no way to win. The player is simply experimenting with an object that in some way represent reality.
(73) I believe that the solution to this problem [modeling scenaria] ultimately lies in designing a computer language similar to Seymour Papert's LOGO. If a computer language can be created simple enough to allow six-year-olds to design their own micro worlds, it ought to be possible to create a language for managers.
NB: Michell Resnick? Neil Gershenfeld?
(83) In this journey, my attention was caught, time and time again, by references to a school of thought called Personalismus, founded by William Stern. Stern became, with his wife Clara, one of the pioneers of child psychology. Together they operated a clinic and published a classic work on the language of children….
His last book, _General Psychology on a Personalistic Basis_, was republished in 1950 in the German language in The Hague.
(93) The safest place of all in Amsterdam was its Wisselbank, founded in 1609… Its overriding concern was not to generate funds for enterprise, but, on the contrary, to control the conditions under which they could be exchanged… Its very existence testified to a determination to neutralize the worst evils associated with the unconfined world of money: usury, default, counterfeit and other kinds of fraud. Its working motto was "probity, not profit."
(102) A company, by initiating rules for continuity and motion of its _people_, can emulate the longevity and power of the river.
In such a "river company," return on investment remains important. But managers regard the optimization of capital as a complement to the optimization of people. The company itself is _primarily_ a community. It purposes are longevity and the development of its own potential.
NB: We need to imagine a variety of different futures to be open to the one that we should be building NOW, which is where the only possible future starts.
(44) Unfortunately for a conventional manager, the scenario approach presupposes that the future is plural. Scenario planning requires managers to abandon the one-line approach, the assumption that there is only one predicted future to concern oneself with. In scenario planning, there is always more than one scenario.
(48) An uneven number gives the manager an unfortunate escape route; it's too easy to bypass the scenarios' implications by picking "the one in the middle," the compromise future that is seen as an alternative to the extremes. Two is probably a good number for scenario exercises; it forces the manager to make a choice between them and thus to think through the ramifications of both of them.
(56) Leadership has as little to do with learning as decision making does. Indeed, when a leader says, "I learned something I didn't know before," it detracts from his or her ability to appear certain and thus to inspire confidence. A leader who learns is a leader who is unsure.
(59) As it happens, these four elements - perceiving, embedding, concluding, and acting - are seen by various psychologists as the defining elements of learning. Whether they are managed effectively or not doesn't matter. _Every act of decision making is a learning process._
… _Learning by assimilation_ means taking in information for which the learner already has structure in place to recognize and give meaning to the signal.
(60) When we learn by assimilation, says Piaget, the lectures and books of conventional school learning are sufficient. But learning by accommodation requires much more. It is an experiential process by which you adapt to a changing world through in-depth trials in which you participate fully, with all your intellect and heart, not knowing what the final result will be, but knowing that you will be different when you come out the other end. This interrelationship with the environment actually makes you grow, survive, and develop your potential.
(64) All three writers [Winnicott, Holt, and Papert] had essentially the same theme: the essence of learning is discovery through play. A decision-making process that accelerated learning could do so only by making skillful use of playing…
D. W. Winnicott first published his book _Playing and Reality_ in 1971. In it, he coined the idea of a "transitional object." Play, he reasoned, is always conducted with a thing in hand: a toy. Girls play with dolls, boys with Lego sets, and toddlers of both sexes with Fisher-Price toys.
Playing with toys is very different from playing a game or playing in a sport. There is no way to win. The player is simply experimenting with an object that in some way represent reality.
(73) I believe that the solution to this problem [modeling scenaria] ultimately lies in designing a computer language similar to Seymour Papert's LOGO. If a computer language can be created simple enough to allow six-year-olds to design their own micro worlds, it ought to be possible to create a language for managers.
NB: Michell Resnick? Neil Gershenfeld?
(83) In this journey, my attention was caught, time and time again, by references to a school of thought called Personalismus, founded by William Stern. Stern became, with his wife Clara, one of the pioneers of child psychology. Together they operated a clinic and published a classic work on the language of children….
His last book, _General Psychology on a Personalistic Basis_, was republished in 1950 in the German language in The Hague.
(93) The safest place of all in Amsterdam was its Wisselbank, founded in 1609… Its overriding concern was not to generate funds for enterprise, but, on the contrary, to control the conditions under which they could be exchanged… Its very existence testified to a determination to neutralize the worst evils associated with the unconfined world of money: usury, default, counterfeit and other kinds of fraud. Its working motto was "probity, not profit."
(102) A company, by initiating rules for continuity and motion of its _people_, can emulate the longevity and power of the river.
In such a "river company," return on investment remains important. But managers regard the optimization of capital as a complement to the optimization of people. The company itself is _primarily_ a community. It purposes are longevity and the development of its own potential.
NB: economic company and community company; puddle and river companies
(107) Governance is a matter of assuring that the goals of the subsidiary companies and of each employee are harmonious with the goals of the larger whole - and vice versa.
(108) Founders and managers of long-lived companies, a hundred years or more in the past, did not link their values to a particular product, service, or line of work. They knew or sensed, that the life mission of a work community was _not_ to produce a particular product or service, but to _survive_: to perpetuate itself as a work community.
(107) Governance is a matter of assuring that the goals of the subsidiary companies and of each employee are harmonious with the goals of the larger whole - and vice versa.
(108) Founders and managers of long-lived companies, a hundred years or more in the past, did not link their values to a particular product, service, or line of work. They knew or sensed, that the life mission of a work community was _not_ to produce a particular product or service, but to _survive_: to perpetuate itself as a work community.
NB: Daniel Pink in _Drive_ quotes research that shows people are motivated by a certain amount of autonomy on the job, a chance for mastery of the tasks involved, and a clear, common purpose
(109) Takatoshi Mitsui's rules and guideline from 1694:
organizational principles
Those in authority should be kind to subordinates, who in return should respect those in authority.
The essential role of managers is to guard the business of the House. They should give appropriate advice if their masters' conduct is not good and correct blunders that may be made.
personnel management
Considerable amounts of silver shall be set aside as a reserve fund for the benefit of elderly employees of the House who have lost their property and also for the relief of those suffering from fire and other calamities.
In order to select for managers, keep an eye on the young men and train promising candidates for that position.
ethics of conducting business
Farsightedness is essential to the career of a merchant. In pursuing small interests close at hand, one may lose huge profits in the long run.
All kinds of speculation and new and unfamiliar business ventures shall be strictly forbidden.
Persons in public office are not, as a rule, prosperous. This is because they concentrate on discharging their public duties and neglect their own family affairs. Do not forget you are a merchant. You must regard dealing with the government always as a sideline of your business.
(114) It is the sign of a river company's maturity when managers begin to look for people who are _not_ like themselves - who may come from a different ethnic or national background, for example, and will thus bring a new set of attitudes and talents to the corporate body.
(117) I required all my managers to spend at least 25 percent of their time on these types of issues related to the development and placement of the people who reported to them [transferring mid-career managers to new and challenging posts]. General Electric CEO Jack Welch claims to require managers to spend 50 percent of their time on these sorts of development issues. Whatever the percentage of time you spend on it, this could be the most critical component of an executive's work.
This emphasis on developing people also means that there must be reliable ways to evaluate the potential and performance of people - not to discipline them (for fear inhibits learning), but to better appreciate how to develop them.
(109) Takatoshi Mitsui's rules and guideline from 1694:
organizational principles
Those in authority should be kind to subordinates, who in return should respect those in authority.
The essential role of managers is to guard the business of the House. They should give appropriate advice if their masters' conduct is not good and correct blunders that may be made.
personnel management
Considerable amounts of silver shall be set aside as a reserve fund for the benefit of elderly employees of the House who have lost their property and also for the relief of those suffering from fire and other calamities.
In order to select for managers, keep an eye on the young men and train promising candidates for that position.
ethics of conducting business
Farsightedness is essential to the career of a merchant. In pursuing small interests close at hand, one may lose huge profits in the long run.
All kinds of speculation and new and unfamiliar business ventures shall be strictly forbidden.
Persons in public office are not, as a rule, prosperous. This is because they concentrate on discharging their public duties and neglect their own family affairs. Do not forget you are a merchant. You must regard dealing with the government always as a sideline of your business.
(114) It is the sign of a river company's maturity when managers begin to look for people who are _not_ like themselves - who may come from a different ethnic or national background, for example, and will thus bring a new set of attitudes and talents to the corporate body.
(117) I required all my managers to spend at least 25 percent of their time on these types of issues related to the development and placement of the people who reported to them [transferring mid-career managers to new and challenging posts]. General Electric CEO Jack Welch claims to require managers to spend 50 percent of their time on these sorts of development issues. Whatever the percentage of time you spend on it, this could be the most critical component of an executive's work.
This emphasis on developing people also means that there must be reliable ways to evaluate the potential and performance of people - not to discipline them (for fear inhibits learning), but to better appreciate how to develop them.
NB: Curiosity short-circuits fear, according to MIT scientist Andreas Mershin
(118) Often unwritten, it is nevertheless universally understood: the individual will deliver a skill in exchange for remuneration…
Money is not considered a positive motivator in a river company. It is, as psychologist Abraham Maslov put it, a "negative hygiene factor." If money is insufficient, then people will grow dissatisfied, but _adding more money_ (above the threshold of sufficient pay) will not motivate people to give more to the company. To give more, the individuals need to know that the community is interested in them as individuals, and they need to be interested themselves in the fate of the larger entity. To give more, both the entity and the individual need to care about each other.
Karl Weick, author of _The Social Psychology of Organizing_, has written that what people really want from the workplace is the "removal of equifinality," by which he meant that people want to see that they have brought order, design, and quality to the incoherent, ambiguous raw material of their work. They want to see that their decisions and efforts have had a positive impact.
(119) The implicit contract of a river company guarantees (not in words, but in actions) that they ail have the opportunity to improve the world….
I would go even further, to argue that a living company cannot abide coercive discipline.
(124) Strict exit rules require the incumbent management to recognize that they are there for only a limited time. Leadership becomes stewardship. Just as you took over from somebody, you will hand your leadership over to somebody else. Your legacy at the company will depend on whether you kept the shop as healthy as you found it or made it just a bit healthier. Strict exit rules are thus good for his humility.
(118) Often unwritten, it is nevertheless universally understood: the individual will deliver a skill in exchange for remuneration…
Money is not considered a positive motivator in a river company. It is, as psychologist Abraham Maslov put it, a "negative hygiene factor." If money is insufficient, then people will grow dissatisfied, but _adding more money_ (above the threshold of sufficient pay) will not motivate people to give more to the company. To give more, the individuals need to know that the community is interested in them as individuals, and they need to be interested themselves in the fate of the larger entity. To give more, both the entity and the individual need to care about each other.
Karl Weick, author of _The Social Psychology of Organizing_, has written that what people really want from the workplace is the "removal of equifinality," by which he meant that people want to see that they have brought order, design, and quality to the incoherent, ambiguous raw material of their work. They want to see that their decisions and efforts have had a positive impact.
(119) The implicit contract of a river company guarantees (not in words, but in actions) that they ail have the opportunity to improve the world….
I would go even further, to argue that a living company cannot abide coercive discipline.
(124) Strict exit rules require the incumbent management to recognize that they are there for only a limited time. Leadership becomes stewardship. Just as you took over from somebody, you will hand your leadership over to somebody else. Your legacy at the company will depend on whether you kept the shop as healthy as you found it or made it just a bit healthier. Strict exit rules are thus good for his humility.
NB: Stewardship may be a close equivalent to trusteeship in Gandhian economics (http://hubeventsnotes.blogspot.com/2014/04/sarvodaya-swaraj-and-swadeshi.html). See _We Are Market Basket_ for a recent American example where a steward or trustee CEO was replaced by the board of directors and how the managers, the workers, the suppliers, and the customers undertook job actions in order to bring that CEO back (http://hubeventsnotes.blogspot.com/2015/09/we-are-market-basket.html).
(136) I have found it very important for teams of disparate people to undergo intensive training together at regular intervals. Apart from knowledge transfer, such an intensive training program brings together many groups of people, learners and trainers, all from the same corporation, but coming from very different cultural backgrounds and many different professional and academic disciplines. The flocking is intensive; course attendees nearly always tell you afterwards, "It was not so much what I learned in the official sessions, but what I picked up from my colleagues during the breaks that was important."
(138) Most innovative companies are run by teams. This is because teams have a higher capacity to learn than individuals. In fact, in most companies with a certain degree of complexity, most decisions are made by teams.
(143) Tolerance of internal weakness, ironically enough, allows the rose to be stronger in the long run…
To tolerate a variety of life forms within oneself gives a company the resilience to withstand stress and even disaster.
(144) Companies that had managed to survive for a long time, we wrote, had done so by letting things happen in the margin: allowing activities outside the core business to be set up by not coming down like a ton of bricks on every diversion in which local people seem to believe fervently…
[The [long-lived] companies] have made full use of decentralized structures and delegated authorities. The companies have not insisted upon a relevance to the original business as a criterion for selecting new business possibilities nor upon a central control over moves to diversity.
(146) The difference between the operating companies [Deutsche Shell and Shell Brazil] has forced strength into the global parent; it must be a strong enough container to hold all of those differences without cracking.
NB: diversity builds strength, resilience
(147) Under "normal" conditions, to judge by the record of long-lived companies, the senior manager of a company should make fewer decisions about the business itself and spend that time instead focused on creating conditions in which other people within the company can make good decisions about the business.
(150) Successful companies tended to perceive other [internal] resources as being capable of development _in addition_ to the existing resource rather than _instead of_… Many successful moves were made when companies did not see themselves locked into a particular business, but _in business_, with talents and resources that could be used profitably to meet a variety of consumer needs. Successful moves were relatively free of immediate pressure.
(151) There is a great deal of "learning by assimilation" - Piaget's term for taking in new information without changing one's fundamental way of thinking or acting. The managers' structures and knowledge base get honed over time to deal with a familiar world, but there is little learning by accommodation (making internal changes to fit a changing world).
(154) The fact is that the word _strategy_ tends to be misused. It should not be a noun; you should not "have" a strategy, in the sense of a document the organization follows. Rather, _strategy_ should be a verb: strategy is something you _do_, rather than something you _have_.
(155) A living company, by contrast, is a living being. It moves from birth to death, seeking to extend its own potential. _There is no one steering_. Instead, the living company takes one step at a time. Each decision is followed by an action, and then new observations about the effect of that action, and then another step tomorrow. Before taking each new step, the company looks up and decides where to put its foot in the light of the conditions of the moment. There are no admiralty charts and no final destination, except death…
If you are a manager, the poet Machado has a quote for you which you might find relevant:
Life is a path that you beat while you walk it.
To me, this line embodies the most profound lesson on planning and strategy that I have ever learned. When you look back, you see a clear path that brought you here. But you created that path yourself. Ahead, there is only uncharted wilderness.
(156) But the real decision making occurs in a diffused, tolerant, "planning-as-learning" environment.
(157) The cycle of seeing, concluding, deciding, and acting is, of course the cycle of continuous learning…
NB: John Boyle’s OODA loop - observation, orientation, decision, action
(158) So, if strategy is something you _do_, I have little doubt in my mind that this doing actually constitutes learning, not steering.
(166) If a company begins to perform seemingly self-destructive acts, you should not ask, "Why is this activity in the interest of the corporations?" You should ask, "Whose interest is served by this self-destructive act?" Is it the small group that has misused its power to define the company as only the five or six top people? Is it the large intestinal snail called a partner company, a division, or a trade union?
(174) The picture was very different in the ten successful companies, all of which eventually became significant international businesses. Eight out of the ten had never held a loan. They were entirely debt free and always had been. The two companies that had borrowed money had done so to meet specific short-term needs. They had since repaid the debts in full.
Conservatism in financing, in short, is not merely a conceit of a former, less credit-happy age. It seems to be an essential condition for companies that hope to survive to a ripe old age. When companies know how to "listen" to their financing, they are ready to follow the path of a natural, long-lived evolution.
At Shell, we had found something similar in our report on long-lived corporations. Nearly every company over the average age had a conservative approach to its financing. If not debt free, then they were rigidly careful about their borrowing and investment capital. In short, they knew the value of having money in the kitty…
But growth through borrowing money, or through mergers and acquisitions, is dangerous precisely _because_ it is not constrained. At some point, the pendulum will shift. Having to service your debt, you lose the options that come from having "spare cash in the kitty." You can no longer choose your moment.
Long-lived companies know that having money in hand means that they have flexibility and independence of action, when competitors do not.
(176-177) William Stern had written, 70 years earlier, that the basic driving force of every living system is the development of its inherent potential. The long-lived companies we studied at Shell seemed to realize this force and to live up to its demands.
Everything _about_ the company - its physical business, its assets, its polices and practices - was a means for living. None of these constituted the purpose of the company. Success for the company meant evolving into the best possible thing it could be and, in the process, to be good at what it happens to be doing in order to survive.
(188) As Karl Popper has argued convincingly, it is the ability to oust its leaders without a crisis, more than the right to vote the leaders in, that is key in a democracy. Yet we did not always have that capability at the level below the nation-state. To be sure, we had many institutions with this safeguard: trade unions, political parties, local governments, clubs, and school committees. But in companies, where the employees could not rid themselves of their managers, we did not bother with the pretense of democracy.
(191) [Shell Group Committee of Managing Directors decision-making] From the top of the Shell Group down there is no traditional mechanism to resolve conflict. The group has no CEO. The chairman of the managing directors is only _primes inter pares_, first among peers. One way or another, the members of the Committee of Managing Directors (CMD) and the two boards of directors have to agree among themselves on solutions that are acceptable to all. In practice, there will not always be real unanimity, but there is no good way to force through a decision to which one or more of the members are actively opposed. The minimum that is required is a _quasi-unanimity_; otherwise the decision has to be referred back to the next lower level. Quasi-unanimty does not mean that everybody agrees with the proposal. It means that no one is so violently opposed that he will show a veto card. The chairman has no other power than his persuasion; he has no casting vote or final decision.
(192) After the second world war, this quality [of including people in decision-making] was further reinforced by the introduction of a matrix organization. As the popular definition puts it, a matrix is "an organization in which nobody can make any decision on his or her own, but anybody on his own can stop a decision being made."
…The buck stops at thousands of desks, each at its appropriate level. This idea has been expressed as a generic principle: the essential thing about power is that no one have too much of it.
(195) Some employees will be happy to make decisions. Some are eager to make decisions that are not theirs to make. But a top manager cannot count on decisions being made consistently at the lowest level where they should be made, unless impediments are created against upward delegation of difficulties and conflicts.
In other words, make it difficult to move conflict up the hierarchy. Set in motion policies implicitly or explicitly stating that people can ask the next-higher levels for advice but cannot ask them to make decisions.
(198) More than ever, success in this undertaking is dependent on the extent to which these companies will be able to create knowledge, not in the head of the individual, but knowledge on which the company as a whole can act. This is blindingly clear in the brain-rich, asset-poor institutions that have shown such spectacular growth over the last 20 to 30 years: the law firms, auditor partnerships, software companies, and organizations like VISA. But even the old types of asset-rich company, such as oil and steel firms, nowadays need much more knowledge embedded in their actions than was the case some 20 years ago.
NB: Dee Hock, Peter Drucker
(136) I have found it very important for teams of disparate people to undergo intensive training together at regular intervals. Apart from knowledge transfer, such an intensive training program brings together many groups of people, learners and trainers, all from the same corporation, but coming from very different cultural backgrounds and many different professional and academic disciplines. The flocking is intensive; course attendees nearly always tell you afterwards, "It was not so much what I learned in the official sessions, but what I picked up from my colleagues during the breaks that was important."
(138) Most innovative companies are run by teams. This is because teams have a higher capacity to learn than individuals. In fact, in most companies with a certain degree of complexity, most decisions are made by teams.
(143) Tolerance of internal weakness, ironically enough, allows the rose to be stronger in the long run…
To tolerate a variety of life forms within oneself gives a company the resilience to withstand stress and even disaster.
(144) Companies that had managed to survive for a long time, we wrote, had done so by letting things happen in the margin: allowing activities outside the core business to be set up by not coming down like a ton of bricks on every diversion in which local people seem to believe fervently…
[The [long-lived] companies] have made full use of decentralized structures and delegated authorities. The companies have not insisted upon a relevance to the original business as a criterion for selecting new business possibilities nor upon a central control over moves to diversity.
(146) The difference between the operating companies [Deutsche Shell and Shell Brazil] has forced strength into the global parent; it must be a strong enough container to hold all of those differences without cracking.
NB: diversity builds strength, resilience
(147) Under "normal" conditions, to judge by the record of long-lived companies, the senior manager of a company should make fewer decisions about the business itself and spend that time instead focused on creating conditions in which other people within the company can make good decisions about the business.
(150) Successful companies tended to perceive other [internal] resources as being capable of development _in addition_ to the existing resource rather than _instead of_… Many successful moves were made when companies did not see themselves locked into a particular business, but _in business_, with talents and resources that could be used profitably to meet a variety of consumer needs. Successful moves were relatively free of immediate pressure.
(151) There is a great deal of "learning by assimilation" - Piaget's term for taking in new information without changing one's fundamental way of thinking or acting. The managers' structures and knowledge base get honed over time to deal with a familiar world, but there is little learning by accommodation (making internal changes to fit a changing world).
(154) The fact is that the word _strategy_ tends to be misused. It should not be a noun; you should not "have" a strategy, in the sense of a document the organization follows. Rather, _strategy_ should be a verb: strategy is something you _do_, rather than something you _have_.
(155) A living company, by contrast, is a living being. It moves from birth to death, seeking to extend its own potential. _There is no one steering_. Instead, the living company takes one step at a time. Each decision is followed by an action, and then new observations about the effect of that action, and then another step tomorrow. Before taking each new step, the company looks up and decides where to put its foot in the light of the conditions of the moment. There are no admiralty charts and no final destination, except death…
If you are a manager, the poet Machado has a quote for you which you might find relevant:
Life is a path that you beat while you walk it.
To me, this line embodies the most profound lesson on planning and strategy that I have ever learned. When you look back, you see a clear path that brought you here. But you created that path yourself. Ahead, there is only uncharted wilderness.
(156) But the real decision making occurs in a diffused, tolerant, "planning-as-learning" environment.
(157) The cycle of seeing, concluding, deciding, and acting is, of course the cycle of continuous learning…
NB: John Boyle’s OODA loop - observation, orientation, decision, action
(158) So, if strategy is something you _do_, I have little doubt in my mind that this doing actually constitutes learning, not steering.
(166) If a company begins to perform seemingly self-destructive acts, you should not ask, "Why is this activity in the interest of the corporations?" You should ask, "Whose interest is served by this self-destructive act?" Is it the small group that has misused its power to define the company as only the five or six top people? Is it the large intestinal snail called a partner company, a division, or a trade union?
(174) The picture was very different in the ten successful companies, all of which eventually became significant international businesses. Eight out of the ten had never held a loan. They were entirely debt free and always had been. The two companies that had borrowed money had done so to meet specific short-term needs. They had since repaid the debts in full.
Conservatism in financing, in short, is not merely a conceit of a former, less credit-happy age. It seems to be an essential condition for companies that hope to survive to a ripe old age. When companies know how to "listen" to their financing, they are ready to follow the path of a natural, long-lived evolution.
At Shell, we had found something similar in our report on long-lived corporations. Nearly every company over the average age had a conservative approach to its financing. If not debt free, then they were rigidly careful about their borrowing and investment capital. In short, they knew the value of having money in the kitty…
But growth through borrowing money, or through mergers and acquisitions, is dangerous precisely _because_ it is not constrained. At some point, the pendulum will shift. Having to service your debt, you lose the options that come from having "spare cash in the kitty." You can no longer choose your moment.
Long-lived companies know that having money in hand means that they have flexibility and independence of action, when competitors do not.
(176-177) William Stern had written, 70 years earlier, that the basic driving force of every living system is the development of its inherent potential. The long-lived companies we studied at Shell seemed to realize this force and to live up to its demands.
Everything _about_ the company - its physical business, its assets, its polices and practices - was a means for living. None of these constituted the purpose of the company. Success for the company meant evolving into the best possible thing it could be and, in the process, to be good at what it happens to be doing in order to survive.
(188) As Karl Popper has argued convincingly, it is the ability to oust its leaders without a crisis, more than the right to vote the leaders in, that is key in a democracy. Yet we did not always have that capability at the level below the nation-state. To be sure, we had many institutions with this safeguard: trade unions, political parties, local governments, clubs, and school committees. But in companies, where the employees could not rid themselves of their managers, we did not bother with the pretense of democracy.
(191) [Shell Group Committee of Managing Directors decision-making] From the top of the Shell Group down there is no traditional mechanism to resolve conflict. The group has no CEO. The chairman of the managing directors is only _primes inter pares_, first among peers. One way or another, the members of the Committee of Managing Directors (CMD) and the two boards of directors have to agree among themselves on solutions that are acceptable to all. In practice, there will not always be real unanimity, but there is no good way to force through a decision to which one or more of the members are actively opposed. The minimum that is required is a _quasi-unanimity_; otherwise the decision has to be referred back to the next lower level. Quasi-unanimty does not mean that everybody agrees with the proposal. It means that no one is so violently opposed that he will show a veto card. The chairman has no other power than his persuasion; he has no casting vote or final decision.
(192) After the second world war, this quality [of including people in decision-making] was further reinforced by the introduction of a matrix organization. As the popular definition puts it, a matrix is "an organization in which nobody can make any decision on his or her own, but anybody on his own can stop a decision being made."
…The buck stops at thousands of desks, each at its appropriate level. This idea has been expressed as a generic principle: the essential thing about power is that no one have too much of it.
(195) Some employees will be happy to make decisions. Some are eager to make decisions that are not theirs to make. But a top manager cannot count on decisions being made consistently at the lowest level where they should be made, unless impediments are created against upward delegation of difficulties and conflicts.
In other words, make it difficult to move conflict up the hierarchy. Set in motion policies implicitly or explicitly stating that people can ask the next-higher levels for advice but cannot ask them to make decisions.
(198) More than ever, success in this undertaking is dependent on the extent to which these companies will be able to create knowledge, not in the head of the individual, but knowledge on which the company as a whole can act. This is blindingly clear in the brain-rich, asset-poor institutions that have shown such spectacular growth over the last 20 to 30 years: the law firms, auditor partnerships, software companies, and organizations like VISA. But even the old types of asset-rich company, such as oil and steel firms, nowadays need much more knowledge embedded in their actions than was the case some 20 years ago.
NB: Dee Hock, Peter Drucker
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