APRIL 2017 / NO. 1
TAGS: COMPANY, MORTALITY, VIJAY GOVINDARAJAN, DOTCOM, GREAT RECESSION, CYCLES, COMPANY RADAR ROOM

Company mortality rates are rising

“We often hear that 80% of the big Fortune 500 companies, which were in existence before 1980, are no longer around, and that another 17% probably won’t be here in five years”. But what about all the other companies listed on US stock markets?
What is the scary truth about company survival? Most managers react “this is not going to happen to us”. We think this is very naive!
It is interesting to analyze the research of Professor Vijay Govindarajan published in Harvard Business Review in 12/2016, which deals with some 29,700 companies listed on US stock markets. Companies listed before 1970 had a 92% chance of surviving for the next five years. However, those companies listed from 2000 to 2010 had only a 63% chance, despite the dotcom bust and the Great Recession. This shows that company mortality rates are rising! How and why can this be prevented? It turns out that companies listed after 2000 spent more than twice as much on organizational capital (personnel, patents, R&D, and IP) and only half as much on physical assets (plant and equipment) as those listed earlier. The newer companies are grounded in novel business models which give them an advantage over more traditional production companies. They are nimbler. But the bad news for these nimble companies is that their days are numbered unless they can innovate continually.
This pessimistic view is driven by a simple fact: digital companies are far more vulnerable to quick imitation. So such companies should, firstly, incorporate both technology and physical products into their business models to gain a competitive edge. And secondly, they should strive for business models that include strong network effects. Thirdly, they should increase their focus on continual innovation. Basically, this is all about competitiveness.

Do you have an idea how to prevent the demise of companies?

To get the timely insights and foresight necessary to resist the storms of discontinuous change, innovation, disruptive technologies, fierce and new competition, and new strategies, you cannot rely only on your current methodologies. You have to take an important additional step to avoid the most-asked question in business today: why didn’t we see this coming? The answer is clear. Create the perfect combination of strategic intelligence – strategic thinking – leadership by establishing a SWAT Team and a Company Radar Room.
“You get the need-to-know insights & foresight by combining strategic intelligence – strategic thinking – leadership with a SWAT Team and a Company Radar Room”
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