Staying power: Companies need to balance dynamism with stability
Is your investment portfolio feeling left out? Is it suffering from disruption deprivation?
If you're a long-term investor, think about this: Of the 10 most valuable publicly listed companies in the US, one began in 2004 and two began in the 1990s, one started in 1976 and four in the 1800s, and one disruptive start-up came into the world in 1892.
While there are hot new companies serving the public, think about Southwest Airlines (1967), Vanguard (1976) and IKEA (1943). In Australia, we love our Vegemite (1922) and Arnott's biscuits (1865), and we still shop at David Jones (1838).
But when we come to Australia's publicly listed companies, despite the fact that since 1980, 40 of the top 50 companies have gone broke, merged or underperformed, nine of the 10 largest are well over 100 years old. Macquarie Group, founded in 1969, is the youngest by more than 40 years. Given that 50 per cent of the companies are banks, you would think there'd have to be a hell of a lot of disruption coming to drop them out of your portfolio.
The other thing to notice is that 50 per cent of the top US companies are technology based, and they are the newest arrivals on the list. You don't need to be Warren Buffett or even Mickey Mouse to work out the difference between the Australian and US business environment.
What all this tells us is that, in the words of ex P&G boss A.G. Lafley and business school professor Roger Martin, "performance is sustained not by offering customers the perfect choice, but by offering them the easy one. So even if a value proposition is what first attracted them, it is not necessarily what keeps them coming".
They are right about companies or products in a category or industry such as financial services - and spreads (Vegemite) - where history and habit ring-fence you. But will they ring-fence you forever? Maybe. Even the oil industry has been disrupted by shale, and the coal industry was disrupted by gas and now renewables.
In a 10-year research project looking at the 10 US companies out of the 2347 studied that had grown profit every year by more than 5 per cent, Columbia Business School professor Rita Gunther McGrath found that those 10 had been able to walk as well as chew gum.
In other words, they "balanced elements of stability (culture, relationships, leadership and even strategy) with elements of dynamism (rapid resource mobilisation, marketplace experiments and people mobility)".
The companies and brands that know their customers best - not just in terms of data, but by experiencing how they live and what they use the product for - will survive.Those companies that have a monopoly or work in an oligopoly, or have other unfair advantages bestowed on them by government, will do pretty well until they get found out. As Amazon founder (1994) Jeff Bezos says, "Your margin is my opportunity".