License to Last: The Enduring Rule of Staying Power

“The only constants in life are death, taxes and the next James Bond movie.” – Lee Pfeiffer

Why do some AEC firms remain independent, self-governing entities for long periods of time while others are acquired and integrated into larger companies, ending their identity as anything more than a brand name owned by others? Why do some AEC firms learn to adapt and leverage what they have to offer into lasting success while others are less successful? Why are some AEC firms better at “management for change” than others? Perhaps because the less adept are using an old business (revenue) model that emphasizes efficiency over innovation and a conservative mindset that says, “We’ve always done it this way, so why change?” Don’t let strategic denial and inertia, the classic “elephant in the room,” triumph. Doing so may result in your company’s diminishing performance, fall from its current standings, and need to implement costly (and most likely risky) transformation programs. Prevention is always better than mitigation.

Building a company with staying power is no easy feat. Many companies that are doing well today may be on their way to disappearing. Eventually, established companies find themselves faced with threats to their business continuity, either from the invasion of new innovations or the gradual deterioration of the potency of their own core businesses. In either case, their ability to satisfy their transitional market is lost. One notable characteristic of the ENR Top List is that, like the Fortune 500, the Dow and the S&P 500, it undergoes a lot of turnover. It is no accident that zero members of the original 12-component Dow from 1896 remain in the index. General Electric, the last original member, was delisted in 2018. ExxonMobil, a member of the Dow when it became a 30-component index in 1928, was the oldest member when it was replaced in August of this year. This is true across many, if not all, industries. A quintessential example is the auto industry, where traditional car makers are struggling to reinvent themselves or risk being commoditized amid a seismic shift in how vehicles are powered, driven and purchased. Tesla, a 17-year-old startup, is now worth a General Motors plus a Honda plus a Ford plus a Toyota plus a Fiat Chrysler plus a Daimler and, perhaps, plus all ENR top 100 design firms combined. Even many of Jim Collins’s “great” companies have failed the test of time and fallen, struggled financially, or been forced to fold: Circuit City, which filed bankruptcy; Fannie Mae, which the government bailed out; Gillette, which was acquired by Procter & Gamble; Wells Fargo, which got mired in account fraud scandal and other misconduct; and Kroger, which still carries its founder’s name, struggling in the face of e-commerce.

AEC firms cannot continue with business as usual, looking at their competitors as their greatest threat and their rankings on the ENR list as a measure of performance. Business longevity hinges, in part, on how well firms adjust to evolving customers’ needs and a dynamic marketplace, strategically managing business cycle turbulence. To experience lasting profitable growth, AEC firms must embrace a forward-thinking posture, working backward from the future to today, then adapt their business models and strategies to the challenging new conditions. They must not ignore (or fight) the changing trend, but rather do everything they can to get ahead of it. Above all, they must not overlook the critical influence of strategic leadership in corporate longevity. Understanding these changes can help AEC firms determine how best to satisfy customers’ evolving needs while outflanking and displacing competitors. The frightening truth about corporate success is that it can unconsciously blind firms to the need to change (perhaps a state similar to Sigmund Freud’s “knowing and not knowing”).

So the question for the CEO and the board is: how does your firm avoid becoming a casualty of change? Don’t assume you’ll be fine simply by staying the course. Because the potential damage to your company is not without costs. Your employees, customers, communities, and shareholders will all feel the loss.

The Role of Strategic Leadership in Corporate Longevity

“Success is dangerous. One begins to copy oneself. It is more dangerous than copying others. It leads to sterility.” – Pablo Picasso

With time and size, established AEC firms tend to become increasingly bureaucratized, routinized, conservative and risk averse. Their core business casts a powerful shadow. Their leaders have graduated magna cum laude from it, and naturally revert to overlearned or inertial behavior, locking in with the familiar environment, relying on proven ways of doing things and doing more of what they know best. Yet eventually, major growth opportunities in familiar environments usually diminish or even vanish. Changes are viewed as difficult, disruptive, unpredictable and risky, while the status quo (improving efficiency and productivity; increasing utilization, billable hours and, if possible, labor multipliers; and project and risk management) is seen as reliably producing more predictable financial results more quickly to keep shareholder benefits coming. This may improve short-term results, but it focuses firms inward rather than outward, where the real problems lie, and makes them even more blind to the need for strategic change.

From big steel, automobile and computer manufacturers to software providers, newspapers and advertising agencies, there are abundant examples of major companies that acted too late to respond to trends others capitalized on. Nokia quickly lost its footing as the leader in the cell phone industry when the iPhone was introduced. “We didn’t do anything wrong, but somehow, we lost,” said Nokia CEO Stephen Elop in 2013 while announcing the sale of his firm’s mobile phone branch to Microsoft. Consider Netflix’s spectacular success and Blockbuster’s equally spectacular fall, which was wedded to its bricks-and-mortar retail outlet business model and unable to shift from DVD rental to streaming. Or go back to 1999 when the cloud computing industry was virtually nonexistent and the uncompromising vision of Salesforce.com that the cloud would kill downloaded software by being simpler, faster, and more accessible — a vision that made the company worth more today than incumbent industry giants Oracle and SAP. The world around us is constantly changing. In order for any firm to drive growth and remain relevant and profitable in changing times, it will need to adapt to meet these new realities.

Long-lived companies plan for, and prosper through, all business cycles. They originate from an institution-building purpose and are able to continue to develop the effective leadership and adaptive capability necessary to sustain themselves as independent, self-governing entities for the long term. They are able to transform themselves multiple times to weather the turbulence of environmental change. Their ability to weather change and compete over decades and longer is primarily the quality of their leaders, the culture they instill and the values they espouse and model.

Resilient Leadership: Attaining Sustainable Long-Term Performance

Companies need to be resilient and sustain their adaptiveness across all time scales and business climates. Effective leadership is perhaps the most important sustainable competitive advantage a company can have. A leadership sweet spot occurs at the intersection of functional intelligence (competence), character, and adaptability.

Good character is important, but competence matters. Incompetence will damage a company just as surely as bad character will. Similarly, character and competence are admirable qualities, but lack the cognitive diversity and flexibility needed for rapid learning and change. Competence and adaptability are important, but potentially dangerous when combined with bad character. Enron was highly praised for its dynamism and innovative thinking right up to the point where it became the poster child for corporate greed and corruption.

In order to drive business growth, stay relevant in changing times, and differentiate from the competition, AEC firms must be able to think creatively and inject innovation into their business models. This does not mean that a willingness to innovate is sufficient for success; leaders must be well-educated on what is happening in the marketplace and have processes in place to innovate — and bring that innovation to life.

The Critical Role of the Board

Despite this awareness and the best of intentions, some boards make the costly and painful mistake of tapping the wrong person as CEO. A common mistake is choosing the next CEO based on overconfidence, assertiveness and charisma and the incompetence they mask, instead of competence, integrity and adaptability — the traits that best make them effective leaders. All three qualities must be proactively pursued in recruitment, not just passively acknowledged.

In How the Mighty Fall, Jim Collins examined the reasons for the decline of several previously great companies. In all but one case, CEO succession was to blame. Companies built over decades can be rapidly devastated with just one wrong appointment.

Future-proofing your company should start in the boardroom. Begin by looking at your board and asking whether the people in the room have graduated from the same leadership school or have the ability, experience and progressive mindset to help you forget the past, transition your company to a new business model or innovation, and manage the often tortuous tension between continuity (run) and strategic renewal (retune to changing situations). To borrow the words of Dee Hock, founder and former CEO of Visa, “The problem is never how to get new innovative thoughts into your mind, but how to get the old ones out.”

To safeguard the future, it is imperative to thrive in the present. You can continue doing what made you successful in the first place. You can even excel at it. However, while you are still optimizing the present, circumstances may change, altering historical market conditions and rewriting the rules of the game. That’s when change becomes an uphill battle, increasingly difficult to win.

Ultimately, a leading time-transcending company needs to be a company of leaders. It’s up to you to build it.