Why companies should stay young

Koreans have recently begun using a buzzword called “9988.” This refers to living healthily until the age of 99. These days, an “upgraded” version called “9988234” is popular, which means living lively until 99, ailing for only two or three days before death. The average lifespan of Korean people is about 80. However, people wish to live longer in good health.

Increasingly many senior citizens live younger than their age both in terms of their body and mind. There are even new terms referring to these people, such as “New Seniors” and “Old People With Active Life Styles” (or OPALS). These people are making various efforts to overcome aging and maintain their youth for a longer time. Companies can also learn from their example.

Corporations can prolong their life in the same way as individuals. Like people, they go through a life cycle of birth, growth, maturity and death. Organizations in the entrepreneurial and growing stages suffer many difficulties as they lack managerial resources and established systems. However, if they succeed in overcoming such stages and mature, they can secure an outstanding competitive edge. Unfortunately, the high spirits, competitive mindset and learning abilities of the early days can wither as companies get older. Companies come to rest on their laurels and lose vigor, eventually aging.

According to a McKinsey report, average corporate life spans shrank from 30 years on average in 1975 to 15 years in 2005. More than 80 percent of companies perish within 30 years of foundation.

The reason is that changes in the managerial environment have become so unpredictable that nobody can tell what will happen even in the near future. Such unpredictable changes have led even the world’s top companies to their downfall when they fail to adapt themselves to changes.

Kodak, once the dominant leader in the film market, failed to adapt itself to a new era of digital cameras and smart devices and ended up filing for bankruptcy on Jan. 19. Fearful of eroding its share in the film market where it accounted for 85 percent of sales, Kodak decided not to commercialize the digital camera, even though it invented the technology. As a result, its stock price plummeted from about $100 in 1994 to 65 cents in 2011, turning into a “penny stock.” CNN Money lamented the collapse of the American icon.

PC maker Dell seems to be going along the same path. The once-dominant PC vendor rose to its status based on its new build-to-order business model, but later failed to recognize the potential of smartphones and began to retreat in 2006.

These companies share something in common. They were either overconfident about their existing methods and became indifferent to environmental changes, or rapidly aged as the organization became bureaucratic and inflexible.

Then how young are Korean companies? How does one go about answering this question?

In a survey in December 2011 on members of SERICEO, Samsung Economic Research Institute’s information service for company chiefs, 73.4 percent of companies that had been in business more than 20 years said their companies were at maturity or had reached old age.

Since a company usually lasts about 15 years on average, the results may be natural. What is worrisome, though, is that among those with less than 20 years’ history, 14.4 percent put themselves in this category. Only 4.1 percent considered themselves to be younger than their real age, and most of them thought they were older than their real age. That is because many companies have not maintained their youth despite a relatively short time in business.

To achieve sustainable growth by rapidly adapting to an unpredictable management environment, it is essential for companies to overcome aging and maintain youth. Rather than being content with previous success, they should be attentive to changes in the environment and respond nimbly and flexibly to successfully go through many challenges.

Although the average corporate life span is only 15 years, there are many long-lasting companies that have continued to thrive after 100 or even 200 years. The world’s leading chemical company DuPont recently celebrated its 219th anniversary while Louis Vuitton celebrated its 156th; GE its 120th; 3M its 110th; and IBM its 101st.

By Chung Kweon-taek

The author is vice president and director of Human Resources Research Department at the Samsung Economic Research Institute. This article was contributed by SERI. ― Ed.