Feb 9, 2004

Yahoo! Groups : IndiaStrategy-ThinkTank Post Message

In of his recent interviews on Hr.com Arie de Geus was asked that if shareholders, managers, CEOs, Leaders etc all see themselves as short term participants in the organization...what does that mean for the 'living' company?

And this is what he had to say:

'This poses the question, What is the nature of an organization? If the CEO doesn't belong to the company anymore and if the people who man it are only bundles of skills being bought for a limited purpose before being disposed of, what then is the essence of the organization? Are shareholders the essence? Or, are managers the essence? Which can't be, if even the CEO is short-term. Is an organization the abstract transactional entries on the register of a chamber of commerce? I can't tie that up with the reality of companies I know.

The alternative view is that companies are communities of human beings that come together to produce goods and services. If this is so, the question becomes, Who are the members of this community? If employees don't consider themselves to be members, and shareholders tell management they are not necessarily long-term members either, then we see a hollowing out of companies, which is the source of my concern.

This hollowing out is one reason why I think we are seeing a shortening in the life expectancy of companies. As you probably know, at Shell I looked at the average life expectancy of companies in North America, Europe and Japan, and it was then below 20 years. Since then I've done a partial re-visit of that research and found that for Europe and Japan the average life expectancy is down to 12.5 years. I think we are killing off companies at a very fast rate.

This transactional attitude, whether it be shareholders, the employees, or management, leads to an exploitation of companies, almost a rape of the commons.

That is especially worrying because we now live in a situation in which human talent has become the critical element of commercial success. It's clear in your industry that it's not the quality of the printing press or the computers that make a publication a success but rather the quality of the human talent. Even in capital-asset-based industries like the oil industry or automobile industry, success is largely dependent on the human talent.

A beautiful example is that the company to beat in the automobile industry is Toyota. Why is it Toyota? It's because consistently over the decades Toyota has been at the forefront in the design of the cars, the design of the manufacturing processes and the design of the marketing. Basically, Toyota gets more out of the talent working for it than other automobile companies.

Human talent works better in teams and these teams get better if they stay together over time. I believe that organizations, just like humans, learn over time. There is an accumulation of experience and companies know more when they get older.

In this world where companies treat people just as a bundle of skills to be hired for a limited period of time we don't create loyalty and we don’t create enduring teams. If human talent is a commodity you buy off the shelf then you run it as efficiently as possible until it wears out. Behind this sort of thinking is the use of the word "efficiency" as if the essence of business is simply being efficient. That may have been the case when businesses relied mainly on capital; however, when business relies mainly on human talent the key word is not efficiency, but effectiveness. By that I mean you have to run business in a way that gets the most out of the human talent that you have been able to attract into your business.