In a recent talk, John Hagel pointed out that the average life expectancy of a company in the S&P 500 has dropped precipitously, from 75 years (in 1937) to 15 years in a more recent study. Why is the life expectancy of a company so low? And why is it dropping?
I believe that many of these companies are collapsing under their own weight. As companies grow they invariably increase in complexity, and as things get more complex they become more difficult to control.
Historically, we have thought of companies as machines, and we have designed them like we design machines (…) Although we tend to design companies like machines, we instinctively and intuitively understand that, in the end, companies are not made of cogs, levers and gears. In the end they are made out of people. For top management, it would be wonderful if we could put our business strategy into the machine, push a button and wait for the results. But it doesn’t work that way. You have to put your strategy into people.
It’s time to think about what companies really are, and to design with that in mind. Companies are not so much machines as complex, dynamic, growing systems. As they get larger, acquiring smaller companies, entering into joint ventures and partnerships, and expanding overseas, they become “systems of systems” that rival nation-states in scale and reach.