5 Corporate Lifecycles – Innovation – Geographical expansion – Product-line expansion – Efficiency and scale – Consolidation
Corporations usually follow a similar path to greatness. Though, obviously, the time it takes will differ depending on the industry in which they operate. A Web 2.0 company like Facebook went global and big in five intense years, whereas companies relying on physical presence and physical goods will take longer. Until Web 2.0 came along, this normally was measured in multiple decades. However, there are sprinters too. Rapidly growing Chinese technology companies such as Huawei and Lenovo have managed to become dominant in China and a global top player in less than two or three decades, as has American Google, Apple and Microsoft, and German SAP.
Here are five Corporate Lifecycle phases, which most companies will go through:
- Geographical expansion
- Product-line expansion
- Efficiency and scale
A large company will often encompass many product areas that are in different phases at the same time. Large companies normally have a mix of new ventures, smaller fast growing business units and emerging technologies that supplement the main business, where the majority of revenues and profits are derived from. As Samsung started to dominate the global TV set business in the early 2000s, they were working on establishing a new mobile smartphone line of business, which today is a main profit driver. We will define the lifecycle phase of a company, based on their main business, unless otherwise stated.
The innovation phase
This phase usually starts with an innovation or an innovative strategy. This is a volatile period for any company, where most struggle with getting commercial and technological traction, usually based on a single product or service. The founders are dominant in every aspect of company life and during this period will make the most profound impact on the corporate culture of the company. Sony rose to global prominence though a strong partnership between the founder and genius innovator Masaru Ibuka and his younger more commercial and internationally-oriented partner Akio Morita, who both influenced the core culture, as you will see in the Sony case. A particular critical moment is when the founders hand over the leadership to a more managerial regime, either during this phase or later. The perils of this early stage are well documented by the Macedonian, Dr Ichak Adizes, in his lifecycle model.
The geographic expansion
This phase is characterized by the rapid expansion of the company either regionally or globally, as the company sells its products and services in more markets. This is where the company meets the world for the first time. Some countries are more extrovert than others, which will impact their ability and ease of expanding. Maritime nations, for instance, tend to have a higher frequency of interaction with other countries and therefore are better used to dealing with cultural differences. Large nations will often find significant populations of immigrants from their country in the new markets, which may ease both the initial market acceptance and the ability to attract the first local employees with a good cultural fit. In this phase, the company should consider whether it will pursue a cultural dominant strategy with a single unified corporate culture or adopt a more locally-oriented model. In the intermediate hybrid model, it will adapt parts of the local cultures and work practices into its subsidiary work practice, which can dilute the core corporate culture. However, this choice is often not made consciously at this stage, as we will see later. This was a period where innovative Sony and Nokia both thrived, rapidly building a global business, using a largely hybrid model; both had explicit and strong corporate values to glue the decentralized organization together. Samsung and Toyota in contrast both used a dominant cultural strategy with little local interpretation allowed in the subsidiaries, and a strong central technical core.
The company has a global presence and in this phase it will expand the number of product lines and broaden their product portfolio to cater to more customers and build stronger and deeper relationships with existing customers. Consumer goods companies expand their brand portfolio, while industrial companies add products to serve their customers in new areas, or use the same base technology to serve new segments. During this period the company needs to be innovative, agile and increasingly efficient at the same time. The national traits supporting innovation (individualism, agility) and efficiency (discipline and organization) may rub against each other and create significant conflicts and unintended cultural dynamics. The phase often marks the end of the organic growth period. This is a period where execution-oriented and ambitious Samsung thrived, expanding from DRAMs to television and consumer electronics to mobile phones.
Efficiency and scale focus
As the industry matures, there is a drive towards more efficiency often through sheer scale and a desire for a stronger market share position. This period is often characterized by the creation of global processes, discipline and tight execution focus using a global organizational structure. Companies from countries with strong individualism and an innovative creative bias, which thrived during the innovation phase, may well struggle in this period. Those countries, like Denmark, often have a high proportion of small and medium enterprise (SME) companies. Larger nations, in particular those with a history of organizing at scale at many levels of society, often thrive during this phase, though not always. This is the phase where Austin stumbled and Toyota thrived, and execution-oriented Samsung Electronics rose to become the largest consumer electronics company from a revenues perspective.
This is the end game of an industry, with only a small handful of global or regional players dominating. This phase is characterized by less organic growth and a stronger focus on mergers and acquisitions (M&A), often of entities originating from different nations. The big challenge is making these acquisitions work. While they often make sense from an industrial and structural perspective, by reducing the number of players, the value creation for shareholders is frequently hampered by significant integration issues, often based in deeply rooted national and corporate cultural issues. In this phase, the two companies will both often come from a large nation, invariably with a strong culture, leading to the inevitable culture clash. This is the period where P&G and FLSmidth thrived, and GM stumbled.
While M&A is an important, fascinating and complex subject, we will not discuss this in detail here. It deserves a book on its own to be dealt with adequately, describing how tens of paired cultures, e.g. a French company merging with an American company, or a Chinese company buying a German company, are likely to play out across different industries at the different stages of their lifecycle. However, we will naturally touch the subject at times when relevant.
Diagram 1 summarizes the normal corporate lifecycle.
You are probably able to identify the lifecycle stage of your company on the curve shown in the diagram. So that you can focus on the stage that is most relevant to you.
You may choose the simpler three-period version including the embryonic, the growth and the maturity period.
For each main lifecycle period, here are the typical enabling competencies and traits:
- Embryonic period: Innovation and initial international expansion.
- Creative innovation
- Growth orientation, focus on revenues
- Strong customer orientation
- Risk taking, empowerment and trust
- Agility, short-term orientation and pragmatism
- Building relationships across cultures
- Growth period: Continued, international expansion with a broader product offering, and initial focus on scale and efficiency.
- Disciplined innovation – to broaden the product portfolio
- Process and discipline; mastering planning, budgeting and execution
- Commercial orientation; balancing risk, revenues, costs and margins
- Relationship building; partnering and collaboration
- Balancing agility with a control and quality orientation
- Longer-term and more strategic orientation, while still being agile
- Maturity period: Consolidation and M&A
- Strategic orientation; managing complexity in a global scale business
- Commercial orientation; mastering continuous restructuring and reinvention
- Mastering change; integration of acquired entities and new organizational structures
- Process orientation; focusing on systemic efficiency and cost control
- Quality focus; mastering all key disciplines; sales, marketing, R&D, supply chain, etc.