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Guiding your business to middle age

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in Centerpiece,Leaders & Managers,Leadership Skills

A recent study claims that only a small fraction of U.S. corporations reach the ripe age of 40. Do you have what it takes to guide your business to old age?

Businesses that do survive are likely to (a) be ruthless about change, even if it means cannibalizing their big revenue generators, and (b) make frequent, small acquisitions that bring in new technologies or open up new markets.

Luck plays a role, as well.

Take Hewlett-Packard Co. and IBM, for examples. A comparison of the two illustrates how some companies, though not all, have done both a and b.

When Louis V. Gerstner took the helm at IBM, the company regularly missed the emergence of new industries. The company’s success in mature markets was a barrier to exploring new ones and that it simply didn’t have the right organizational structure.

So Gerstner launched the “emerging business organization” (EBO) to nurture growth opportunities. EBO businesses brought in $15 billion in new revenue, such as Linux software.

CEO Samuel J. Palmisano furthered efforts with an aggressive acquisition strategy that focused on small companies. That led to IBM plucking up dozens of small companies that expanded IBM’s software business.

Palmisano also did what some may have found difficult: He sold off the personal computer business in 2004.

Later, he said, “We’ve lasted 100 years because we never limited ourselves to a view of a particular product.”

Compare that to Hewlett-Packard, which decided to invest even more in PCs, spending $25 billion on acquiring large rival Compaq Computer in 2002.

By the time HP caught on to business software, it was a little late. The company spent $11 billion last fall on acquiring software maker Autonomy Corp., a rich price, late in the game.

“HP has been trying to do everything IBM is doing but five years late,” said Harvard Business School professor Rosabeth Kanter.

— Adapted from “Avoiding innovation's terrible toll,” Spencer E. Ante, The Wall Street Journal.

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