Friday, January 20, 2006

Corporate Longevity (Revisited)
Of declining companies and brands (but maybe not the big ones?)

In an earlier post, I wrote about once-mighty icons of the technology industry - Digital, Sperry, Burroughs, Compaq - who are but mere memories today. However, here's a scary fact from the McKinsey Quarterly in its Ten Trends to watch in 2006: it says that the probability that a company in an industry's top revenue quartile will not be there in five years is as high as 30 percent! So clearly, the phenomenon of high mortality is not confined to the technology industry but is applicable to the corporate world in general.

And what's more, this has been an accelerating trend for decades. Back in 1999, Marina Whitman wrote in the Harvard Business Press book New World, New Rules: The Changing Role of the American Corporation:

"Only about 4 percent of the Fortune 500—the largest U.S. industrial companies—had turned over annually during the 1960s and 1970s, but by the 1980s the average annual rate of turnover had doubled to 8 percent".

Also, James Surowiecki writes in Wired magazine , that while the number of brands on US grocery store shelves has trebled since 1991, customer loyalty to brands has been on a precipitous decline, and even the loyal ones are less willing to pay hefty premiums for brands perceived as high quality.

So, it's no big wonder that companies decline and die with alarming regularity. Don't get too wedded to your favorite newspaper or brand of toothpaste - you may be forced to change it every few years!

However, all is not lost - here is a heartening observation: Surprisingly, since the Fortune 500 list of the largest American corporations was first published in 1954, only 3 companies - General Motors, Exxon Mobil and Walmart - have held the No. 1 position. BusinessWeek's Mike Mandel also finds some evidence in the labor statistics that big companies account for a greater share of job creation.

So maybe there's some truth to the belief that size means stability!