How farsighted companies adapt to last 100 years

Rapid rises and swift falls are becoming more common today for corporates. Last month, Marks & Spencer was booted out of the FTSE 100 for the first time, which means just over a quarter of the index’s original companies at its inception in 1984 remain.

In the US, the average lifespan of S&P 500 companies has shrunk from 33 years in 1964 to 24 years in 2016, according to the 2018 Corporate Longevity Forecast by Innosight, a consulting firm. The report forecasted that half of the current S&P 500 companies will be replaced in the coming ten years.

“We’re running [companies] into the ground with short-termism — this myopic focus on shareholders. It’s bizarre that we have let this happen,” said former Unilever CEO Paul Polman, HonFCMA, at the CIMA President’s London Centenary Dinner earlier this year.

Given such a setting, there is plenty to learn from companies that have survived the test of being in business for more than a century.

At the recent CIMA Business Leaders’ Summit 2019 in Sri Lanka, corporate leaders on a panel discussed features that distinguish century-old companies, and their experiences working for them.

Portfolio realignment

“There are many aspects that enable a company to function and strive for more than 100 years,” said Gihan Cooray, ACMA, CGMA, deputy chairman and group finance director at John Keells Holdings, a 149-year-old company. “One area is how we looked to reinvent ourselves and realign our portfolio.”

A diversified conglomerate from Sri Lanka and the largest company on the Colombo Stock Exchange, the company realigns its business portfolio to the growth sectors of an economy, Cooray said.

The company started in 1870 as a broking company supporting the tea production and export industries in colonial Sri Lanka. But it morphed into a vastly different company over the years to running supermarket chains and owning iconic hotel brands today, as Sri Lanka’s households gained greater spending power. The change was necessary, because “you can’t move away from the fact that businesses do evolve”, Cooray said.

Rajitha Kariyawasan, FCMA, CGMA, managing director of Haycarb, concurred. He explained that Haycarb’s 140-year-old parent company, Hayleys, has a diversified portfolio that includes key sectors contributing to Sri Lanka’s GDP. For example, its business in coconut-based activated carbons aligns with the country’s coconut output. Today, coconut carbon manufactured and marketed by the company is nearly 16% of the global market share.

Execution wise, Cooray explained that John Keells’s realignment is done through organic growth, mergers and acquisitions, and divestment. Its investment in the first private port terminal in Sri Lanka — in the Port of Colombo — is an example of its willingness to diversify and take a stab at a completely different industry.

“We didn’t know much about running ports,” recalled Cooray about the company entering the port and terminal operation sector in the 1990s. But the conglomerate’s diversification into the sector proved to be a sound decision. The segment is a key business to the group today.

Investing in people and building great culture

Century-old companies take corporate culture and its people seriously, especially when the survival of the company hinges on it. At AIA, the human touch of its agents is critical to its success.

“As an insurance company, people are at the heart of everything we do,” said Nikhil Advani, the CEO of AIA Insurance Lanka, who was also speaking on the panel. “What we sell is intangible, and our business relies on our agents to build human relationships.”

The company’s investment in agents and technology is “absolutely important”, Advani said, because the agents are the ones “on the streets, knocking on your doors, talking to you, explaining the value of insurance”. He doesn’t think that insurance agents will be replaced by technology. Rather, technology will only make insurance agents more efficient, allowing them to provide better advice, make the buying process simpler and faster, such as interacting with customers through mobile devices and issuing electronic policies.

Dinesh Weerakkody, FCMA, CGMA, chairman of Hatton National Bank, said that inculcating a culture is a gradual process. “To me, culture is like an onion, there are so many layers,” he said. “What finally happens is … a lot of people who come from the outside also get domesticated over a period of time, and they fall in line with the existing culture.”

At John Keells, its leaders empower employees to drive the organisation through good management, and meritocracy is one key factor that motivates employees.

“Anyone working here, whether it’s from the bottom, can aspire to be the chairman of John Keells,” said Cooray, noting that at least two past chairmen in the company’s recent history started from the bottom.

“That drives people because they know it’s performance-based,” he said. “If you put your best effort forward at the organisation, it will reward you.”

The company also introduced an employee share option plan to increase a sense of ownership in the company and align employees’ interests with the interests of shareholders and other stakeholders. “You can’t discount the value of people,” Cooray said.

Taking a long-term view

Amidst the current volatile business environment, these companies take a patient approach to achieving their corporate goals. Kariyawasan of Haycarb said that “many corporates have been very resilient, including foreign investments [into Sri Lanka]”. This is despite a civil war in the country that lasted for almost 30 years before it ended in 2009.

He said that businesses have to take a long-term view and establish guiding principles as to what the company should and should not do in uncertain and volatile environments.

“If that’s set, we are willing to sacrifice short-term returns on our investments,” Kariyawasan said, adding that while Sri Lanka’s GDP per capita is currently at $4,100, the figure will eventually rise to $5,000. “We have to patiently wait for that moment.”

At AIA, its long-term view is manifested in its market selectivity. “We’re very careful about where we go, and when we go, we go with a great amount of research, confidence, and for a long duration of time,” Advani said.

“We are very Asia-centric. We operate only in Asia, [and] our focus is very important to us,” he said. “Whether it’s about currency crisis, financial crisis, world wars, we never left.”

He attributed AIA’s success to its constant reinvention of products and services, its distribution channels, and its focus on customers as key factors that enabled it to stay strong for 100 years.

Customers at the heart of business decisions

At Hindustan Unilever, a similar customer centricity takes place, and it has led to consistent growth over the past 10 years.

However, in the company’s decades-long journey, it has sometimes taken its eye off the mantra, said Srinivas Phatak, CFO of Hindustan Unilever. Those mistakes led to a stagnant turnover between 2000 and 2006 at the consumer goods giant, he said.

The first mistake was in acquiring local brands and consolidating them into big national brands with the aim to get scale, Phatak said. The company lost customers when it merged the brands because it had expected customers to stay loyal to the company and move to its newly consolidated brands.

“Very simply, we lost customers. And when you lose consumers, they are unforgiving,” Phatak said.

The second mistake was on product quality. For some products “we did not put adequate attention to quality,” he said. “In other cases, we did not upgrade fast enough against other alternatives in the market.”

What were the lessons learned? “Make the relevant products available and give [customers] the best possible quality,” Phatak advised. “If your consumer walks away, it takes much longer and more money to get the consumer back.”

Continuous innovation and collaboration

Embracing changes brought by technology is also crucial to long-term success. John Keells was one of the first companies in Sri Lanka to adopt enterprise resource planning systems when the technology first arrived in the country, Cooray said. He emphasised the importance of keeping pace or staying ahead of technological changes despite implementation challenges, especially for large organisations.

“Reinventing yourself is about adopting new practices, new processes, and obviously in today’s world, it’s about technology,” Cooray added. “We have to look at disrupting ourselves before being disrupted. Look at your core customers — what do you need to do for them?”

He said that going forward, there will be greater collaborations among businesses, and not purely competition.

“It’s not about building defences around businesses,” he said.

Such is the case at Hindustan Unilever, where collaboration with other companies is becoming a prominent feature in its business strategy. Phatak said the first question to ask is: Are they your business partners or competitors?

“The answer is neither,” he said. “They’re both, [and] you need to work with them.”

Phatak explained that Hindustan Unilever partnered with Amazon India to launch a range of men’s grooming products, selling anything from hairstyling creams to beard oil. It’s a win-win setup for both companies. “They bring in the knowledge of what works in e-commerce, and we bring in the knowledge of consumers,” he said.

It is also collaborating with traditional retailers that are an important aspect of daily life in Indian and Sri Lankan markets. They will always be relevant to consumers, and “it’s in our interest to help them and look at how to digitise their businesses”, Phatak said, adding that when a company gets its portfolio mix, product, channel, and pricing right, it will thrive.

“If you do all these consistently well … somebody a hundred years from now will be talking about what it means to run a business for 200 years,” he said.

— Alexis See Tho (Alexis.SeeTho@aicpa-cima.com) is an FM magazine associate editor.