1. THE LIVING COMPANY THE LIVING COMPANY by Arie de Geus

2. Who is Arie de Geus? Arie de Geus make unique contributions to manage-ment thinking because the source of their thinking is experience rather than concepts Arie de Geus worked for Royal Dutch/Shell for 38 years, from 1951 to 1989 Chairman of Netherlands – British Chamber of Commerce from 1981 - 1988 The Queen of Netherlands appointed him an Officer as the order of Orange Nessau in 1988 Head of an Advisory Group To The World Bank from 1990 – 1993 Advised many government and private institution, lecture throughout the world. The author include on influential in the Harvard Business Review article "Planning as Learning" He is a visiting fellow at London Business School Board member of the Nijenrode Learning Centre in the Netherlands.

3. ECONOMIC COMPANIES VS. LIVING COMPANIES Discipline and Cohesion: are maintained hierarchical control, often highly centralized. Discipline and Cohesion: are based on through the trust that results from the understanding that both the company and its members will adhere to their obligation of mutual development of the potential. Entry-level Recruitment: handled by the numbers, and seen as filling the necessary positions to best serve the asset base of the company. Entry-level Recruitment: seen as a rite of passage, representing the first moment for testing the fit between the new member and the community. Executive Recruitment: often brought in from the outside. Executive-Level: usually promoted from within the organization. Governance: Sacrifices its people when necessary to maximize profit and shareholder value. Governance: Sacrifices assets over people when necessary to ensure the company’s long-term survival, even at the expense of the shareholder. Learning Abilities: centralized control reduces the space in the organization, and thereby, it’s learning abilities. Learning Abilities: trust allows space and tolerance both inside the hierarchy and towards the outside world, resulting in higher levels of institutional learning.

4. ECONOMIC COMPANIES VS. LIVING COMPANIES Arie de Geus identifies two different types of commercial companies in existence today, distinguished, among other factors, by their primary reason for being in business. To explain the difference, de Geus borrows from evolutionary theory ECONOMIC COMPANY LIVING COMPANY Definition: corporate "machine" Definition: Living work community Purpose: the production of wealth for a small inner group of managers and investors- producing maximum results with minimum resources. Purpose: longevity; the development of its own potential. Management priority: optimization of capital assets to maximize profits, using people as a means to that end. Management priority: optimization of people to increase the company’s potential, with profit as a means to that end. Employees: "outsiders," recruited for their skills, who work with their eventual exit in mind. They trade their time and expertise for money, and feel little loyalty to the company. Employees: members of a community, which holds certain values in common. The company will help the members to reach their individual potential, because it is understood that this is in the company’s self- interest.

5. ONLY LIVING BEINGS LEARN Play and learn The “persona” represent body and soul together - Goal Oriented, it want live as long as possible and realize the development of its potential from its talent and aptitudes - Conscious of Itself, a persona can perceive itself as “I”, although it is composed of parts of elements, which are personae in their own right - Open To The Outside World, element from the outside-such as food, bacteria, dust, light, and sound constantly enter the human system. At the same time, s persona is constant relationship with the outside world, in the sense that every experience represents one more exchange in lifelong dialogue with the force of the world around it - Alive, But Finite Lifespan, one day it is born and one day it will pass away

6. LIFESPAN OF A COMPANY Average life expectancy of Fortune 500 Company is 40-50 years. 1/3 of Fortune 500 companies in 1970 had vanished by 1983. (13 years!) Recent study 1996 Stratix consulting group - Amsterdam - average life expectancy of all firms, regardless of size, is 12.5 years (Japan and Europe).

7. Features of Long Lived Companies Shell study of companies older than Shell (.100 years) 27 in detail, of 40. Why did they survive? 1. Sensitive to their environment (in harmony with the world around them – tuned to what was going on). 2. Cohesive, with a strong sense of identity. (People felt part of them - community - managers chosen from within - "stewards"). 3. Tolerant (of activities on the margin - experiments, ccentricities... - did not exert overly centralised control). 4. Conservative in financing (frugal, money in land – could pursue options their competitors could not)

8. Memory of the Future How do companies anticipate the need for change? Why doesn’t a company see what is happening? Managers are stupid We can only see when a crisis opens our eyes We can only see what we have already experienced We cannot see what is emotionally difficult to see We can only see what is relevant to our view of the future

9. Learning Processes Insatiable Demand for Predictions Management View take s future as “Falistically” given Producing Uncertainty trough prediction Anticipating possible future and preparing for them PredictionPlanningScenario Planning

10. DECISION MAKING AS A LEARNING ACTIVITY Perceiving Acting Concluding Embedding Learning by Assimilation Vs Learning by Accommodation

11. The Titmouse and the Milk Bottle Innovation as individuals or community Social propagation - established process for transmitting a skill from individual to company Mobility - individuals move around rather than settling in isolated territories FLOCKING

12. The Tolerant Company Tolerance wastes resources Letting things “happen” at the margin Diversification by tolerance vs diversification by Dictum Parable of Chilean Potato Intolerant companies live long and do well IF they have control over the world they live in

13. The Corporate Immune System  Corporate body, like human body, needs immune system  Limit to openness and tolerance  Mergers and acquisitions… - like infections - failure rates around 50-75% (Porter)  Parasites Can exist anywhere in corporate host body  Members will retire, whereas parasites will serve for their own sweet time and leave by different route.  Money is not enough of an incentive but money needs a lot of attention in a living company

14. Conservatism in Financing Money is important Entrepreneurs with high debt/low equity underperforms Long lived companies have money in hand “Stewards, not gamblers” Long term survivor does not define life in economic terms, but in evolutionary terms Cost of “company deaths”

15. CONCLUSION Profit is not a guarantee for a long live company but it is the symptom for a health company You will still not have institutional learning until you develop the ability to flock that needs two criteria: mobility of people and mechanism of social transmission The decision for action made by this living being result from a learning process Company should not all live forever, but a reduction corporate mortality seem advantageous Any movement to the philosophy of the living company will take time, it will evolutionary rather than revolutionary

16. BOOK REVIEW “LEVEL 5 LEADERSHIP” GOOD TO GREAT (2001) Jims Collins “LEVEL 5 LEADERSHIP” “KNOWLEDEGE COMPETING FOR THE FUTURE (1994) Gary Hamel and C.K Prahalad “KNOWLEDEGE” “THE LEARNING ORGANIZATION” THE FIFTH DICIPLINE (1990) Peter M Sange “THE LEARNING ORGANIZATION” “ THE COMPANY IS A LIVING BEING ” THE LIVING COMPANY ( 1996) Arie de Geus “ THE COMPANY IS A LIVING BEING ” CULTURE AND DICIPLINE” BUILT TO LAST (1994 ) Jims Collins and Jerry I.Porras “ CULTURE AND DICIPLINE”

17. THANK YOU FOR YOUR KIND ATTENTION

18. “KNOWLEDEGE COMPETING FOR THE FUTURE (1994) Gary Hamel and C.K Prahalad “KNOWLEDEGE”

22. Managing for Profit or Longevity Is there a choice? Economic or “puddle” company - a viable choice - hard to be a learning organisation Living or “river” company - high/low (flow) but permanent - self perpetuating, maintains identity - ROI still important

23. Managing for Profit or Longevity Is there a choice? Economic or “puddle” company - a viable choice - hard to be a learning organisation Living or “river” company - high/low (flow) but permanent - self perpetuating, maintains identity - ROI still important

25. Economic Companies vs. Living Companies Discipline and Cohesion: are maintained hierarchical control, often highly centralized. Discipline and Cohesion: are based on through the trust that results from the understanding that both the company and its members will adhere to their obligation of mutual development of the potential. Entry-level Recruitment: handled by the numbers, and seen as filling the necessary positions to best serve the asset base of the company. Entry-level Recruitment: seen as a rite of passage, representing the first moment for testing the fit between the new member and the community. Executive Recruitment: often brought in from the outside. Executive-Level: usually promoted from within the organization. Governance: Sacrifices its people when necessary to maximize profit and shareholder value. Governance: Sacrifices assets over people when necessary to ensure the company’s long-term survival, even at the expense of the shareholder. Learning Abilities: centralized control reduces the space in the organization, and thereby, it’s learning abilities. Learning Abilities: trust allows space and tolerance both inside the hierarchy and towards the outside world, resulting in higher levels of institutional learning.

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