Thursday, July 05, 2007

Great companies learn from mistakes

In the July-August Harvard Business Review, Prof. Christian Stadler of the Innsbruck University School of Management writes about "The Four Principles of Enduring Success." He's taken the "Built to Last" approach to studying successful companies and applied it to long-term leading European businesses (see the project home page). Stadler and his colleagues compared top companies ("gold medalists") with good-but-not-great companies ("silver medalists") and sorted out the differences between them. The four principles they discovered were:

  • Exploit before you explore
  • Diversify your business portfolio
  • Remember your mistakes
  • Be conservative about change
I'm particularly interested in #3. Stadler writes, "Great companies tell and retell stories of past failures to make sure they don't repeat them."

He uses Royal Dutch/Shell as an example. A close call where the founder nearly committed the company to support Hitler in the 1930's led to a policy that corporate governance could not be dominated by a single person. Similarly, HSBC learned from losses suffered from an 1873 recession that it needed a more balanced management approach than it had used, so it established two head offices--London and Hong Kong--to represent its dual interests of trade financing and capital allocation.

Great companies don't sweep mistakes under the rug. They remember them and act with those memories in mind.