A steel worker

A steel worker © European Union , 2014 / Source: EC – Audiovisual Service

This article is brought to you thanks to the strategic cooperation of The European Sting with the World Economic Forum.

Author: Jonathan Wichmann, Co-founder, Wichmann/Schmidt

Contrary to received wisdom, the rate of change is not increasing in business and society as quickly as people think.

It is true that from time to time change will occur at a higher pace. But it’s simply not true to say, as Canadian prime minister Justin Trudeau claimed earlier this year, that “the pace of change has never been this fast, yet it will never be this slow again”.

That’s good news, because it means we can take a much more constructive approach to the many challenges facing our societies and our planet. And it also means we can learn from the past – and rest assured, those lessons will remain valid and useful in the future.

Learning from history

The same goes for the business world. As Nitin Nohria, the Dean at Harvard Business School, told me in a recent interview, a sense of business history is important for business leaders to develop a contextual intelligence; that is, a strong sense of the business environment they are navigating.

For that reason, I have compiled a list of key lessons from business history that will still be relevant in the future. But rather than base these on my own inferior knowledge, I chose to reach out to three top business historians: Chris McKenna of Oxford University’s Saïd Business School, the above-mentioned Nitin Nohria and Geoffrey G. Jones, both from Harvard Business School.

The lessons below are based on their input, which is informed by their long careers spent studying this subject – and the lessons are stripped of all the business lingo and false assumptions that tend to dominate the management theory field.

1. Same as it ever was

Everything changes, that’s for sure. But business will always be driven by people, and people haven’t changed much at all. On the most fundamental level, people are driven by emotions. Sadly, the strongest emotions in a business context are greed and fear – which is why we will continue to experience asset bubbles that will burst. There will be frauds and swindlers, like Charles Ponzi and Bernie Madoff. And so on.

2. Mind the pause

People and businesses have a tendency to get wound up and start hyperventilating around the idea of rapid change. It has to do with risk and opportunity, fear and greed. But even when a major technological leap is made, what comes after – the ‘pause’ if you will – is what matters most. For example, you might have a rapid evolution of robotic technology, but what matters most is its application over the next 30 years or so. The leap is just a starting point; we must mind the pause.

3. When the price goes down

If we are to look for moments of real change, we need to look not for the birth of an idea or a specific technology. Instead, we need to look at development in price. When the price goes down on a product or a raw material, that’s when things are likely to have a major impact. And when production volume goes up, that’s when we know it is in fact happening. The story of aluminium is a good example.

4. Be a system builder

If you want to win the market and have a lasting positive impact, you need to build a system. History has shown us that systems matter because systems produce outcomes at a level that transcends the system builder himself. Henry Ford with his assembly line and integrated supply chain is the most famous example of a system builder. Today, an example of a system builder would be Jeff Bezos.

5. Build to local needs

Deciding to build a system is one thing; how you build it is quite another. There is no one-size-fits-all recipe for doing this. Instead, the best you can do is to build to your local market and its needs – and cross your fingers that it will scale.

In Sweden, for example, a very specific sociological situation took form after World War II: young people started moving in together before marriage. These young couples needed temporary, cheap furniture. Who came to the rescue? A company named IKEA. As it turns out, what was initially a local need soon became a global need, and the rest is history.

6. Horizontal first, vertical second

We tend to think that when you’re Coca-Cola, you’re competing with Pepsi. But actually, when you’re Coca-Cola, you’re competing with the likes of the bottlers and the sugar producers, because those are your costs. Once you’ve reached a certain market share through organic growth, mergers and acquisitions, it’s all about vertical integration. In other words: The real story of competition is the story of horizontal integration first, vertical integration second. Always in that order.

7. Focus on the long term

Over the past 50 years, we’ve seen the rise of the capital markets and their quarterly earnings reports. Capital markets have fuelled short-termism, and the internet has only made us even more short-sighted. But if we look at who has won the internet, then the irony is clear. I think most people will agree that Amazon has won the internet – and Amazon is certainly a long player. Also, there’s simply good evidence that long-term companies outperform short-term companies.

8. Balancing leadership and management

Throughout history there are numerous examples of companies who have faltered because they’ve either been overled and undermanaged, or overmanaged and underled. The lesson is that it’s a balancing act: In order to thrive as a business, you need to be able to balance leadership and management.

Today, we’re arguably in a time where people favour leadership over management, maybe because most companies are still overmanaged. That’s a dangerous route to take because many companies still struggle to get even basic management practices right. And be in no doubt – these basic management practices have a very big impact on performance.

9. Three kinds of leaders

Historically, business leaders tend to fall into one of three categories: The entrepreneurs, the managers and the leaders.

Whereas the entrepreneurs are people who create new things, the managers are the people who add structure to those ideas and allow the ideas to develop to their full potential. Finally, we have the leaders. A leader in this context is someone who comes in to transform a company that is losing its energy and needs to change.

Only very rarely can a business leader be all three things at once. The key is to know at which stage of a company’s life you need what kind of leader.

10. Win-win is an illusion

A classic ‘win-win’ is when something benefits both the company and the environment. For example, when an unused hotel towel is not picked up for laundry. However, at a larger scale the concept of win-win is an illusion. In the vast majority of cases, it will cost a business extra to care for the environment, and – sadly – conventional businesses still have little regard for the environment.

In other words: There is always a cost. If you think it’s a win-win it’s because you haven’t figured out who’s paying the price.

11. Business isn’t everything

A common belief is that businesses are driving economic progress and innovation in our societies. It’s an assumption that needs to be challenged. For example, the jury is still out on whether the private sector is more innovative than the public sector – and today, much of the growth in people is happening in the nonprofit sector.

Also, it has always been the case that the vast pools of money created around large corporations will sooner or later be given over to nonprofits. And there, in general, things that are much more groundbreaking, innovative and important are taking place.

You can even make the argument that most businesses would benefit from leaving their for-profit business models (and the stock market) behind to become nonprofits.

At a moment in time where companies are already obsessing about their “purpose” and thus parroting nonprofits, it would in fact be a logical – and incredibly smart – next move.