What organisations have in common – Escondido Framework

Lessons from a hospital turnaround chief executive

Queen's Medical Centre, Nottingham University Hospital — Queen’s Medical Centre, Nottingham University Hospital

I read an inspiring interview in Health Service Journal last week with the fairly recently appointed chief executive of a large NHS Trust facing a massive turnaround challenge. Anthony May, recruited last year to Nottingham University Hospital following many years as a successful chief executive of a large local authority spoke of the importance of providing the organisation with “hope” and of his visibility throughout the Trust. He also commented that the problems faced by the organisation had resulted in it spending too much time looking inwards and that it now had to rebuild relationships with its stakeholders. This resonated with my experience chairing to two NHS organisations through turnaround where I worked in support of two outstanding chief executives. A sense of hope and what I recall describing to colleagues as “something to believe in” is part of the “Dark Matter” that makes organisations more than the sum of their parts. And these are things that can only be created and communicated by a leadership team who are highly visible.

It has taken a few days for me to find time to blog about the interview. Returning to the on-line interview, I discover that it is now accompanied by a dozen or so comments from May’s colleagues. They are all anonymous (which enhances rather than diminishes their credibility) and all clearly come from within NUH. Some are very supportive. All confirm the scale of the task confronting May and the Trust. Some more sceptical, although they suggest an impatience in the delivery of the turnaround – but, as another comment points out, given the toxicity of the culture that May has come into it seems unreasonable to expect a turnaround to be completed overnight. Other comments have descended into a mudslinging between front-line and support services staff, only confirming the cultural challenge. Others display a degree of cynicism: one expresses this in a constructive tone, remarking “Always conscious a few quotes could be taken out of context but CEO needs to be careful here he doesn’t look to subscribe to the ‘great man/heroic leader’ school of management. Always implodes in due course.”

The commentators also remark on the intrinsic challenges that NUH faces because of its size, its spread across multiple sites, and its complexity. They also comment on the distraction provided by past M&A activity, regrettably something that has been, and continues to be in fashion in the NHS (many years ago I undertook an analysis that suggested an inverse correlation between NHS trust size and both financial performance and quality of care), and is consistent with most of the work undertaken in the private sector suggesting value destruction from M&A).

The delay in writing this blog piece is fortuitous. My enthusiasm for Anthony May’s comments is undiminished, but the comments highlight the challenge he faces and the need for him to sustain his effort and commitment as he has a long, hard road ahead. I wish him well.

“If you read only one business book this year, read this”

Patrick Nash, author of Creating Social Enterprise[1]

I knew very little about Patrick Nash when he joined me in 2019 as an angel investor and advisor at Tranquiliti, a start-up providing an innovative mobile phone app mental wellbeing tool for school students and their teachers. I didn’t know much more when we were bought out in August last year by Tes Investments[2], other than what I gleaned from our monthly video call with George and Aaron, Tranquiliti’s founders, which was essentially that Patrick knows a thing or two about social enterprises. He proved a source of sound advice to them and had a similar appetite for risk and the level of investment as me.

A couple of weeks ago, he invited me to a book launch in November. I explained that I would be travelling to New York but promised to buy the book and read it on the plane. Amazon already had “Creating Social Enterprise” in stock and a train journey created the opportunity to get stuck into it right away. It proved hard to put down and I quickly concluded that it deserves the “If you read only one business book this year, read this” accolade. Scrutiny of the spine shows the publisher to be Patrick’s own company[3], so I doubt whether it will get the push (although it would from any self-respecting business book publisher) in the direction of the shortlisting for FT Book of the Year 2024 that it deserves .

While I was studying for an MBA at the Stanford University Graduate School of Business and serving my apprenticeship at McKinsey, Patrick was doing alternative stuff and getting his first taste of commercial life at Nova[4], a whole food co-operative in Bristol. He drove the company van, turned the handle on the trail-mix mixer, learnt a range of valuable lessons about people, customers, marketing, margin management, cash-flow, risk, systems implementation – loads that you have still to learn when you graduate from Harvard, Wharton or LBS – and, importantly for his own development, undertook a crash course in double entry book-keeping (something I did learn in the first term at the GSB) from his father when the founder’s ill-health meant he had to step back from the business at short notice.

Scarred by the experience of putting Nova’s stock system onto computer (Patrick’s Learning#8 in the book is “Never Trust ‘should’” as in “This should work” or “It should be ready by then”) and burnt out by three years without a holiday, he took a spell away from work. A few months later, he discovered the Findhorn Community. Most people are drawn to Findhorn in the search for a more spiritual focus to their lives but Patrick was sufficiently intrigued by a conversation with its finance director that he joined it to work in its accounting and finance department. Rather than finding himself spiritually, he stayed on to lead the project to develop its Ecovillage (the first homes were built from giant whisky barrels), where he “learned much of the complexity of running organisations, raising funds, creating multiple corporate structures and leading teams”. During his ten years with Findhorn, Patrick learned a lot more about running a successful business, not least about managing external and internal stakeholders. He describes this time as a “significant phase in my social enterprise journey. Many of the skills I have deployed as a social entrepreneur were developed there”. But lessons and consequent skills are not just for the social entrepreneur, most of them translate into any enterprise, public or private, large or small, and independent of industrial sector.

Although Patrick has established twelve social enterprises, charities and values-driven businesses in all, his greatest achievement was establishing Connect Assist, a specialised 24/7, outsourced call centre supporting multiple clients from the public, private and third sectors (including Versus Arthritis where I spent 8 years as a trustee), employing over 450 people in a part of south Wales where employment has still not recovered from the demise of coal mining. The third part of Creating Social Enterprise tells how Patrick developed a string of businesses that evolved into Connect Assist after first joining the Teachers’ Benevolent Fund, a charity operated for the teaching unions. In this role he took the lead in some tough decisions, including closing TBF’s legacy residential homes for retired teachers (he is the first to call out the case for closing businesses that are loss making and no longer fulfil their purpose) and pivoting the organisation to become a telephone counselling service, setting him on the path towards establishing Connect Assist.

Patrick has great stories to tell, including how, along the way, he had the Dalai Llama as his boss when, for a few years in between the big projects that are the meat of Creating Social Enterprise, he was CEO of the Tibetan Relief Fund. He tells tales of scrapes with the law as a twenty-something driving a whole-foods van around the country, when the grass roof of a house in the Ecovillage bursting into flames, and the thrill and relief at securing financing for assorted projects at the eleventh hour. These come across with a freshness as though they only happened yesterday rather than ten, twenty, thirty or even forty years ago.

He has built the account of his career around no fewer than 44 learnings, drawn out at the end of each chapter and recapped at the end of each of the three major sections of Creating Social Enterprise. Most, if not all, are relevant to anyone who picks up the book. As someone who preaches the importance of purpose and values to a business (as part of the Dark Matter that makes organisations more than the sum of their parts) I turned the page corner down at Learning#3: Align values and commercial interests. I did the same at Learning#38: Empathy is the new superpower, as I have no doubt that being able “to understand another person’s thoughts and feeling is a situation from their point of view, rather than your own” is essential to effective leadership based on trust. And his observance of the final sign-off learning, Learning#44: Moving on when it’s time to leave was the one that positioned Patrick for life after Connect Assist where, from the comfort of home on the Pembrokeshire coast, he could join me in our support to the young founders of Tranquiliti and find time to write Creating Social Enterprise.

[1] ISBN 978-1-3999-47-6 www.creatingsocialenterprise.o.uk

[2] Tes invests in fast-growing tech to transform pupil wellbeing | Tes

[3] Enterprise Values – Enterprise Values

[4] Still thriving: see Essential Trading Co-operative Ltd | Welcome (essential-trading.coop)

Governance failure at Countess of Chester Hospital and the British Museum

British Museum - stolen antiquities — British Museum – stolen antiquities

Countess of Chester - baby deaths — Countess of Chester – baby deaths

On 16^th August, the British Museum issued a statement that it had identified that “items from the collection were found to be missing” (subsequently disclosed to be more than 2,000). A member of staff (although apparently not the thief) had been dismissed and a criminal investigation was underway.

The director of the museum, Hartwig Fischer, said “This is a highly unusual incident. I know I speak for all colleagues when I say that we take the safeguarding of all the items in our care extremely seriously. The Museum apologises for what has happened, but we have now brought an end to this – and we are determined to put things right. We have already tightened our security arrangements and we are working alongside outside experts to complete a definitive account of what is missing, damaged and stolen. This will allow us to throw our efforts into the recovery of objects.” Fischer resigned on 25^th August after it emerged that the museum had first been alerted to the theft in 2021 by a dealer in antiquities who had come across some of the items for sale online, but that Fischer claimed that all the items had been accounted for. The impression has emerged of an organisation with shortcomings in governance and lacking assurance about the security of the processes for protecting its collections and a degree of denial at multiple levels – but spectacularly among top executives – about the possibility that anything might be wrong.

On 18^th August, the verdict was handed down in the case of Lucy Letby, a neonatal paediatric nurse working at Countess of Chester Hospital, found guilty of the murder of seven babies and the attempted murder of six others, in addition to which the jury were unable to reach a verdict on a six further attempted murder charges. The incidents took place between June 2015 and July 2016 and the failure of the executive team to respond appropriately at this time has been greeted with justifiable outrage. In particular, the paediatricians who first raised concerns about the pattern of baby deaths were first asked to apologise to Lucy Letby for bringing allegations against her, and it was only in July 2016 that she was removed from clinical duties. On 3^rd July 2018, Letby was arrested on suspicion of eight counts of murder and six of attempted murder after a twelve month police investigation.

The history of the case has raised major questions about the failure of the Countess of Chester Hospital, its management, and its board to scrutinising spikes in mortality in the neonatal unit, pay attention to concerns raised by clinicians, and take appropriate action. Given the attention that I recall being given to mortality trends in NHS Trusts[1] at the time of the incidents, I find it remarkable that the board appeared to pay so little attention to the data. Much has been made of the failure of the board to respond to the concerns raised by the paediatric consultants. The inquiry due to be commissioned may shed light on this, but I suspect that interprofessional cultural issues may have contributed: between the doctors flagging concerns and executive directors with a nursing background (chief executive, director of nursing and, I understand but can’t confirm, director of operations); or even between the medical director, who I understand to have been a surgeon, and the paediatricians. If so, where was the chairman and where were the non-executives? Not only does it appear with hindsight that they displayed insufficient curiosity to what was going on, but they should have been calling out interprofessional cultural issues if there were any, and assisting in their resolution. Given that the chair of Countess of Chester was a former chief executive of the NHS Management Executive, lack of experience can’t be the explanation.

I became aware of the case at some point in 2019. I believe I saw papers relating to Letby’s referral to the Nursing and Midwifery Council (where I chaired Fitness to Practise interim order hearings) and recall saying to a colleague on the panel that her case had similarities with that of Beverley Allitt[2] . I don’t think that the case was heard by my panel , rather that we were asked to consider it when another panel was struggling to complete its agenda. Hovever, it turned out that we did not hear it, either because we had insufficient time ourselves or that original panel was able to conisder the case after all. Given that Letby did not receive an interim suspension order from the NMC until March 2020 when she charged with the murders, I assume that the papers I saw related to a review of an existing conditions of practice order. This probably restricted her to working only at Countess of Chester Hospital, who should have been fully sighted on the concerns at the time and able to take actions to protect patients while the case was being investigated. This was our normal approach to an interim order when a nurse remained in employment but their case was still under investigation and charges had not yet be brought by the Crown Prosecution Service. Given the shortcomings in the management of this case by Countess of Chester Hospital, I am not sure that this was necessarily the right approach by panels such as mine. But I always took the view, as a serving Trust chair myself, that I and my board would have been adequately sighted and my professional reputation was at stake if I was not assured that my executive colleagues were not managing such a case safely, and consequently the Trust employing a nurse was better placed than the Nursing and Midwifery Council to manage a case safely and proportionately.

Both the British Museum and the Countess of Chester cases raise major concerns about the possibility that senior executives and boards adopt a culture of complacency and denial, that board members lack cultural sensitivity and fail to triangulate what they are told and read in their papers with sufficeint engagement with the front line (which I have described as “kicking the tyres”), and, above all, fail to employ enough curiosity in relation to both data and to “soft intelligence”.

I am grateful to Elizabeth Rantzen, my former deputy and then successor as Chair of West London NHS Trust for her insight into the juxtaposition of these incidents coming to light in the same week.

[1] I was chair at West Middlesex University Hospital 2010 – 2015, and West London NHS trust 2015 – 2023

[2] a nurse convicted of the murder of four infants, attempted murder of three, and gross bodily harm to another six in 1991

Lessons for leaders from a front-line healthcare team

I couldn’t fail to be impressed by a slide in a recent presentation by the community health director at the NHS Trust that I have chaired for the past eight years. It described the Team Charter developed in a programme of mutually agreed behaviour workshops in the Hammersmith & Fulham Community Independence Service in which community nurses, occupational therapists, physiotherapists, and care workers support patients to keep them out of hospital. They are a high performing team delivering a great service, facing challenging demands, working with constrained resources, juggling priorities, and taking difficult decisions. The Team Charter illustrated above speaks for itself. It may look like a “motherhood and apple pie” recipe, but it is no worse for that. And, what’s more, it provides a lesson for teams and their leaders everywhere.

A “Big Read” feature in the Financial Times recently (23^rd February 2023) described how the isolation of Vladimir Putin within the Kremlin and narrowness of the circle he consults contributed to his disastrous decision to invade Ukraine and subsequent conduct of the “special military operation”. Pictures can paint many thousands of words, but if there was anything to illustrate the need for the Kremlin to take a lesson from the healthcare workers of Hammersmith & Fulham, the photograph below, used by the FT to accompany its article, does the job.

Putin with foreign minister Sergei Lavrov - a clue to why we're in the mess we're in? — Putin with foreign minister Sergei Lavrov – would they benefit from a team charter?

Applying the Escdondido Framework to Dark Ages Britain

I often wonder about the applicability of the Escondido Framework model of the firm to organisations in other cultures and at other times to the developed world in the 21^st century . One of the claims of the Escondido Framework is the degree to which it can be applied universally. Certainly, the model can be applied to public sector and third sector organisations, and can be applied wherever there is some sort of corporate collective structure that can be shown to create value that is greater than the sum of the efforts of the people who are working together within the structure if they were together in a set of discrete collaborations brought about by a set of separate agreements (whether explicit or implicit).

I have just completed reading Max Adams’ account of Britain in the 5^th to 7^th centuries, The First Kingdom[1]. This covers the period often known as the Dark Ages, following the departure of the Roman Empire and before settled control of England by Anglo-Saxon rulers in the Heptarchy. He pieces together the considerable research undertaken in recent years to describe a fragmentation of society, depopulation of most cities and towns and replacement by what may in many respects to a pre-Roman pattern of village economies and local tribal leadership, subject to incursions by Viking and north German raiding parties, but still with some loose links to continental Europe, with the Christianity that had arrived in the Roman period hanging on in places prior to reintroduction both from Ireland with Colme Cille (St Columba) and with St Augustine from Rome, and with continuing trade.

One of the key themes of the Escondido Framework is the identity of the corporation independent of stakeholders, the “societé anonyme” whose ultimate purpose is to survive, and which outlives its “controlling mind”. Adams marks the end of the period that he is describing by an important transition, from one in which the individual “kingdoms” were pretty fluid, some very small and sitting within and subject to other kingdoms (in a system described as Tribal Hidage), and most regimes pretty ephemeral.

“Victory on the battlefield and political success measured in tribute and booty secured the loyalty of secular élites for their king and his eligible successors; but for a life interest only. Defeat, if not fatal, weakened a king and exposed him to internal coup of external domination…..The luck of the tribe was invested so heavily in the person of its kings that when they died any imperium that they may have exercised over rival kings was void.

“As Bede so vividly described it, the pagan supernatural experience was in some sense like the passing of a sparrow into and out of a hall whose warmth and fellowship matched their brief period of Earth while all before and after was cold darkness unknown…..

“Pagan kingship was not stupidly irrational. Rulers were bound by conventions of honour, reciprocity and political pragmatism. They calculated odds as coolly – and with about as much reliance on superstition – as any politician or football coach whose tenure might be equally precarious.”[2]

But this changes with a new social contract, between church and king, that reflects the new world being constructed with the arrival of Christianity and the conversion of the rulers, whose souls continue after death. Adams cites a law of Wihtred, king of Kent 690 -725: “The Church shall enjoy immunity from taxation; and the king shall be prayed for” before noting:

“The rapid seventh-century establishment of monastic communities across the Insular kingdoms, supported by extensive, formerly royal estates and nurture by their relations with kings, parallels the history of secular territorial lordship founder on the right to exact and collect renders from lands and communities, but with a a critical difference. The unique brilliance of this new social contract was to convert landed assets otherwise held for a mere life interest – the so-called folcland held by the thegns and gesiths form the king, which returned to the royal portfolio on their death – into a freehold bocland of abbots and abbesses. Bocland or bookland – what we would call freehold – was fundamental to a relationship meant to last for eternity on Earth and in heaven. It allowed the church to invest in physical labour and material wealth in permanent settlements free from the obligation of military service and taxation; to capitalize agriculture an technology. It laid the foundations for a literate, institutional clerical caste and formation concepts of obligations owed by kings to their people.”

Permanence is the key word – even if in due course the success of the monastic corporations became the seed of their undoing at the Reformation. The monastery or convent was greater than the abbot or abbess. The kingdom also secured more permanence, even if an institutional fluidity remained until the major kingdoms of the Heptarchy progressively consolidate and became on under Athelstan in the 10^th century.

[1] Adams, Max (2021). The First Kingdom: Britain in the Age of Arthur. ISBN-13 : 978-1788543477

[2] Ibid. pp 398 -399.

Advice from someone with “the heart of a luvvie and the mind of a suit”

John Tusa is an eminent former broadcaster, managing director of the BBC World Service, and managing director of the Barbican Centre. He is a veteran of a variety of boards of cultural organisations and proud of being described as possessing “the heart of a luvvie and the mind of a suit”. He has written an account of his experience of governance that should be on the reading list of everyone either occupying or contemplating appointment to a board. His experience may be drawn from not-for-profit organisations in arts, broadcasting and education, but it is as applicable to boards in the private and public sectors as it is to the third sector. As he remarks in the introduction to “On Board”[1]:

“It is sometimes assumed that boards in the business world are totally different from those in the not-for-profit sector. This is far less true than might first appear. Both kinds of board choose their chair and chief executive, both decide how they appoint colleagues, how they sell to or serve their public, their customers or their audiences; both are responsible for brand, communication and reputation; both supervise the internal health of the organization. Of course, one deals with profit, the other does not. But while ‘not for profits’ are not businesses, they must be ‘business-like in the way s they manage their resources.”

While Tusa does not have direct experience of private sector boards himself, he has sat on boards with plenty of people with this experience, notably Kenneth Dayton, founder of the Target retail chain in the US and Tusa’s chair at American Public Radio, who pointed out to him that “governance in the not-for-profit sector is absolutely identical to governance in the for-profit sector”, besides which that it can also be a lot more complex.

Tusa builds his account of governance around his experience on the boards of the National Portrait Gallery[2], American Public Radio, English National Opera[3], the British Musuem, English National Opera, Wigmore Hall, the University of the Arts London and the Clore Leadership Programme, each of which merit a chapter reflecting interviews with fellow board members, executives and other stakeholders. Tantalisingly, he also alludes to other experiences, such as his time as President of Wolfson College, Cambridge, but without the same detail. Most of these organisations faced major challenges during his time with them, some potentially threatening to their existence. His accounts of how the boards weathered their storms and his candour about the mistakes made along the way are pulled together with a short section ending each chapter drawing out his reflections on what he learned from each experience and provide a rich seam of learning not only for people joining boards for the first time but also for those with many board appointments already on the CV.

This book should be read for the lessons Tusa draws out at the end of each chapter. Board members would do well to reflect on each, and whether they are applicable to their organisations. But “On Board” can also be read for more: it provides anyone who has observed the ups and downs of some of Britain’s leading cultural institutions of what went on around the board room table. As someone with strong ties to the Isle of Portland, I was suitably scandalised by the failure twenty years ago to use Portland Stone for the Great Court development at the British Museum. Tusa’s first career was as journalist and tells a good story, about this debacle and much more besides, as well providing a required text for chairs, directors and trustees.

[1] John Tusa, On Board (London: Bloomsbury 2020)

[2] His chair at NPG was Owen Chadwick, from whom I took my first lessons in chairing. Chadwick was Regius Professor of History at Cambridge University and a masterful chair of the faculty Joint Academic Committee, on which I sat as first year undergraduate (along with Diane Abbott, whose approach to faculty politics was considerably more radical than than the one she adopted later in her career as a leading member of the Labour Party in the House of Commons).

[3] I have a small gripe. John Tusa, having studied history at Cambridge, should know better than to suggest (in the context of ENO which, despite a catalogue of errors made by the board in the 1990s, managed to survive, an achievement that he observes “should not be underestimated”) that it was the French politician Talleyrand who said of his part in the French Revolution “I survived”. Far from just surviving, Talleyrand’s extraordinary achievement was to serve just about every government in France between 1780 and 1834, from the Ancien Regime, through every stage of the Revolution, the Napoleonic Empire, the Bourbon Restoration and the Orleanist “July Monarchy”. It was not Talleyrand, but Emmanuel-Joseph Sieyès, usually known as the abbé Sieyès, a chief political theorist of the French Revolution, who is reputed to have said in answer to a question about what he did during The Terror of 1793-94: “J’ai vécu”

“A slow dawning that most companies are run pretty badly”

Sarah Gordon has written a memorable reflection today on her 20 years writing for the FT.

She reflects on a career with the paper that started with writing about what were in the early years of the millennium breaking technologies but which have been mainstream for so long that we can’t imagine life before them, which continued through the years of the Financial Crash and the great depression and bull run that has followed. She writes about the routine reports of company news stories and mind-numbing performance data, and the occasional more gossipy pieces that appear to have been what the readers found more engaging than the hard news.

She found clearing her desk brought back memories of the events and personalities that have filled the business and company pages of the paper of the past two decades, and anyone reading the article be a share in the trip down memory lane.

Reflecting on these years, she reaches very strong conclusions about shortcomings in governance in response to the accretion of overweening power at the heart of companies. She cites Dick Fudd at Lehman Brothers. He is an easy target, but her description of what went wrong is compelling: “board members neither delved deeply enough into the real activities of the bank, nor did they challenge the person running it sufficiently. Being on the Lehman board, it seemed, was a social honour rather than a fiduciary responsibility.” Writing of people like Martin Sorrell, who spent 33 years at the top of WPP, she observes: “Business bosses who enjoy too long a tenure lose self-awareness. They become reluctant to promote people around them who will challenge their point of view. Meanwhile, questioning a boss who enjoys such stature becomes all but impossible, encouraging hubris, and leading to bad business decisions.”

Gordon reflects that such problems, with accompanying shortcomings in governance, are not restricted to the private sector. She cites the example of Camila Batmanghelidjh and the failure of Kids Company in 2015. I reflect also on the ignominious departure of Sir Leonard Fenwick would was finally dismissed for Gross Misconduct by the board of Newcastle upon Tyne Hospitals NHS Foundation Trust, where he had been chief executive since 1998 having previously led one of its predecessor organisations since 1992.

She also reflects on the poisonous value destruction in so many big corporate deals, which appear to be motivated by executive greed and supported by a flawed network of advisory institutions corrupted by perverse incentives.

Her time at the FT was a journey of personal discovery and growing disillusion (albeit one shared by most of in parallel in other parts of our lives) : “As a child, lucky enough to grow up in comfortable circumstances in London, I simply assumed that the world was run efficiently by the grown-ups. It has been a slow — and sometimes painful — dawning that in fact most companies are run pretty badly.”

Gordon is hardly less critical of other institutions, regulators and politicians. She also appears to despair that the wider lack of economic and financial literacy, and the gullibility of much of the general public. She suggests that a public that feels exploited and even robbed by corporate excesses does, in some part, have itself to blame.

But she stresses that it is not business itself, as opposed to individual businesses, to blame, but it is within the power of business to improve popular understanding and dispel the blame:

“Many businesses are badly run, but business is not bad. Most people running companies whom I have met over the past 18 years care about the people they employ. Most entrepreneurs believe that there is a purpose to running their company which is greater than just making money.

“The voices of big business, and the big business baddies, too often drown out the stories from the millions of small companies that make up the bulk of employers in the UK and across the globe. I’ve interviewed many of them in the past few years, in Scotland, outside Cambridge, in Bilbao and Munich. Many are family-run, on the second or third generation, focused on building sustainable businesses. Unlike the UK’s big supermarkets, gouging dairy farmers with ever lower milk prices, they have long and mutually dependent relationships with their suppliers. They look after their staff, turning apprentices into engineers and keeping people on their books during extended periods of illness.

“The popular caricature of business, filled with profiteering bankers and gig economy exploiters, simply does not reflect the reality. But it is up to business to dispel it.

“…… business needs to do more than change its culture. It must challenge itself on what its purpose really is, not just what its investors want. It must be prepared to tackle the great ills of our time, such as climate change or modern slavery. And it must be louder in explaining why it matters.”

How to build a business that last 100 years?

The Boston Consulting Group’s latest BCG Perspectives brings a TED talk from one of its partners, Martin Reeves, titled “How to build a business that last 100 years”. His thesis is that we should look to lessons from biology to create lasting businesses. He links the failure of businesses to survive – pointing out that the average US public company has a life of only thirty years and probability that any public US company will still be around in five years’ time is only 32% – to a “collapse of the corporate immune system”.

He explains that human immune system, and indeed all successful biological systems from forests to fisheries, and indeed such long lasting social systems as the Roman Empire and the Catholic Church, display six characteristics:

redundancy (“millions of copies of each component — leukocytes, white blood cells – a massive buffer against the unexpected”),
diversity (“not just leukocytes but B cells, T cells, natural killer cells, antibodies”),
modularity (“the surface barrier of the human skin….the very rapidly reacting innate immune system…..the highly targeted adaptive immune system……if one system fails, another can take over”),
adaptivity (“able to actually develop targeted antibodies to threats that it’s never even met before”),
prudence (“detecting and reacting to every tiny threat, and furthermore, remembering every previous threat, in case they are ever encountered again”),
embeddedness (“in the larger system of the human body, and it works in complete harmony with that system, to create this unprecedented level of biological protection…… if one system fails, another can take over, creating a virtually foolproof system”).

He explains that along with and as a consequence of these characteristics, biological systems are complex and can seem inefficient, in contrast to the instincts of most managers and what is taught in business schools and preached by consultants.

Reeves continues by applying these lessons to examples of corporate failure. His first is the tragic loss of independence of Kongō Gumi, builder of Japanese temples for 1,428 years and managed by members of a single family until it forgot the principle of prudence, borrowed heavily to finance real estate purchases in the 1980s and was finally liquidated in 2006 and its assets sold to a large construction company.

Shitennoji Temple, built by Kongō Gumi (578-2006)

He then contrasts the collapse of Kodak with the successful adaptation of Fujifilm, which used its capabilities in chemistry, material science and optics to allow it to diversify into sectors outside photographic film, surviving “because it applied the principles of prudence, diversity and adaptation”. He also cites the success of Toyota in surviving a devastating fire in the only plant which supplied it with valves for car-braking systems. He describes Toyota’s ability to work collaboratively with its suppliers to repurpose production as an application of “the principles of modularity of its supply network, embeddedness in an integrated system and the functional redundancy”.

I am sure that there is something in Reeves’ argument, but some of it is contrived and overall it would be more compelling if some of the example illustrated his six principles more comprehensively, rather than only illustrating one or two.

Certainly Kongō Gumi’s demise reflects a lack of prudence – but the most extraordinary aspect of the story is that it had survived for as long it did, which may reflect the lack of underlying change in the Japanese temple market over almost a millennium and a half. To quote Business Week’s report on its demise:

“To sum up the lessons of Kongo Gumi’s long tenure and ultimate failure: Pick a stable industry and create flexible succession policies. To avoid a similar demise, evolve as business conditions require, but don’t get carried away with temporary enthusiasms and sacrifice financial stability for what looks like an opportunity. These lessons are somewhat contradictory and paradoxical, to be sure. But if sustained success came easy, then all family businesses would have a 1,428-year run.”

The Fujifilm example illustrates the benefit of diversity in a portfolio, but says nothing about the photographic film enterprise itself. Fujifilm’s survival represents the success of a corporate parent in managing a portfolio (ie the business of managing businesses), protecting the interests of a top management group, but says nothing about the business unit that brought together employees who worked in factories producing film, the customers that constituted the channel to the camera owner, or its suppliers. Essentially, as technology moved on, the “virtual space” between the various market interfaces disappeared and nothing that could be done to protect this enterprise. Its corporate shareholder – the Fujifilm group company – had elected to redeploy the cash flow into other businesses because the ultimate shareholders were either not in a position to, or chose not to, intervene.

Toyota is celebrated for how it manages itself supply chain and the nature of these relationships, but the fact of its ability to bring brake valve production on-line quickly illustrates only three, and possibly only two (given that it explicitly did not have redundancy in its supply chain given that it maintained a single source for these components), of Reeves’ biological system characteristics.

Considering Reeves’ argument and his examples and relating them to the Escondido Framework model of the firm, I certainly concur with three of his principles: adaptivity, prudence and embeddedness. I get redundancy, although not quite as he defines it, but at least that bit of spare capacity, underused resource, or financial headroom. But the need for and appropriateness of modularity and diversity must depend on the circumstances, and sometimes are in conflict.

Strategy: a dialogue between desire and possibility

When someone as eminent as military historian Sir Michael Howard reviews a new book by a young former soldier by describing it as “a work of such importance that it should be compulsory reading at every level in the military” and (recognising himself that he is “really go[ing] overboard” ) that the book “deserves to be seen as a coda to Clausewitz’s On War” you know that you have to read it and that your expectations have been set very high.

Emile Simpson’s War from the Ground Up: 21st Century Combat as Politics deserves a much wider audience than just the military. It sparks ideas about analogies in other parts of life; the experience of a young officer in Helmand Province has meaning elsewhere.

One of his most powerful ideas is the recognition that we need to understand how our actions will be interpreted, and when then they can be interpreted in multiple ways they risk becoming ineffective:

To use an analogy, the market is an interpretive structure whose function is to impose a specific type of meaning, a price, on a product. When the market cannot allocate a price (which is one of its basic functions), its mechanism breaks down and it loses utility. This happened in the financial crisis of 2008, when many derivatives were so complex that the market could not price them. The market seized up its basic mechanism stopped working. When an action in war can be interpreted in a multitude of different ways depending on the prejudice of the audience, it is very hard to make armed force have political utility in a Clausewitsian conception of war: for a military outcome to set conditions for a political solution it needs to be recognised as such. (p.74)

But his comments on strategy are more powerful still:

Essentially strategy is the dialectical relationship, or the dialogue, between desire and possibility. At the core of strategy is inevitably the problem of whether desire or possibility comes first. Does one start with the abstract idea of what is desired, or should one commence by consideration of what is realistically possible? This is a chicken and egg situation.

The two should ideally be in perpetual dialogue, not just before but also during a conflict. Desire must be grounded in possibility; possibility clearly requires an idea in the first place which informs any analysis of possibility…..

Understood as dialogue between desire and possibility, strategy is as much the process that handles this dialogue as the output of the dialogue itself. (p.116)