Intrategy and business survival

Are we ready for the next crisis?

Pablo Cardona
Ma. Nuria Chinchilla

Long-lived companies give top priority to the development of their people. These companies form genuinely multifunctional, multicultural learning communities that facilitate the diffusion of new ideas throughout the organization

A few months ago, the Harvard Business Review published an article by Arie de Geus on "long-lived companies" ("The Living Company")(1). For more than a century, these companies have managed to surmount all manner of economic, social and political crises. However, most companies disappear or are taken over in less than 50 years. What makes the long-lived companies more resistant to adversity and more able to adapt to changes in their environment? This study shows that these companies' strength and agility are based on a combination of values, styles and policies that favor mutual trust and commitment to the company.

This year, Fortune has once again published the 100 best companies to work for in the United States(2). These companies have been chosen because they generate in their people the commitment and trust that an organization needs to last. Do European companies have the qualities demanded of a long-lived company? How can these qualities be encouraged? At a time when our companies are on stronger financial feet and the future seems to be promising, perhaps the time has come to review the basic factors for their long-term survival. These factors require periodic review, particularly after periods of greater turmoil. The analysis of these basic aspects is what we call intrategy in this article. Times of economic prosperity are very propitious for reviewing companies' intrategy and preparing to face the next downturn, which will inevitably come sooner or later.


LONG-LIVED COMPANIES

Arie de Geus has worked in Shell, a long-lived company, for 38 years and has studied another 27 companies that were created more than a century ago, including DuPont, Kodak, Mitsui and Siemens. His study shows that these companies, although completely different as regards products and markets, share certain features in common. Thus, long-lived companies give top priority to the development of their people. These companies form genuinely multifunctional, multicultural learning communities that facilitate the diffusion of new ideas throughout the organization. They also implement recruitment, career development and dismissal procedures that have been specifically designed to create shared values and promote commitment to the company and personal responsibility.

Long-lived companies form a stable community based on mutual trust; they are "high-trust organizations" to use a recently coined term(3). The members of these companies are not mere resources to obtain a financial profit but citizens of a society to which they are committed and for which they feel responsible. This feeling of responsibility and commitment is what leads to what Charles Handy calls a "citizen contract"(4). In this article, we will define a company's degree of unity as its employees' degree of mutual trust and commitment to that company. The one factor that all long-lived companies share is their high degree of unity.


STRATEGY AND INTRATEGY

More and more companies are realizing that they must not only look at the profit generated by their operations but also at the degree of organizational unity developed through their decisions. The companies included in the Fortune list stand out for their high degree of unity. The top ten include companies such as Microsoft, Merck and Hewlett-Packard. Will these be the future long-lived companies? Not necessarily: they also need a suitable strategy to continue generating the resources they need at any given time. However, all other things being equal, these companies will always be better candidates for long-term survival than other companies with a lower degree of unity. The degree of unity does not always guarantee larger profits, but it does enable the company to innovate and adapt more easily to environmental changes:

"We have undergone major changes in Hewlett-Packard, moving from being an instrumentation company to being a computer company. I think that the level of trust in HP enables us to be very responsive in transforming the way we operate. This is a major advantage compared with other companies that only change after an enormous effort, and with limited success. In HP, the level of trust is such that people believe that they will not be adversely affected by a change"(5).

Given its importance in change and adaptation processes, a company's unity has become a competitive advantage that it cannot afford to ignore in management decisions. Therefore, it is not enough to consider only the financial consequences of these decisions. Just as we call strategy the approach that studies the company's environment and internal processes in order to increase the profit obtained from its operations, so we call intrategy the approach that studies the environment and internal processes in order to increase the organization's unity. Most management decisions affect both the company's bottom line and its unity and, therefore, it would be just as incomplete to examine them solely from a strategic viewpoint as it would be to examine them solely from an intrategic viewpoint. Thus, both types of result must be considered: strategic results (the greater or lesser profit obtained) and intrategic results (the greater or lesser degree of unity produced).

The degree of unity does not always guarantee larger profits, but it does enable
the company to innovate and adapt more easily to environmental changes

Although profit and unity are two different results of management action, there is the danger that these results can be thought of as in opposition to one another. According to this reasoning, unity costs the company profit. Managers can then readily fall into the same dilemmas as those that arose between cost and quality before the 80's. As quality has a cost, quality was often sacrificed. However, although it is true that the easy way to reduce a product's cost is to reduce its quality, it has been accepted for some years now that it is possible to increase quality and improve cost at the same time. In fact, those companies that were not able to do this are no longer around. The same type of dilemma can arise between profit and unity. However, the best companies are those that are able to grow in both fields at the same time:

"Toyota's production system, which is a systematization of organized work in a community, had led to enormous productivity improvements, which means that community and efficiency can coexist... In other words, community and efficiency are not necessarily conflicting; those who stress community may in fact become the most efficient of all"(6).


SUCCESSFUL INTRATEGIES

The companies in the Fortune list have succeeded in obtaining high profit and high degrees of unity at the same time. How do these companies manage to overcome the false dilemma between profit and unity? First of all, by assessing concurrently in their decisions both the strategic and intrategic aspects. A basic error which is the cause of many failures in terms of corporate unity is to use opportunistic intrategies. An opportunistic intrategy seeks to increase unity only if it produces greater short-term profit. This is the case with training programs, campaigns and policies that proclaim leadership and empowerment without first transforming management values and styles. Given that true unity is only attained when there is mutual trust and commitment, the programs, policies and credos must be backed by management values and styles that are manifested in day-to-day decisions. Otherwise, instead of unity, what they produce is only cynicism.

Intrategies that give rise to an increase in unity in real terms are consistent with the company's strategy and have been internalized by its managers to create a certain organizational culture or way of understanding things. We can distinguish between two types of intrategy: structural intrategies and people intrategies. The first type of intrategy refers to the company's organization and compensation systems; the second refers to the specific people that make up the company.

Another intrategic option is, when recruiting employees,
to take into account not only the skills required for the job but
also the conditions required to fit a person into that particular company

There are various structural policies with a high intrategic value that have worked well in recent years and which many companies can implement to a greater or lesser extent. The most important of these are perhaps profit sharing, empowerment, and job security. Let's see a few examples that are given in the Fortune article:

-Profit sharing. Kingston Technology (2)(7) distributed among its employees an average of 75,000 dollars in bonuses at the end of last year. All personnel employed by Merck (9), Procter & Gamble (19) and W.L. Gore (7) are entitled to stock options in their respective companies.

-Empowerment. A Southwest Airlines (1) employee said: "Working here is a truly unforgettable experience. You are treated with respect, you are well paid, you are truly empowered. Your ideas are used to solve problems".

-Job security. Of Fortune's 100 best companies, 18 have a no-dismissal policy. Others such as Hewlett- Packard (10), Hallmark Cards (32) and 3M (35) make extraordinary efforts before dismissing an employee.

People intrategies refer to the flow (entry, career and exit) and development of the specific people that make up the company. Times of economic growth are particularly good times for reviewing people intrategies. In general, these are times when there is more recruitment. Managers with an intrategic vision select people who can contribute to the company's unity. One way of achieving this is by recruiting mostly young people who can be developed and socialized in-house. Large companies such as Procter & Gamble, Nestlé and Hewlett-Packard are well-known for such practices. Another intrategic option is, when recruiting employees, to take into account not only the skills required for the job but also the conditions required to fit a person into that particular company.

Times of prosperity also generate new projects, updates and the possibility of organizing training plans. Companies with a high degree of unity seek to create career challenges and ensure their people's ongoing development. Finally, such times are also propitious for offering an honorable exit to those people who, for some insurmountable reason, do not favor the company's unity. At such times, the company is well-positioned financially and structurally to find the best way of letting them go and finding or training a replacement for that job.


CONCLUSION

Long-lived companies have managed to adapt and evolve with the ­ sometimes dramatic ­ changes that have taken place in the environment. This has been achieved through a series of successful strategic decisions made over the years and an intrategic vision that has given them the necessary ability to change and innovate. Times of economic prosperity, such as now, are very appropriate for reviewing our company's degree of unity and strengthening the foundations that will help it to survive future crises.

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