A book entrepreneurs should read

The Living Company By Arie de Geus Harvard Business School Press, Boston, 1997 215 pp Rp 181,350

JAKARTA (JP): Books like Arie de Geus' The Living Company ought to come with a warning, as with prescription drugs. It will profoundly affect the way we think about companies and the way they are managed. This may perhaps cause serious distress to the organizations we work for, if not to ourselves.

It is once in a very long while that we chance upon a management book that stimulates one's intellect, and reaches out emotionally, while not preaching to change one's lifestyle. The book achieves this very rare feat quite naturally.

One of the blurbs on the jacket says "if you liked The Fifth Discipline (by Peter Senge), you would love this". But Senge borrowed heavily from de Geus, not the other way around. The Fifth Discipline, for all its Guru status, is a difficult book to read and understand. The Living Company, on the other hand, is hard to put down once started. For a philosophical management book, this is quite an achievement.

The theme is the comparison of a company with a living system. How and why some like Shell or Unilever managed to live to ripe old ages, albeit with modifications, while the majority wither and die in relative adolescence. It addresses the parameters that define the longevity of a company as a living organization.

De Geus is frank enough to admit his shock when a Dutch reporter confronted his arguments for corporate longevity with, "Why is it so important that Shell should survive?" His logic that the death of any company, let alone a transnational giant such as Shell, leaves people jobless, debts unfulfilled and suppliers and customers bereaved may leave many an institutional investor cold.

Even de Geus would have to admit that the cost of keeping a company alive has to be worth the price to its stakeholders. After all if a company is a living system it, too, is mortal.

De Geus' metaphor of companies is evocative, describing the "puddles" of economic companies which dry up when the sun shines too bright, and the "rivers" of living companies which can withstand drought.

There are not that many living companies to rival rivers though. De Geus's seminal study on Shell identified only 40 companies around the world that were as old as Shell, about hundred years then, and reasonably large. He attributes the death of companies to the focus on economics over human resources.

De Geus's study of 27 living companies helped him identify four capability factors that threaded their longevity; sensitivity to environment, cohesion and identity, tolerance and decentralization; and conservative financing.

Despite his reputation as the originator of the concept of the learning organization, de Geus's estimation of the abilities of most organizations to learn is pessimistic. He describes the background to the creation of "scenario planning" at Shell and efforts to use this in influencing decision-making in detail, exposing the learning inability of institutions.

The unique concept of planning future scenarios introduced at Shell in the early 1970s, as an alternative to the highly fallible strategic planning exercises, did produce some extraordinary predictions. Among them were the energy crises of 1973 and 1979, evolution of the global environmental movement and the breakup of the Soviet Union. However, the effect of these predictions on decision-making remained hard to prove. Harder still was to convince managers that they needed to learn.

De Geus hypothesizes that like its metaphor of the river, the living company is an open system that is highly tolerant of entry of new individuals and ideas. Still it maintains its cohesive identity. To achieve this identity, goals of individuals will have to harmonize with goals of the company, and those of the company with that of the community.

De Geus's narration of his meeting with the Angolan general who derided Shell for walking out of that land, and his explanation of the logic for Shell staying on in countries such as Ethiopia, South Africa and Nigeria were eye-openers. Shell's decision to stay on as long as it has a choice, irrespective of the political or social situation prevailing in a country, may not appeal to liberals.

Nevertheless, its strong logic should influence many countries and companies vacillating over investment decisions in nations such as Myanmar.

De Geus's advice to managers to go easy on controls and to be tolerant of failures would be music to the ears of bottled-up executives all over the world. However, the organizational space he recommends may not be so easily accepted by bosses still in need of power. Equally, the many consultants who thrive by peddling concepts, such as core competencies and activities like strategic planning, may not welcome his arguments against them for being rigid and intolerant.

His parable of the Chilean potato -- describing how experts with little local knowledge succeeded in demolishing age-old practices and with that destroyed local agriculture -- is a warning against globe-trotting specialists dishing out instant solutions.

Proponents of Confucian values would warmly welcome de Geus's exhortation to conserve cash, and eschew loans. Unfortunately in today's Asia, profligacy and unpaid loans rule in place of Confucius, resulting in major economic crises. Perhaps this is a good time for entrepreneurs in this region to follow his advice and focus more on establishing their companies as living beings, rather than as speculative operations.

Impressive and educative as the book is, the key questions it raises are: How many managers and entrepreneurs today are prepared to live the living company concept? As one of the Shell managers asked, what is the point in living for the long-term if you are in danger of dying in the short-term? Even if the managers do believe in the long-term, what about Wall Street? Would it let them take a break from the next quarter end?

De Geus answers that a living company cannot have the same vulnerable legal relationship with its shareholders as an economic company does. He hopes that legislation will change over the years to reduce the dominant legal powers given to capital suppliers, to reflect the reality that capital is no longer the critical constraining resource.

Rightfully, any company, living or otherwise, ought to be measured by standards additional to mere shareholder returns, but will the free market agree?

-- Ram S. Ramanathan

The reviewer is a consultant at PT Bakrie & Brothers.