028 The Bath Perspective Principles of Enduring Success Dr Christian Stadler Lecturer in Strategy at the University of Bath School of Management. Dr Stadler's research in the past decade has focused on long-living corporations how they grow, adapt, and consistently beat their competitors. Working with a combined University of Bath and Innsbruck University team, Dr Stadler has explored how 18 European companies have survived and prospered for more than 100 years. Their experiences shed valuable light on how to thrive even in turbulent times and how to achieve enduring success. Europe is home to some of the world's oldest companies. A long-range study shows what sets the truly great apart from the merely good. The recent economic crisis was a stark reminder of how quickly established companies can disappear. In fact, the average corporation is less than 13 years old. And survival by itself is no guarantee for great performance. Only a selected number of companies are able to delight their shareholders decade after decade. Understanding what sets such companies apart from their rivals is arguably the holy grail of consultants, managers, and investors alike. For the last six years, I have led a team of eight researchers (three PhD students and five graduate students) in a study of Europe's oldest and best companies. We called it the "Enduring Success Project" and its goal was to develop an understanding of why some of these companies have managed to perform at a very high level over very long periods. What distinguishes them from others that do not perform as well? What can we learn from their experience? What did they do that set them apart from other companies that performed creditably but not so extraordinarily well? To answer these questions we selected a sample of 100year-old companies that had turned in an extraordinarily high performance over the past 50 years (our gold medalists) and compared each with another old company, whose performance was still good (after all our silver medalists have survived for decades although some ceased to exist in recent years) but which was well behind the very highest performers. Through our study, a counter-intuitive story emerges: the greatest companies adapt to a constantly changing environment by being intelligently conservative. They concentrate on the efficient exploitation of their knowledge rather than breakthrough innovation, they diversify into related products and markets in small and deliberate steps, they manage their finances conservatively, they learn both from successes and failures, and they manage change in a culturally sensitive way. These insights are best summarized in five principles for enduring success. Principle #1: Exploit before you explore Some of our gold medalists were great innovators, but so were some of our silver medalists. What really set the great companies apart was their ability to make the most of each innovation, to exploit it to its full potential. The contrasting tales of Glaxo, the consummate exploiter, and Wellcome, the inspired innovator, illustrate this point very clearly. Glaxo actually purchased Wellcome in 1995 but they were independent from each other for long enough that we could treat them as two companies in this study. Glaxo's greatest success was probably Zantac, an ulcer medication. In the late 1970s ulcer treatment was one of the hottest areas in pharmaceutical research, and the leaders were SmithKline, Pfizer and Eli Lilly. Glaxo was a latecomer, launching Zantac five years after SmithKline's best-selling ulcer medication, Tagamet. Zantac had no remarkable scientific or medical advantage over Tagamet. The only difference was that Zantac was packaged in fewer dosages. According to conventional wisdom in the industry a "me-too" product like Zantac should use a lower price to capture a fraction of the market. But Glaxo decided to view the apparent disadvantage as an opportunity. Doctors already were familiar with the benefits of the new type of ulcer medication and only had to be convinced that Zantac was better than Tagamet. In a bold move, the company decided to charge a premium, providing a powerful argument for their sales force. In addition the company partnered with Roche in the US, to muster enough boots on the ground. The combination of these relentless efforts paid off. Although SmithKline invested heavily in R&D and generated more patents during that time, Glaxo fared much better in terms of sales and profitability, so much so that it was eventually able to purchase its more innovative competitor (once again obtaining a pipeline by purchase rather than by its own science).