BY Jim Underwood

Why Companies Win

Your Corporate IQ is extremely important if you happen to be a senior manager with an organization -- or aspire to be one. I would like to start this book by answering the most obvious question of all: what is Corporate IQ?

Corporate IQ is a computation that involves three broad areas of the firm: strategy, organization, and character. Strategy deals with the firm's aggressiveness, organization deals with the firm's ability to adapt, and character deals with the firm's ability to sustain the first two. All three areas combined reveal just how capable the firm is of competing in the specific competitive segment it faces. That is why there is such a strong correlation between a firm's Corporate IQ and its industry ranking.

Let me begin by explaining that the firm's character, which involves ethics, value of subordinates, etc., is the only area where best practices and benchmark comparisons can be utilized. When it comes to the firm's strategy (marketing and innovation), there are no "best practices." The best strategy is one that fits its particular context well. The same is true for the firm's organization. There is no such thing as a "best in class" culture or structure. There is, however, an appropriate culture and structure (plus a lot of other corporate attributes) for each competitive context.

I would like to repeat what I just said, because it is radically different from what you probably have seen in the last 100 business books you have read. In fact, it is radically different from anything you might have read in the last 100 years. Organizations must have high standards of character, but the ability of the firm to match its strategies and organization with its competitive context determines whether or not it survives, thrives, or dies. It's that simple. Regrettably, there is no simple formula for success. I once pursued a graduate degree in theology. One of the first courses I took was one called prolegomena. The word prolegomena literally means "that which goes before." The course dealt with the assumptions we make. In philosophy and theology, the assumptions you start with determine the outcome of your study. In philosophy, for example, the relativist, of necessity, concludes that there is no truth.

In the case of corporate management and strategy, prolegomena is critically important. Suppositions have an important impact on how you manage. More importantly, they directly impact the Corporate IQ of an organization. With that in mind, I will spend the first few chapters talking about the prolegomena of management philosophy. If you start out your management day assuming that the future will be a simple repetition of the past, you as well as your organization are destined to fail.

The assumptions that underlie corporate mission, core competencies, total quality management, excellence, and numerous other ideas have such built-in problems. That is why your ability to manage your organization's Corporate IQ is so important. It's all about being smart -- aggressive, adaptive, with high levels of corporate character. Unlike a lot of the theories in the last 100 books you have read, Corporate IQ has facts to support it. Now I would like to begin introducing you to the idea of "smart companies." The interest in so-called 100-year companies has tweaked the imagination of business leaders over the past few years, and rightly so. Most of the books on the topic seem to take what I call an "excellence" approach. In other words, the author tries to identify what "excellent" companies do. There is one thing you must understand as you begin your reading of this book. There are three types of companies.

1. Companies that have lasted for 100 years
2. Companies that are designed to last for 100 years
3. Companies that will not survive for 100 years

One more thing is important to understand as you look at that list. The companies that meet criteria #2 (designed to last for 100 years) will generally have ROIs (return on investment) of 20 percent higher on a consistent basis than #1 and #3. That may be the most important aspect of this book. Further, understanding #2 and how to create a company designed to last for over 100 years is what this book is all about. Now let's take another look at the different types of companies.

You may think that there is little difference between the first two (we have little interest in the third for obvious reasons), but there is a world of difference between them. In some cases, it is clear that companies have somewhat "accidentally" lasted 100 years. In still others, there are companies that haven't yet been around for 100 years but will someday. While there is a lot of interest in companies that have lasted for 100 years and a number of books have been written on the subject, what is more important is the underlying truth that relates to why companies last 100 years.

Let me explain. The pharmaceutical called aspirin has been around for over 100 years. The benefits of aspirin continue to emerge. Aspirin is a product that has a sustainable demand of over 100 years. It would stand to reason that the first company to produce aspirin should still be on the world scene after 100 years. That's why I say that some companies last 100 years. At the same time, if you were to find one of those 100-year companies that did not have a product like aspirin, with a long-term, sustainable demand, it would be an entirely different matter. What you would have in that case is a company that understood the difference between surviving with a sustainable product and a company that understood how to survive by continually reinventing itself and its products. See the difference? That's why some of the recent books on sustainability or so-called "100-year companies" may be misleading.

In many cases, the authors of such works will tell you that, if you do what these "excellent" companies do, your organization can be successful as well. As business managers, we tend to like such prescriptive ideas, because they are usually somewhat simplistic and understandable. After all, if I just had to do six things to be successful, that idea would be appealing. One of the challenges of making such claims has to do with variables. Every researcher understands the problem of variables. We may discover, for example, that if we double the number of salespeople, our sales will go up. At the same time, that apparent correlation may lose credibility if we discover that we lowered the price of our product over the same time period. Research has to take into account all the variables that can impact your study. When it comes to our 100-year companies, the same is true. Let's pretend that you could look at a company from two perspectives. On the surface, you might see that successful companies have tended to have dull, uninspiring leaders who place little value on innovation. However, if you looked behind the scenes, you might discover a company that had been founded 100 years earlier on a product that would be in demand for over 100 years. It is easy to see that if the demand for the product was over 100 years, corporate leadership would be somewhat irrelevant. What I just described is called a "demand cycle."