That the pace of “creative destruction” is quickening has been well documented in the last decade. For instance, an analysis last year revealed that just 55 of the firms in the Fortune 500 in 1955 remained in the index.
Research from Cambridge Judge Business School reveals a similar churn in the UK. Indeed, just 19 of 1,513 companies managed to survive since the Companies Act was introduced in 1948 to mandate consolidated accounts. Whereas it has been suggested that the pace of churn has been increasing in recent years, this is not something found in the Cambridge analysis. Instead, the 10-year survival rate has been remarkably consistent at around 50%.
Survival rate
The authors do question, however, how big an impact this low survival rate will have on the various long-term promises being made by these companies, such as on employee pensions. In terms of what marks those who survive out, however, adaptability is key.
“The lesson provided by our survivors is that adaptation to a changing environment is essential for survival, although by no means does it guarantee survival,” the researchers say.
“The vast majority of firms perished by takeover in this period. Many of these were forcibly changed by the takeover, and those that survived may have avoided takeover by anticipating the actions that an acquirer would take. An example of this is Whitbread’s recent decision (2018) to divest its Costa Coffee arm, in order to fend off a bidder who proposed to do precisely this.”
Of course, when firms are taken over by another company that will inevitably have a lesser impact on any longer-term obligations as the brand is quite likely to continue under its new ownership.
Keeping pace
Interestingly, there were not really any clear factors behind the survival of the firms that managed to endure for 70 years. Indeed, eight of the 19 companies were not found to have kept pace with the overall growth in the economy during that time period, but this didn’t appear to be a crucial factor in their survival.
Instead, many of the survivors appear to have endured in part due to their size making them less easy to digest for any potential suitors. One of the few firms to have grown considerably since 1948 is the retail firm Tesco, which was comparatively small to begin with and far from the giant it is today.
Despite the literature about the importance of firms adapting to changing market conditions, relatively few surviving firms were found to have changed industry either, and those that did changed in relatively minor ways.
“It is notable that the companies which survived over the period showed the ability to adapt their business activities, in some cases radically,” the researchers conclude. “Thus, the takeover mechanism may be credited with introducing a high degree of mobility and dynamism into the quoted company sector. On the other hand, it is not clear that this was necessarily a benign process.”
