Fall 2008 issue of Horizons

knowledge. commitment. value. CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS CONSULTANTS

best practices and other techniques, can consume a leader. Better information and analytical tools yield better returns and higher productivity. With all of these new tools and information, the hypothesis would be that we are creating better leaders because they are making fewer mistakes. Leaders are right more often, especially about big decisions. If these points are correct, then wouldn’t organizations and their leaders be more sustainable? Shouldn’t they survive longer? I did some research on this point for a book titled “Revitalizing the American Dream,” which Bob Skandalaris authored and I supported, and found that public corporations are dying more quickly. In a 10-year period of dynamic prosperity (1990s), more than 50 percent of the S&P 500, our most revered organizations, ceased to be a part of the list. This drop-off was an increase from 24 percent in the ’60s and ’70s. How could this be happening if we have better leaders making better decisions? What is missing?

Average Age of S&P 500 New Entrants

10 15 20 25 30 35 40

0 5

60-64 65-69 70-74 75-79 80-84

85-89 90-94 95-99 00-03

Source: S&P 500 History

This decline means that the measure of success has changed and leaders need to react. It is clear to me that leaders need to spend more energy creating the new rather than optimizing the old. It is time for leaders to more explicitly and consciously add “entrepreneurial catalyst” to their leadership toolkit. I believe leaders need to focus more resources and attention on “what isn’t” rather than “what is.” Many leaders seem to be searching for an answer to this issue. Let me explain one approach that might help leaders deal with this point. First let’s assume that a current leadership approach focuses too much attention and resources on preventing mistakes. This statement may seem ludicrous, but to be effective in a world of rapid change, mistakes are a necessity. These mistakes can be the least costly way to get insights and information when there is a high degree of uncertainty. This is often the case if an idea or business area is new and disruptive; these are opportunities that, by their very nature, have high levels of uncertainty (notice I have consciously not chosen the word “risk”). Trying new things and being flexible, intuitive and responsive can be a good approach to getting information; action can be better than planning. But how do leaders take the time to analyze these often numerous new, highly uncertain (low on information) situations? They can’t take the time to pursue all these opportunities themselves, and the organization will be strategically late if the market finds the answer first.

Number of Exits from S&P 500

100 150 200 250 300

0 50

1960s

1970s

1980s

1990s

Source: S&P 500 History

Next, I looked at how long it took a company to be accepted as a new S&P 500 entrant. I checked the number of years from the time a company first publicly offered stock (initial public offering date) until they pushed another company out of the S&P 500. The average age of new entrants has steadily declined from 36 years in the early ’60s to 12 years in the first three years of the 21 st century.

20 ◆ fall 2008 issue