The Living Company:
Growth, Learning and Longevity in Business

Arie de Geus (Nicholas Brealey Publishing, 1997)

In The Living Company, Arie de Geus, the man who first introduced the notion of the learning organization, asserts that companies should be viewed more as biological systems than as machines. He argues that companies both learn and exhibit a persona, and then extends this biological view of companies to include the notions of ecology and evolution. These insights, developed during a four-decade career with Royal Dutch/Shell, were derived from studying the characteristics of successful companies that have survived for 200 years or more.

To de Geus, decision making represents the fundamental learning process of a successful company because the beliefs, ideas, and attitudes of people are changed with every decision. He advocates “learning to play and playing to learn” as a means to enhance speed, openness, inven-tiveness, and courage of decision makers. Likewise, tools such as scenario planning and simulation provide decision makers with experiential learning opportunities that help avoid experimenting with the company.

To be a living entity, a company must move beyond learning and possess a persona that reflects a set of consistent and persistent internal values. De Geus describes two general types of companies: the puddle and the river. The puddle company exists to produce profits by conserving and maximizing capital. People are treated as assets as if they were capital equipment. The river company exists to add value to multiple stakeholders by perpetuating itself as a sustained, contributing community of a larger society. Profits, though necessary, become a means rather than an end and the optimization of capital complements the optimization of people.

The people who form a river company are a community composed of ever-changing concepts and knowledge that, when allowed to flow like a river, keep the company fresh and vital. To perpetuate this flow, corporate governance (policies and procedures) must reflect tolerance—a core quality that makes diversification and decentralization possible, yet retaining the ability to manage the entity as a whole. Individual freedom and organizational tolerance are necessary to increase the learning abilities of the organization. Yet some element of control is necessary to maintain its cohesion. Since centralization of power limits the knowledge creation and propagation capability of a company, de Geus recommends that senior management choose the destination and then enable others to steer to that destination.

The Living Company is about the management of change, the learning process, decision making and the nature of large corporations rather than complexity. Complexity science is introduced only indirectly through the adoption of the biological system model of the company. Another element of organizational complexity, the shift from capitalism to a knowledge society, is discussed in the first chapter. However, the effects of informationalism and globalization associated with this societal shift are deferred until the epilogue. The reader may wish to gain this perspective by reading Mulgan’s Connexity or Castell’s The Rise of the Networked Society.

Selected and groomed for senior management from an early age, the author takes the perspective of a corporate insider. The narrative reflects a retrospective view of his life experiences, with an emphasis on dealing with the dilemma of managing cohesion and diversity. The reader gets a sense of the clash of ideas that exist in a river company as de Geus discusses his efforts to introduce organizational learning into the vocabulary of corporate executives. He resorted to the use of external validation of his ideas through a Harvard Business Review article to generate this organizational change.

In the Foreword, Peter Senge writes that this book offers the reader insights, gained from a study of long-lived companies, “for how a company as a living being might plan, learn, and manage, and govern itself” to create steppingstones to a very different future. De Geus avoids the seduction of providing easy answers when there are none. Most managers of puddle companies will find this book of little value. However, managers of river companies will be well served by the ample warnings about how to avoid turning a river company into a puddle company. Becoming and remaining a river company requires adherence to a unique set of values that cannot be acquired from reading this book.

In summary, I recommend this book to anyone seeking an organic perspective on organizational change. Three general notions were of special interest to me and deserve some comment. First, good companies don’t gamble with debt. The use of internal financing serves as a natural governor that limits the rate of growth to a sustainable rate. Next, the living company possesses an immune system that can treat different types of intruders appropriately. When properly calibrated, the immune system promotes openness. De Geus offers readers sound advice on how to recruit, develop, and retain employees. Finally, many employees have been adversely affected over the past three decades as puddle companies died. This human cost may not show on any financial balance sheet, but it has been duly noted on de Geus’s psyche. Living companies are composed of people like de Geus.

BILL FULKERSON

REFERENCES

Mulgan, Geoff (1998) Connexity: How to Live in a Connected World, Boston, MA: Harvard Business School Press.

Castells, Manuel (1996) The Rise of the Network Society: The Information Age: Economy, Society and Culture, Volume One, Cambridge, MA: Blackwell.