Take a look at the attached infographic.
The 1st word that may came to your mind when you looked at this infographic was ‘churn’. Or ‘compression of time’. The average tenure of companies in S&P 500 (the list of 500 largest publicly traded cos in the US) is coming down. At a rapid rate! From 33 years in 1965 to 15 by 2028. The trend is even more acute in India.
And to sum up the external environment these companies are facing, we quote Jack Welch: “If the rate of change on the outside exceeds the rate of change on the inside, the end is near.”
But why and what implications does it have?
First, the “Why”. We believe, there are several reasons this tenure has been decreasing:
- Weakening of Moats: Traditionally, companies defend themselves against the outside world with a strong moat enabling them to stay protected. But the moats are getting weaker. The startling pace at which new companies and start-ups spring up is leading to intense competition. It is tough to hold onto moats (i.e., market share and profitability).
- Lowering of entry barriers by Tech and disruption: The pace of tech shift cycle has accelerated, making it difficult for some companies to keep up with the latest innovations and stay relevant.
- Ever more efficient business structures: Business structures are no longer built from the ground up. They are pre-configured and modularized much like Lego-blocks. These efficient business structures lead to a reduction in overall cycle time to value realization. Microservices and not monoliths (not just in coding but in company structures!). And we believe it is across industry sectors.
- Mergers & Acquisitions: We’re seeing a lot more companies merge with or acquire other companies to unlock more value in shared ecosystems.
- Shareholder expectations: This group is becoming increasingly vocal about the performance of companies in which they invest, putting pressure on management teams to deliver strong financial results.
While It’s a fact that tenure is coming down and will continue to go south, here are a few questions for you to introspect:
- what impact does this have on your organization design, organization performance, incentives, and workforce planning?
- What does it mean for an individual who has to plan for a ~40 year career?
- And finally, from a people standpoint, what conversation should then a CHRO have with a CEO?
