Here is a brief excerpt from Ian Davis’ interview of Loiu Gerstner for the McKinsey Quarterly, published by McKinsey & Company. The former IBM CEO offers his thoughts on the principles and strategies that sustain a company in the long run. To read the complete article, check out other resources, learn more about the firm, obtain subscription information, and register to receive email alerts, please click here.

To learn more about the McKinsey Quarterly, please click here.

* * *

Lou Gerstner will always be known as the man who saved IBM after resuscitating, then reinvigorating, the near bankrupt company when he took over as chairman and CEO in 1993. Gerstner’s career, though, spanned 43 years which also included more than a decade at McKinsey, senior positions at American Express, and four years as chairman and CEO of RJR Nabisco. Since stepping down from IBM in 2002 he has continued to lead an active “portfolio” life in education, healthcare, and private equity. In this conversation with former McKinsey managing director Ian Davis, he reflects on the DNA of companies that keep on creating value.

* * *

How do you think about corporate longevity? Does it help executives if their companies explicitly aim to be around a long time, by which I mean a generation or more?

I don’t think so. It seems to me that companies should focus on trying to be successful five years from now, perhaps ten. If your business has already been around, say, 20 years, I don’t see how it can help the management team if one of the primary objectives is getting to 100. It’s not something they can execute on. I’m not sure what you can do to guarantee success in that time frame, or even on a 20- to 30-year view.

So why do some businesses last much longer than others?

A lot of it has to do with the industry. Many companies that have made it over many years have been in slow-changing industries that haven’t been much affected by the external environment, that are characterized by significant scale economies, or that are heavily regulated.

Take food production. The big global players in this sector are not, typically, huge profit generators, and their turnover only increases modestly—say, by 1 to 2 percent a year, in line with demographic trends. But those businesses are in a nice place: there’s not much new competition, and the changes they’re up against, whether technological or otherwise, tend to be relatively small. In the automobile industry, it’s long cycle times and scale economies that deter others. And in banking, it’s been regulation. You see a lot of small bank start-ups in the US but the reason that so many of the large players have been around a long time is that state and federal laws make it difficult to start a national bank.

Conversely, the entry and exit barriers are much lower in, say, software or technology, where capital requirements for new entrants can be relatively light.

That’s true, and it’s in those sectors that companies are most often subject to strong competition, technological innovation, and regulatory change. The question, at the end of the day, is whether leaders in these and other industries can adjust. I would argue that more often than not they can’t. Think about all those companies in the computer or consumer-electronics industries, like Control Data or RCA. Corporate longevity is either driven by the leadership team that is there or by a new one that comes in from the outside and is able to manage the transition to a significantly different competitive environment. There was nothing that said American Express or IBM couldn’t go out of business, and IBM very nearly did. For a long time, American Express wouldn’t go into credit cards, because it thought that would cannibalize its Travelers Cheques business. When I arrived at IBM in 1993, there was no inheritable or even extendable platform. The company was dying.

Is there something in the DNA of those firms that have endured—perhaps a willingness to respond to a change of direction—that enables them to survive?

In anything other than a protected industry, longevity is the capacity to change, not to stay with what you’ve got. Too many companies build up an internal commitment to their existing businesses, and there’s the problem: it’s very, very difficult to “eat your seed corn,” go into other activities, or radically change something fundamental about what you’ve been doing, like the pricing structure or distribution system. Rather than changing, they find it easier to just keep doing the same things that brought them success. They codify why they’re successful. They write guidebooks. They create teaching manuals. They create whole cultures around sustaining the model. That’s great until the model gets threatened by external change; then, all too often, the adjustment is discontinuous. It requires a wrench, often from an outside force. Andy Grove put it well when he said “only the paranoid survive.”

Remember that the enduring companies we see are not really companies that have lasted for 100 years. They’ve changed 25 times or 5 times or 4 times over that 100 years, and they aren’t the same companies as they were. If they hadn’t changed, they wouldn’t have survived. If you could take a snapshot of the values and processes of most companies 50 years ago—and did the same with a surviving company in 2014—you would say it’s a different company other than, perhaps, its name and maybe its purpose and maybe its industry. The leadership that really counts is the leadership that keeps a company changing in an incremental, continuous fashion. It’s constantly focusing on the outside, on what’s going on in the marketplace, what’s changing there, noticing what competitors are doing.

* * *

Here is a direct link to the complete article.

This interview was conducted by Ian Davis, former managing director of McKinsey, and McKinsey Publishing’s Tim Dickson.

Lou Gerstner will always be known as the man who saved IBM after resuscitating, then reinvigorating, the near bankrupt company when he took over as chairman and CEO in 1993. Gerstner’s career, though, spanned 43 years which also included more than a decade at McKinsey, senior positions at American Express, and four years as chairman and CEO of RJR Nabisco. Since stepping down from IBM in 2002 he has continued to lead an active “portfolio” life in education, healthcare, and private equity. In this conversation with former McKinsey managing director Ian Davis, he reflects on the DNA of companies that keep on creating value.