In separate mini-commentaries, former SEB chairman Marcus Wallenberg and Tata Sons chairman Ratan Tata both argue that creative destruction can be taken too far.  Both mini-commentaries are part of a series celebrating the 50th anniversary of McKinsey Quarterly. Wallenberg shares his thoughts about the power of enduring companies.

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Joseph Schumpeter focused his attention largely on new businesses and their role in eating the breakfast of established companies. But in my view, “intrapreneurs”—risk takers on the inside—are just as important as entrepreneurs in promoting new ideas and new technology.
 
One Swedish company that supports this point is Atlas Copco, an engineering business that has been in our family’s portfolio since 1873 and is still one of the leading global players in pneumatic machinery and mining equipment. I remember my grandfather, when he was chairman, citing it as an example of a business that had been able to reinvent itself over and over again. In the early days, for example, Atlas sold materials for railroad construction, but that activity was hit hard by the recession of the 1870s. Fortunately, other innovations came through, notably in pneumatics, while the company later was nimble enough to acquire patents from Rudolf Diesel to make diesel engines.
 
Much depends on the attitude of the owners, board, and top management. In my opinion, it’s their strong duty to foster a culture of constant innovation that drives its own creative destruction on the inside. A related issue is a willingness, when things look bad, to find ways of breathing new life into and rebuilding even very old companies. It’s not easy, but in my experience it’s possible, with the right determination, to take the long view, persevere, and succeed in what seems to others a hopeless situation. It’s not always necessary to break up companies or introduce innovations from the outside to stay ahead of the game. Established firms have a huge natural advantage in the marketplace because of their strong customer and supplier bases, their long-term shareholder structure, and their deep reservoir of capable people.
 
We have stuck with many businesses where we were confident that doing so would create value in the long run. The capital markets need investors who recognize that the innovation cycle is often measured in years and that you can’t create successful product portfolios with a short-term view. In our part of the world, the presence of dominant long-term owners on the share registers—investors who feel a responsibility toward companies in difficulty—is an advantage. When those shareholders take the lead in a restructuring, other institutions tend to follow.
 
Owners and boards who are in it for the long term must choose their leaders according to the challenge at hand; there are appropriate skills for a restructuring, but different ones will be needed when expansion is called for. It’s vital for a chairman to be closely in touch with the CEO—on boards where I am chairman, I speak to the CEO a couple of times a week. I also think boards ought to stay informed on operations, immersing themselves in specific investment decisions rather than just talking about long-term strategy. Nordic boards have been quite successful in doing that.
 
All in all, we should not underestimate the significance of large, enduring firms. From society’s perspective, think of what I call “the rings of the water”: the indirect business generated by a large corporation like Ericsson through small suppliers, service contracts, technology spin-offs, and the like. Sometimes we are too philosophical about losing large businesses and forget the economic impact on these networks.
 
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Here is a direct link to both mini-commentaries.
 
Marcus Wallenberg is chairman of SEB (Skandinaviska Enskilda Banken), the bank founded by his great-great-grandfather in 1856. He also serves as the chairman of Saab and Electrolux and sits on the boards of directors for Investor AB and AstraZeneca, among others.
 
The commentaries were adapted from interviews conducted by Ian Davis, former managing director of McKinsey, and McKinsey Publishing’s Tim Dickson.