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Four ways to use a company's past to improve its future

Every company used to have one – the curmudgeon whose habitual contribution to the strategy discussion was a slow intake of breath, a shake of the head, and a gloomy judgment on the latest plan: "We tried that in 1980: Complete disaster."

I say "used to" because now few employees have such perspective. Even those who do would be brave to voice it. Most executives sense the only way to avoid being overtaken by younger, nimbler competitors is to throw out the baggage of history and accelerate away from the past. For "institutional memory," read "institutional inertia."

The fast-moving forward-facers are only half-right. Strategy is the art of choosing the right path ahead. But companies that jettison their past altogether risk not only repeating historical errors but hobbling their advance.

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"The challenge," John Seaman and George David Smith, historical and archival consultants, wrote recently in Harvard Business Review, "is to find in an organization's history its usable past."

Companies must learn four main lessons from their history.

1) Use history but be prepared to lose the parts that no longer serve your purpose.

Svenska Handelsbanken – in contrast to banking rivals that seem afflicted by chronic short-term memory loss – keeps 140 years of board minutes in its basement, and, as the Swedish bank's chief executive officer told the Financial Times, uses the archive to teach young managers to beware of periodic crises. Yet Handelsbanken would be uncompetitive if it still operated a late 19th-century business model. Likewise, the Financial Times, which celebrates its 125th anniversary this week, would struggle to meet readers' needs if it were still produced on an 1888 printing press.

The Institute of Chartered Accountants in England and Wales (ICAEW), has just republished a lecture given to the society 50 years ago by Stanley Harding, then Shell's deputy controller. Mr. Harding's views on such issues as the strategic role of finance managers, the use of key performance indicators (which he sensibly called "yardsticks") and the importance of cost control are surprisingly modern. It is a reminder that "we tend to think everything we do is new and fresh, and we were the first to think of it, but often it's not the case," says Simon Henry, the oil company's current chief financial officer. But the lecture also provides evidence of Shell's healthy disrespect for the parts of its history that were holding it back. "Nothing was sacred," Mr. Harding said of an operational review that attacked the "conservative approach sometimes encountered – a nostalgia for the old-fashioned methods to which people had become accustomed."

2) Times and people change but traditions remain.

George Yip, management professor at China Europe International Business School (CEIBS) and co-author of Strategic Transformation, says a long history "gives a company more self-confidence and it produces less politics and more commitment" from staff. But managers must constantly reinvent variations on their companies' historical success if they are to sustain lasting positive corporate traditions.

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3) Keep filtering history for "weak signals" that can guide your company.

"Learning from history requires the ability to synthesize and form patterns from different kinds of data," veteran executive Don Young writes in his new book Enterprise Rules, about how companies can rediscover fundamental values. "People weak in this ability – and therefore unable to learn from history – will never be good strategists and are unlikely to make good leaders in a complex world."

Seen through a modern lens, the past can be as dynamic as the future. Even the in-house curmudgeon's litany of forgotten failures may contain a list of potential successes that were merely launched before their time. Dot-coms based on video or music streaming foundered in 2000 but revived when faster broadband and always-on mobile devices gave new life to old advertising and subscription models.

4) Be careful not to confuse wistfulness with a legacy of purpose.

Too many companies think of their history just as an excuse for anniversary celebrations or as the source for values that are as lifeless as the founders under whose portraits they are displayed. Any institution that clings too firmly to past glories, without reflecting on their relevance to the present, will itself end up as history.

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