One of the metrics in our Shift Index looks at what economists call topple rate – the rate at which leaders fall out of their leadership position. In this case, we focused on the rate at which public US companies in the top quartile of return on assets performance fall out of this leadership position. Between 1965 and 2012, the topple rate increased by 40%.
OK, but the skeptic might reply that this is only about financial performance. Another more significant measure of fall from leadership position is provided by my old colleague and mentor, Dick Foster, who looked at the average lifespan of companies on the S&P 500. In 1937, at the height of the Great Depression and certainly a time of great turmoil, a company on the S&P 500 had an average lifespan of 75 years. By 2011, that lifespan had dropped to 18 years – a decline in lifespan of almost 75%. At the same time that humans are significantly increasing their lifespan, large companies have been heading rapidly in the opposite direction.
That is from this post.
The key summary is something like: more software (and data) plus less regulation keeps making life harder for incumbent firms.
One implication I’ve been thinking about a lot lately is how our is going to transform the insurance industry.
Something like 40% of all insurance premium in the US is concentrated in the most regulated and data intensive marketplaces in the world: auto insurance. The doom of auto insurers as consumer facing businesses could be approaching because of driverless cars. But this could also mean the end of insurance regulation as we know it.
The lion’s share of regulatory attention in insurance is spent on auto. Consumers are forced to buy it and it is expensive so they put pressure on politicians to oversee it. What if it goes away? Will we lay those regulators off? Somehow I doubt it.
Off topic: it’s amusing to also note that the most prolific buyers of advertising on tv are auto makers and auto insurers. We are a society obsessed with cars.