Survival of the Fittest: Adapt & Collaborate, or Die

I read a great post from BCG about the evolution of organizations equating adaptation in the biology of “survival of the fittest“. Like the stunning lioness below, organizational survival depends on both adaptation and community (a point missed in the BCG evaluation). Today, I’ll discuss how biology provides insights into how organizations work.

Survival of the fittest

We all learned the term survival of the fittest in biology class. The term reflects the reality that change is inevitable. Organizations face change, uncertainty, and complexity in their environments just as changes to the natural environment challenge animals. New competitors emerge, resources change, sources of revenue (food) appear or disappear, or change their tastes .. An organism or an organization either adapts to these changes or it dies out.

Organizations face a survival of the fittest situation that favors those who adapt to the changing environment.

Don’t believe me?

Check out this quote from the study by BCG:

To answer that question [how are organizations faring in facing challenges presented by a changing environment], we investigated the longevity of more than 30,000 public firms in the United States over a 50-year span. The results are stark: Businesses are disappearing faster than ever before. Public companies have a one in three chance of being delisted in the next five years, whether because of bankruptcy, liquidation, M&A, or other causes. That’s six times the delisting rate of companies 40 years ago. Although we may perceive corporations as enduring institutions, they now die, on average, at a younger age than their employees. And the rise in mortality applies regardless of size, age, or sector. Neither scale nor experience guards against an early demise.

Applying biology to enhance our understanding of these complex biological systems provides an enhanced understanding that might improve the survival rates of these organizations.

Chaos theory and the butterfly effect

Chaos theory comes from complex adaptive systems. The “butterfly effect” is probably the best-known example of the butterfly effect, as it appears prominently in Jurassic Park. In simple terms, the butterfly effect proposes that small changes in the environment — like a butterfly’s wings distorting the air around it — can produce large, difficult-to-predict changes — such as a hurricane thousands of miles away.

Chaos theory also proposes a non-linear interaction between causes and effects, negating much of the way we view the information in organizations. Think of the familiar supply-demand curves that are totally linear (over a defined time period) — even though there’s sometimes a little curve in the relationship between supply and demand.

Compare that with the non-linear relationships envisioned by chaos theory (shown below), which are 3-dimensional across a broad range of factors, including both direct and mediated relationships, suggesting that a wide variety of factors impact supply and demand, which determine, to a large extent, the survival of an organization.

A real-world example of chaos theory is the impact of the US home mortgage crisis in 2008, which caused the US economy to falter and affected the global economies of most developed countries. Because of derivatives and other fancy financial instruments, mortgage defaults quickly spread through the country, flooding the market with foreclosed homes. The cycle started when owners couldn’t pay their mortgages, causing the default of the financial instruments that backed them. This contraction pressured businesses that invested in these instruments to declare bankruptcy, and the rapid decline of value across most major financial indices. This dampened consumer demand by degrading consumer confidence, as consumers became more risk-averse, fearing their jobs were on the line. The negative effects of this decidedly bad investment instrument, along with poor lending practices, reached every industry, causing financial ruin and layoffs, and spread to England, France, Germany …

BCG’s recommendations for handling change in complex environments are all variants of diversification — by diversifying into ancillary products, modularizing your business operations, creating redundancy within your operations, reducing uncertainty, and using feedback loops to increase adaptability. BCG believes organizations maximize survival.

However, is diversification the answer that allows organizational survival of the fittest? I think not. Rather, organizations must constantly seek information about the environment that might impact their business processes, opportunities, and threats, a process we call environmental scanning. An environmental scan should form the backbone of your yearly market planning so you’re constantly engaged in sensing, adapting, collaborating, and ensuring the survival of the fittest..

Sensing, adapting, collaborating, and survival of the fittest

Sensing

I’ve worked with a large number of organizations across a wide swath of industries and none of them do enough to sense what’s going on in the environment around them. Too much of their analytics budget is spent on mapping performance and too little on what’s going on outside the firm — with customers and prospects, with competitors, with technology, and economics. Decades ago, firms simply didn’t have the data to do better environmental scans. Today, firms are literally drowning in data, with rich data coming from social media, government studies, industry reports, and a world where globalization brings in more data from around the globe.

A great example of where sensing broke down is the oil shortages of the mid-’70s. If you remember those days or studied them in school, you know that a combination of forces led to rapid price increases and shortages across developed nations. Major players in oil exploration and refining, like BP and Exxon, and car manufacturers (that continued manufacturing large land boats that consumed fuel like someone who just finished a marathon) failed to anticipate the impact of political changes in the Middle East on oil production in time to adjust their long-term planning. Only Shell saw the potential for OPEC to curtail production in an effort to boost revenue and embargo product in protest over grievances. This voluntary collaboration developed to the point where world prices skyrocketed as supply shrank.

The oil industry, as well as heavy oil consumers such as manufacturers, transportation companies, and the plastics industry, suffered devastating losses that rippled through the global economy. When car manufacturers faced competitors like Toyota and Datsun (now Nissan), which produced smaller, more fuel-efficient cars, they invariably lost market share, despite the inferiority of these imports. The US auto industry has never recovered from this massive mistake to sense impending change.

To become a sensing organization, businesses must implement a process of scanning the environment; to become a learning organization, like the one depicted in the below. 

Adapting

Adapting has always been the dominant strategy in the survival of the fittest. Yet, many businesses and entire industries fail to adapt to the changes they sense are coming. This encompasses both product development and changes in internal processes.

When it comes to product development, instead of focusing on disruptive innovation, too many organizations seek much safer improvements to existing products as the preferred path to new products. Yet, disruptive innovations and a willingness to engage in cannibalization of existing markets produce returns that pale in comparison to those possible through improvements. Consider Apple Computers, as an example. Steve Jobs was fired over this “reckless” drive to produce radically new products. Instead, the company chose to introduce an improved Lisa computer. Soon, the company was forced to bring back Jobs, who developed the Macintosh, which truly revolutionized the computer industry and set the stage for the company as the innovator in personal technology.

But, innovation for innovation’s sake doesn’t ensure the survival of the fittest. When combined with sensing, adaptation, and innovation, they create opportunities for serious growth, just as sensing and adapting to a new predator ensure the growth and survival of the fittest in the animal population.

While animals don’t control adaptation, businesses certainly do. And, whether those adaptations are new products, new processes, new cultures, or new alliances, adaptation ensures survival — at a cost. The costs of adaptation are high and many adaptations don’t work just as genetic changes don’t always prepare a species to succeed. By tying adaptation to the external and internal environments, an organization optimizes its potential to come out at the end of a survival of the fittest competition. 

Since adaptations not only cost time and money, they also involve risk. Risk is anathema in many organizations where a short-run mentality determines decisions because they focus on increasing shareholder wealth and executives’ potential for advancement; long-term strategies that benefit the organization more in the long run than this short-term thinking are avoided. Because innovations take time to improve the health of the organization or might fail completely, companies avoid them in favor of less risky, short-term strategies. What these organizations fail to understand is that it’s their fear of failure that determines they won’t survive in the long run.

Think of the story of the MAC. A totally disruptive product that costs Apple lots of time and money that might have been used to improve the LISA. But all Apple did by improving the LISA was to make incremental changes to be a little better than their competition. There wasn’t a clear, sustainable superiority that provided for the long-run survival of Apple in such incremental changes. A major improvement at HP or the entrance of a new competitor could have wiped Apple off the face of the planet.

By disrupting the market with the MAC (and its phenomenally effective advertising campaign), Apple gave consumers a value proposition that resonated and threw down the gauntlet to competitors, challenging them to respond — something they failed to do effectively. So, Apple survived to bring us the tablet, iPod, smartphone, and other disruptive innovations.

Apple continued this commitment to innovation through the iPod, iPad, and iPhone. It remains to be seen how its failure with more recent innovations, such as iGlasses, will impact the company.

The lesson is: Adapt to survive and survive through adaptability!

Collaborate

In the natural world, species live in complex ecosystems characterized by interrelationships between species and within groups. Lionesses feed on antelopes, bringing their prey back for cubs so they can grow into adults.

Why would we think the business world would be any different?

Businesses live in an ecosystem composed of suppliers, competitors, channel partners, customers, government, and society at large. Rather than competing, businesses must develop relationships that aid their long-term survival. Cooptition rather than competition. Such collaborations bring value to everyone in the value chain, from vendors to customers.

Working with a client, I discovered a great example of collaboration in the survival of the fittest.

A supplier anticipated an employee strike that would leave his customers without product and their customers dissatisfied. In advance, the supplier arranged for a competitor to supply his customers so their operations were unaffected by the strike. Rather than costing him business, concern for his customers cemented the relationship between the supplier and his customers. When the strike was settled, his customers came back with stronger commitments to their ongoing relationship.

Similarly, companies cooperate with competitors to expand the market for their products. An example is the electric car industry, where competitors agreed on a single charging port, making it more cost-effective to provide recharging stations and encouraging more stations. Even Tesla, with their rapid recharging unit, creates their cars to use the standard charging station. Ubiquitous charging = more aggregate demand = more stations = more electric cars sold.

I wish more companies would recognize the inherent value in collaborating for customer benefits.

Survival of the fittest

While animals have little ability to control the survival of the species, a business does. They must determine what factors they control (and optimize them) and which they don’t (and adapt to them).

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