Evolution* and Corporate Survival

Companies cannot operate outside the laws of physics. Similarly they cannot escape evolutionary imperatives. Understanding these can help companies and their leaders prepare for, and survive, in this unpredictable world.

Charles Darwin (who sailed on the Beagle in 1831 and published the Origins of Species in 1859) identified three key principles of evolution:

1. Adaptation—There is a relationship between changes inside the organism to change in the environment. There is a process of natural selection of functions in a species based on this adaptation to the environment.
2. Diversity—Natural selection produces diversity in species and between species. There are niches for us all.
3. Scope—Over time, diversity produces the full range of existing living organisms.

Corporate lesson: What companies do depends on their markets. Context is everything. Without an intimate relationship or connection to its environment, a company cannot thrive. The range of companies reflects the range of needs and opportunities in the environment.
Inside the company, if you want to change what people do (e.g. change the culture) change the environment—rules, expectations, feedback, rewards, language or leadership behavior. Changes in the context, the situation, will change what people, departments and companies do. People and companies always respond to changed environments. That is the primary lesson of evolution.

Evolution by Jerks
For many years we believed that evolution was a steady and uniform process, like pushing a ball up a smooth inclined plane. There is no evidence to support this notion. In fact the evidence suggests that evolution is not uniform, but more like moving a ball up a flight of steps. For a long time organisms will stay in a fairly steady state of equilibrium. Then an environmental change moves the organism to a new place of equilibrium. Gould* calls this "punctuated equilibrium".

Similar abrupt changes are more common in society than we might want—or acknowledge. Think of the unexpected collapse of communism, the rapid emergence of democracy, the dot.com bubble, the unnerving of the US after 9/11. These non-linear changes are explained in mathematics by catastrophe theory, bifurcations, fractals, and chaos theory. Perhaps the concept of steady, even development is something we hope for in the world, rather than something actually observed. As a friend of mine recently said of his fortune 50 employer, "I know when things are going to change. It's when they seem to be running well."

Over long time periods, many organisms (and companies) appear to be smoothly and steadily evolving, but short time periods reveal great fluctuations. For example, changes in the stock market form a smooth curve over its lifetime. But there are dramatic peaks and valleys year-to-year, day-to-day, even within a day.

Corporate lesson: Companies will have steady states and then experience sudden change. Even at the small scale, somewhere in the company, dramatic change is happening now. Planning for the unexpected is prudent strategy.

Variation Allows Rapid Adaptation

Gould, page 666*, cites two species of fish in a freshwater pond. One species is a highly adapted, dominant fish. It is sleek, aggressive, making optimal use of the fresh aerated water flowing into the pond. Being optimized, this fish has no variation in its gill structure. Another fish—a middling species—ekes out a marginal existence in the same pond. This fish has a wide variation in its gills. In fact a few members of the species can breathe in quite stagnant and muddy waters.

Now the pond dries up and the dominant fish all die. Some of the middling species survive and when the rain returns the next year this middling species now dominates the pond. It survived because of the greater variability within its structures.

Adaptation that leads to simplification and loss of diversity in structures, reduces an organisms' flexibility for future evolution to radically altered conditions. This is "Specialization".

Corporate lesson: Companies that are too sleek and specialized, too lean and mean, will be unable to adapt to changed situations.

What is Adapted May Surprise You
Organisms frequently modify a structure that was developed for one function to perform a new function. For example, the limb bones land animals use crawling on land evolved from the fins of more primitive water living vertebrates. The feathers of early birds were adaptations for flight from an organ developed for some earlier use, perhaps for heat regulation or sexual display. Gould calls this process of modifying a structure to perform a new function, "exaptation".

Most genetic material is not actively expressed in the organism but is remnants or features that were presumably adaptive for the organism at some point in the billions of years since life began on earth. This "surplus" genetic material is available for some similar or different adaptation in the future. This "genetic junk" makes humans DNA 90% similar to a worm and 98% similar to a chimp. Evolutionists call this potential for change, "latency". We might call it "diversity", redundancy or slack.

Corporate lesson: Parts of the company will sometimes be adapted for entirely new purposes. Some parts of a company are historic remnants, ready for creative reuse. Adapting an existing function for a new use may work better than trying to tack on a new division.

Evolution Is a Random, but Bounded, Walk.
To illustrate this, scientists sometimes cite the drunkard who leaves a bar and staggers randomly on the sidewalk, invariably falling in the gutter. This necessarily happens because whenever he moves in the other direction he hits the outside wall of the bar, a fixed edge that deflects him away. The result is, even if he has a tendency to walk in the direction of the bar, in the long run he will fall in the gutter. (Similarly on freeways, trash always moves to the edges.) Organizations have similar "walls", e.g. imagine that there is a minimum company size (perhaps to support essential functions)—a size wall. Companies push up again this "wall" and therefore tend to move in the other direction—in this case towards largeness. (In this case there might also be other complementary reasons for bigness, such as economy of scale, market domination etc.)

Corporate lesson: Companies will inevitably drift away from fixed constraints, such as laws, policies, or financial reinforcements, towards unconstrained areas.

Some Changes Are Necessary but Not Adaptive.
Not all evolution is strictly an adaptation to a changed environment. Changes often occur because there is some necessary connection or relationship between one internal part and another. For example, if, through adaptation, an animal grows larger, its bones must thicken to accommodate the increased weight. Curiously, by adding weight and slowing movement, the larger bones may actually be un-adaptive.

Changes that are necessary but non-adaptive are called "spandrels". In architecture, the spandrel is the triangular space formed when a dome or arch sits on a square wall or room. It is the necessary geometric structure joining one form to another.

Corporate lesson: Companies will have departments or functions that may not be obviously adaptations to the marketplace. These functions may be understood only as supportive of more adaptive functions.

Irreversibility
There is no probability that environments will go backwards, or reverse. Evolution is a response to constantly changing environments that follow a more or less random walk. Looking with nostalgia to bygone days is a sentimental journey. Clocks don't go backwards. Evolution doesn't.

Corporate lesson: Companies will never go back to the "good old times." Staying with what was, instead of what is, will doom you. If you want to understand where a company must go, look outwards.

Extinction
Natural selection does not guarantee the power of adaptation in all situations. If environments change too rapidly, they may exceed the power of organisms to adapt by natural selection. Then organisms become extinct. We see this frequently in companies. Some buggy-whip companies evolved to build automobiles. Some disappeared.

Corporate lesson: Companies that cannot or will not adapt, will die or be eaten.

* This article draws heavily from Stephen Gould's last book, published just before he died of cancer in 2002. The Structure of Evolutionary Theory, Stephen Jay Gould, 1433 pp., the Belknap Press of Harvard University Press, 2002. This book is not his familiar, popular, easy-read.

Footnote: Without the meteor impact that changed the earth's climate and made most dinosaurs extinct (their cousins the birds survived), mammals would have remained a group of tiny and not remarkable species. The mammalian expansion that followed, and the later appearance of man, is an unpredictable and unlikely consequence of a random cosmic event that changed the weather 60 million years ago. (http://www.ias.ac.in/jbiosci/sep2002/453.pdf )

Carly Fiorina: "The soft stuff actually is the hard stuff."

For six years in a row Fortune magazine has named Carly Fiorina, CEO of Hewlett-Packard, the most powerful woman in U.S. business. In a recent interview (The Costco Connection, May 2004, page 18) she said, "I think people who describe culture and values and how people behave often underestimate its importance. . . . I've heard people refer to it as "the soft stuff". . . . The soft stuff actually is the hard stuff. . . . The goal is to find the right notion of value for a customer that also delivers value for investors and employees, and ultimately, communities."

In February 2005, Carly Fiorina was fired for her inability to adapt the HP culture to manage "the soft stuff".