A question on the mind of all business leaders on an ongoing basis is how will we win? In turns out that winning is changing a lot in this interconnecting world. The most recent Harvard Business Review article entitled: “The biology of Corporate Survival – natural selection ecosystems hold surprising lessons for business” details that companies are losing much faster than they were forty years ago. One in three public traded companies will be de-listed in the next five years, which is six times as fast as it was forty short years ago.
From a large study of many organizations, they have concluded that companies are identical to the way complex adaptive organizations in nature in how they act in an ecosystem. Secondly, system thinking matters and those companies that fail to adapt to the complexity of the changing environment cease to exist quickly. The reality of thinking of business through the lenses of living systems, specifically the human body, has been our thesis all along and therefore no surprise to us. The big idea that goes along with these conclusions is realizing that every business is nested in its marketplace with many other businesses, which in turn is nested in the social environment surrounding this marketplace. Therefore, businesses using systems thinking must balance the individual success of their firm with what is good for the whole ecosystem.
I was working with a company involved in installing heating and cooling systems in homes, and they asked me to help them with their strategy. As I always do, I began with a situational analysis inside and outside the organization. At this moment in time, they were experiencing double digit growth and thought it would go for a long time. Then I talked to their vendors, who all were about to mutiny because they had been pushed so low in their profits (barely above EBITDA) because they needed the volume. They were all going to jump ship as soon as another company with that volume came along. They also knew that all the others were preparing to jump ship also. If you pay attention to your own success individually in a nested, interconnected world, you will find your company marginalized ASAP.
There are four overarching ideas that help companies win in this ecosystem-based, interconnected environment that are new.
- The first is heterogeneity. Diversity in people, ideas, and endeavors is less efficient, but allows for a fast and different responses that will be needed when your own differentiating value is being challenged.
- The second is called modularity, which means that components of the business model or value chain should have loose connections. Again, less efficient, but robust against shock. One company I worked with, wisely, had developed a whole second business and product line that was adjacent to, but not competing in the space of their dominant product. When the internet revolution torpedoed their main business, the other business actually thrived in a connected world so they were sun setting one while expanding the other.
- The third inefficient, yet robust idea is redundancy. In the human body, the immune system has many overlapping systems that allow us to fight disease, which makes people very resilient against many intruders that would otherwise kill or severely inhibit the health of people. In business, there needs to be as much redundancy as possible. If there is only one supplier of a component, or even one customer that makes up 65% of your income, it is a risky position for survival.
- The last idea is expect surprise. You may not know where it will come from, but you collect signals from your environment like the human body does. You can detect patterns, and create feedback loops to reduce the element of surprise.
But I want to return to the central idea of this collective. You must balance your organization winning while also helping the ecosystem benefit from your contribution. As Philippians 2 puts it: “Look not only to your own interests, but the interests of others.”
Never been truer in business.
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