Think:Act Magazine "Digital Darwinism"
How evolution drives success in the digital era
Today’s strategies for riding out the threat of digitalization take inspiration from Charles Darwin
by Detlef Gürtler
illustrations by Suthipa Kamyam
Life on Earth is a history of adaptations to the existing environment. From the successful species to the now extinct, what can the natural world teach business about strategies for riding out the threat of the digital era?
Survival of the fittest. When it comes to anything about the natural world, those four words sum up what many of us think matters most. We think of the phrase as a summary of Darwinism, expressing the battle for life which has been fought simultaneously by billions of creatures over billions of years.
The phrase, however, is not in fact Darwin's. And it wasn't first applied to the natural world, but to business. It was coined by British intellectual Herbert Spencer in 1864 to draw a parallel between Darwin's ideas and Spencer's own economic theories. It's an apt phrase, because the economy, just like the natural world, is all about survival of the fittest. Charles Darwin liked the phrase – and he adopted it for the fifth edition of his book On the Origin of Species in 1869. It has been a key subject in biology ever since. In economics, though, it is now used less frequently – mostly during stressful events that change the basic conditions, such as depressions or major disruptions. Like the one we are living through right now: the digital era. The magnitude of today's economic disruption is similar to the effects that an ice age or a supervolcano eruption have had on ecosystems. With that in mind, a closer look at biosystems and the evolutionary mechanisms that have been developed by species might be helpful to develop or alter the strategies of companies in the business ecosystem.
Unfortunately, it is difficult to define who might be the "fittest." Fitness may derive from strength or flexibility, from speed or size, from fairness or cheating. The specific factor for success in a specific situation can only be seen in hindsight: The fittest is the one who survives. But underneath this diversity of qualities, there are in fact just two main selection concepts. In biology they are called natural selection and sexual selection and they lead to two diametrically opposed survival strategies. Although the economy has less to do with nature and sex, and much more to do with markets and money, the two concepts nevertheless have their equivalents in business. Let’s call them the Peacock Strategy and the Mountain Hare Strategy.
The Peacock Strategy emphasizes the power of sexual selection: Genes are best spread by impressing females. The (male) bird displays the beauty of its plumage. "Hey," it says, "mate with me, I am the cutest, I have the best genes!" Darwin himself used the peacock as an example for animals that "excite or charm those of the opposite sex, generally the females, who select the more agreeable partners." The peacock is shiny and flamboyant, he attracts females – but also predators. If the female peacock comes first, it's a winning strategy; if the predator comes first, it's a less fortunate outcome.
In business, the analogy to the peacock isn't, thankfully, all about male managers showing off how attractive they are. This is more about companies which have their own "beauty contests" where they compete for the attention and affection of potential partners, namely venture capitalists or institutional investors. The more bang for their buck that you promise, the higher your chances to "excite or charm." In today's business world, startups and unicorns like Uber, WeWork or SpaceX come to mind. But overblown behavior to appeal to investors can be seen at well-established companies, too: General Electric was proud as a peacock for raising dividends year for year since the early 1980s – and was hit especially hard by the Great Recession of 2008-09.
When there's room, fill it. As fast as you can and before someone else does it. That's what human beings do in a gold rush, that's what companies do after a technological breakthrough and that's what most life forms are prepared to do in favorable conditions. If all baby rabbits survived or all fish eggs became fish, it would result in an exponential, explosive growth. Usually, growth is limited by predators or by scarcity of resources.
But the potential to grow exponentially is helpful after a sharp population decline. One of the fastest-growing life forms on Earth is a bacterium: clostridium perfringens. They can double their number within nine minutes. Mathematically, with this growth rate there would be more of them than atoms in the universe after two days. Biologically, the growth period ends as soon as the infected animal or person dies.
For the French economist Michel Albert, the US was the natural habitat for business peacocks. In his 1991 book Capitalism Against Capitalism he compared the "Neo-American" business approach with "the glamour of the Crazy Horse Saloon," the legendary Paris cabaret. Flamboyance and immaculate beauty give an evolutionary advantage in these circumstances. That’s how your company should look to impress investors; that's what your equity story should sound like for an IPO; that's what your elevator pitch should feel like, when you've got those precious 10 seconds of a venture capitalist's attention. And, of course, that strategy is not only endemic in the US: When a mayor or governor wants their region to become "a new Silicon Valley," they have a metaphorical peacock sitting on their shoulders.
Michel Albert located the opposite of the Neo-Americans in the heart of central Europe. "Doing everything for success, but nothing to appeal" is a characteristic trait of his so-called "Rhenanian Capitalism." And the headwater regions of the Rhine, the Alps, are the natural habitat of the mountain hare – who we can say is the biological opposite of the peacock.
The Mountain Hare Strategy emphasizes natural selection: Genes are best spread by hiding from and evading predators. Instead of being all loud and look-at-me, the hares try to blend in with their environment with a brown coat in summer and a white one in winter. They are fast, they are vigilant and, above all, they count on their inconspicuousness. The longer they don't fall prey to predators, the higher their chances to mate and pass on their genes to a new generation.
Inconspicuousness and camouflage are business virtues that are indeed often seen in central Europe. The "gnomes of Zurich" is a common nickname for Swiss private bankers who try to keep their business as secretive as the accounts of their clients. Another natural habitat for business mountain hares are family-owned companies. Without the need to excel in investor relations, a lot keep a low public profile. This can even be true for highly visible global players like Italian chocolate producer Ferrero, owner of the Nutella brand. In its 70 years, the company has never held a press conference; and in its production facilities which are spread all over the world, no media visits are allowed.
The key element in the Mountain Hare Strategy is resilience. Companies following this approach prepare for every possible eventuality of crises. In the short term, this kind of cautiousness can limit growth opportunities – but it's meant to pay off in the long term: If the going gets tough, the resilient get going. One of the oldest management guidebooks, the Italian Pratica della Mercatura of 1340, advises merchants to act cautiously: "What every true and honest merchant must have within himself. / Integrity always suits him, / Long foresight keeps him well, / And what he promises doesn’t come lacking; / And he should be, if able, of beautiful and honest behavior."
Which of these two totally opposite strategies is the better one for the survival of the fittest? Well, obviously it depends. The world is full of peacocks, full of hares and full of hundreds of thousands of other species: birds and mammals, fish and insects, predators and prey. They mate and fight and hide – sexual and natural selection, flamboyant and resilient strategies can be seen everywhere in biological ecosystems. So none of them can be the "fittest" in absolute terms.
In business, the management can decide which kind of strategy to choose in a given situation. The company can adapt to changes in its environment. In nature, species can do the same. Like the poeciliidae family – guppies living on the Caribbean island of Trinidad. John Endler, biologist at the Deakin University in Australia, has intensively studied how the appearance of these fish changes at different degrees of selection pressure.
Sometimes it's better to look like someone else. For example, if you're weak and vulnerable, it will help if you pretend to be strong and dangerous – like the peacock butterfly with the big eyespots on its wings. The same mimicry technique is used the other way round, too. Mantises are disguised as leaves or branches to deceive their prospective victims. In business, mimicry is a common practice in heavily regulated industries.
"Shadow banks" – a strong business sector, especially in China – are entities operating outside the banking industry and its regulations, but offering financial services just like the banks. And the two most successful media companies on earth, Google and Facebook, try to look like search algorithms or communication platforms to circumvent obligations media must meet for the content that they publish.
He showed that the brightness of male guppies varies widely, depending on the number of predators in their environment: In highland populations, where they share their habitat with fewer and less dangerous predators, the colors of the male guppies are brighter, thus attracting more attention. In lowland populations with more intense predation, males are less brightly colored. In ponds at their lab, the researchers could vary the number of predators and the guppies adapt within a few generations, getting to a new balance between sexual and natural selection. One company that was and is fairly successful in adapting to changing environments is IBM. From hierarchical dominance to open connectivity, from supercomputers to PCs and the other way round, from hardware to software to systems, the tech giant has managed to stay ahead of the curve.
The fewer threats there are out there, the better the environment is for being flamboyant; in more challenging environments, resilience offers better chances. And if you opt for more of the one, you get less of the other: "One trait can only be increased at the expense of another," Endler says. "Time, energy or any other resource can be spent only on one." And the guppies of Trinidad can give us a hint of what will happen in the digital era. Because one of the main characteristics of digitalization is new competitors. The barriers to entry into single markets or whole industries are getting lower and lower, and companies from seemingly unrelated fields can become powerful rivals in a short time. An internet search engine has almost annihilated the markets for city (and in fact all) maps and the address book, has swallowed the better part of media advertising revenues and is about to enter the automotive industry. A computer manufacturer has taken large chunks of the markets for mobile phones, watches and music, to name just three of many disruptions.
For some industries, these new players are not just additional competitors – but the only ones. Energy suppliers, regional newspapers or the train sector have been de facto monopolies for decades or centuries. The advent of competition appears as if a once-in-a-lifetime event, that seems to strike as a complete surprise.
It can be mutually beneficial when two species cooperate; like the oxpecker bird who "grazes" on the back of large mammals, freeing them of parasites. Symbioses with equally positive outcomes for both sides do not happen frequently – neither in biology nor in business.
But they happen. An example for a symbiotic relationship was called "Wintel": Intel and Microsoft synchronized the use of computing power and technological growth for decades. The more performance the Intel chips could offer, the higher the Microsoft software demands became.
Biology teaches a bitter lesson about what happens to species that were used to living in isolated ecosystems and suddenly become exposed to competitors: They are wiped out. The dodo of Mauritius or the passenger pigeon of North America are examples of extinction caused by just one new competitor: us. One of Homo sapiens' strongest drivers for innovation has always been the desire for more and better food. For a considerable number of big – and tasty – animals the adaptation to this new competitive environment was too slow to be successful.
Even for highly successful species the speed of change can become too fast to follow: The dinosaurs dominated the global ecosystems for almost 200 million years, but did not survive the disastrous asteroid impact and its aftereffects. The harder and faster disruption hits, the bigger the changes that are required. For disruptions of the natural environment the logical or better biological answer is less flamboyance and more resilience. Translated into today's business environment in the digital era: less "growth at any cost" and more "focus on the bottom line." This leads us to consider that most economic ecosystems should tend towards a new, less peacocky balance. But how do you find a new balance, if you’re not a guppy, but a multinational company?
Another biological analogy might be helpful here. We can call it the Bacteria Strategy, as it was first observed by the German microbiologist Regine Hengge of Humboldt University Berlin when she put E. coli bacteria under stress. For a strain of bacteria, a drop of acid in the petri dish or rising temperatures are similar to the business challenges for an incumbent company facing the market entry of Google or Amazon.
The power of the herd is a very common defensive strategy of animals. Swarms of fish or herds of antelopes are better protected against predators than individual animals. Maybe the weakest or slowest get caught, but a big part of the group will survive an attack.
In business, the "united we stand" approach has always been a key success factor for trade unions. And sometimes it is used by industry incumbents to keep a potential enemy small –or keep them out. Collective actions of taxi drivers against new competitors like Uber or Lyft are the latest example for this strategy.
The E. coli bacterium reacts to stress with behavior opposite to our own. When we are under stress, we produce adrenaline, the fight-or-flight hormone. Adrenaline is a powerful survival tool – but unfortunately it’s useless when we are facing multiple and/or unknown threats. If the adrenaline-powered brain wants to fight or flee, but can't decide how to react, it goes into panic mode. Bacteria, however, go into an experimental mode. "They prepare themselves for the unknown," says Hengge, by opening up for a myriad of potential solutions. E. coli's opener of unknown doors is a substance called Sigma S that activates its entire DNA strand. Like humans, most bacterial DNA is usually dormant. But when under stress, the whole DNA is unleashed and starts to produce whatever substances it can. Most of them are useless – but one may, by pure coincidence, lead to survival. It's anarchic and chaotic, but at least it's a chance.
Sure, companies aren't E. coli bacteria. They don't follow biological instincts, but they can decide how to act. And if confronted with multiple and/or unknown threats, it may be less wise to go into panic mode like human beings do, but instead switch to experimental mode like bacteria. Survival of the fittest? Or the most attractive? Maybe. But in the new digital landscape ahead it might, ironically, not be quite so binary. If the bacteria can teach us anything, it might be that survival depends on being the most resourceful.
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