Evolution, Enron-style

Not all fast-mutating organisms flourish. Some go extinct.

By Amol Sarva

Feb 13, 2002 | There is a '90s way of doing business that new economy companies "get," and old economy companies create committees to study. It has much to do with flat hierarchies, innovation, casual clothes and foosball tables. It's the theme that ran through every issue of the Industry Standard, every Silicon Valley mission statement and every recent book by "pop" strategy gurus like metaphor-spinner Geoffrey A. Moore or Wired editor Kevin Kelly. And it is exactly this cluster of ideas that is at the heart of "Survival Is Not Enough: Zooming, Evolution, and the Future of Your Company," a new book by Seth Godin, Fast Company editor and self-proclaimed "agent of change."

The twist of Godin's approach is his choice of master narrative: an evolutionary approach to business. On one level, this is just another vapid gimmick connecting a sexy metaphor to the same old recycled management fads: Unleash your company's "mDNA" to make it "zoom"! A clearance-counter library of variations exists on this theme, from "business judo" to "chessmaster strategy." But on another level, Godin's topic gestures at a genuinely interesting idea.

The underlying observation of "Survival" is that Darwinian evolution by natural selection is a theory of change for all complex systems -- not only in organic systems but in any system with finite resources and reproducing individuals. What biology has learned by studying the struggle for survival can inform us as we think about the struggle of products for market share, firms for talent, countries for a tax base or start-ups for venture capital. Natural selection is more than a mere metaphor for the dynamics of business. It is actually at work in economic systems, and there are likely to be common tendencies between ecosystems and markets for strategists to exploit. Darwinism has a long history of application outside biology -- from Herbert Spencer's Social Darwinism to Richard Dawkins' attempt to identify the "genetic" nature of cultural change. The use of evolutionary ideas to understand business is inevitable.

But Godin does nothing to take us past the gimmicky metaphor approach to evolution. The appeal of the evolutionary approach should be that it provides a genuinely scientific framework for understanding market dynamics. Godin's goofball "zoometry" (meant to be the study of business evolution) is no such thing. He ends up offering a bunch of familiar prescriptions: Embrace change, reward performance, take risks, compete ruthlessly. It's nothing any freshly minted MBA wouldn't say. What he misses is much more important: Nature is trickier than that. It's often bureaucratic and resistant to change. It sometimes kills the fittest instead of rewarding them. It usually avoids risky moves and often appears to be pushing noncompetitive, cooperative behavior. Nature is a subtle thing.

If Godin's science is dubious, his timing is worse. This is the wrong moment for yet another how-to guide to doing business on "Internet time." The new economy is firmly in recession. The greatest dot-coms are limping. Major sectors from manufacturing to transportation are reeling. And yet Godin is still telling us to take lessons from Amazon, or learn from the tactics of spammers. In boom time, everybody's a genius. But in a down-market, the usual drivel won't do.

Consider, for example, the case of Enron. Godin doesn't discuss Enron directly in "Survival," but his prescriptions for evolutionary business success read like a list of everything Enron did right through the 1990s: Shed physical assets, build intellectual capital, bring competition to the workplace, encourage innovation, push bold strategies, pioneer new markets and so on. On the new economy scorecard, Enron was a management marvel. In retrospect, the recklessly aggressive strategy and obsessively competitive structure were precisely the things that Enron did wrong. Problems were piling up well in advance of the accounting scandals -- profits were down, growth was sluggish, big bets were coming up losers and observers were starting to get suspicious.

Does Godin's reading of evolution recommend a better way? Quite the opposite. Godin goes on and on about change -- the kind of change Enron specialized in. For Godin, change is constant, pervasive and a force of obsolescence. Most companies, especially big ones, are bad at handling it and have developed mechanisms that specifically resist it. Yet, nature shows that you must embrace change. Survival depends on adaptation to the slightly warmer climate, or the predator's better vision, or the sudden disappearance of a key food item. Species change over generations because natural selection prefers particular variations over others -- the lighter coat or the better camouflage -- and these advantages are passed on by the successful to their numerous offspring. Companies that don't follow this drive risk extinction.

Enron was a paragon of Godin-esque values, particularly in respect to "change." CEO Ken Lay responded aggressively to a changing regulatory environment in gas delivery by merging into and then taking over a larger rival. Lay and his McKinsey consultant, Jeff Skilling, radically redirected the company into commodities trading. They invented a market for energy supplies and came to dominate it. Then they increased the sophistication of the derivatives contracts they traded, created new markets for commodities from bandwidth to weather and brought it all online in a hurry -- relentlessly innovating ahead of the competition. They globalized, undertaking projects from Europe to Brazil to India. And they diversified, moving into water and pollution emissions.

Next Page: So how does it go? Change or die, or change until you die?

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