Evolution, Enron-style

Enron knew how to change because it was set up to encourage innovative thinking. Godin rails against the usual culprits of corporate torpor: committees, skeptics and bureaucracy. Well, Enron had none of that. Initiatives were created through a decentralized approach where anyone could contribute to the marketplace of ideas. An executive from the London office, Louise Kitchen, won big for secretly developing EnronOnline from the bottom up -- contra management's stated strategy -- and launching it into blockbuster success. When one executive originally came to Skilling with the idea for a bandwidth exchange that was facing opposition from his superiors, Skilling told him simply to ignore the opposition and proceed covertly.

Enron kept a dizzying pace, shifting its business from pipelines to gas trading to financial derivatives to fiber-optic bandwidth in just 10 years.

But suspicions about all that evolution began to rise -- especially about Enron's $1.5 billion bet on bandwidth trading -- when Blockbuster pulled out of a key partnership in March 2001. In July, the division's revenues were revealed to be a pitiful $16 million and the entire bandwidth operation was shuttered. Azurix, Enron's water business, had already been stumbling and EnronOnline appeared merely to be cannibalizing its own offline cousin. The Dabhol power project in India, over budget and past schedule, was limping. And California's energy crisis had brought intense scrutiny on the practices of Enron's core trading business. Investors were worried that its fundamental strategy was struggling, and later they found out that it had been.

Godin's change-mongering not only makes for a reckless management style, it also gets the biology wrong. Unlike Enron's transformations, the hallmark of evolutionary change is that it is slow. It takes generations for minor mutations to accumulate into a big change in the species. But Mother Nature seems to prefer it that way. Big changes often yield deadly instability, while refinements permit steady, meticulous improvement on a working design. And by forcing each change to prove itself, selection makes sure to test alternative paths to the big adaptations. Since individuals mutate one at a time, there's also lower risk of losing the whole species. In the grips of an "innovate or die" mantra, Enron regularly placed huge bets on major projects -- India, bandwidth, water. But nature usually waits to see a mutation start to stick in one place before spreading it too far around, not because nature is cautious but because this is what works.

Godin himself applauds Amazon for its incremental approach of constantly running small trials of new ideas on its Web site, and eliminating the ones that don't work. But he misses the crucial difference between a new home page at Amazon, and the type of change embraced by a company like Enron. The former variety moves away from the core business in steps, with small bets on many different approaches, yielding large-scale results after much iteration.

Of course, a competitive organization is the sum of its people. So Godin recommends applying natural selection indoors as well: rewarding performers for their contributions, punishing laggards, encouraging innovation and constantly providing performance feedback. Some mix of these familiar themes is in everything written on the topic, but Godin tweaks the "survival of the fittest" elements. He thinks companies should regularly fire people for performance (make them struggle for survival), and demand more innovation from even the least-skilled workers (even janitors should be "knowledge workers").

Again, Enron fits Godin's bill. Enron worked hard to cultivate the right people and the right culture. It rewarded performance with big cash and stock bonuses, providing luxuries like on-site concierge service and massages. One executive called it "the best meritocracy in business." It stocked the ranks with hundreds of Ivy League and Stanford MBAs in entry-level positions, and then set them to compete against each other. The Performance Review Committee lived to "rank and yank" -- constantly running performance reviews, ranking everyone against their peers and firing the bottom 15 percent. The result was a mercenary culture where traders locked their desks to keep their colleagues from stealing their work and where orders were ignored if they didn't match selfish interests. Even as Enron worked to save itself last September, top traders were heading straight out the door to competitors. Enron's injection of free market absolutism created a Wild West culture of backstabbers.

Even nature is not so cruel. Examples of altruism and cooperative behavior abound. Chimps and wild dogs share their food. Many kinds of animals give predator alarm calls, even when this draws extra attention to the individual making the warning. Even vampire bats share blood with less lucky hunters. The traders at Enron didn't seem inclined to such behavior, nor were there mechanisms to encourage it. Nature's function is far subtler that "dog-eat-dog," an observation that requires digging deeper into biology than Godin manages.

The danger of Godin's sloganeering, simplistic approach to applying Darwinism in business is the complexity of the systems themselves. "Survival" is little more than a compendium of the usual management clichés recast in a Darwinian vocabulary. Converts to this form of Darwinism beware. Well-meaning but naive interventions can lead to disastrous effects as unforeseen impacts ripple through the system. As Enron implemented one extremist approach after another, it grew to be a bizarre, unnatural place. Ultimately, as much-touted new projects failed to deliver and growth began to stagnate, a final lesson of Darwin's became evident: Nature doesn't work by fixing its mistakes; it works by eliminating them.

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