Incremental rather than radical change is usually the best business strategy. When radical change is needed it will usually be provided by new businesses altogether.
“Natura non facit saltum” – Alfred Marshall, Principles of Economics
I once wrote a fable about a tortoise which, upset by its slow though persistent performance, tried to turn itself into a jaguar. My purpose was to poke fun at the management consultants and visionary CEO’s who peddle exaggerated nostrums for transformational change in organisations.
I didn’t know at the time that whether such transformational change could occur was an issue that evolutionary biologists had considered rather carefully. At high table in Oxford, I have since learnt of the dispute between the saltationists and the incrementalists.
Incrementalists believe that the evolution of species occurs as the result of a series of small, almost imperceptible, steps. The saltationists do not play brass instruments in the High Street on Saturday morning. They take their name from saltum, the Latin word for a jump. They thought that species continue unchanged for many generations. Occasionally, a chance mutation might lead to a major improvement which would then spread rapidly through the population.
The battle between incrementalists and saltationists is now over, and almost no serious scientist is to be found in the saltationist camp today. But the analogy between the development of business organisation and the evolution of species is sufficiently close for it to be instructive to understand why the saltationists thought as they did, and why they were wrong. And since there are still many saltationists around in the business world, the discrediting of their scientific counterparts should give us all pause for thought.
The evidence that supported the saltationist position was the appearance of large gaps in the fossil record. We did not seem to see enough intermediate cases to support incrementalism. But was the problem real, or simply in the limitations of the evidence and in the discernment of those who examined that evidence? Time has pointed to the latter.
And other knowledge has clarified the deficiencies of saltationism. Large mutations in species, even if useful, die out. We might wish we had eyes in the back of our head, and they would indeed be of value. They would greatly reduce the probability of being mugged and it would be easier to find a taxi when hurrying along the pavement on a wet day.
But in reality a child with eyes in the back of its head would be a horrible freak. Many other physical adaptations would be necessary for such a creature to work, and many of these adaptations would not be made well. The child would have other physical disadvantages, and recurrent medical problems. Not meeting the conventional standards of attractiveness, it would be unlikely to find a mate. Would you marry someone with eyes in the back of their head?
But the outlook is brighter, as well as more extensive, for someone with a slightly wider field of vision than average. Such people are less likely to die in traffic accidents. They have a better chance of seeing their ideal partner on the opposite side of the room at a party. So evolution does favour genes for slighter wider fields of vision. Over time, this means that our descendants will probably see better than we do.
And that is how incremental innovations succeed and discontinuous ones do not. The great biologist, R. A. Fisher used the following example. Imagine a microscope whose focus is not quite right. If you make a small adjustment, then there is a fifty per cent chance that this is an improvement. But for a big change, there is almost no chance that the result will be better. Might the same be true for organisations?
The analogy is illuminating because there is a key assumption in Fisher’s illustration. It depends on the focus being almost right to begin with. If the focus is hopeless, any change is as unlikely to be successful as any other. Fisher’s assumption holds for species – a species that is not approximately suited to its environment will be extinct.
But Fisher’s assumption holds for companies as well. A firm that is not approximately suited to its environment will be out of business. Which makes these CEO’s who wish to redesign their companies in line with some abstract organisational blueprint, or some theory of what tomorrow’s markets will be like, the business analogue of impatient children who grab the focus wheel on the microscope.
Now there are some companies which find themselves at odds with their environment – which are not even nearly in focus. Mostly, this is because they have faced some discontinuity. There are privatised companies, brought up in a world in which they needed to adapt to the dictates of politicians rather than the needs of customers, who suddenly have to cope with a competitive environment. Or firms whose market has seen fundamental change, as when the computer market shifted from mainframes to PC’s and left IBM’s competitive advantages stranded.
Most of the examples of successful organisational transformation which form the basis of our case studies – like IBM or British Airways – emerged from circumstances like these. But the evolutionary analogy tells us that this happens only rarely. We use the dinosaur to exemplify extinction rather than adaptation. But it too provides an instructive analogy.
We are still not sure why dinosaurs died, though the favoured hypothesis today is that a huge meteorite hit the earth and changed the climate. And if that is right, there was nothing the dinosaurs could have done, even if they had anticipated the meteorite’s arrival. Evolution continued, of course, but we are descended from apes, not dinosaurs. The evolution of industrial structures is similar. They change over time, but less through the adaptation of old firms than by the evolution of new ones. So the computer industry today is dominated, not by a transformed IBM, but by the newly established Microsoft.