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The Evolutionary Advantage:
Innovate or deteriorate

As I’m writing this, the price of oil is moving up and down like a yo-yo. Stock-markets are plummeting. Governments are nationalizing banks and rescuing the elderly giants of industry. The “we-need-aid-virus” is picking up speed, spreading way beyond the US borders. No wonder that super-capitalist Warren Buffet recently commented on these events by suggesting that “Capitalism without failure, is like Christianity without hell”. Or as Brittney put it; “Oops, we did it again.”

Now, think about this. Microsoft and FedEx were both founded at the height of the economic crisis of the 1970s. Around that time, P&G launched Pringles, today a billion dollar brand. As a leader, this is the question that you should be asking yourself; do I settle for leading in times of change, or do I accept responsibility for leading change?

Unfortunately, history proves that most executives opt for the first alternative. The dominant business recipes of the last decade have been spelt outsourcing and off-shoring, benchmarking and best-practices. The sad truth is of course that outsourcing only makes you smaller, not better, and that benchmarking simply renders you ever more alike instead of increasingly different. While cost-cutting and effort to increase efficiency are absolute necessities, in good times and in bad, the procedure comes with a number of caveats.

  1. Sustainable competitive advantages cannot be based on outsourcing. As soon there is a well-functioning market for something, also your competitors have access to these things.
  2. Numerous studies show that in today’s non-linear economy, long-term success is based on innovation rather than optimization.
  3. When companies get rid of people this procedure causes energy leakage and deteriorates employee engagement with consequent declining performance.

In a world of competitive anarchy, being a great exploiter of a single competitive advantage is a necessary but no longer sufficient condition for the creation of sustainable profitability. To successfully travel down the road to riches you must instead focus your efforts on being a serial originator of positive surprise. As the business landscape evolves, so must our strategies. The advice is simple. Re-invent yourself.

Envision the future

Envisioning is the art of using competence to make sense of the context in order to challenge your team or an entire organization to change. Far too few executives, however, spend a sufficient amount of time thinking and talking about how the fundamental forces driving change might affect their businesses – today and tomorrow. The greatest entrepreneurs, on the other hand, have always proved to be some pretty awesome business sociologists. These people excel at integrating knowledge from one field with ideas from another.

Changes in technology, institutions and values are now opening up for far greater economic and individual freedom at far more places than we have ever witnessed before. In effect, new things are becoming scarce and in demand. Of course, what’s in short supply differs from person to person, industry to industry, region to region, but just to give you a feel, consider this.

I recently came across a fascinating study of how a typical Dane spends a day – 24 hours. The original study had been conducted back in the early 1980s. Twenty years later, they repeated it. What would be your guess for the activity that had increased most, percentage wise, in terms of taking up time in an average Danish person’s life? Rule out using a mobile phone and surfing the Web, things that were not commercially viable in the early 80s. It was time spent in the toilet. In this globally interconnected, hypercompetitive, communications based and stressful world of ours, it turns out that the toilet is one of the few places in which it’s still legitimate to be alone. These days, solitude is one of the scarcest resources around.

When people feel stressed, bored, lonely and anonymous, this may not constitute the make-up of a perfect society, but it makes perfect sense for business to exploit these needs. So, we see entirely new clusters of commerce around our desire to be pampered, excited, connected and noticed. How else can you explain the rapid growth of spas, speed-dating, Second Life, or MySpace? Our lives have become so predictable that to escape we borrow the game consuls from our kids and play Grand Theft Auto. We kill without any risk of getting caught – risk-free excitement. Connect the dots and signal in on the scarce.

To be fit or sexy?

Once you have an idea about what new needs to exploit, you must expose your thoughts to the “fitness or sexy test”. To understand the true nature of success in an age of unfettered capitalism we must seek inspiration from the most deregulated of environments – nature. Here we find few rules and restrictions, no politicians or commissions. Instead, we can witness a constant struggle for resources, mating partners, and at the end of the day survival.

Most people know that Charles Darwin argued that evolution could be portrayed as a process marked by the survival of the fittest. The ability to stay alive boils down to adaptation in relation to a changing environment. But there were still things that he could not explain – like the peacock’s tail. In fact, from a fitness perspective, the tail actually provided a competitive disadvantage. Charles had to back to the drawing board.

He returned to the scene claiming that fitness did not explain it all, fertility also came into play. Courtship was critical. Adaptation is not enough. Success also requires attraction. Together, survival of the fittest and the sexiest explain evolution.

From Darwin to Dell. What does this have to do with corporate strategy? Let’s consider the current trends of information mania and individualization in the light of evolutionary theory. Thanks to digitization, globalization, and deregulation, the business environment is now dominated by markets. And there is more to come. Some 20% of world output is currently open to global competition. In 30 years, the equivalent figure will be 80%. We are left in a world of markets where Henry Ford would be as comfortable as Tiger Woods playing ping-pong. Corporations must adapt or they die.

At the very same time, people are now beginning to exercise their right to express themselves. And human beings are anything but rationally wired. Research in neuroscience even suggests that the brain’s limbic system, which governs our feelings, is much more powerful than the neocortex that controls intellect. Companies must attract the attention of people with endless choice by appealing to their feelings or they become extinct - dinosaurs.

So, there are basically only two ways in which corporations can build sustainable competitive advantages. Either they create and exploit market imperfections – like Dell - or they focus on the imperfections of man – such as Apple does – supply-side and demand-side innovation, respectively. The former strategy means practicing rational innovation by creating unique business models that are well adapted to the new business conditions. Look at Easy Jet or Ryan Air. The latter builds on emotional innovation in order to create moods that attract and addict customers. Singapore Airlines and Virgin Atlantic are great examples. Rational innovation is often directed toward the low-end niche of the double economy. Here we find the likes of H&M or Zara. Emotional innovation generally makes the most of differences within the group of high-enders. Just consider the likes of Prada and Gucci. In a world of information mania models are fit. In the age of individual choice moods are sexy.

Copyright © 2010-2015 Jonas Ridderstråle