Author, investor and industry analyst Geoffrey Moore says organizations need to fight off inertia and continually reinvent themselves to keep from being marginalized. And he says IT can play a vital role in the success of any business by helping the company re-establish differentiation
Take away a giraffe's long legs and neck and you have pretty much got an antelope. In fact, that long neck is core to everything that makes a giraffe unique. Given the species' diet, a giraffe with a medium-sized neck would quickly become an ex-giraffe.
What distinguishes a giraffe from an antelope? Cervical vertebrae suited for moving that long neck up and down and a heart especially calibrated for pumping blood through the neck to the head. Oh - and a cardiovascular system that stops the creature fainting as its head plunges through 6 metres of free fall as it goes from eating leaves in the trees to grass on the ground. Together, they give the giraffe a potent competitive edge.
So if a giraffe were a company - a smart one at least - it would concentrate most resources on its neck, which distinguishes it from other grazing animals, and few on the liver and kidneys it shares with antelopes and even people. Otherwise, it might just become extinct.
So argues a new business strategy book called Dealing with Darwin: How Great Companies Innovate at Every Phase of Their Evolution. Author Geoffrey Moore, chairman, founder and managing partner of TCG Advisors (TCGA), says the survival of established companies hinges on their ability to make adaptive changes whenever the environment changes dramatically. Darwin's Theory of Evolution has much to teach us about business innovation.
His bad news is the sector currently struggling most is enterprise IT. The very Internet-enabled client/service architecture that has made it what it is over the past decade is today its worst enemy. Its inflexibility is actively frustrating the inter-enterprise business practices that should assure an organization's global competitiveness. Yet the only solution - transition to a new Web services-oriented architecture - is no quick fix.
In Moore's view, survival in these circumstances infers acting like that giraffe. Concentrate on "kernel" IT assets that can so distinguish a company from its competitors that customers will not want to buy from anyone else. Then look for "context" activities that will make business processes more productive, as IT activity becomes process-oriented while product categories mature. Fail to do either and you risk sliding into irrelevancy.
"Every species has been uniquely configured to support its differentiation. It's the same with companies, the same with IT organizations. You've got to think about what it is that you're doing that makes you different and put the resources there," Moore says.
Innovation's only value lies in helping organizations win competitive advantage. That value reaches a peak when innovation so distinguishes an organization that customers will pay a premium to buy its offerings. It also has value when it helps neutralize the opposition's competitive advantages and when it helps the organization to improve its productivity and thus profitability. Moore says much of the innovation under way in corporations does none of this, but simply creates waste. And inertia is a constant bugbear.
"Inertia lives in mission-critical processes that have ceased to differentiate and which are hence no longer core. The organization may have invested extensively in creating this capability, but once the competition has caught up, it is no longer capable of creating competitive advantage yet still must be maintained," he says.
"So the importance of innovation is when it can create competitive advantage that will allow you to achieve an exceptional economic return - something better than your competitors. The reason we stress that point is that in our work with our clients, a lot of established enterprises believe that they don't innovate very well now that they've become big. But in our work with clients, our research and our experience shows that they continue to innovate extremely well but they don't innovate in a way that creates competitive advantage. So they innovate a little bit in a lot of different dimensions, and as a result, they never get separation between their offers and their competitor's offers.
"In that situation the customer just plays you off against your competitor for lowest price," Moore says. "So innovating in a daring and bold enough way that you create very substantial differentiation for competitive advantage, that's the focus."
Economic Shift
Many commentators have pointed to parallels between ecological and economic systems, particularly free market economic systems. Natural selection is, after all, the dominant pattern wherever entities compete for scarce resources. Whether we are talking creatures or corporations, the innovators find ways to differentiate, particularly within niches, and take advantage of the prevailing environment. That lets them outperform competing entities to survive and thrive.
Where companies do not act like organisms when business environments change, previously successful strategies can lead to failures no amount of execution focus can put right.
Yet the shift of economic advantage across the Pacific, with the economies of India and China tipped to be the most vibrant in the 21st century, is "brand new news" for companies and corporations hosted in America, Moore says. Survival now means learning to innovate to sustain an excessive lifestyle in a world where US and other Western organizations have lost many advantages.
"We've always had the home market advantage," he says. "So how we are we going to innovate to sustain a very expensive way of life, in a world where we no longer have a lot of the structural advantages we used to have?"
And there's another challenge confronting established cultures: the need to continually transcend an unjustified sense of entitlement. The US has been struggling with this in the airline and automobile industries over recent times. Soon, Moore says, it is likely to hit the technology industry as well.
When industry sectors have thrived over a long period it is natural for the beneficiaries to believe they deserve continuing success. "What Darwin teaches you is that, hey, Darwin doesn't care. I mean I know you negotiated in good faith when you got all these great benefits, but [natural selection] doesn't care. Getting over that sense of outrage, that sense of betrayal, and getting on to coping with life is an important transition," he says.
What happens if companies do not change? Here too, parallels to Darwinism are helpful. People used to say: "Innovate or die", but that is not the choice, Moore says. The true equation is: "Innovate or suffer marginalization".
"Companies that don't adapt enter into a prolonged and gradual decline, typically not precipitous, but it becomes increasingly inevitable. So you have sectors that consolidate, and it's usually a consolidation cleanup play, where six or seven or eight underperforming corporations become one or two adequately performing corporations. Even if they're not particularly thrilling in the way they compete, at least they survive.
"We're not all intended to be stars all the time," Moore says. "Survival is the name of the game in a Darwinistic system. And that is a mode, but it's not one that supports the standard of living that Western developed countries have come to enjoy. So if we are going to continue to participate in the world and enjoy the position in the world that we've had in the past, we have to significantly step up our game.
"The Darwin metaphors are meant to say: in a competition, competitive advantage is everything, so what can you do to create competitive advantage?"
It is a question companies must ask over and over again, Moore says. Darwinism is a dynamic system. When one species begins to differentiate, whether within nature or an economy, all the other organisms in the environment react to try to neutralize any competitive advantage in their best interest. Continually reinventing competitive advantage is just part of the dynamic of these systems.