Having lived through IBM’s near-death experience in the early 1990s, respect for the forces of the marketplace is edged deep in my psyche. It’s frankly sobering how many once powerful IT companies are no longer around or are shadows of their former selves. The carnage might be more pronounced in the fast-changing IT industry, but no industry is immune. It would seem as if darwinian principles apply in business almost as much as they do in biology.
A few weeks ago I discussed a paper published last year, The Mortality of Companies, by physicist Geoffrey West and his collaborators at the Santa Fe Institute. Based on their extensive analysis of data about publicly traded US companies, they were surprised to discover that a typical firm lasts about ten years before it gets merged, acquired or liquidated, and that a firm’s mortality rate is independent of its age, how well established it is or what it does. While beyond the scope of their study, the authors speculated that biological ecosystems are likely to shed valuable insights into their findings.
Such similarities between business and biological ecosystems was the focus of The Biology of Corporate Survival, a paper recently published in the Harvard Business Review (HBR) by Martin Reeves, Simon Levin, and Daichi Ueda.
“Some business thinkers have argued that companies are like biological species and have tried to extract business lessons from biology, with uneven success,” note the authors. “We stress that companies are identical to biological species in an important respect: Both are what’s known as complex adaptive systems. Therefore, the principles that confer robustness in these systems, whether natural or manmade, are directly applicable to business.”