Survival of the Best Fitted

Detail of a portrait of Charles Darwin with selective focus on the eyes.

Few individuals have had a greater impact on society than Charles Darwin, whose theory of evolution has long influenced how we think about numerous aspects of our lives, including the way we do business. As a result, corporate managers frequently receive advice heavily steeped in evolutionary metaphors. For example, business leaders are constantly being told to keep their firms strong and aggressively in control of the competition because the marketplace is a selfish “dog-eat-dog” world.

The influence of evolutionary thinking on business can clearly be seen in how market watchers explained fallout from the 2008/2009 global financial crisis. Evolutionary logic, for example, was quickly deployed to explain why so many companies failed. As University of Exeter business lecturer Morgen Witzel noted in 2010: “When, during the recent crisis, many companies failed, it was easy for us to explain this in Darwinian terms. These failed businesses were weak: according to the law of ‘survival of the fittest,’ they had been selected out. The business world is a jungle, a harsh environment in which only the strong can adapt and survive. Or so our thinking often goes.”

Biological and business evolution differ in important aspects, e.g., the role of genes. But while evolutionary notions about business often lack direct grounding in Darwin’s work, past thinkers (Henderson, 1989) have clearly shown evolution has much to teach businesspeople. Simply put, evolutionary theory describes processes of change over time and relevant concepts can indeed help explain dynamic business situations—especially the evolution of markets—but only if properly applied.

Unfortunately, when used to illuminate business strategy, many evolutionary concepts are misapplied. If truth be told, marketplace competition doesn’t ensure that only the strongest survive any more than evolutionary pressures force anyone to be selfish. These are in fact unjustified notions used to justify strategies that can do more harm than good, especially as the Age of Disruption increases the pace of change in the marketplace.

This paper strives to address the garbled strategic advice created by misinterpretations of evolutionary theory, which have led to incorrect assessments about markets and market participants. Specifically, we examine three widely held beliefs that are based on misapplications of evolutionary theory. They are:

  1. Profit-maximization strategies inevitably lead to the best outcomes
  2. Business is survival of the fittest
  3. Specialization makes you stronger

To demonstrate why many business ideas about evolution are simply garbled logics, our research modeled markets deploying evolutionary game theory—a methodology originating in biology (Maynard Smith, 1982) that is now used to analyze competition in social life (Bowles & Gintis, 2011) and business (Ding, 2007; Homburg, Furst, Ehrmann, & Scheinker, 2013).

Designed to examine the dynamics of change, evolutionary game theory allows for a selection process to determine success. This removes the need to consider the thought processes of players. Competitors in games adopt simple rules to determine strategies. Gameplay typically involves balancing cooperation (which creates value) and competition (which secures a share of the spoils). As a result, performance depends on the balance of cooperative and competitive choices among all firms.

Applying four standard games (Prisoners’ Dilemma, Chicken, Battle of the Sexes, and the Stag Hunt) to the business world, we created models of competition to track interactions between market entities and demonstrate why many business ideas are based upon garbled interpretations of the following three evolutionary concepts:

  1. SELECTION, the process by which entities better fitted to the environment thrive
  2. FREQUENCY DEPENDENCE, the fact that success depends on the population one competes with
  3. ADAPTATION, the process by which entities change in response to the environment

Focusing on common competitive environments, we tested how strategic approaches differing in their cooperative/competitive balance performed. Specifically, we compared trying to maximize profits with aiming to beat others even at the expense of profits (a more competitive strategy) and trying to be fair to all (a more cooperative strategy). Table 1 maps the garbled logic associated with each key element of evolution studied and why it collapsed under scrutiny.

TABLE 1: Garbled Evolutionary Thinking

Garbled Logic Related Evolutionary Concept Business Lesson

Why

Profit-maximization strategies inevitably lead to the best outcomes. Selection Profitability doesn’t always come from trying to profit-maximize Selection is on outcomes, not intentions
Business is survival of the fittest. Frequency Dependence What is “fit” changes with your competition You can’t become best fitted to your unique niche by benchmarking against others
Specialization makes you stronger. Adaptation Competitive advantages are not sustainable A changing environment means you must run to stay in the same (relative) place

Many people simply assume that seeking to profit-maximize always dominates other approaches. But General Electric (GE) famously focused upon being number one or two in market share. Rather than accept third place in any market, GE management was willing to sacrifice revenue.

When competitor-oriented firms like GE place market share over maximizing profits, their relatively uncooperative actions risk destructive competition. Under the right circumstances, however, the aggressive reputations of competitor-oriented firms can be beneficial. For example, they can bully channel partners and extract more concessions than firms trying to profit-maximize. This phenomenon is far from being an aberration. Our research with interacting populations of manufacturers and retailers shows that competitor-orientation can dominate an entire population.

Other managers are more cooperative; the fair-minded care that a partner’s profits are relatively high. Fairness matters in business (Rubin, 2012) and we show that any intuition that competition will always weed-out meeker individuals is wrong. A reputation for caring about fairness can increase profits as partners want to work with you. When Japanese car makers came to the United States, observers lauded their care for their suppliers, which enabled leaner, eventually more profitable, supply chains.

As Table 2 illustrates, the best strategy depends upon the competitive landscape. As employee rewards can encourage teamwork or conflict, different competitive landscapes reward different behaviours.

TABLE 2: Competitive Landscapes and Fit Behaviour

 

Competitive Landscape

 

Business Situation

Performance of Competitors Aiming to:
Maximize Profits Beat Competition

To Be Fair

All better off if all cooperate, but incentive to cheat. (Prisoners’ dilemma) Pricing in low-variable-cost environments No cooperation, unless game changed, e.g., repeated (Axelrod, 1984) No cooperation, unless game changed When reputations are known, fair-minded dominate
Aggression can destroy value, but increase share of value claimed. (Chicken) Budget negotiations Bullied by more aggressive competitors Often win big Bullied by more aggressive competitors
Managers want deal but on own terms. (Battle of the Sexes) Channel negotiations, demands for slotting fees Usually survives at modest levels Often succeed by bullying partner Very successful only if they can select partners
Best for group equals best for individual. (Stag Hunt) Ensuring compatibility along the supply chain Successful only with sufficient trust Often fails, as hard to build trust Trust helps perform well

 The intuition that seeking to profit-maximize dominates other approaches does not consider the fact that managers operate in radically different competitive landscapes. When Kroger negotiates with General Mills, the talks resemble a discussion within a marriage more than the casual encounters that economists fantasize about. That said, understanding manager motivation is always challenging because bluffing and inconsistent actions are common.

Managers often claim to be fair-minded when being fair really isn’t on their minds. Like animals, managers will also bare their teeth to signal aggressiveness. But in any society, meerkat mob, or multi-national corporation, it is often best to appear willing to fight—but not actually fight. In business, you just never perfectly know who to trust.

Given that selection changes the population, the competitive landscape can inform predictions. For example, if cooperative failures lead to mutual disaster, the relentless pursuit of profits may not work, making previously successful managers’ protestations of fair-mindedness more credible. Counter-intuitively, scenarios incentivizing cheating and prisoners’ dilemmas are where fair-mindedness has the greatest potential benefit. Fairness concerns dampen incentives to cheat, which can lead to more profitable outcomes for all.

GARBLED LOGIC: “Profit-Maximization Strategies Inevitably Lead to the Best Outcomes”

This first garbled logic relates to selection and profit maximization. Many will ask: “What’s garbled here?” After all, profits are rewarded by stock markets and executive incentive plans alike. To top it off, unprofitable firms go out of business. Nevertheless, countless profitable firms focus on things other than profits.

In nature, selection favours the genes of animals with numerous healthy descendants, but animals don’t consciously maximize their descendants, or even understand where babies come from. Similarly, managers adopting profitable strategies need not consciously maximize profits. Google, for instance, organized the world’s information and profits followed.

The idea that companies must aim to maximize profits is wrong not least because what it takes to be successful depends upon the environment (Bendle & Vandenbosch, 2014).

Simply put, there is not, and logically cannot be, an iron-clad law that managers must be motivated to maximize profit because business results, not management intentions, is what matters.

Because selection in the marketplace is based upon outcomes (Alchian, 1950), not inputs, our research shows that different approaches thrive in different environments. Indeed, the business world often sees those with a competitor-orientation (those who value beating the competition at the expense of profits) as thriving (Armstrong & Collopy, 1996; Armstrong & Green, 2007). This is what traditional strategy advice often misses.

Life, despite selection over eons, shows massive biological diversity. Similarly, business shows considerable diversity. Amazon and Walmart arose from radically different approaches. That in the business world selection is on outcomes, not intentions, is one reason diversity persists.

Assuming competitors always profit-maximize simply increases the risk that your predictions will unravel because people often act to help or hurt others contrary to a relentlessly self-interested profit focus (Berg, Dickhaut, & McCabe, 1995; Fehr & Gächter, 2000; Selten, 1978). Assuming folks on the other side of a negotiations table are focused solely on profit maximization will often turn out badly for the same reason. Keep in mind that many of us punish cheaters despite financial incentives not to do so (Fehr & Gachter, 2002; Henrich et al., 2001). Also keep in mind that business is full of rivalries driven by personal animosity rather than profit-maximizing goals (think about what Edison and Tesla or Gates and Jobs could have achieved working together).

“You can’t assess whether a rabbit is fitter than a shark without knowing whether the creatures are on land or sea—which is why the popular misunderstanding of evolution, survival of the fittest, is conceptually wrong.”

Managerial goals often simply aren’t consistent enough to be described as profit-maximizing. Our goals change with our emotions. As evolutionary biologist Robert Trivers (2011) suggests, inconsistency is often a feature, not a flaw. Emotions can commit us to bold declarations, which represent what we intend at the time but do not match our later actions. Emotional (over)reactions can be helpful to us. Our self-deceptions often send the signal that we are not to be trifled with and so help us deceive others into conceding to us.

Assuming individual managers profit-maximize fails partly because of thorny problems in evolution around aggregation. For example, selection may create selfish genes, but it doesn’t necessarily create selfish people (Dawkins, 2006). Parents propagate their selfish genes through their children but only through parental sacrifice. In business, altruism may succeed because of selection at multiple levels (industry, firm, manager). Industries populated with cooperative managers often help everyone succeed and experience less counter-productive in-fighting. “Cooperative” industries may be dominated by large players, each with well-defined strongholds (e.g., brand and distribution channels), who accept a “fairly” divided pie. For example, Canadian cable companies all thrived given protected access to regulated airwaves and are now unhappy with Netflix bypassing these regulations. Don’t get us wrong, there is competition, but it avoids vicious struggles, allowing greater profits to be earned by all in the industry when individuals do not profit-maximize.

Another factor is profit maximization’s time horizon. Planning horizons and reporting pressures vary greatly. Actions that maximize short-term profits often are not those that maximize long-term profits. In many emerging markets, firms like Coca-Cola endure short-term losses anticipating that habits will build. Amazon took time to reap its rewards. Nordstrom’s customer satisfaction focus, rightly or wrongly, embraces long-term profits, rejecting short-term profit maximization. For a highly selective academic institution, maximization might imply raising prices and increasing intake, but this might undermine student quality and experience, destroying the institution in the longer term. Aiming to profit-maximize is meaningless without a specified time horizon.

For selection to favour only those seeking to maximize profits, one must assume managers have accurate knowledge of the mapping between actions and outcomes. That mappings are ambiguous and constantly changing calls into question many ideas developed in traditional game theory (Brandenburger & Krishna, 1990) that use lofty assumptions about decision-making quality. As such, the fascinating academic results from game theory models often do not apply in the world of ordinary mortals.

Actions enabling today’s success may not work tomorrow. The spectacular decline of Nokia, failing to anticipate the Android platform’s arrival, suggests that profit-maximizing under today’s rules and assumptions may cause your destruction tomorrow. Evolution does not ensure managers must attempt to maximize profits to survive.

GARBLED LOGIC: “Business Is Survival of the Fittest”

You can’t assess whether a rabbit is fitter than a shark without knowing whether the creatures are on land or sea—which is why the popular misunderstanding of evolution, survival of the fittest, is conceptually wrong.

Furthermore, since competitive landscapes help determine success, there is no guarantee that your competitor’s successful strategy will work for you—a painful lesson learned by J. C. Penney when it tried mimicking Target in 2011.

Simply put, traditional strategy advice peddling the “X rules to success” doesn’t work because evolution is not about progress towards some philosophical ideal of fitness—evolution is about moving towards something suited to the current environment. And since nothing is ever “fit” in some context-free way, the concept of “survival of the best fitted” is better for business planning than “survival of the fittest.”

Rosenzweig is correct when he describes the delusion of lasting success (Rosenzweig, 2014). Sustained success using the same strategy just doesn’t happen. After all, what is best fitted changes whenever the environment is altered by technological disruption, economic crises, social phenomena, or geopolitical events. Taxi firms had a successful business model until the world went digital and Uber upended their markets.

The longevity of strategy depends upon frequency dependence, meaning the preponderance of competitors following the same strategy. A successful strategy will be imitated by competitors seeking to gain from following the “trend.” But as the frequency of a so-called “winning strategy” increases, the likelihood of its continued success falls, threatening all adopters.

Many strategists simply miss the fact that the competitive landscape changes with your competitors. Nevertheless, evolution tells us that what worked against one set of competitors is not guaranteed to remain successful, since a company’s success changes its competitors.

Think about what happened when Target attempted to enter the Canadian market. Having announced its intentions years before actually crossing the border, Target’s strategy failed in no small part due to the unprecedented strategic adjustments made by Canadian competitors in anticipation of the U.S. retail giant’s arrival. Instead of success, Target’s strategy generated an embarrassing international retreat, not to mention a US$5-billion-plus write-down.

This leads to the misunderstanding at the heart of benchmarking. You usually cannot improve strategy by isolating and changing individual elements. The “good” bits of being a selfish profit-maximizer, with a single-minded focus, are inextricably linked with the “bad” bits.

Martin Shkreli, former CEO of Turing Pharmaceuticals, ruthlessly focused on short-term profits, massively increasing prices for vulnerable customers. The strategy created widespread problems/condemnation and it is hard to imagine other stakeholders finding his single-minded focus inspiring (Freeman, Wicks, & Parmar, 2004).

Using evolutionary theory to advise managers to behave a certain way independent of context is incorrect. For example, Andy Grove’s superficially evolutionary notion that only the paranoid survive (Grove, 1999) is flawed because being paranoid, in the sense of not trusting others, spells doom in competitive landscapes where cooperation is vital.

Being paranoid, in the sense of paying constant attention to rivals’ actions, is less obviously erroneous but ignores constraints. Staying constantly alert to predators is safer than sleeping, so why weren’t early humans selected to never sleep? Simple. The benefit is less than the cost of not sleeping.

Managers can’t worry about everything, and they shouldn’t try. Wetherspoon’s Pubs should not worry about the threat from Mickey Mouse’s Ale Houses. Even genuine threats must be managed reasonably. Ford rightly monitors Tesla, but the Detroit automaker limits the resources spent doing so.

The lesson here is that you can be too careful. Wanting the benefits of paranoid attention to rivals without acknowledging the costs distorts evolutionary theory.

It is also important to note that rivals sometimes need each other. India’s telecoms face the common challenges of wafer-thin margins and high capital investment. In 2007, Indus Towers was born as a joint venture between three major telecom competitors—Bharti Airtel, Essar Vodafone, and Idea Cellular—to construct and maintain towers, reducing each firm’s investment. With over 120,000 cell towers, Indus has become the world’s largest telecom tower company and reduced the three telecom operators’ costs by over 60 per cent. This industry’s long payback periods and low internal rates of return reward collaboration even while firms compete vigorously for customers.

Paranoia would destroy such cooperation. Furthermore, paranoia may generate an excessive focus on current threats rather than competitors shifting industry boundaries. The iPod, which transformed the music industry, was created by Apple, then ostensibly a computer company.

What makes us best fitted to a specific environment often proves detrimental elsewhere. For instance, trunks undoubtedly benefit elephants, but it is unlikely that a cheetah would run faster with a trunk hanging off its face. Copying a best practice might work if all maximized against a unidimensional fitness function, but no such function exists. In reality, best fitted must be unique for each firm because each firm’s competitive landscape is unique. (At a minimum, each faces different competitors.)

Of course, benchmarking against others is of limited value if you seek differentiation. Motel 6 and the Four Seasons use different strategies to serve niches. Adopting a hybrid “best of” simulacra combining Motel 6’s cost-effective, functional rooms with Four Seasons’s level of service isn’t a coherent strategy.

Un-contextualized strategic advice driven by misunderstandings of evolution is doomed. It doesn’t make sense to always be aggressive, or always be timid. As selection changes the population of competitors, the best-fitted strategy changes. One need only look at the shifting power relationships between the now-powerful retailers (Walmart, Target, Carrefour, etc.) and their previously powerful fast-moving consumer goods suppliers; all players’ best actions changed. Now Amazon is potentially disrupting these same powerful retailers.

Consider a competitive landscape that initially favours competitor-oriented managers. Recall that these managers value winning even at the expense of profits. Our research suggests competitor-oriented managers rarely overrun the population. Why not? When the proportion of competitor-oriented players rises, performance changes as aggressive actions become more likely to face aggressive responses. Fights disproportionately hurt the competitor-oriented, who rarely back down. That the relative performance of strategies change as the population of competitors changes is the definition of frequency dependence.

Competition within species, and businesses, often involves frequency dependence. Imagine struggles over a territory. Aggressive animals (“hawks”) in a peaceful population secure resources by intimidating their peaceable neighbours (“doves”). The population, on average, becomes more aggressive as the hawks seize resources and produce more offspring. Hawks become increasingly likely to encounter hawks, thus triggering destructive fights, while the doves improve their performance relative to hawks by avoiding fights. Neither hawk nor dove is universally better. Hawk works relatively well if most of the population are doves, and dove works relatively well if most are hawks.

For example, the U.K. grocery market is being disrupted by low-cost, no-frills stores such as Lidl and Aldi, which are proving highly successful at taking customers away from supermarkets such as Sainsbury’s and Tesco. In response, Sainsbury’s and Tesco are becoming more no-frills oriented. Frequency dependence suggests that the rise of no-frills will eventually falter. The market will flip to reward emphasizing quality as consumers valuing quality become relatively neglected. Neither the no-frills, nor superior-quality, strategy is fit per se. Being best fitted depends upon your competitors’ choices.

The lesson from frequency dependence is to become comfortable with changing strategy. Best Buy’s strategy needed to change to take account of Circuit City’s collapse and Amazon’s rise. Bill Gates was relatively slow to see the Internet’s potential, but in 1995 he predicted that improvements in computer power would be outpaced by the growth in communication networks. More recently, after proclaiming that Harvard Business School would not enter the online education market in his lifetime, Harvard Dean Nitin Nohria pioneered the launch of HBX (Nohria, 2015).

Embracing change is often better than “standing strong.” Just look at low-cost airlines. The first airlines to adopt low-cost strategies found a profitable approach, but aping an increasingly long list of low-cost airlines no longer comes with a clear pay-off. And when all your competitors adopt your strategy, you might want to try something else. For airlines with low-cost strategies, that means it might be time to follow Emirates and focus on quality.

GARBLED LOGIC: “Specialization Makes You Stronger”

Strategic advice to stick to what you do best, to specialize, is almost cliché. It is also potentially dangerous because yesterday’s brilliant strategy doesn’t matter if the world changed this morning.

Keep in mind there is nothing you can make or do that won’t eventually be imitated cheaper and better, or made redundant. Indeed, thanks to changing competitive landscapes, what you do best eventually becomes outdated or, even worse, disrupted. IBM’s bet on mainframes, justifiable at the time, looks like malfeasance today in our world of smart fridges.

Simply put, excessive specialization is wrong because what is “fit” changes with the times. And since times change, good managers must change with them.

Rather than sticking to your knitting, you need to test the market and adapt. Philips was the Indian market leader in conventional lighting. Shifting resources to LEDs implied cannibalizing existing investments and a short-term profit reduction (Chandy & Tellis, 2000). But, inspired by Royal Dutch Shell’s scenarioplanning technique, Philips envisaged a future where LED prices had fallen and new competitors with sourcing synergies across consumer electronics emerged. This highlighted the need to embrace LEDs and create early-warning systems tracking competitive actions in the LED space.

Advising managers to maintain a sustainable competitive advantage is not only irrelevant because evolution makes sustainable competitive advantage hard to define (Coyne, 1986)—it is also impossible to identify when you have such an advantage. You can only prove the negative when something fails the test of time. Remember the Sony Walkman, an amazing advance in personal entertainment only a generation ago? Try giving one to a millennial today, and they would probably throw the device away while fleeing in terror at the thought of carrying around a limited supply of music on cassette tapes.

Since the concept of sustainable competitive advantage is essentially an oxymoron, be careful when you say you are constructing a moat around your business. Like the supposedly impregnable Maginot Line, which failed to protect France from German invasion during the Second World War, a static barrier in a dynamic world is merely an invitation to go around. Indeed, rather than searching for an elusive sustainable position, you should focus on ability to adapt.

Even environments with relatively stable competitor positions can be experiencing dramatic change. This effect is known as The Red Queen. In Lewis Carroll’s Through the LookingGlass, Alice is surprised to find she has made no progress after running for a good period of time. In the Red Queen’s world, Alice learns, you need to run just to maintain your ground. In scientific circles, the term Red Queen is used to describe an evolutionary concept related to the need for co-dependent species to evolve or risk extinction. In business, Red Queen environments—in which dramatic absolute change doesn’t dramatically impact relative competitor positions (unless someone decides to stand still)—are common.

In a Red Queen world, you must keep moving because competitive advantages are never sustained. At best, they are replaced by a new relative advantage and only if the leader adapts quickly enough. Samsung’s and Apple’s phones have dramatically improved with limited change in their relative standings. BlackBerry, on the other hand, built a moat around its thumb keyboard and security and fought, futilely, to defend a static position.

Changes, of course, can radically alter what approaches best fit the landscape and our research suggests this can happen surprisingly fast as modest payoff alterations change competitors’ incentives. If the cost of fighting falls, winner-take-all landscapes, where competitors claim dominant positions, can transform quickly into something akin to prisoners’ dilemmas where all lose. For example, when consumer preferences converge, managers would rather compete than abandon the mainstream to a committed rival. We see movement towards head-to-head competition in practice as Starbucks relies more heavily on drive-thru traffic and McDonald’s has rolled out the McCafé concept.

Being able to adapt is crucial. Compaq computers is a good example. In the 1980s, the company’s brilliant strategy focused on computer dealers and retailers, allowing a relatively unknown firm to reach nervous consumers while benefiting the channel players, making them less beholden to then-dominant IBM. Sticking to the “knitting” of dealer support and recommendations helped Compaq become the world’s largest PC company. However, the fall was quick. Dell’s direct, build-to-order capability supplied the newest technology to increasingly savvy customers. Compaq, with massive channel inventories, could not adapt. The strength that drove its rise, the dealer strategy, was its anchor on the way down.

To allow for adaptation, some companies allocate only a percentage of next year’s resources when budgeting with the remaining allocations channeled into opportunities revealed later. Alphabet’s investments in “Other Bets” essentially buy strategic options while also helping illuminate how markets and industries are shifting.

Too much strategy starts with introspection, an inside-out view starting with questions like “What are our core competencies?” and “What are our inimitable resources and capabilities?” From here, a battle plan is designed to win markets and vanquish competitors. The strategist is cast as the hero whose brilliant decisions the world eagerly awaits. By being “fit,” the firm will achieve dominance regardless of the competition.

Yet, adaptation, not dominance, leads to evolutionary success and adapting involves reacting to changes in the competitive landscape rather than shaping them. Starbucks didn’t create the desire for a stimulating cold drink, or even invent the Frappuccino, it just saw potential and adapted. But nothing comes free, which is why the distribution strategy associated with the coffee chain’s new approach brought challenges controlling the product and brand.

To gear an organization to adapt, a manager might:

  • Improve mechanisms to sense the current environment. Reducing the communication gap between leaders and the frontline, and ensuring those with access to divergent information are heard at the highest levels.
  • Create a warning system that tracks adjacent industries/technologies and periodically brings findings to the strategy table to enable a speedy response.
  • Be willing to cannibalize. Creating venture firms allows entrepreneurs to create experiments supplemented by the firm’s resources and helps build adaptive capacity.

An adaptation orientation fundamentally alters the decision maker’s focus. Adapting is not something managers do to the world. Archimedes famously said, “With a place to stand, you can move the world,” but this doesn’t work in business, where you don’t have a stable foundation. Try to stand still in the business world, and it will move around your feet.

In business, it’s better to go with the flow of currents you don’t control. After all, the manager isn’t a protagonist, but rather a humble navigator battered by irrepressible winds.

EFFECTIVELY UTILIZING EVOLUTIONARY CONCEPTS

Putting Selection, Frequency Dependence, and Adaptation together, Table 3 shows how approaches to business situations differ with a better understanding of evolution. Drawing from our models and the arguments in this paper, it also offers managerial advice to better address typical managerial considerations.

Many of our insights are already embraced by successful managers, who intuitively understand evolutionary pressures and avoid garbled logic. Here we support those combating erroneous ideas driven by a veneer of evolutionary logic. Cost-cutting might make you leaner, but fit does not mean best fitted if your leanness doesn’t allow you to cope with change.

TABLE 3: Managerial Implications

Consideration Wrong Lesson

Action/Lesson

Selection

Others are successful Survival of the fitness implies their strategy is a good one. Success isn’t proof of genius, luck happens. Don’t be overawed by impressive resumes.
We are successful Our strategy is a good one. Take an outside-in view. What would you change if you joined tomorrow?
We have never failed We make excellent decisions. You are too careful. “Fail fast to succeed early” aids learning.
What should our strategy be? To maximize profits. Work towards manageable criteria and hope these lead to success.
What should our time horizon be? Not making profits now? You’re failing. Selection may be on future profits. Can you convince investors to wait?
All competitors in your industry are thriving All are making ideal decisions. You aren’t perfect, admit your weaknesses. Track competitors to predict their goals/biases.
Market too small to support us Leave market. Look for opportunities to collaborate with others to expand the market or at least the profit pool.
Your competitor is successful Poach their staff, adopt their strategy. Their strategy might not work for you.
Competitor ignores opportunity Opportunity wasn’t profit-maximizing. Maybe the competitor has made a mistake or your unique skills might allow only you to benefit.
       
Frequency Dependence Industry has prevailing assumptions These drive success in industry. Test, don’t assume. Look for external data disconfirming assumptions.
Change is coming Build a moat to defend your position. Don’t defend obsolete positions.
Your {whatever} is below average Work to eradicate deficiency. Don’t seek flawless—bad comes with good. Accept tolerable weaknesses.
You are industry-best at something Stick to your knitting. Are your woolens still relevant?
Your strategy is copied We have the correct strategy. Is it time to change to maintain your unique position?
       
Adaptation Worried about future Fitness today implies fitness tomorrow. Future competition will differ. Build early-warning systems. Be willing to proactively cannibalize.
You have best c-suite/staff Raises all round. There is no universal best. Ensure those whose information contradicts the prevailing view can share their views.
There are known and unknown unknowns  Prepare an incredibly detailed plan. Don’t try to anticipate every eventuality. Build flexible capacity and allow intrapreneurs to experiment.
We aren’t fully utilizing capacity Aim to maximize short-term efficiency. Hold redundant capacity to allow speedy change.
Technology is changing fast in your industry Patent knowledge and protect your turf. Monitor disruptive technologies and cutting-edge customers. Identify future competitors in adjacent industries.
Your strategy has stood time’s test Be confident. Success is a journey, not a destination. Keep running when you are ahead.

 

Although the garbled evolutionary logic outlined above appeals to many strategists, it clearly can be detrimental to your business’s health. Indeed, when strategists enlist evolutionary logic to advise firms to focus on strength and control, they are actually putting the cart before the horse because evolutionary strategy is about adapting to the competitive landscape, not projecting your desires upon it.

The key takeaways from our research are:

  • Selection on outcomes does not dictate that aiming for profit maximization will always lead to the best outcomes
  • Frequency dependence means there can be no unidimensional fitness to aspire towards
  • It is not survival of the fittest, but best fitted for any particular contest

Simply put, adaptation (both proactive and reactive), not specialization, is the key to success. Recognizing this requires a fundamental shift, inverting the normal strategy sequence by suggesting firms change themselves, rather than seeking to change their world.

Strategic interactions matter in business. A reputation for aggression can scare away rivals (Schelling, 1980), just as a reputation for fairness can create opportunities. You need to predict how others will react. When predicting others, remember that if competitive behaviour is rewarded, as it was with the investment banks described by Michael Lewis in Liar’s Poker (Lewis, 2010), managers who have thrived are likely sending honest signals that they will sacrifice profits to avoid being beaten. In other markets, signals of fair-mindedness may be more credible.

Evolution is about change. Remember, success is not a destination you camp out at because a market leader’s competitive advantage is never sustained. When doing well, have a quick high-five and start a rethink.


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