After Success, Devolution
The tightly linked nature of the emerging economy makes it
behave like a biological community. Wars and battles were the allegories
of the industrial economy. Coevolution and infections are more apt in
the new economy.
Companies are like organisms evolving in an ecosystem. Some
ecosystems in nature offer few opportunities for life. In the Arctic
there are only a couple of strategies for survival, and a species had
better get good at one of them. Other biomes are chock-full of
opportunities, which are in constant flux, appearing and disappearing as
species jockey for their niches. The harmony we attribute to nature is
not static perfection but a complex dance of ups, downs, trips and
falls, and balance regained.
Rich, interactive, and highly flexible in shape, the network
economy resembles a biome seething with action, a jungle in fast-forward
motion. New niches open up constantly and vanish quickly. Competitors
sprout beneath you and then gobble your spot up. One day you are king of
the mountain, and the next day there is no mountain at all.
Biologists describe the struggle of an organism to adapt in
this type of habitat as a long climb uphill, where uphill means greater
adaptation. In this metaphor, an organism that is maximally adapted to
the times is situated on a peak. Imagine a commercial organization
instead of an organism. A company expends great effort to move its butt
uphill, or to evolve its product so that it is sitting on top, maximally
adapted to the consumer environment.
All organizations (profit and nonprofit alike) face two
problems as they attempt to find their peak of optimal fit. Both
problems are exacerbated by the constant turbulence of the network
First, unlike the industrial eras relatively simple
environment, in which it was fairly clear what an optimal product looked
like and where on the stable horizon a company should place itself, it
is increasingly difficult in the network economy to discern what hills
are highest and which summits are false.
In biological terms, the new economic landscape is
"rugged," disrupted by gulfs, precipices, and steep slopes.
Trails are riddled with dead ends, lead to false summits, and made
impassable by big-time discontinuities. Because the economic terrain is
jumbled with no overall pattern, there is no certainty that a company
intending to head up a slope toward a peak new market is actually
climbing anything larger than a hill. In biospeak, they may succeed in
getting to the top yet find themselves stuck on a suboptimal peak.
Turbulent times mean that local success is not global success. A company
may be at peak efficiency, but on the wrong mountain. The trick is to
select a high-potential area to excel in
Big and small companies alike have to deal with their new
landscape. Its often unclear whether a firm should strive to be on
top of a mountain (for example, to be the worlds most reliable
hard disk manufacturer), when the whole mountain range beneath that
particular peak may sink in a few years (if everyone moves their storage
onto large protein arrays). An organization can cheer itself silly on
its way to becoming the worlds expert on a dead-end technology.
(The nuclear power industry offers one example.)
Some of the most perfect technology was created just before
its demise. Vacuum tube technology reached a zenith of complexity just
before it vanished. As MIT economist James Utterback writes: "Firms
are remarkably creative in defending their entrenched technologies,
which often reach unimaginable heights of elegance in design and
technical performance only when their demise is clearly
predictable." Its relatively easy to arrive at a peak of
perfection. The problem is that perfection can be local, or suboptimal,
like being the best basketball player in your state, but unaware of
national tournaments. While a firm is congratulating itself on creating
the worlds fastest punch card readerthe fastest in the
universe!the rest of the economic world has moved on to the
The harsh news is that "getting stuck on a local
peak" is a certainty in the new economy.
Instability and disequilibrium are the norms; optimization
wont last long. Sooner, rather than later, a product will be
eclipsed at its prime. Indeed, an innovation at its prime increases its
chances of being eclipsed. In Mastering the Dynamics of
Innovation, a study of innovation in the automobile industry,
Utterback concludes that "an unhappy byproduct of success in one
generation of technology is a narrowing of focus and vulnerability to
competitors championing the next technological generation." The
product may be perfect, but for an increasingly smaller range of uses or
While one product is perfecting its peak, an outsider can
move the entire mountain by changing the rules. Detroit was the peak of
perfection for big cars, but suddenly the small-car mountain
overshadowed it. Sears was king of the retail mountain, but then
Wal-Mart and Kmarts innovations created a whole new mountain range
that towered above it. For a brief moment Nintendo owned the summits of
the video-game mountain until Sega and later Sony built separate
mountains even higher. Each of the displaced industries, companies, or
products were stuck on a less optimal local peak.
There is only one way out. The stuck organism must devolve.
In order to go from a peak of local success to another higher peak, it
must first go downhill. To do that it must reverse itself and for a
while become less adapted, less fit, less optimal. It must do business
less efficiently, with less perfection, relative to its current
This is a problem. Organizations, like living beings, are
hardwired to optimize what they knowto cultivate success, not to
throw it away. Companies find devolving unthinkable and impossible.
There is simply no allowance in the enterprise for letting go.
And the better the company, the less room there is for
Everything about a modern organization is dedicated to
pushing uphill. The CEO is trained, and paid well, to push the firm
toward the peak. Quality circles get the entire workforce marching
uphill toward optimal performance. Consultants monitor the tiniest
detail, trying to eliminate anything that might keep the company from
attaining the peak of perfection. Reengineering wonks zero in on
computer data showing which parts of the organization are lagging
behind. Even the receptionist is in search of excellence.
Where in the modern company is the permission, let alone the
skill, to let go of something that is working, and trudge downhill
And have no doubt: It will be chaotic and dangerous down
below. The definition of lower adaptivity is that it places you closer
to extinction. But you have to descend and risk extinction in order to
have the opportunity to rise again.
Economist Joseph Schumpeter calls the progressive act of
destroying success "creative destruction." Its an apt
term. Letting go of perfection requires a brute act of will. And it can
be done badly. Management guru Tom Peters claims that corporate leaders
are now being asked to do two tasksbuilding up and then nimbly
tearing downand that these two tasks require such diametrically
opposed temperaments that the same person cannot do both. He impishly
suggests that a company in the fast-moving terrain of the network
economy ordain a Chief Destruction Officer.
With or without someone in charge of creative destruction,
there is no alternative (that we know of) to leaving behind perfectly
good products, expensively developed technology, and wonderful brands,
and heading down to trouble in order to ascend again with hope.
Once upon a time this march was rare. The relatively stable
markets and technological environment of the industrial era were smooth,
not rugged. Only a few parameters changed each year, and they changed
gradually. Opportunities arrived with forewarning. Those days are over.
The biological nature of the new economic order means that the sudden
disintegration of established domains will be as certain as the sudden
appearance of the new.
There can be no expertise in innovation unless there is also
expertise in demolishing the ensconced.
There is nothing wrong with perfection. To be maximally fit
for a niche, to serve optimally, to seek the peak of
perfectionthese will always remain the goals of any firm, or
individual. So why let go of perfection at the top?
The problem with the top is not too much perfection, but too
little perspective. Great success in one product or service tends to
block a longer, larger view of the opportunities available in the
economy as a whole, and of the rapidly shifting terrain ahead.
Legendary, long-lived companies are intensely outward-looking. They can
spot a global peak and distinguish it from the many false peaks. They
understand that an inward focus, especially a narrow focus on being
"worlds best" in some matter, can work against long-term
adaptation by blinding the organization from seeking new heights. Better
for the long haul is an outward _perspective that is always seeking
alternative mountains to climb.
This outward vista is all the more critical in the new
economy because perfection is no longer a solo act. Success is a highly
interdependent enterprise, encompassing a network of vendors, customers,
and even competitors. A firm needs to explore widely, outside of the
current favored position, and at times contrarily.
Letting go at the top is not an act against perfection, but
In addition to the scarcity of leaders willing to
disassemble the profitable, and the natural bias of companies toward
perfection, there is another reason why letting go is so hard.
Economists Paul Milgrom and John Roberts studied the
competenciesthe winning traitsof a large number of firms in
modern manufacturing and concluded that competencies of companies tended
to occur in suites, or in a guilds of skills.
This natural bundling of traits makes it very difficult for
contenders to challenge a successful firm. As Richard Nelson, an
economist at Columbia University says, "Successful firms often are
difficult to imitate effectively because to do so requires that a
competitor adopt a number of different practices at once."
Companies can buy technology and human skills in a particular area. But
gradually acquiring one or two competencies at a time does no good when
you are attempting to displace a highly successful firm. The whole suite
of mastery has to be acquired simultaneously in order for you to be
competitively effective. A firm such as Disney is almost inimitable
because of the difficulty of obtaining in one swift swoop its highly
integrated mix of skills.
The natural bundling of traits also makes unraveling for
devolution immensely difficult. To devolve demands going against all the
best qualities of an organization all at once. The organic world offers
a number of lessons in this regard. Biotechnology is built on the
knowledge that most genes dont code for anything themselves. Most
genes regulateturn off and onother genes. The genetic
apparatus of a cell, then, is a dense network of hyperlinked
interactions. Any gene is indirectly controlled by many other genes.
Thus, most attributes in a biological organism usually travel
in the genome as loosely coupled associations. Blue eyes and freckles,
say. Or red hair and a hot temper. Two important consequences follow
from this. First, to get rid of the redheads feisty temperament
by evolution may also meanat least at firstgetting rid of
the red hair. Animal breeders know this dilemma firsthand. It is
difficult to breed out an unwanted trait without breeding out many
desirable ones. Chicken breeders cant get rid of a chickens
aggressiveness without throwing out its egg-laying proficiencies.
Secondly, the interlocking guild of competencies, which give
organisms and organizations their advantages, becomes a drawback during
change. The increased interlinkage of the network economy heightens this
dilemma. In the network economy, the skills of individual employees are
more tightly connected, the activities of different departments more
highly coordinated, the goals of various firms more independent. The net
brings the influence of formerly unrelated forces to bear upon each
The more successfully integrated a firms capabilities
are, the harder it is to shift its expertise by changing just a little.
Thus successful firms are more prone to failure during high rates of
change. (Success makes it easy for the successful to deny this fact.)
Indeed, the very success of successful organizations makes them
conservative toward changebecause they must unravel many
interdependent skillseven if some are working fine.
The problem that IBM faced with the arrival of the personal
computer in the early 1980s was not the problem of acquiring
technological know-how. As a matter of fact, IBM already knew how to
build personal computers better than anyone. But the package of
proficiencies the blue suits had honed over the years to make IBM
indomitable in the mainframe computer field could not be gradually
adapted to fit the new faster-paced terrain of desktop-based computing.
IBM was supreme in the old regime because their sales, marketing,
R&D, and management skills were all optimally woven into a highly
evolved machine. They couldnt change the size of the computers
they sold without also altering their management, forecasting, and
research skills at the same time. Changing everything at once is
difficult for anyone, anytime.
Because skill guilds constrain (and defend) an organization,
it is often far easier to start a new organization than to change a
successful old one.
This is a major reason why the network economy is rich in
start-ups. Starting new is a less risky way to assemble an appropriate
new set of competencies than trying to rearrange an established firm,
whose highly intertwined bundles resist unraveling.
In a rugged economic landscape, about the only hope an
established company has for adapting to turbulent change is by employing
the "skunk works" mode, which reflects another biological
imperative. Computer simulations of evolution, particularly those run by
David Ackley, a researcher at Bellcore, demonstrate how the source for
mutations that eventually conquer a population start at the geographical
fringes of the population pool. Then after a period of "beta
testing" on the margins, the mutants overtake the center with their
improvements and become the majority.
At the edges, innovations dont have to push against
the inertia of an established order; they are mostly competing against
other mutants. The edges also permit more time for a novel organism to
work out its bugs without having to oppose highly evolved organisms.
Once the mutants are refined, however, they sweep rapidly through the
old order and soon become the dominant form.
This is the logic of skunk works. Hide a team far from the
corporate center, where the clever can operate in isolation, away from
the suffocating inertia of success. Protect the team from performance
pressures until their work has had the kinks ironed out. Then introduce
the innovation into the center. Every once in a while it will take over
and become the new standard.
Economist Michael Porter surveyed 100 industries in 10
countries and found that in all the industries he studied, the source of
innovations were usually either "outsiders" or else relative
outsidersestablished leaders in one industry making an entry into
a new one.
To maximize innovation, maximize the fringes.
Encourage borders, outskirts, and temporary isolation where
the voltage of difference can spark the new. The principle of skunk
works plays a vital role in the network economy. By definition a network
is one huge edge. It has no fixed center. As the network grows it holds
increasing opportunities for protected backwaters where innovations can
hatch, out of view but plugged in. Once fine-tuned, the innovation can
replicate wildly. The global dimensions of the network economy means
that an advance can be spread quickly and completely through the globe.
The World Wide Web itself was created this way. The first software for
the web was written in the relative obscurity of an academic research
station in Geneva, Switzerland. Once it was up and running in their own
labs in 1991, it spread within six months to computers all around the
The basic rules of success are eternal: serve customers
obsessively, escalate quality, outdo your competitors, have fun. The
nature of the new economy changes none of those rules. But the success
they help one attain is not what it used to be. However you want to
measure it, success is a type of inertia. The law of increasing returns
can compound it but success still follows its momentum to the
topbut the top is highly unstable now. Being at the top when the
sands shift is a liability. For anyone sane, success should breed
In the highly turbulent, quickly reforming environment of
the new economy, the competitive advantage goes to the nimble and
malleable, the flexible and quick. Speed and agility trump size and
experience. Fast to find the new is only one half the equation; fast to
let go is the other important half.
Of all the lessons that biology has to offer us as we begin
to assemble a network economy, the necessity of abandoning our successes
will be the hardest to practice.
Dont mistake a clear view for a short distance.
The terror of devolution is that a firm must remain intact while it
descends into the harsh deserts between the mountains of successes. It
must continue to be more or less profitable while it devolves. You
cant jump from peak to peak. No matter how smart or how speedy an
organization is, it cant get to where it wants to go unless it
muddles across an undesirable place one step at a time. Enduring a
period of less than optimal fitness is doubly difficult when a very
clear image of the new perfection is in plain sight.
For instance, sometime in the early 1990s the Encyclopaedia
Britannica company saw that they were stuck on a local peak. They were
at the top: the best encyclopedia in print. They had a worldwide sales
force peddling a world-recognized brand. But rising fast nearby was
something new: CD-ROM. The outline of this dazzling new mountain was
clear. Its height was inspiring. But it was a different realm from their
old mountain: no paper, no door-to-door salespeople, cheap, little dinky
disks on the shelf, and a media that required constant updates. They
would have to undo much of what they knew. Still there, clear as
could be, was their future. But while the destination was extremely
clear, the path that led to it was treacherous. And, it turned out, the
route was even longer than they thought. The company spent millions,
lost salespeople in droves, and verged on collapse. They entered a scary
period during which neither print nor CD worked. Eventually they
completed the CD-ROM encyclopedia they had envisioned many years
earlier, but only after an outsider (Microsoft) published a better one.
Encyclopaedia Britannicas future is still in doubt. But their
travails are common. Says futurist Paul Saffo: "We tend to mistake
a clear view of the future for a short distance."
To scale a higher peak -- a potentially greate gain -- often means
crossing a valley of less fitness first. A clear view of the future
should not be mistaken for a short distance.
Today, nearly everyone in business has a clear view of the
future of TV. Its something that comes to you in the same way you
get the internet. You choose your shows, from 500 channels. You can
shop, maybe interact with a game, or click for more information about a
movie you are watching. The technology seems feasible, the physics
logical, and the economics plausible. But Future TV looks a lot closer
than it really is because the path between here and there winds through
a barren desert with little optimal about it. Although the economics may
work later, they barely work out now in the alkali flats. It may be that
none of the large television or computer or phone companies are
sufficiently nimble (or hungry) to make it across the valley of
deatheven though the shape of success is so visible.
Send the network out. There is only one sound strategy
for crossing the valley: Dont go alone. Established firms are now
doing what they should be doing: weaving dozens, if not hundreds, of
alliances and partnerships; seeking out as many networks of affiliation
and common cause as possible, sharing the risk by making a web. A motley
caravan of firms can cross a suboptimal stretch with hope. Banding
together buys their networks several things. First, it allows knowledge
about the terrain to be shared. Some firm riding point might discover a
small hill of opportunity. Settling there allows small oases of
opportunity to be created. If enough intermediate oases can be found or
made, the long journey can become a series of shorter hops along an
archipelago of small successes. The more firms, customers, explorers,
and vested interests that are attempting to cross, the more likely the
archipelago can be found or created.
To create the future cara car that is easily
imaginable right nowan entrepreneurial car company can only
succeed by spinning together a network of vendors, regulators, insurers,
road makers, and competitors to help others to devolve quickly and
Who is in charge of devolution? It is a rare leader
who can creatively destroy as well as relentlessly build. Its a
rare committee that will vote to terminate what works. Its a rare
outsider whose advice to relinquish a golden oldie will be heeded. You
are in charge of devolving. Everyone is. Its just one more chore
in the network economy.
Question success. Not every success needs to be
abandoned drastically, but every success needs to be questioned
drastically. Do interesting substitutes exist? Are radical alternatives
receiving compounding attention? You need to consider innovations far
afield, ones that are not "on the same mountain." Are there
innovations that are changing the rules of the game? Beware of minor
incremental improvementsslight baby steps on the same mountain.
These can be a form of denial. Nicholas Negroponte, director of the MIT
Media Lab, declares "Incrementalism is innovations worst
Searching as a way of life. In the network economy,
nine times out of ten, your fiercest competitor will not come from your
own field. In turbulent times, when little is locked in, it is
imperative to search as wide as possible for places where innovations
erupt. Innovations increasingly interfect from other domains. A
ceaseless blanket searchwide, easy, and shallowis the only
way you can be sure you will not be surprised. Dont read trade
magazines in your field; scan the magazines of other trades. Talk to
anthropologists, poets, historians, artists, philosophers. Hire some
17-year-olds to work in your office. Make a habit to visit a web site at
random. Tune in to talk radio. Take a class in scenario making.
Youll have a much better chance at recognizing the emergence of
something important if you treat these remote venues as neighbors.