Firms told to adapt or die as evolution extends into business theory

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It seems Darwin’s theory of evolution by natural selection isn’t just applicable to biological life – it can also help companies survive by giving them a way of understanding how to adapt.

Milton Keynes company leaders were told, over breakfast at The Open University’s Business School this morning (Thursday), that mergers and acquisitions of firms were the equivalent of sex and could help create new entities.

“The same mechanisms are happening in industry as in biology,” said Professor Brian D Smith, a Visiting Research Fellow at The OU. “It’s not like evolution, it is evolution.”

And he had a surprise for people who thought that having intelligent human beings making decisions made a difference. Prof Smith said: “Business models do not go extinct any less than species. Research shows that the extinction rate of business models and species is almost identical.”

He said history is littered with examples of business models that have not survived. In his own specialist sector, pharmaceuticals, apothecaries no longer exist and the landscape is constantly changing there, too.

Professor Smith’s talk was on how evolutionary science can be applied to industries. “It is the only theory that explains complexity. Biologists happened to get there first but other scientists are getting there,” he said.

Prof Smith said that to survive, managers need to thinking about what particular industries will look like and concentrate on what their “fitness landscape” be. That would mean examining how to adapt to social and technological changes taking place. The process of company development would then be one of “managing adaptation”.

He added most managers spend their time doing pointless things, rather than concentrating on how to adapat to the future.

He concluded: “Companies need to evolve to fit new business models or go extinct.”

The Open University Business School holds regular breakfast briefings. For more information visit www.open.ac.uk/business-network