Robust ecosystems have points of balance; change is incremental, competitive, and evolutionary, leading to a revised point of balance.

When a species becomes dominant, that dominance becomes the source of weakness over time, as evolution requires responses to changing circumstances. A dominating player in any system resists change, as that involves increased levels of short term risk, and dominating players are generally risk averse.

Occasionally, an unpredicted catalyst appears, throwing the rules against the wall. Established incumbents fail to evolve quickly enough to accommodate the changes and survive. This is as real a process in commercial life as it is in the natural world.

The introduction of rabbits and the cane toad into Australia’s ecosystems have had the same impact on the pre-existing status quo as has the evolution of the microchip has had on the commercial world. The microchip unleashed a series of innovations for which the pre-2000 economic ecosystem was unable to recover. The now dominating players were little more than single cell commercial organisms, and many did not exist, at the change of the centuries.

Commercial ecosystems are no different. There will be times of consolidation based on the strength of the balance sheet of the dominating players. This becomes the source of weakness as they become locked into the status quo which produced them.

It is pretty clear to me that there are 4 stages in the commercial development of a market:

• Start-up stage. One player emerges, that effectively redefines a market in some way, followed up quickly by a series of fast followers. This is normally generated by some sort of catalyst, unanticipated by market incumbents, and leads to what is seen at the time as unprecedented periods of growth. Think Ford, General Electric, and those around the move from the vacuum valve to the microchip, from Allan Turing during the war to Gordon Moore in 1965.
• Scaling stage. The new players fight for dominance, with most of them going to the wall, while a small number, scale and consolidate to a position of dominance, if not monopoly. Think social media, web browsers, mobile computing.
• Leverage for profit. The new ‘kings’ leverage their dominant position for maximum returns, optimising processes, and minimising risk in pursuit of profitability. Facebook, Google, Microsoft and Amazon are all following this pattern.
• The cycle repeats. A catalyst appears that changes the rules of the game, again. Some may survive in a different form, others will disappear.

This is a Darwinian process applied to our economic and commercial ecosystems. Charles Darwin’s much quoted musing in the header applies as much to commercial systems as it does to natural ones.

The speed of change, enabled by digital technology has concentrated the cycle time from decades to a few years, and now arguably, a few weeks. It took 30 years for the vacuum tube to morph into scalable microchips,  a decade for the early versions of the net to enable distributed computing, and a couple of years for that to create a system that might support new communication tools. Then, Facebook created a new model that blitzed the competition and led to absolute domination of a new ecosystem. A similar story led to Amazon, and Google, while Microsoft, the monopoly operating system player of the 80’s and 90’s, threatened with anti-trust breakup, evolved with incredible speed and agility into something new.

In the last few months we have seen examples of businesses and institutions that have evolved at a pace unimaginable a year ago, to face the challenges of Covid.

It may be fanciful, but it seems to me that market dominance contains the seeds of the dominators own destruction. This is a pattern followed not just by companies from Wedgewood, the British East India Co, Ford, GE, Microsoft, but to countries. Rome, China, Britain, and dare I say it, the US, while China is rebounding.

I speculate that this is the result of the crushing of opposition, and resulting lack of ‘genetic’ diversity that occurs as short term risk is minimised while profitability is maximised.  Lack of diversity in the commercial DNA leads to commercial vulnerability, just as in the natural world

Ford ‘invented’ the modern version of the production line, (the Venetians had it first in the 1500’s) but could only make one type of car, so GM ran over the top of them with choice. Kodak dominated photos, but they defined themselves in a particular way, and despite being the ones who invented the virus that would kill them, digital photography, they failed to evolve. Same story with Blockbuster. They absolutely dominated global video rental, defining themselves as video rental stores. The then CEO John Antioco put in place a strategy that anticipated the growth of subscription streaming services. Blockbuster even had the opportunity to buy Netfliks at a give-away price at the time. However, the board, dominated as it was by those whose sole interest was short term profitability, got rid of Antioco, and the strategy that may have saved them as a significant if not dominating player. They actively rejected the opportunity to evolve, signing their own death warrant.

On each occasion, in each domain, there has been some sort of catalyst that has led to the demise of the dominating enterprise.

It seems to me that this current Corona crisis is another such Darwinian catalyst?

We have already seen many businesses struggling, and many ‘hitting the wall’ and I suspect there will be many more, while some, mostly smaller and more agile businesses are doing very well. Question is, will a few of the dominating enterprises fail the test of rapid evolution, and disappear?

I am prepared to bet that many will, and be replaced by businesses we have not yet heard of, that are able to deploy digital tools in almost real time.  Just look at the manner in which Zoom has been able to harness the opportunity, blowing away incumbents like Microsoft.

Related posts:

Has ‘The Bug’ created an organisational crossroad? The silver in the corona cloud A Corona, heavily disguised as a Black Swan Environmental research: A commercial necessity.