Does your face fit? Business plans and the fitness landscape

The idea of the economy as a complex adaptive system (as popularised by The Origin of Wealth) can be, well, complex.
One of the key learnings, for me at least, is the idea that business plans more often than not fail before they even get to be tested for fitness by the place they are intended for: the market.

In a networked world, you can substitute the term community for market (at least a fully empowered co-creating community, you can).

If the economy is evolutionary then it finds the 'most fit' by a process of selecion, amplification and repetition.
In evolution this happens in the environment. In the economy the environment isn't the boardroom - it is the fitness landscape of the market/community.

It's just another important reason we should find ways to make the silo walls of the company permeable - particularly when it comes to your business plans. Yes, I think that does mean reaching out to the community the plan is meant to serve when it comes to creating it. And letting that community make the selections. You can help with the amplification and repetition.

Actors as business plans.
The adaptability of the plan is also critical. Imagine you're a jobbing actor going from audition to audition. The fitness landscape (the selection process) is the director and his honchos.
If you look right for the part, you get the gig, if you don't, you don't.
The more adaptable you are (the better an actor you are, I guess) the more often you will be able to change your performance to meet the needs of the role. You can shape how well you fit. You learn from the feedback you get, and do more of what got you the gig next time (or less, or try another strategy next time, if you failed).
Selection, amplification and repetition.

If you sit alone talking into the mirror and try to decide for yourself how good you are, all alone, it's unlikely you'll improve. And when you go to that audition the market is more likely to say no.

Has your boardroom got mirrors or open doors?

From fear of the random to joy of complexity

Thanks to a free download over at MobHappy I've been discussing the Black Swan with colleagues.
If you haven't read the Black Swan - go get a free summary download now.
There are similar ideas also to be found in The Origin of Wealth. Simply, big changes are caused by unusual events that no one saw coming.
Confused of Calcutta makes the point in another way today, quoting Howard Schneiderman:

When you turn down a request for funding an R&D project, you are right 90% of the time. That’s a far higher rate of decision accuracy than you get anywhere else, so you do it.

And that’s fine. Except for the 10% of the time you’re wrong. When you’re wrong, you lose the company.

The 'frozen accidents' thesis described in the Origin of Wealth references Annie Oakley. At the end of her sharp-shooting show she would ask for a volunteer from the audience brave enough to let her shoot a cigarette from his (or her, I guess) lips.
Because few would ever be foolhardly enough to risk this, her husband would pose as an audience member, step forward and allow the show-stopping finale to take place.
However, on one occasion Crown Prince Willhelm of Germany confounded the usual routine and stepped forward when a volunteer was called for.
Annie had been on the sauce the night before. Now imagine if her trigger finger had been just a little shaky that day. Potentially world war 1 would never have happened... Germany wouldn't have been defeated, Hitler wouldn't have had a platform to prosper etc etc.

One frozen moment in time, one seemingly random chance, could have gigantic impact.
The difficulty for those of us trying to predict the future, trying to strategise... is that this kind of cause and effect can only be seen when you look backwards.

Derren Brown pulled off a great illustration on his Channel 4 TV series recently. He convinced a group of people he had a fool-proof system for backing the horses. His evidence - the results of his tips so far. The show focused on one woman who had used his system to back six winners on the trot. He now convinced her to gather all the cash she could borrow to back winner number seven.

Only once the bet was placed did he reveal to her how his system worked.

Imagine the speed with which her jaw hit the floor when he revealed that she was simply one of thousands of people who had been recruited for this TV programme. That each time he chose a race with six horses in. He gave one sixth of the group a different horse to back each time. Only 1/6th of the group could be right. The other 5/6ths were thanked for taking part and the remaining 1/6th divided by six once more, and given another tip (each 1/6th getting a different tip) and so on. Only the losers knew the system was flawed. The winners in each round were convinced it was a sure fire hit - and by the time race seven came round there were just a handful of excited punters left.

The fact was they had just got lucky in a random series - and now this last lady was putting her shirt (almost literally) on what amounted to no more than faith in a completely random outcome (in which she had a 5/6 chance of failing).

The Confused of Calcutta example could be seen as applying this to the backing (or otherwise) of R&D projects.

The Black Swan leads us to understand that those who have been stunningly successful in business (Bill Gates for example) do not have a secret we should all follow, instead they were in the right place at the right time to benefit from a series of random events (in Gates case it was the happenstance that IBM wanted an operating system, the people they wanted to work with preferred to go ballooning than meet with them and so Gates and Microsoft got asked as a second choice. Gates didn't even have experience of OS. He licensed someone else's. And in the end his company was worth more than IBM.

This sounds depressing for those trying to predict. And it is if you want certainty in the long run. But the case made by the Origin of Wealth suggests that the best solution is to make your company more able to cope with evolution, more able to evolve.

Rather than random events, The Origin of Wealth suggests that business plans are selected for fitness by the market. This is far from random. But it does involve trying things to see how well they fit the market, and changing them in response to the market. Bill Gates was the right individual to take advantage of the fitness landscape (the market) presented to him.

I would, as you might expect, substitute the word 'community' instead of market.

The Origin of Wealth argues the economy is a complex adaptive system - just as evolution is (it is the daddy of all selective processes). I suggest the web is a complex adaptive system too.
Which is why (as I've said before) we live in an age of the fastest growing company in history (Google). It is the arrival of a system of distribution and value creation (the web) which matches the evolutionary performance of the economy which has enabled this.

The problem for most of us is that company hierarchies and silos stand between our business plans and the community. The fitness of a plan is more often than not judged by the guys saying no 90% of the time (as in the Confused of Calcutta example), rather than the community of people for whom it is intended.

The challenge is to find a way to allow the community/market to make its own selections more of the time. In short, we must find ways to act more like complex adaptive systems ourselves - to enable evolutionary practices and processes.

Do your current processes and systems get in the way, or do they assist in this process?

An example:

A company measured its absence rate. Its overall absence rate had risen. It decided to impose a draconian regime of withdrawl of sickness pay across the board (just to be clear, we're not talking about anyone I work for).

Often our first response is to supply a one-size-fits-all solution. We seem to think it's fairest. Evolution doesn't.

The reality in our example was that the rise in abscence rate was accounted for by a pocket of localised lead-swinging (with most likely a viral effect... some people started taking time off, others locally perceived that as granting permission for them to do likewise). Dealing with the local issue slashed the whole company's over all rate. A fit solution for the particular environment.

Evolution isn't interested in what is fair - it doesn't share out a little bit of death across all organisms, or even across all species in hard times. And it doesn't do half pregnant.

Reading list

If all goes to plan I'm going to get a chance to catch up with my reading in the next couple of weeks.
Here's what I'll be enjoying (I hope!):
1. Finishing off The Origin Of Wealth
2. Delving into Everything is Miscellaneous: The Power of the new Digital Disorder
3. Reading to review Join the Conversation
4. Tucking into Grapevine: The New Art of Word-of-Mouth Marketing.

The Perfect Storm: A fourth element?

The Perfect Storm referred to in Wikinomics (and which I believe is really starting to hit this year - see Digital Media Predictions for 2008) has three elements:

1. Technology: The emergence of the new web - a read/write web where every person is their own sovereign node - with all the power and instant global connectivity implied.
2. People: The arrival of the 'Net Gen' in roles of influence.
3. Economics: Globalization.

But I've been thinking about economics recently (inspired by Eric D. Beinhocker's Origin of Wealth. It was recommended to me by Alan Moore.)

I'm starting to think there is a fourth element we must consider - a fourth driver of the storm which may be just as, if not more, powerful as any of the other three elements. My guess is that this fourth element could radically transform the wealth creating ability of the entire planet.

To be fair, this element can only happen by combining with one of the previously defined ones.

It is this: The perfect fit between the economy and the web - The convergence of two complex adaptive systems.

Never before has there been a way in which people can connect, share and trade which so perfectly maps/fits the way in which the economy itself has evolved.

The web grew out of a series of human needs, to communicate, to create, to trade, demand and supply. So, of course, did the economy.

No one ordered the creation of the web. No one ordered the creation of the economy.

The web evolves. So does the economy. No one is in charge of the web. And despite the impression governments seek to create, no one is in charge of the economy.

The web is about connections. Likewise the economy - no connections - no flow of goods and services.

The web is about people self-organizing in non-directed groups. So is the economy (when it's left to its own devices, at least).

The web creates emerging value from connections. And that's exactly what an economy does - by ( in Beinhocker's view) differentiation, selection and amplification.

Reed's Law (which I've written about at length here) tells us that each time we add a node to a network we double the potential value of all the connections within that network. The economy is just another network.

Beinhocker's description of the economy as a complex adaptive system, rather than one based on ill-fitting ideas borrowed from classical physics (such as the 'laws' of supply and demand, the idea of equilibrium and the long run) reveals it as a hand-in-glove fit with the web.

Perhaps this is why those businesses who have truly tapped into the wealth generating potential of the web have been astoundingly and rapidly successful ($700 a google share, anyone?...• Google is the “fastest growing company in the history of the world.” – Times of London, 1/29/06).

My contention is that the fastest growing company in history could only happen in the age of the web. It is the fact that the web is here, that it works in such harmony with the economy, that enables such startling efficiency.

I'm not sure of all the implications of this assertion - and I'm extremely open to hearing your comments and criticisms, anything you might be able to build on top of this. You, collectively, have a greater expertise in, well everything, than I do.

What I do believe is that the convergence of two complex adaptive systems makes for is THE single most efficient distribution of goods, services, ideas and the ability to implement them since the economy began. And shouldn't that lead to an extraordinary explosion in value creation?

Given that the economy has always been a complex adaptive system, perhaps it is only now with the emergence of the web that we will see it function to its full potential?

We've already seen the strain on local pricing that the web has caused, the challenge for those seeking to impose customs duties and local taxes... it's easy to imagine a world in which the imposition of tariffs, trade embargos etc, are all but unenforceable.

The web can truly free the economy.

I'm not pretending that comes without problems. It does make the $100 laptop project even more important and it may mean we have to protect those who are disenfranchised from this new web/economy ecology. But if I'm right - it looks like we'll be able to afford to...