Enterprise Ecology

Our planet teems with life. Its collective genetic code – the DNA operating system that runs life’s programs – weighs 50 billion tons and contains 50 trillion trillion trillion base pairs. It would fill one billion shipping containers.

The planet is just as alive with human ingenuity. Just as life has assumed infinite forms and found many ways to live, human enterprise also manifests itself in endless ways. Earth teems with the tangible objects we create from our imagination.

Both life and enterprise have evolved through an endless search for new possibilities. In both cases, evolution has given rise to boundless diversity.

The Dance of Life

The genetic code is different in every species. It is also unique in every individual – twins included, since chemical changes accumulate in their DNA over a lifetime.

Shaped by generation after generation of lives lived, DNA equips every new generation for its own life journey. The infinite variety of species has emerged through eons of living, as life adapted to changing conditions and found new opportunities to get a foothold in the environment.

The result is a tree of life with many branches. It is estimated there are currently around 8.7 million living species, of which only 1.2 million have been described. More than 99 percent of the species that ever lived are now extinct.

The tree of life

Each species makes a living in its own way, occupying an ecological niche where it is specially adapted to flourish. Fish breathe underwater. Birds navigate by sensing the Earth’s magnetic field. Butterflies see flower patterns that are only visible in ultraviolet light. Bats locate their prey using ultra-high frequency sounds. The most extreme heat-loving bacteria thrive in boiling water.

Species specialize to reduce competition for scarce resources. Many of these specializations are highly nuanced. The result is growing diversity as new species evolve.

Niche specialization in warblers

Ecosystems are a grand tapestry woven from many threads. Energy is the currency of the system, transferred from one species to another through the food chain. Species at each level of the chain feed on those in the levels below, creating an intricate web based on predator and prey relationships.

The food web

Relationships between species take many forms. They may prey upon or compete with one another. Two species may both benefit from a relationship, one may benefit while the other is harmed, or one may benefit with no impact on the other. One species may harm another without suffering harm itself.

Economy and Ecology

The economy has similar dynamics and complexity. Like ecosystems, economies are shaped by an endless evolutionary search for new possibilities. Enterprises differentiate themselves to succeed in a unique economic niche. Like living organisms, every enterprise has its own distinct identity. As in natural systems, the relationships between enterprises may be harmful of beneficial.

Cesar Hidalgo, an associate professor at MIT, visualized economic diversity as a ‘product space’ – a graph showing the relationships between products traded in the global economy. Products are linked more closely in the network if they require similar enabling conditions: institutions, capital, infrastructure or technology. The graph shows how if an economy can produce one product it is able to produce another that is closely related.

Product space. Source: C.A. Hidalgo, B. Klinger,
A.-L. Barabási, R. Hausmann, “The Product Space Conditions
the Development of Nations,” Science 317 (2007).

Economies continually explore emergent possibilities. New enterprises appear to take advantage of new opportunities. Economic systems evolve in this way, and each economy has its own unique pattern.

Localization of the productive structure in different regions of the world.
Source: C.A. Hidalgo, B. Klinger, A.-L. Barabási, R. Hausmann,
“The Product Space Conditions the Development of Nations,” Science 317 (2007).

Living systems are shaped by chemistry and biology, economic systems by human creativity and ingenuity. In his book Why Information Grows: The Evolution of Order, from Atoms to Economies, Cesar Hidalgo compares apples to Apples.

“Consider two types of apples: those that grow on trees and you buy at the supermarket, and those that are designed in Silicon Valley… The main difference between them is not their number of parts or their ability to perform functions – edible apples are the result of tens of thousands of genes that perform sophisticated biochemical functions. The main difference between apples and Apples is that the apples we eat existed first in the world and then in our heads, while the Apples we use to check our email existed first in someone’s head and then in the world.”

The Silicon Valley Apple, Hidalgo says, is a “crystal of imagination” – the physical embodiment of an idea. Products are dreams turned into reality, using knowledge, knowhow and networks of people. This is the function of the human enterprise.

Economies become ever more diverse as they expand into the adjacent possible. Elizabeth Pontikes, Associate Professor of Organizations and Strategy at the University of Chicago’s Booth School of Business, looked at market categories in the software industry, creating a map that shows the diversity of the sector. We can see similar diversity in the wider economy everywhere we look.

Software industry classification. Source: Elizabeth Pontikes,
University of Chicago Booth School of Business.

The Innovation Arms Race

Every biological species lives out an ecological strategy that defines its role in the ecosystem and how it interacts with the environment. It evolves special adaptations to be successful in its chosen ecological niche. It tinkers constantly to sustain a competitive advantage. Enterprises do the same.

Strategy is commonly understood as a ritual that an enterprise performs as part of its annual planning cycle. It is far from that. It is an enterprise’s beating heart, embodied in its business model – the genetic code that defines how it lives and the capabilities it needs to survive.

As in every living species, the ability of an organization to adapt is critical. Faced with a constantly changing environment and rapidly evolving competitors, an enterprise must reinvent itself continually just to keep up. Ecologists call this innovation arms race the ‘Red Queen Effect,’ based on a quote from Lewis Carroll’s Through the Looking Glass.

“Here, you see,” the Red Queen says to Alice, who has been running constantly but getting nowhere, “it takes all the running you can do, to keep in the same place.”

The Red Queen lecturing Alice. Source: Illustration by John Tenniel
for Lewis Carroll’s Through the Looking Glass.

Economies are in constant motion. Wave after wave of technological and social change propagates through the system, unsettling everything.

“Business models don’t last as long as they used to,” Saul Kaplan observes in The Business Model Innovation Factory: How to Stay Relevant When the World is Changing. “New players are rapidly emerging, enabled by disruptive technology, refusing to play by industrial-era rules. Business model innovators aren’t constrained by existing business models. Business model innovation is becoming the new strategic imperative for all organization leaders regardless of what sector they operate in.”

No part of the economy is immune from this restless change.