GUEST POST from Greg Satell
“Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually slaves of some defunct economist,” John Maynard Keynes, himself a long dead economist, once wrote. We are, much more than we’d like to admit, creatures of our own age, taking our cues from our environment.
That’s why we need to be on the lookout for our own biases. The truth, as we see it, is often more of a personalized manifestation of the zeitgeist than it is the product of any real insight or reflection. As Richard Feynman put it, “The first principle is that you must not fool yourself—and you are the easiest person to fool. So you have to be very careful about that.”
We can’t believe everything we think. We often seize upon the most easily available information, rather than the most reliable sources. We then seek out information that confirms those beliefs and reject evidence that contradicts existing paradigms. That’s what leads to bad decisions. If what we see determines how we act, we need to look carefully.
The Rise And Fall Of Social Darwinism
In the 1860s, in response to Darwin’s ideas, Herbert Spencer and others began promoting the theory of Social Darwinism. The basic idea was that “survival of the fittest” meant that society should reflect a Hobbesian state of nature, in which most can expect a life that is “nasty, brutish and short,” while an exalted few enjoy the benefits of their superiority.
This was, of course, a gross misunderstanding of Darwin’s work. First, Darwin never used the term, “survival of the fittest,” which was actually coined by Spencer himself. Secondly, Darwin never meant to suggest that there are certain innate qualities that make one individual better than others, but that as the environment changes, certain traits tend to be propagated which, over time, can lead to a new species.
Still, if you see the world as a contest for individual survival, you will act accordingly. You will favor a laissez-faire approach to society, punishing the poor and unfortunate and rewarding the rich and powerful. In some cases, such as Nazi Germany and in the late Ottoman empire, Social Darwinism was used as a justification for genocide.
While some strains of Social Darwinism still exist, for the most part it has been discredited, partly because of excesses such as racism, eugenics and social inequality, but also because more rigorous approaches, such as evolutionary psychology, show that altruism and collaboration can themselves be adaptive traits.
The Making Of The Modern Organization
When Alfred Sloan created the modern corporation at General Motors in the early 20th century, what he really did was create a new type of organization. It had centralized management, far flung divisions and was exponentially more efficient at moving around men and material than anything that had come before.
He called it “federal decentralization.” Management would create operating principles, set goals and develop overall strategy, while day-to-day decisions were performed by people lower down in the structure. While there was some autonomy, it was more like an orchestra than a jazz band, with the CEO as conductor.
Here again, what people saw determined how they acted. Many believed that a basic set of management principles, if conceived and applied correctly, could be adapted to any kind of business, which culminated in the “Nifty Fifty” conglomerates of the 60’s and 70’s. It was, in some sense, an idea akin to Social Darwinism, implying that there are certain innate traits that make an organization more competitive.
Yet business environments change and, while larger organizations may be able to drive efficiencies, they often find it hard to adapt to changing conditions. When the economy hit hard times in the 1970s, the “Nifty Fifty” stocks vastly under-performed the market. By the time the 80s rolled around, conglomerates had fallen out of fashion.
Industries and Value Chains
In 1985, a relatively unknown professor at Harvard Business School named Michael Porter published a book called Competitive Advantage, which explained that by optimizing every facet of the value chain, a firm could consistently outperform its competitors. The book was an immediate success and made Porter a management superstar.
Key to Porter’s view was that firms compete in industries that are shaped by five forces: competitors, customers, suppliers, substitutes, and new market entrants. So he advised leaders to build and leverage bargaining power in each of those directions to create a sustainable competitive advantage for the long term.
If you see your business environment as being neatly organized in specific industries, everybody is a potential rival. Even your allies need to be viewed with suspicion. So, for example, when a new open source operating system called Linux appeared, Microsoft CEO Steve Ballmer considered it to be a threat and immediately attacked, calling it a cancer.
Yet even as Ballmer went on the attack, the business environment was changing. As the internet made the world more connected, technology companies found that leveraging that connectivity through open source communities was a winning strategy. Microsoft’s current CEO, Satya Nadella, says that the company loves Linux. Ultimately, it recognized that it couldn’t continue to shut itself out and compete effectively.
Looking To The Future
Take a moment to think about what the world must have looked like to J.P. Morgan a century ago, in 1922. The disruptive technologies of the day, electricity and internal combustion, were already almost 40 years old, but had little measurable economic impact. Life largely went on as it always had and the legendary financier lorded over his domain of corporate barons.
That would quickly change over the next decade when those technologies would gain traction, form ecosystems and drive a 50-year boom. The great “trusts” that he built would get broken up and by 1930 virtually all of them would be dropped as components of the Dow Jones Industrial average. Every face of life would be completely transformed.
We’re at a similar point today, on the brink of enormous transformation. The recent string of calamities, including a financial meltdown, a pandemic and the deadliest war in Europe in 80 years, demand that we take a new path. Powerful shifts in technology, demographics, resources and migration, suggest that even more disruption may be in our future.
The course we take from here will be determined by how we see the world we live in. Do we see our fellow citizens as a burden or an asset? Are new technologies a blessing or a threat? Is the world full of opportunities to be embraced or dangers we need to protect ourselves from? These are questions we need to think seriously about.
How we answer them will determine what comes next.
— Article courtesy of the Digital Tonto blog
— Image credit: Unsplash
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