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Topic of Book
Harford argues that evolution by natural selection can be used to understand the rise and fall of business enterprises.
- Evolution via natural selection is a driving force in the rise and fall of businesses, just like it is for the evolution and extinction of biological organisms.
- Evolution is effective because it creates ongoing, “works for now” solutions to complex and changing problems.
- Centralized institutions, including business, often attempt to insulate themselves from the environment by creating uniformity. Doing this only hurts the ability of the organization to adapt. This uniformity undermines the variation than enables natural selection to function.
- Based on the data, it is very hard to see evidence that business leaders are more successful than random guesses would achieve. The extinction rate is the same.
Important Quotes from Book
In Tetlock study (“Expert Political Judgement“) “the experts failed, and their failure to forecast the future is a symptom of their failure to understand fully the complexities of the present.
It wasn’t that expertise was entirely useless. Tetlock compared his experts’ responses to those of a control group of undergraduates, and the experts did better. But by any objective standard, they didn’t do well. And the return on expertise was distinctly limited. Once experts have acquired a broad knowledge of the political world, deeper expertise in a specific field doesn’t seem to help much. ”
“The problem is not the experts; it is the world they inhabit – the world we all inhabit – which is simply too complicated for anyone to analyse with much success.”
“The market has solved the problem of generating material wealth, but its secret has little to do with the profit motive or the superior savvy of the boardroom over the cabinet office. Few company bosses would care to admit it, but the market fumbles its way to success, as successful ideas take off and less successful ones die out. When we see the survivors of this process – such as Exxon, General Electric and Procter & Gamble – we shouldn’t merely see success. We should also see the long, tangled history of failure, of all of the companies and all of the ideas that didn’t make it.”
“Astounding complexity emerges in response to a simple process: try out a few variants on what you already have, weed out the failures, copy the successes – and repeat forever. Variation, and selection, again and again”
“Evolution is effective because, rather than engaging in an exhaustive, time-consuming search for the highest peak – a peak that may not even be there tomorrow – it produces ongoing, ‘works for now’ solutions to a complex and ever-changing set of problems.”
“Ormerod discovered something disturbing: it was possible to build a model that mimicked the real extinction signature of firms, and it was possible to build a model that represented firms as modestly successful planners; but it was not possible to build a model that did both. The patterns of corporate life and death are totally different from “reality in the ‘planning is possible’ model, but uncannily close to reality in the ‘planning is impossible’ model.”
“trial and error is a tremendously powerful process for solving problems in a complex world, while expert leadership is not”
“Palchinsky’s method for dealing with this could be summarised as three ‘Palchinsky principles’: first, seek out new ideas and try new things; second, when trying “something new, do it on a scale where failure is survivable; third, seek out feedback and learn from your mistakes as you go along. The first principle could simply be expressed as ‘variation’; the third as ‘selection’ .. the middle principle – survivability”
“Above all, feedback is essential for determining which experiments have succeeded and which have failed. And in the Soviet Union, feedback was ruthlessly suppressed.”
“most organisations and most forms of politics have the same difficulty in carrying out the simple process of variation and selection.
Variation is difficult because of two natural tendencies in organisations. One is grandiosity: politicians and corporate bosses both like large projects… Such flagship projects violate the first Palchinsky Principle, because errors are common and big projects leave little room to adapt. The other tendency emerges because we rarely like the idea of standards that are inconsistent and uneven from place to place. It seems neater and fairer to provide a consistent standard for everything,”
“We want all of our public services to be like Coca-Cola: all identical, all good. And they can’t be.
If we are to take the ‘variation’ part of ‘variation and selection’ seriously, uniformly high standards are not only impossible but undesirable.”
“It seems to be equally hard for traditional organisations to deliver the selection component of variation and selection. The difficulty is in selecting what is really working on the ground… This is partly because politicians are in a hurry: they expect to hold on to a role for two to four years, not long enough for most experiments to deliver meaningful results. Even more politically inconvenient is the fact that half of the pilot schemes will fail – many things do in a complex world – so the pilot will simply produce stark evidence of that failure.”
“If formal experiments hold few joys for traditional leaders, informal feedback will often fail to reach them, too… There is a limit to how much honest feedback most leaders really want to hear; and because we know this, most of us sugar-coat our opinions whenever we speak to a powerful person. In a deep hierarchy, that process is repeated many times, until the truth is utterly concealed inside a thick layer of sweet-talk”