Companies As Living Organisms
Just as a living organism has to monitor its interface with its environment to survive, a successful company must adapt and sometimes even reinvent itself to make its products and services relevant to the ever-changing marketplace. This adaption is no easy matter as it can be expensive to retool, introduce a new product and upgrade services. Consumer demand can change rapidly especially if there is entry of a new product or services that are technologically superior. In a global market where competitors eventually will appear despite the most challenging of barriers to entry, companies find themselves having to invest in their people, technology and sales practices to stay competitive and to thrive.
Like an organism a company’s departments, employees, stakeholders and service providers must all work in synergy to the whole and there is a customary focus to make these department structures and processes more effective by applying continuous business improvement strategies. It is a Darwinian view of business to survive in an ever-changing global economy with emerging competitors, but it is logical that successful companies must continuously study the competitive landscape and learn to adapt its practices to survive.
Growth is required for a company to thrive and to demonstrate value to its employees and owners. When a company is not functioning well by showing shrinking profits or revenues, its weaknesses are exposed and like an organism it must change its organizational shape and size to revive itself and become stronger. Diagnosing the reasons for its weakness or dysfunction may indicate serious internal issues rather than just external environmental conditions. Unlike an organism with limited survival instincts, the poorly functioning firms have many options to turnaround its deteriorating situation: It may change it leadership, organizational structure and seek other radical solutions by using a host of expert consultants to improve.
The metaphor of the IT e-mail system operating similar to a nervous system of a living organism is one approach to understanding the organizational elements and structure of a company. IT responsibilities have expanded significantly over the decades and IT is often touted as a means to turnaround a weakening firm. IT now manages both telecommunications and the data network along with offering special applications and robust integrated enterprise based systems to control and manage the company’s primary business output. IT also has become the second or third most expensive cost center compared to staffing and real estate costs due to the criticality of improving productivity. New technologies also offer a means to fix problems, inefficiencies and improve operations but as many firms also discover that the IT conversion is sometimes disruptive and costly if not managed carefully.
The analogy of a corporate organism would place the Board of Directors, the CEO and his C-Suite team including the CIO as the brain providing leadership and strategic direction to the IT department and to the firm as a whole. A company brain is not limited to only five senses as it can create sophisticated reports on the environment, the internal workings of the firm and the relative competencies of its various departments as it metrics measure how each is functioning. However, even with research and a host of reports any company like an organism can suffer unexpected shocks, malaise, fear, and even disease. At its core a company is a group of human beings with different skills, attitudes and even goals. The competitive drive of the individual has to be harnessed to align with company united goals and strategies. Even a company with a long history of success will face catastrophe if its leadership or brain is not able to identify and adapt to changing conditions. The effective C-Suite leads the company in certain directions and to make its products and services in demand even in changing conditions by deploying new pricing and marketing strategies.
Expanding our metaphor, the employee staff operates like various cells organized into several vital organs which have to operate in sync with each other departments for the corporation to thrive. Recent business failures show a tendency for companies to respond too slowly to change and there is the common malady of departments becoming silos without appropriate communication of critical information.
In the case of Kodak’s demise, for example, the failure or terminal disease was a combination of poor planning, timid corporate leadership and a bit of arrogance regarding their business. Thinking that the business model that worked to perfection in film processing could be duplicated in a digital format was a serious misjudgment of how quickly a new technology could be adopted especially when the cost and ease of use was so dramatically improved. New technologies such as the smart phone offered the consumer a revolutionary approach to photography. When the competitor had the power and global reach of Apple, the impact to Kodak was terminal.
Another case of business failures due to inability to adapt includes many financial firms who relied on the subprime loan as a means to increase their loan volume and profits with apparently minimal risk due to secondary markets to sell mortgages. The inability to foresee the decline in housing values and an increase in loan defaults as new loans were no longer available led to the destruction of several major financial firms such as Bear-Sterns, Countrywide Financial, Lehman Bros. and multiple banks and mortgage lenders.
The real estate and facilities department provides the basic skeleton for the company creating a workspace plus the respiratory systems to allow the staff to work in a safe and secure interior environment. Customer facing locations designed to function efficiently and provide a positive brand experience are additional interfaces to the demand side of the environment. Some companies like Amazon took innovative solutions to their structure by avoiding brick and mortar costs and linking directly to consumers through the Internet channel. Every company develops its own unique structure and geographic footprint seeking some competitive advantage.
Sales sustain a company like food provides energy to the organism. Without effective sales performance a company is doomed so it is no wonder that companies are so focused on its sales practices and its results. Sales activity penetrates to the outside environment through various channels and the use of advertising, sales calls, meetings and customer relationship building new clients and fostering their existing customers.
The challenges to a living organism sometimes are strikingly similar to a company. A sudden environmental change such as a flood, fire or earthquake can bring the unprepared company to its knees. The earthquake and tsunami tragedy in Japan and the floods in Thailand demonstrate how the physical environment is still critical to managing business as many companies have learned to build elaborate supply chains. Managing business continuity and establishing disaster plans is a common business practice, but few firms seem to manage risk effectively.
Atrophy in its operations from poorly coordinated service providers and inadequate risk management procedures can also wreak havoc to a company’s reputation as evidenced by BP oil disaster in the Gulf of Mexico. Today’s instant communication to the public of a serious problem whether an oil spill, car safety issues or tainted food or drug has to be managed quickly by the executive leadership team or the impact can be devastating. Leadership has to respond quickly and professionally to mitigate the reputation damage of a product recall or event with potential liability.
The analogy of a company acting as a living organism provides a framework for understanding how companies are organized to manage risk and how they can manage its changing the competitive environment. At the core of any successful business is its vigilance to manage risk. A little bit of paranoia is probably a necessary and positive attribute in the C-Suite. Nothing is more dangerous than arrogance, complacency or acceptance of a culture than avoids dissent and innovation. As change continues to accelerate in the 21st century, the successful firms will embrace it and create new tools to measure and manage it.
Failure or success of any business is unpredictable. The rapidly changing dynamics of the global markets and the new technologies makes survival challenges in the 21st century difficult to forecast. The ability of new competitors to emerge is why the strategic advantages of a company can deteriorate so rapidly. The noted economist, Joseph Schumpeter, would call business failures examples of “creative destruction” as the weakening firms were absorbed by stronger competitors or dissolved through bankruptcy or simple closure. Such events are the darker side of capitalism but a necessity for a free enterprise system. It rewards those firms with financial strength, productivity and economic innovation. Those firms that cannot compete are eliminated from the marketplace and just like a living organism will perish.
The difference of how business operates from biology is the fact that even the most ill and dying organizations can resurrect themselves through bankruptcy protection and the intervention of another firm to salvage it. The fascinating nature of business is that it does mirror life in so many ways especially in its instinct to survive. Considering that all companies are composed and directed by people, it is not surprising that business does reflect the basic characteristics of life.