Adapting to rapid structural change requires exploration, not contraction.
Venture capital has dried up. Business pages report on getting back to basics. It has even become fashionable to snicker about the foolish mass hallucination of the New Economy. Anyone with a new idea in a corporation is being told “cost cutting is our focus right now.” Corporate management has battened down the hatches.
Meanwhile, a few contrarian voices say that it’s a great time to start companies because talent is available, entrepreneurs’ valuation expectations have plummeted, and office space is cheap. And for existing companies, they say, it is not time to downsize but time to use freed-up talent to innovate in preparation for the next economic cycle.
So which is the right corporate survival strategy — contraction or exploration?
Nature offers some models for survival under stress. For instance, if a human being is plunged into icy water, the digestive system immediately shuts down, the heartbeat slows, and oxygen consumption is minimized. The organism tries to preserve its core functions and eliminate non-essential ones until its next breath can be taken. That’s a pretty good description of how many companies are reacting to the stresses of the current economy: contracting resources to those essential for existing core strategies and operations.
A different reaction to change can be observed in the complex adaptive systems that species have evolved to survive in fluctuating environments. In an ant colony, for example, while some ants ferry the spoils from previously located food sources, a significant portion of the colony always spends its time looking for the next find. In business terms, while the exploiters generate sustaining revenue, the explorers invest for the future. When the colony finds itself under stress from a change in habitat or competition from a new colony, it does not contract its operations, but actually movesmore resources from exploitation to exploration. More ants, not fewer, go off on search missions, and those taking care of the colony’s short-term needs have to make do with fewer resources. This helps ensure that the colony as a whole will increase its chances of survival by seeking out a more hospitable niche.
So which strategy makes more sense for a company? It depends. If the company’s industry structure and technology are stable and the primary cause of stress is change in cyclical demand, then “holding one’s breath” is probably the preferred survival strategy.