Digital Darwinism

by Tom Goodwin

  Modern businesses can be visualized as skyscrapers. They exist on vast foundations, built in the shape and with the techniques that the best thinking at the time suggested would be most effective and sensible and that supports what the building is projected to be. The location of the skyscraper’s foundation is set by optimizing for local and global knowledge, economic forces and a sprinkling of what’s been learned through years of best practice.

  On this foundation, a huge steel or concrete frame is built that projects up into the air, forming the main structural elements and outlining the shape and function of the building.

  The steel or concrete framework of this building is a metaphor for the organizational form of companies. These are the organizational elements of business, the departmental structures, the rules, the core elements that make businesses the way they are, that create their physicality, what they make, how they make it, the operational and business models.

  Built on top of this and fixed into place around the main structural elements are the service elements, the lifts, the fire escapes, the service corridors and the plumbing, electrical wiring, heating and air systems. In this metaphor, they represent the culture and processes of business today. They are the way that the building or business operates, the pulse of the building or company, the lifeblood that makes it work.

  Finally, on this vast foundation, fixed in place by the structural elements, serviced and contextualized by the service elements, are the more visible, more decorative elements. These include the interior design, the furniture, the reception area’s look and feel, the indoor plants, the choice of paint colour, and so on. In this metaphorical skyscraper, it is the funky chairs in the lobby, the artwork in the toilets, the corporate film that plays in reception and the small details that augment the visitor’s experience of the company.

  In a business, represented by this building, these elements are the equivalents of what the company does to represent itself. They are where the building meets the guests, or where the company markets itself. The marketing, the branding, the press releases, the advertising, everything which is the outermost representation of what a company does. This is what people see most readily: it’s the most superficial aspect of design, but also what most efficiently represents what the company wants to be. Now, for both the building and the business it represents, it’s this visual garnish, this superficial layer, that is both the easiest thing to change as well as the most illusory – in effect an efficient way of changing appearance rather than what really matters.

  In a world that changes faster and more significantly than ever, when we consider this analogy we have to ask: what does a business do when it’s not in the right place? What if the skyscraper made sense in London, but now should be in São Paulo? What if it was built to house 1,000 highly-paid workers who would only ever dream of working in Manhattan in a prestigious tower, and now outsourcing means most jobs should be in Bangalore?

  What happens if the foundation was planned to support a 30-storey building, but as needs grew we just added new storeys haphazardly on top? What happens if the framework was constructed for brick walls and we now want large windows? What happens if regulations mean that we need another fire escape? What if the elevators are not made to serve so many workers? What if we don’t need any workers any more?

  In fact, the world of construction offers many metaphors for businesses. The UK has spent billions of pounds maintaining old train lines, rather than building new high-speed lines. Today’s expensive, slow and at-capacity train lines are the result of years of incremental change. They result from what was a steady flow of investment, not a large single investment that would have been harder to get approved. They exist because the work could be done continuously and not take 10 years to build and it would reduce the extent of the disruption. They exist because nobody had the courage to make a difficult decision that would have taken a long time to show the results.

  The reality is that the shifting nature of business has created an environment of change where modern business models, new technologies, new consumer behaviours and new competitors mean that the large lumbering infrastructure of businesses increasingly looks like the wrong thing, built in the wrong place, based on old thinking. In this metaphor, in many cases most of what companies have constructed is now entirely unhelpful. Today, new companies that have started from scratch and are built on new thinking, systems, code, technology and culture are making old businesses look archaic.

  We see legacy issues all over the world, manifesting themselves in very different ways and at very different scales. We have retailers that wish they didn’t own stores, entertainment companies that wish they’d bought global rights when they made content, car companies that wish they’d not invested in billion-dollar combustion engine plants or owned dealership networks. I often see successful but empty restaurants and wonder if the owners wish they could just use Seamless or Grubhub and not rent a vast space where people once sat. The role of these businesses seems to have shifted. We have banks that don’t want to be tied down to the regulation of what being a bank means, airlines that wish they didn’t have unionized workers, and many companies that wish they didn’t have any workers.

  Sometimes these cracks are small: taxi companies who call themselves ‘AAA Cars’ to get placed at the front of the Yellow Pages; expensively procured memorable phone numbers; and hoarding medallions worth over a million dollars that were once a very safe investment. Change affects business owners but can also affect individuals. Again, using just taxis as a single example, black cab drivers in London have to learn ‘the knowledge’ and buy very expensive official vehicles. Ride-sharing apps have not altered these needs; they have obliterated them. Google Maps didn’t make spending between two and four years learning the knowledge merely a bit less helpful; it destroyed its value overnight by not only undermining the value in knowing street names, but also by supplying real-time traffic information, making the decades of experience and knowledge of the fastest routes redundant. A taxi business is not changed by technology, it’s turned on its head. The best starting point for a taxi company today is a blank sheet of paper, and not an old taxi company that can be changed.

  The degree of change required, the company’s wrong location, the expense, time and risk involved in making these changes means that paralysis strikes and we favour fast, easy illusions of change: decoration, not foundation – wallpapering over the cracks.

  As this pace of change in life accelerates, legacy businesses are going to find it harder, not easier to keep up. At some point, rather like Heathrow Airport, or JFK in New York, one wonders if it would not be better to start again, not make changes to what you have.

  If you were to replace Heathrow, you’d build a replacement airport before closing it. You’d build in a far better location, not requiring the most delicate flightpath manoeuvres over central London. You’d construct it with far more capacity for growth. You would build it with modern consumer needs in mind: it would be constructed with the very latest software and using the most advanced construction techniques known. It would be designed to be opened to take over the old airport, to be its future. It would open before the old one closed, it would both increase the future potential of the airport, but also stop the damage and wastage that would have happened if it had not been constructed.

  This is self-disruption. It’s expensive, it appears unnecessary, it’s risky, takes time and it’s not what is generally done. We prefer to modify, to hope, to reduce the chance of things going wrong. Self-disruption is to own your future, before it’s too late, and by building the future of your company. It means hard decisions, making deep existential changes and perhaps even undertaking activity that appears to be cannibalistic in nature.

  Self-disruption

  Your biggest risk isn’t occasional failure; it’s sustained mediocrity.

  WROBLEWSKI, 2017

  One of the strangest flips in the modern world is that the internet has rewired the playi
ng field. The assets that once made companies successful in the Industrial Age now often appear to work against you in the Digital Age. Often the metrics that once mattered most – profitability, revenue – seem to have become less vital than the potential for the future. The market’s valuation of Uber or Amazon is based more on trajectory than reality, on user growth, not the proven ability to make money from them. These are baffling times. For a long time legacy companies have been comforted by assets that are increasingly becoming liabilities.

  In my TechCrunch piece titled ‘The Battle is for the Customer Interface’, I stated:

  Uber, the world’s largest taxi company, owns no vehicles. Facebook, the world’s most popular media owner, creates no content. Alibaba, the most valuable retailer, has no inventory. And Airbnb, the world’s largest accommodation provider, owns no real estate. Something interesting is happening.

  Goodwin, 2015

  It was this quote that many felt summarized the changing dynamics in the world. It is clear that companies need to change. To accomplish significant and sustained profitable growth in the 21st century, companies will have to explore more than mere incremental improvements to existing business models. They will have to do more than line filling or small innovations with a few new products. Compared with explosive new entrants that set the market expectations, these actions just won’t generate enough growth anymore.

  Expectations are changing. The share prices of large retailers, especially department stores, show that confidence in legacy businesses is waning. The ascent of Tesla’s stock price relative to large, experienced US car companies shows the same. It is also true for customer expectations: we no longer tolerate lost bookings, or waiting in line to pay.

  Neither the market nor the customers are forgiving. You can have both excuses and explanations for your inability to function like nimble businesses built today, but the stock market and customers won’t care for long. They need action.

  We’re in the age of innovation as distraction

  Any innovation that is undertaken is usually the most outward-facing, physical and quick. In our metaphorical skyscraper, it’s like installing new artwork or refurnishing the staff canteen when the building is about to fall. We live in a time of innovation as gesture. From an Apple Watch app to fancy ad campaigns using artificial intelligence to chatbots, innovation is less about making a meaningful difference to consumer experiences, and more about broadcasting to the marketplace, the trade press and the stock market that they get it. Innovation today is done with the goal of virtue signalling rather than commercial payback. Robots used in trial stores do allow for learning and data capture, but most likely they’re there to make a nice image in the annual company report. A VR headset used to showcase a hotel room of the future makes a great video to stick on YouTube, flying a Boeing 747 with some biofuel in one engine still gets picked up on TV. Change gets merchandised and companies merely create a veneer of newness. It’s not deep or behind the scenes; it’s always tangible manifestations of what we think the body language of innovation should look like. For large companies, innovation in 2018 is just building an innovation lab, doing regular ‘Silicon Valley safaris’, ‘working with start-ups’ and always releasing a press release of intent, never one of accomplishment.

  We need proper change and the time is now. This shift is vital and the gap between what is known to be required and what is done is huge. A 2016 KPMG study highlighted how 65 per cent of CEOs are concerned about new entrants disrupting their business models and 53 per cent believed they aren’t disrupting their own business models enough (KPMG, 2016). In one McKinsey study, 80 per cent of CEOs believed their business models to be at risk; and only 6 per cent of executives were happy with their company’s innovation performance (McKinsey, 2013).

  The depth of change is underestimated

  Companies that need to change are everywhere and the depth of change is often misunderstood. If you were to start a media company such as a newspaper today, it’s not just that you wouldn’t own paper mills or that you wouldn’t employ hundreds of expensive senior writers, staff photographers or fact-checkers, like the New York Times once did. Having non-unionized workers, a cheaper headquarters, making more clickable pieces and employing younger and cheaper staff would also probably not be enough. Employing the best data scientists, making software that sees what stories are sparking and creating more of those, making native content with brands, would all still not be enough to make money. These would all aid your survival and increase the likelihood of the death being slow, but this isn’t how you’d want to think about it.

  No, if you were to start a media company today, you’d want to replicate Facebook or Snapchat or Twitter. You’d make nothing and be a thin horizontal layer between people who want stuff and people who make stuff. You’d record vast amounts of data, sell advertising automatically to the highest bidder, you’d take no responsibility for any content that appeared on the site and reduce all externalities, whether costs or responsibility. You’d be able to scale globally at the touch of a button and you’d scale to add video.

  A legacy media business can’t get to this place by retooling. It needs to start from nothing. Memory, expertise, skills and relationships are not just unhelpful, they are likely to be problematic.

  Media owners are not alone in their need to change everything. Will physical retailers with huge global footprints and distribution systems ever be able to bolt on new distribution systems that can serve customers direct to their homes? More than this, will they be able to do so in a way that meets modern consumer expectations for price and speed while still making their unit costs profitable? Or would they be better off starting from nothing?

  Do car makers need to swallow the fact that their incredibly vast knowledge of combustion engines and complex organizational system of suppliers and sub-suppliers may not only be unhelpful but may even sabotage their developments in a world of electric cars? Will they be able to succeed in a world where electric cars are assembled more like smartphones, not fabricated like cars of the past? Will large car companies ever grasp that cars are becoming more like electronics, with value in the software rather than the hardware, and where user interfaces are now a primary consideration for the buyer? Will car companies understand that vehicles may soon be ‘accessed’ like data on a mobile tariff, rather than owned? That the holistic ownership experience – how you buy the car, get it serviced, renew the lease – may be more important than just the car itself?

  Guts are required to understand that disruption isn’t about superficial changes; it’s about rebuilding the entity that will revolutionize what your current company does. It’s not about managed decline or reducing costs to meet profit goals. It’s about a leap of faith, investment in the future of what your business needs to be. It’s a process best described as ‘self-disruption’ – undertaking the bold changes needed, at a core level, to best prepare yourself for a new future. The goal of self-disruption is to become the entity that eats your own company’s future, rather than having someone else do it.

  The evolution of business is somewhat like the evolution of species. It’s a series of small incremental changes to develop optimal results. It’s about mutations from the norm that make change possible. It’s testing and learning, trial and error, a sudden shift to a different approach where new forms and functions suddenly appear. In this world, the organizations that are the most adaptable, the most freeform and the fastest at changing will be the ones most likely to survive. It is a time where being responsive to the environment, to shifting consumer needs and to wild new industry entrants is crucial. Being able to learn, knowing when to stick and when to shift and, above all else, having a vision is what will propel a company forward. In the words of Jeff Bezos about Amazon, ‘We’re stubborn on vision and flexible on details’ (Levy, 2011).

  The only issue with evolution as a basis for change is that we now live in a time when the forces of nature are greater and the time spans are shortened.
Businesses tend to operate not so much as species that evolve gradually across the planet, but in an environment which undergoes great shifts.

  The only certainty now is uncertainty

  Changes to the world are not just happening faster, but in more haphazard and unexpected ways. On the day this chapter was written, one Bitcoin was worth $11,000, when I checked the final version four months later, the price had sunk to $8,500, after reaching $19,700 six weeks prior to that. Quite honestly nobody has the remotest idea what will happen to its value in future. Those who explain it do so based on little more than faith. By the time you read this the price could be 100 times less, or more, or zero; we have no idea how this currency and the technology beneath it will develop, and even less understanding of what it will mean and how it will change.

  It appears that few saw Brexit coming, or the results of the 2017 US presidential election. The rise in the Dow Jones Index in late 2017 seems odd. Fidget spinners come and go and the Ice Bucket challenge dies. Pokemon Go went from the ‘next big thing’ to ‘remember that?’ in about two months. 3D-printing companies’ share prices slump, and the Amazon Echo appears from nowhere to become the hit of 2017. Unlikely things seem to be likely. For years we’ve assumed it’s the pace of change that is the biggest problem for business; these days it increasingly feels like it’s unpredictability. Today few people in few industries can make personal or business decisions based on the assumption that the world will remain within ‘norms’. The standard deviation of life seems to be increasing, and technologies come together in so many new ways that it’s hard to see how new patterns will emerge.