Share the moment
June 12th, 2020
Survival of the fittest is the term Charles Darwin used to describe the species that is most successful in surviving and reproducing. Natural selection based on adaptability. Not based on speed, power, intelligence, efficiency, optimization or profit. On the contrary, organizations with the highest profit margins can become the biggest losers when conditions change. For over a century, Kodak was a leader in photography and film. But when circumstances changed, and the digital revolution took place, Kodak didn’t adjust sufficiently. In 2012, the company filed for protection against bankruptcy and it shrunk substantially in size.
In our complex society, conditions constantly change. When a situation arises, we can, based on the information that is available, try to explain how the situation could have arisen. Take these three perspectives on the same incident:
- “I drive this road every day. Suddenly a child came running from that street. He ran straight towards the road. In a reflex I hit the brakes. I really thought that he would run onto the road. The car behind me couldn’t stop in time.”
- “A bird flew by and made several somersaults in the air. It was a pigeon. But that is impossible, right? I’ve never seen anything like that before. I had to look at it. Because I looked at the pigeon, I didn’t see that the car in front of me hit the brakes.”
- “The front car braked for no reason. Not just slowing down a bit but with squeaky tires. The owner probable had damage to the back of the car that he would like to have repaired. In this kind of situations, the rear car is always responsible for compensation.”
Based on the available information, we create a coherent story. These coherent stories come easy to us. But it is a coherent story based on a small selection of all available data and it is based on our assumptions about cause and effect. And these are usually not correct. Due to the ease with which we explain the past, we sometimes forget that we are even less competent in predicting the future than in making a witness statement. However, many organizations still work with these unreliable predictions.
Based on data from the past we make estimates for the future. Data from previous years is used to determine which variables correlate with a good outcome. After all, these variables can be used to measure the expected outcome. All that remains to be done is to determine which value these variables should have for the best possible outcome for the coming year, or rather, for the coming years. And voilà here we have our goals. Achieve the goals, and a good result will follow automatically. Matter of cause and effect. An additional advantage is that clear goals are the easiest way to manage personnel. Police officers must reach their ticket quota, mortgage advisers their quota of loans and macro analysts their publication quota. If the staff achieves these goals, it is always good for the company. So, we make sure that these goals will be addressed during the performance reviews. A reward (promotion, bonus) if you reach the quota and a slap on the wrist if you forsake. One of the things we accidently forget is that measuring variables in a complex environment is not the same as determining the dimensions of a dining table to make sure that it will fit in your dining room or determining the temperature of your steak to make sure it is perfectly cooked. Like Goodhart noted in 1975 “any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes” and Strathern rephrased as “when a measure becomes a target, it ceases to be a good measure”. But this is a subject for another time.
Let’s return to Kodak. In 1975, Kodak was the first company to develop a prototype for a digital camera. Subsequently, in the years that followed, Kodak invested billions in the development of digital camera techniques. In addition, Kodak was a forerunner in the development of techniques to transfer photos from cameras to computers. Even when digital cameras were replaced by mobile phones, Kodak was a player with input. In 2001 Kodak bought the website Ofoto. This website (which Kodak sold to Shutterstock after filing for bankruptcy protection) could be used to share photos and personal updates via for example mobile phones. A concept you might be familiar with.
This picture probably doesn’t match with the picture you drew in your head earlier when you read that Kodak had filed for protection against bankruptcy in 2012 and I told you that Kodak hadn’t adjusted enough. From this description it seems that Kodak was not only aware of the changing conditions but was part of it and in some cases even led the way.
Kodak was the specialist in analog photo and film technologies. The organization understood that digital photography would develop and wanted to be part of this. Investments in digital technologies were done before the market even started to develop. Kodak introduced digital kiosks where people could go and print their photos. Then, as the market started to shape, organizations like Sony and Canon came along with products that people could use to store and print their photos at home. Kodak had not focused on this as it endangered Kodak’s main source of income, the production of traditional film. Despite the fact that Kodak did not actively contributed to bring the market to people’s homes, this home market developed quickly. In 2006, after 74 years, Kodak stopped producing the Kodachrome film rolls. Kodak was also alert when the mobile phone took over the role of the camera. By this time Kodak had shifted focus to inkjet printers and most of its revenue came from photo printing. The platform Ofoto was not used by Kodak as we all know this type of platform today, for the interactive exchange of photos, stories and personal updates. But to entice people to print their digital photos. This was after all Kodak’s main source of income. Once again, Kodak focused on the goals that came from the outcomes of the past. As mentioned, this did not end well and Kodak filed for bankruptcy protection in 2012. Ultimately, the organization remained to exist in an extremely slimmed-down form. Tens of thousands of employees, working among others in factories and development laboratories, lost their jobs.
Resilient organisms are characterized by their adaptive capacity. When circumstances change, these organisms adapt organically and dynamically. This ability can only exist in an organism if it has the capability to quickly create and break connections between small units. Variability and diversity are indispensable. Resilient organisms are the ones that survive in complex environments (fittest). If we make the mistake of assuming that a certain variable (cause) offers certainty about a certain outcome (effect), correlation is not the same as causation, the only certain outcome is decay. In a complex environment, managing goals, compliancy and working with best practices is a risky approach. While this approach sometimes helps the organization in the short term to become the strongest player in the field and sometimes delivers quick gains, it also makes organizations vulnerable for unexpected events and major losses or bankruptcy (extinction). In a complex environment, managing for resilience means steering on the capacity for synergy. This includes terms like variability, diversity, adaptation, creativity, redundancy, direct and honest feedback and emerging practices. More on this later.
Goodhart, Charles AE. “Problems of monetary management: the UK experience.” Monetary Theory and Practice. Palgrave, London, 1984. 91-121.
Strathern, Marilyn. “‘Improving ratings’: audit in the British University system.” European review 5.3 (1997): 305-321.
Tellis, Gerard J. Unrelenting innovation: How to create a culture for market dominance. Vol. 178. John Wiley & Sons, 2013. Chapter 2. Willingness to Cannibalize Successful Products; Decline of an Innovator: Eastman Kodak.