The evolution of enterprises
Remember Charles Darwin and his evolutionary theory? It hasn’t only inspired the natural sciences, but also business and economics. Interestingly, the interpretations of it are really different.
Population ecology loves adaptation
First, let’s look at a field called “population ecology” in organizational studies. They assume that the environment defines the path that organizations need to follow in order to survive, much like koalas specializing in digesting bamboo because no other species did. Organizations are subject to variation, selection, and retention processes. Following this school of thought, the key troublemaker in this inertia, since companies need to adapt in order to survive in the long term. Hannan & Freeman list several internal and external factors that influence inertia: [i]
· Investments already made in staff, equipment, materials and real estate
· Limited information processing capacity of decision-makers
· Internal political constraints and resistance to change
· Internally established standards
· Legal and financial barriers to market entry and market exit
· Information inequality
In short, population ecologists suggest companies to change according to what’s going on in the market, or risk failure.
Evolutionary economics focuses on entrepreneurship
Second, some economists study “evolutionary economics”. Evolutionary economics sees the economic process as an evolutionary process in which innovation leads to transformation and development.[ii] It’s based on the works of the Austrian economist Joseph Schumpeter. Schumpeter was among the first to address technological change, entrepreneurship, and innovation. Schumpeter describes dynamic economic processes in which innovations destroy old economic conditions, and create new ones, which he refers to as “creative destruction”.[iii]
Modern thinking in evolutionary economics can be summarized in 5 points:[iv]
· We live in a world of qualitative change in technology, organizations and economic structures.
· Innovation and change are driven by “variety and its replenishment through novelty and creativity”.
· Economic systems are complex, which creates the possibility for novelties. The combination of novelty and complexity makes many changes irreversible.
· Human agents are unable to fully understand what is happening or what is likely to happen in the future.
· Human institutions, such as enterprises, can emerge through self-organization or piecemeal iteration rather than comprehensive overall design. They can evolve spontaneously through individual interactions without a blueprint.
Especially the last point captures a very interesting and relevant idea for entrepreneurship: spontaneity. Companies may be born and change because of random interactions, not just because of market pressures. Novelty and creativity matter.
[i] Michael T. Hannan and John Freeman, “The Population Ecology of Organizations,” American Journal of Sociology 82, no. 5 (March 1977): 929–64, https://doi.org/10.1086/226424; Andrew H. van de Ven and Marshall Scott Poole, “Explaining Development and Change in Organizations,” The Academy of Management Review 20, no. 3 (1995): 510–40, https://doi.org/10.2307/258786.
[ii] Geoffrey M. Hodgson, Evolutionary Economics: Its Nature and Future, 1st ed. (Cambridge University Press, 2019), https://doi.org/10.1017/9781108767811.
[iii] Joseph A. Schumpeter, Capitalism, Socialism and Democracy (London: Routledge, 1942), http://widgets.ebscohost.com/prod/customerspecific/s2872380/p.php?url=http%3a%2f%2fsearch.ebscohost.com%2flogin.aspx%3fdirect%3dtrue%26db%3dedsebk%26AN%3d88213%26lang%3dde%26site%3deds-live.
[iv] Hodgson, Evolutionary Economics.
