Genes offer business tips

What is life? By definition, life refers to organisms that reproduce, metabolize, grow and respond to stimulus.

Richard Dawkins, an evolutionary biologist, made a different interpretation of life in his iconic book “The Selfish Gene.” He argued that life was a method by which genes reproduce and evolve while adapting to environments.

Since the first life appeared on Earth 3.7 billion years ago, there have been five mass extinctions that wiped out 60-80 percent of living creatures on this planet. The genes of those that survived those catastrophes have thrived since then, adapting to environmental change. This is remarkable considering that most companies today hardly stay in business for a decade.

This presentation will look at how genes have successfully evolved for such a long period of time and find useful tips for businesses’ long-term growth.

The evolution of genes has proceeded according to three basic principles. The first principle is diversity. Most living organisms exchange genes with each other through sexual reproduction. This has helped increase the diversity of genes as well as the share of good genes in the whole species, thereby raising the chances of survival. If advanced life had reproduced asexually, it would have been at risk of extinction due to accumulated genetic defects.

Likewise, companies need to adopt good genes from outside to increase internal diversity for long-term growth. In M&As to acquire new capabilities, acquirers need to manage acquired firms independently to ensure they continue to build on their own expertise.

Roche, a multinational drug company, does not interfere with the management of Genentech, which it acquired in 1990. Thanks to Roche’s “non-interference” policy, most employees stayed with the world’s first biotechnology firm after the acquisition. Today, most cancer drugs Roche sells were developed by Genentech, which include Herceptin and Rituxan, generating much profit for the mother company.

The second principle is insurance against an uncertain future. Genetic mutations, which allow living organisms to better fit their changing environments is one such insurance. When the environment is stable, mutants die out, but when there is a sudden environmental change, mutants can enjoy an advantage.

This is true for businesses as well. Companies should not rest on present success, but need to constantly attempt new things to prepare for future changes. Nestle’s capsule coffee brand Nespresso captures this principle very well. The food company began to develop the coffee brewing system in 1974 when Nescafe, an instant coffee brand made by Nestle, was the norm in the market. After more than a decade of development, Nespresso hit the market for office use in 1987. It was a big failure, selling only 50 percent of production due to the lack of demand for single-use capsule coffee. Surprisingly, in the 2000s, the premium coffee market for home use expanded and Nespresso became a major segment for Nestle’s coffee business.

It takes a long time for new products or technologies that are different from present norms to establish themselves in the market. However, investing in new ideas, products and technologies is a good way of guaranteeing that businesses can survive through changes in the market.

The third principle is self-renewal through self-destruction. Genes destroy themselves through apoptosis when they get old and non-functional or infected with pathogens, to keep the host healthy. Businesses also need to check their structures and operations on a regular basis to ensure their organizations stay in optimal condition. Leading companies are alike irrespective of their field in that they pursue constant restructuring to ensure optimal business health.

For example, DuPont conducts organizational adjustments when a business unit is found to fall behind its company-wide financial criteria or lack the potential for technological innovation. Its 1998 sale of Conoco, an oil subsidiary which accounted for 42 percent of revenues and 24 percent of operating profits, was one such adjustment. DuPont poured cash from the sale into bio-agricultural science and is now rising as an industrial leader in that field.

What is most important is that companies should transform themselves constantly for survival and growth in the long run. This is because, in a constantly changing business environment, it is essential for companies to enhance their adaptability by absorbing new capabilities and cultures.

One thing to remember is the importance of balance between new trials and existing functions. Cells maintain a balance between a tendency to mutate and a tendency to resist mutation thanks to repair genes that fix defects or mutations. Likewise, companies need to have a financial or operational control system to strike a balance between change and continuity. 

By Koh You-sang

This article was contributed by the Samsung Economic Research Institute. The author works as a senior research fellow at SERI. ― Ed.