Its a jungle out there

Organizational change has been, and will continue to be, a hot topic in business management. How to get personnel to see and embrace the new trends motivating change, is one of the major responsibilities of strategic planners. As a manager, it is easy to produce memos, hold meetings, send out articles, etc., to induce awareness, but this rarely enables employees to fully "buy in" to possible future trends ... especially if they threaten incumbent enterprise models (status quo).

With expanding information systems, trends of change and the market's responses to these trends, are readily available for analysis. However, the difficulty is putting together logical "what if" scenarios based on this analysis that can demonstrate the value of proaction. Scenario planning offers a tool that can provide the verisimilitude enabling proaction, but the "story" must be told correctly and all the facts and figures must be correct, or the scenario will have little use as a planning tool, even if the story is a good one. One of the best books on this topic is The Living Company by DeGeus.

I think that efforts towards sustainable enterprise (SE) suffer somewhat from this malaise. SE produces good arguments for the ethical and ecological legs of the triple bottom line, but economic success is not yet firmly linked to SE. One of the goals of my research is to produce more obvious links to intentional sustainable management, especially for small to medium sized enterprises (SME).

Why are SMEs important? I believe the research indicates that networks of smaller firms will become more efficient than their larger counterparts. This may be due to information technology, the development of global supply chains that behave as networks, and the forces of sustainable development.

Recent economic publications describe this current period of rapid technological advances and economic globalization as Schumpeterian, or having characteristics of rapid change forcing destruction of incumbent structures. This is due to the rapid spread of technology and communication systems and capitalism. Described in layman terms, this means that the status quo, or many incumbent enterprises of commerce, are being rapidly replaced with new networks of enterprises that are evolving as a result of new efficiencies developed under the stimuli of Schumpeterian globalization, i.e., rapid technological and economic development.

The Price Equation, one of many descriptions of evolutionary factors, describes evolutionary market forces in terms of: selection effects, the diversity in technological development, and innovation effects. Selection means success and survival. The diversity of technological development is the size of the gap between the lowest level of technology and the highest. Innovation effects describe the rate of innovation from slow to rapid.

Within the Price Equation, selection is directly influenced by technological innovation and the ability to move rapidly to fill the needs or gaps in the market.

Schumpeter's "creative destruction" is an important influence on innovation effects. When new ideas must grow in the presence of incumbent structures and paradigms, they are always retarded in their growth as the incumbent systems resist becoming obsolete and hold capital close for its own use, keeping necessary capital from the upstart. As incumbent systems fail or are intentionally destroyed and removed, they no longer provide friction or resistance to the change that is offered by newly minted ideas and paradigms. This is the power of “creative destruction”. It is the removal of the structural and philosophical resistance to change.

If we begin to understand the evolutionary factors for modern business, including creative destruction, globalization, rapid communication, and dissemination of information, we find that the opportunities for small firms to take advantage of their ability to change rapidly increase. SMEs have the ability to respond and unwind complexities and inefficiencies that result from technology, market and sustainability, and to do it rapidly. Large incumbent firms are self retarding, especially in their ability to take advantage of the efficiencies of networking because networks threaten existing structures. Therefore, smaller firms working in evolving markets with evolving structures, especially networks of these smaller firms, will see dramatic opportunities develop.

When smaller firms work in developing markets, where the technological gap is large, and they apply their quickness within a context of sustainable enterprise, SMEs offer the most efficient way to control complexity for their customers. This is of course, the purpose of markets and of enterprise: to control complexity and thereby create the customer. One of the challenges is for the market to see these networks as stable, or at least as stable and efficient as large multinational enterprises. The market is already finding out that networks produce cost effective structures for meeting supply chain needs, the larger question may be their reliability and longevity. Can networks of SME be cohesive enough and last long enough to be reliable as a multinational company. This remains to be seen.

Within this rambling is one case for adoption of sustainable enterprise for small business. Working rapidly, within the messy interface of new market paradigms, SMEs will evolve as efficient networks, perhaps even sustainable networks of value, if we can envision these networks as long term and not ad hoc. Can these networks assume the responsibility for the environmental and ethical factors that are being imposed on multinational firms by NGOs and civil society, or will SMEs and their networks be like so many of the small pests that plague our world that we don’t see and feel until the damage is done? Termites and the rats of the Black Plague are good examples: killing one termite or one rat does not stop the network termites from eating the foundation of your house or stop the rats from breeding and spreading fleas. To make these networks accountable, one has to destroy the hive or habitat.

Networks of SMEs are more efficient suppliers of goods and services for the global market, but if the networks do not develop the ethics and accountability for their actions, these structures can produce more efficient consumption and productive networks that accelerate the current trends of environmental and social degradation.