Firms that fail to adapt will collapse

This article first appeared in DNA India on Nov 30th, 2017.

In his book Collapse, Jared Diamond gives the example of a Norse settlement in Hvalsey, Greenland,  which flourished for around 400 years between 1000 CE  and 1400 CE. So why did this flourishing community die out?

In the book, Jared lists out five main factors for societies to collapse, viz., climate change, hostile neighbours, collapse of essential trading partners, environmental problems and failure to adapt to environmental problems. He applied it to the Norse settlement.

First, the Norse treated Greenland as if it was Norway with plentiful resources and thus, caused environmental havoc by depleting natural resources.

The Norse had had some hostile neighbours in the Inuits who they looked down upon. The Inuits had survived in those conditions for ages but the Norse declined to learn from them.

Additionally, a lot of the Norse trade depended on their kinsmen in Norway and when this got cut off as a result of wars, the settlement suffered. A consequence of all this led to the ultimate collapse of the society.

What is true for societies is also true for organisations. Organisations are part of the world and as they grow, they often tend to make injudicious use of scarce resources (both hard resources such as raw materials for manufacturing industries or people resources for the services sector).

They are always faced with the threat of hostile neighbours in the form of competition from others in the same industry segment. They are also subjected to the vagaries of their relationships with suppliers.

As the management guru Porter states, when supplier power increases, there is significant pressure on the organisations.

Moreover, companies are also impacted by their relationships with the eventual buyers or consumers of their products.

Thus, the first three factors listed by Jared are those that resonate closely with aspects of Porter’s five forces model.

The final two aspects, however, can be translated into the company’s culture. How a company defines and shapes its culture as it grows will eventually determine the direction that it will take.

Good organisations spend a lot of time in trying to put together a positive culture that gives them a competitive advantage.

Bad organisations, on the other hand, seldom pay attention to their culture and the overall employee experience, subjugating them to the more pressing needs for growing their business whichever way. Moreover, how organisations respond to the changing environmental (read culture) factors is critical.

As they say in evolution, it is not the strongest or the most intelligent of a species that survives but that which is most adaptable. The same holds true for organisations.

Organisations are societies in microcosm. The same pressures that afflict societies also afflict them.

The only way to ensure that they do not go the way of the Greenland Norse is to understand the various pressures, react to them appropriately and more importantly, keep adapting.