We are standing in the dense forests of Ranathambore in Northern India. This iconic national park is renowned for its tigers. Yet now, the forest guide has taken us to the edge of a big clearing.
He asks us to stay quiet and points to a herd of deer drinking water at a pond. The deer look nervous. Some are drinking, while some are looking around.
The guide makes a gesture towards one of the deers who is looking around. We follow the gaze of that deer and suddenly from some distance away, a majestic yellow and black striped animal jumps out of the grass and gallops towards the herd. But the watching deer had anticipated that. The herd of deer instantly take off and gallop away. It’s now unlikely that the tiger will get deer meat for lunch. The naturally developed survival tactic employed by the deer saved them.
Darwin’s Natural Selection
Many years ago, a British naturalist, Charles Darwin observed countless such animal interactions on his voyage to the Galapagos Islands and formulated his now famous theory of natural selection or evolution.
Natural selection is often known in popular culture as the “survival of the fittest”. Well, what do we mean by the “fittest” ? Is it the most strongest fellow around ? Generally it would indicate something like that. But in ecological terms, “fittest” has a whole different meaning.
Lets consider the example of a peacock. The peacock has a quite astonishing set of colored feathers. These don’t help it to gather food; but they do perform another very important function – attracting a mate. For a species to survive, it is extremely essential for it to mate and produce offspring. So an animal that may be fit for its environment in every other way, but fails to pass along its genes to the next generation has no effect on the future of its species. That’s how evolution by natural selection works – the species which prosper are the ones which develop the best genetic mutations to aid the cause of their gene pool growing. The rest just die out.
Evolution in sports
More interestingly, Darwin’s landmark theory not only applies to ecology, but also to various spheres of human life. Competition is an integral aspect of most areas of human interaction.
This competition is as ruthless as the one we see in nature. The ones who develop ways to keep on changing and adapting to the environment around them will ultimately prosper.
Lets look at a recent example in the world of English football. The champions of the last two seasons (Manchester City in 2011-12 and Manchester United in 2012-13) failed to recruit top class players in the summers following their titles and both failed to retain their crown next season. Of course there were other reasons like the retirement of United’s iconic manager Sir Alex Ferguson. But inactivity in the transfer market was a vital factor.
Manchester City lost their title to United whose capture of talismanic striker Robin Van Persie proved to be the difference between the two sides. But United repeated the same mistake in the summer of 2013 when they failed to make any world class additions to their side. Now they are languishing in the 7th spot in the league while City are flying high in the top 3 positions due to their decisive signings in the summer of 2013.
The last two years in the English Premier League have been stark examples of the fact that even the most mighty teams need to keep on evolving and bringing in fresh blood in order to keep on prospering.
Evolution in the business world
When you think about investment the first thing that comes to your mind is probably growing your wealth over a period of time. Now we classify time as past, present and future, three distinct things. Hence when we think about investment we are thinking about how our investment would last over time. Now how does one grow wealth over time? By investing in assets that are growing in value over time. Businesses are a source of investment.
But the key idea here is that, if we look into the past we can observe that businesses have evolved much like species have evolved on this planet by competing in business and economic environment. But history only gives us retrospect. So when asking the question, how much would a certain investment in a certain business yield over time, one must consider how effective the business model and the management would be in the future and how would the business withstand potential extraordinary changes in its environment.
The analysis is similar to asking whether a group of organisms would grow in population over time or be able to survive a potential catastrophic event . If the tiger population in a forest increased, it will probably lead to a decrease in deer population. Can that much be said with some degree of confidence? The organism’s survival depends on its ability to withstand change, which involves changing behavior as well as physical changes over generations that are favored by nature. In a company’s case it survival depends on how good a company is at having a durable competitive advantage. Now what may be durable in the future can be deduced from looking at past scenarios. But there will always be uncertainty.
Evolution is wonderful !
Some truly awe-inspiring species like the dinosaurs have roamed our Earth for millions of years. Yet, despite being so successful, they died out because nature didn’t generate enough mutations in their bodies for them to co-exist with the changing environment. They have never really died out though. They have evolved and are all around us. When you see a bird flying majestically in the sky, feel privileged. You have just seen a descendant of the great dinosaurs of the past !