adaptive cycles & the industry ecosystem
DESCRIPTION
A look at ecosystemic adaptive cycles as applied to competitive market environments.TRANSCRIPT
Adaptive Cycles���& ���
the Industry ���
E C O S Y S T E M
���A few weeks ago, I stumbled ���across an article that linked the ���application of adaptive cycles ���from ecology to finance.������
���In addition to its financial utility, I found that many of the ecological principles found in adaptive cycles could also be applied to competitive market environments.������
The following is an excerpt.��� e d I t e d e x c e r p t
In an adaptive cycle, early growth is rapid as individuals of many species S t a r t u p s arrive in a newly opened space.���
They seek to exploit a plethora of ���vacant ecological niches. ���
M a r k e t s e g m e n t s
Wealth���
Connectedness��� Resilience���
Reorganization���
Exploitation���Release���
Conservation���
X
Connections are initially simple ���and sparse, but over time many ���interconnections and mutual ���dependencies develop.���
The system therefore increases in ���both ‘wealth’ and connectedness, as flows of energy and materials ���C a p I t a l become larger and more ���complex.���
Biological O v e r a l l ‘wealth’ confers the potential for novelty ���I n n o v a t I o n, allowing the system to adapt in disparate directions as circumstances warrant.���
Connectedness permits increasing stability, through the development of negative feedback loops, which help to regulate conditions conducive to life. s u s t a I n a b I l I t y ���
Wealth���
Connectedness��� Resilience���
Reorganization���
Exploitation���Release���
Conservation���
X
As time passes, rapid growth gives way to conservation.���
Inter-dependencies become highly specialized and self-regulation becomes fine-tuned and sophisticated.���
Efficiency is maximized as niches are fully occupied. ���
Flows of energy c a p I t a l and nutrients r e s o u r c e s are tightly controlled by the existing biota ���m a r k e t l e a d e r s.���
This represents the end of the growth phase.���
Wealth���
Connectedness��� Resilience���
Reorganization���
Exploitation���Release���
Conservation���
X
Relatively few opportunities are left for newcomers or novel strategies, hence diversity stabilizes or declines.���
The system is ‘rich,’ but becomes more rigid, and therefore less resilient in the face of potential shocks.���
This can propagate rapidly through a highly inter-connected system with smaller margins for error than it had in its generalist phase.���
An increasingly brittle ecosystem ���m a r k e t becomes, in C. S. Holling’s words, “an accident waiting to happen.”���
When something does push the ecosystem m a r k e t outside of the boundaries it can tolerate, the long growth phase can morph into a rapid and chaotic release and reorganization phase.���
Nutrients c a p I t a l and energy ���r e s o u r c e stores previously tied up can suddenly be liberated.���
Wealth���
Connectedness��� Resilience���
Reorganization���
Exploitation���Release���
Conservation���
X
This can be associated with a considerable loss of complexity, but also with much greater potential for generalist strategies and for novelty. O p e n I n n o v a t I o n
The Automatic Earth, Jan. 2010���
Wealth���
Connectedness��� Resilience���
Reorganization���
Exploitation���Release���
Conservation���
X
���
I found it uncanny how easily the narrative of an adaptive cycle could apply to the emergence, stability, collapse, and rebirth of an industry. ���
Let’s take an example:���
Let’s take an example:���������
The Music Industry. ���
Reorganization���
Exploitation��� Release���
Conservation���
1 9 2 0 s Early players enter an open market.���
Reorganization���
Exploitation��� Release���
Conservation���
1 9 3 0 s Early players enter an open market.���
Reorganization���
Exploitation��� Release���
Conservation���
1 9 4 0 s Early players enter an open market.���
Reorganization���
Exploitation��� Release���
Conservation���
1 9 5 0 s Early players enter an open market.���
Reorganization���
Exploitation��� Release���
Conservation���
1 9 7 0 s Added labels seek to exploit vacant segments. ���
Reorganization���
Exploitation��� Release���
Conservation���
1 9 8 0 s Added labels seek to exploit vacant segments. ���
Reorganization���
Exploitation��� Release���
Conservation���
1 9 9 0 s System wealth allows for disparate adaptation – niche labels. ���
}���
Flows of energy c a p I t a l and nutrients r e s o u r c e s are tightly controlled by the existing biota m a r k e t l e a d e r s, who have
created a ‘rich,’ but rigid industry structure.���
}���
When something does push the ecosystem m a r k e t outside of the boundaries it can tolerate, the long growth phase can morph into a
rapid and chaotic release and reorganization phase. ���
Reorganization���
Exploitation��� Release���
Conservation���
1 9 9 9 Napster shocks a rigid oligopoly with file sharing software. ���
Reorganization���
Exploitation��� Release���
Conservation���
2 0 0 0 s Chaotic release phase ensues as digital music takes shape. ���
Reorganization���
Exploitation��� Release���
Conservation���
2 0 0 0 s Chaotic release phase ensues as digital music takes shape. ���
Reorganization���
Exploitation��� Release���
Conservation���
2 0 0 0 s Chaotic release phase ensues as digital music takes shape. ���
Reorganization���
Exploitation��� Release���
Conservation���
2 0 0 0 s Freed resources and innovation shift toward reorganization. ���
Reorganization���
Exploitation��� Release���
Conservation���
2 0 0 0 s Freed resources and innovation shift toward reorganization. ���
Reorganization���
Exploitation��� Release���
Conservation���
2 0 0 0 s Freed resources and innovation shift toward reorganization. ���
Reorganization���
Exploitation��� Release���
Conservation���
2 0 1 4 New solutions continue to emerge in a liberated landscape. ���
It happens in nature, and it happens in our markets.���
���It’s time we recognize the cycle and as innovators, develop a model that tracks industrial progress through each stage, in an effort to preemptively generate n o v e l s t r a t e g I e s in the anticipation of collapse.���
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For questions^, please reach out @AlxBrands���
O R c o m m e n t s ���
���Thank You.���������������
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