business darwinism: why it strategy alone is not enough

As a formeranthropologist, Iam fortunate to

view the businessworld through aninteresting lens. Anunderstanding of theforces of change, andhow human organiza-tions respond andadapt to change, pro-vides insight into the businessenvironment of today. And in my15 years of IT and managementconsulting experience, the oneword that describes it best ischange. I address the issue ofcorporate change in my just-completed business book enti-tled Business Darwinism—Evolve or Dissolve.

IS IT ENOUGH?

The initial premise of thebook is that information plays astrategic and critical role intoday’s corporations, and there-fore the firms that are best ableto drive business value withinformation assets and process-es will survive, those that donot will be deselected. Butwhile I had established a clearneed for unleashing informationtechnology from the manage-

ment paradigms of the Industri-al Age through a new value dis-cipline called Information Mas-tery, I soon realized that I hadwritten myself into a corner.Corporations need to do morethan fix the way the informa-tion value is created and man-aged to help them adapt to theirbusiness environment.

My information technologypremise was valid, but it neededto be augmented by a frameworkthat added corporate structure,organizational design, companyand industry value chains, busi-ness processes, and all otherrelated business architecturecomponents to the IT architec-ture elements of increasinglyinformation-based businessmodels. A business evolutionmodel was needed to encompasscorporate strategy, information-based business modeling, and

four evolutionaryactivities that any cor-poration must do toremain viable—sur-vive, compete, repli-cate, and adapt. Busi-ness Darwinismdevelops a frameworkto unite the businessand IT structures andprocesses of a corpora-

tion into a cohesive organizationthat delivers business value inexciting new ways based onsuperior use of information.

The business and ITprocesses of a corporation areunited in delivering on the fun-damental promise of any corpo-ration: to perform a complexcollection of discrete, value-added transactions efficiently onthe behalf of its customers suchthat the customers do not haveto perform the transactionsthemselves. For these services,customers will pay a price abovethe cost required for the corpo-ration to perform them. That ishow corporations make moneyand deliver value to the market-place. If corporations cannotperform these value-addedtransactions more efficientlythan their customers can, theywill cease to exist.

Information plays a critical role in businesstoday. Only companies that can increase busi-ness value using information will survive, saysthe author. But corporations must do more thanfix the way they create information value. Theyneed a brand new model that combines both ITand business elements. © 2003 Wiley Periodicals, Inc.

Eric Marks

Business Darwinism: Why IT StrategyAlone Is Not Enough

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47© 2003 Wiley Periodicals, Inc.Published online in Wiley InterScience (www.interscience.wiley.com). DOI 10.1002/jcaf.10151

How well the business andIT jointly perform their inter-woven and interdependent tasksdepends on many factors, espe-cially in today’s complex, inter-connected global economy.Their mutual success requiresbusiness processes to be clearlydefined and efficiently executed.Success requires that businessprocesses be the right processes,and that they drive value for theorganization in servicing its cus-tomers. Their success requirespersonnel to be able to executetheir own elements of thesebusiness processes. Successrequires that the informationrequired for individuals to per-form their jobs be available,accurate, and timely. Their suc-cess mandates that informationsystems are designed, developed,and implemented to automateinformation capture and deliveryin support of business processesand the individuals who are partof these processes.

The business evolutionmodel of Business Darwinismplaces the business and IT into aframework for driving change incorporations; change that mustbe contemplated by corporatestrategy and the business model,and implemented by the initia-tives that result from them. Thefusion and interplay of the busi-ness and IT architectures arehow business models areenlivened and how corporationsadapt to change.

Business evolution manage-ment is the proactive adaptationof business models to the busi-ness, competitive, and technolo-gy landscape by architectingagility into the corporate struc-ture and capabilities. This isaccomplished with the help of abusiness evolution model,which is a macro-level changemodel that enables flexing thebusiness architecture and the IT

architecture in response to, andin anticipation of, businesschange. This is how businessmodels are tuned to the busi-ness, competitive and technolo-gy environment in which corpo-rations operate. The businessevolution model is depicted inExhibit 1.

The business evolutionmodel is important for severalreasons. First, it places the busi-ness and IT into a single, uni-fied model of organizationalchange for a corporation. Sec-ond, the model eliminates thealignment problem by buildingIT processes and informationmanagement into the businessmodeling effort. This is adynamic, synchronized processof defining the informationneeds of corporate strategy andthe business model, and build-ing those information manage-ment functions into that busi-ness model. This is a significantdeparture from the traditionalbusiness modeling processesemployed by most corporations.

Third, the business evolu-tion model explicitly recognizesthat implementing change in

any organization will require“flexing” of the firm’s businessarchitecture and the IT architec-ture. In other words, any busi-ness or technology initiativethat is implemented by a com-pany will impact the corporatestructure, organization, andprocess as well as the IT struc-ture, organization, and process-es. Change affects both to vary-ing degrees, and requires theability to adapt both to success-fully implement change initia-tives. Flexing the business andIT architecture refers to theability to adapt to changethrough the interplay of thebusiness and IT architectures,jointly. The business and IT areunited as the primary means bywhich corporations managechange and tune business mod-els to the business environmentin which they operate.

DESIGNING A NEW MODEL

The business evolutionmodel brings together corporatestrategy, the business model,and the collection of businessand information processes that

48 The Journal of Corporate Accounting & Finance

© 2003 Wiley Periodicals, Inc.

Exhibit 1

Business Evolution Model

drive execution of the businessmodel. The collection of busi-ness and information processesis divided into two entities—thebusiness architecture and the ITarchitecture.

The business architecture ofa firm is comprised of the fol-lowing elements:

• Company organization andstructure

• Business value chain• Core business processes and

strategic assets• Organizational learning

processes• Corporate fitness metrics

As you can see, busi-ness architecture is a high-level view of the structure,processes, and capabilitiesof the firm in achieving itsbusiness model objectives.

The IT architecture,similarly, is a high-level view ofthe information structure,processes, and capabilities of thefirm. It is NOT simply a descrip-tion of the technology platformsof an IT shop—it is bigger thanthat. The IT architecture is com-prised of the following compo-nents:

• IT organization and structure• IT value chain• Core IT processes and

strategic information assets• IT technology architecture • IT organizational learning

processes• IT value metrics

A corporation can be broad-ly described by its strategy, itsstructure, and its core capabili-ties. The business evolutionmodel combines these into asimple framework that helps afirm prioritize business andtechnology initiatives, introduceand manage change by flexing

the business and IT architec-tures, and evaluate performanceagainst fitness metrics that areuniversal for all corporations:revenue, profit, cash flow, andmarket share. As business andtechnology initiatives arelaunched to implement a givenbusiness model, a firm mustprioritize those activitiesaccording to its business modelfitness and the needs of thecompany, and evaluate theresults against the fitness met-rics (revenue, profit, cash flow,and market share).

Business evolution involvesfour fundamental activities: sur-viving, competing, replicating,

and adapting. These are evolu-tionary processes that a firmmust perform in order to sustainitself as a viable business entity.Surviving and competing are theday-to-day activities that a firmperforms to operate its currentbusiness model. Survive andcompete activities are gearedtoward taking care of today, orthe firm’s core business model.Replication and adaptation arelonger-term activities that helpmove a corporation from itscurrent business model andcompetitive landscape into futurebusiness models and new com-petitive arenas. Replication is theprocess of transitioning a firmfrom one business model to anew business model. Replicationis a re-positioning activity. Adap-tation, on the other hand, is along-term activity that prepares acorporation for multiple futures.Adapting pre-positions a compa-ny for the unknown by ensuringa firm has multiple options to

select from given shifts in thebusiness environment.

These business evolutionactivities all have a commonthread: They require the flexingof the business and IT architec-tures to accomplish them. All ofthese activities, to varyingdegrees, require flexing compo-nents of the business architectureas well as elements of the ITarchitecture to realize them.

Two critical questions arisefrom this discussion: How domarket leading corporations con-duct these evolutionary activi-ties, and what is the optimalblend of survive, compete, repli-cate, and adapt activities for

companies to win today?For example, Dell

Computer is arguably oneof the best-run companiesin the world on the basis ofits superior business modeland operational excellence.

Dell has proven to be masterfulat survive and compete initia-tives, which are focused on exe-cution of a company’s core busi-ness model. Survive initiativesare focused on improving execu-tion of core business processes.Survive initiatives might consistof supply chain strategies toreduce inventory, improvingdelivery reliability for cus-tomers, or improving the productdevelopment process to reducetime to market for new products.Survive initiatives are about effi-ciency and operational excel-lence. Compete initiatives areattacking or defending initia-tives. Compete initiatives aredesigned to provide competitiveadvantage to the firm along aparticular dimension of thefirm’s capabilities. Compete ini-tiatives have direct bearing onhow firms compete for marketshare and revenue.

Dell Computer providesexcellent examples of survive

March/April 2003 49


A corporation can be broadlydescribed by its strategy, itsstructure, and its core capabilities.

and compete initiatives. Dell’sdirect sales model is the envy ofIBM, Compaq, and Hewlett-Packard because of low coststructure, as well as the negativeworking capital cash flow model.Dell decided long ago to selldirectly to customers rather thanusing typical distribution andretail channels. In addition, real-izing the value of a high-velocitysupply chain, Dell invested inthe processes and systems tosupport that strategy. BehindDell’s Web site for orderingcomputers is a rich ensemble ofbusiness processes and the asso-ciated software applications thatdrive its supply chain execution,its inventory managementprocesses, its manufactur-ing scheduling and execu-tion processes, and itsinteraction with suppliersfor forecasting and deliv-ery. All of these supplychain capabilities wouldfall under the category ofsurvive initiatives, because theyare core business model activi-ties for Dell Computer.

On the other hand, Dellrecently initiated a much publi-cized compete initiative that hasproven to be very successful: aprice war. More than one yearago, Dell began undercuttingcompetitors’ prices even whilethe economy was slowing andPC sales were on the decline.This price war initiative reapedresults for Dell during thisindustry slowdown, increasingmarket share to 14.2 percent inthe fourth quarter of 2001, upfrom 11.7 percent share. Dell’scompete initiative, the price war,was targeted squarely at its com-petitors. Dell sought to take mar-ket share by exploiting its lowcost structure, which is based ona combination of many things—for example, low overhead, supe-rior supply chain management,

its direct sales model, and evennew product development. Thiswas demonstrated by Dell’s abil-ity to quickly redesign PC mod-els to use low-cost components,even while memory chip and flatpanel screen prices have risen, toincrease its share of the home-PC market. In addition, Dellopened retail kiosks in twostates, and boosted TV advertis-ing to support the price war.

Wal-Mart is a great exampleof a corporation that executes“survive” initiatives to perfec-tion. Wal-Mart is the leader ofthe retailing industry, and giventhe recent demise of Kmart, itstands to gain even more market

share. At first blush, retailingseems like a low-tech industry.However, retailing the Wal-Martway is anything but. Wal-Mart’sdiscount retailing formula ispredicated on the same basicprinciples as Kmart and Target:buy products in large volumesand sell them to consumers atfair prices. In Wal-Mart’s case, itsells products at “everyday lowprices,” which are lower than thecompetitors’ prices. However,Wal-Mart’s basic formula forretailing is backed by a sophisti-cated suite of business processesand technologies that provideWal-Mart competitive advantagein a number of dimensions. Wal-Mart’s innovations in logisticsand distribution are famous,developing the concept of cross-docking, or flow-through logis-tics, to speed up the flow ofgoods from distribution centersto retail stores, as well as its

hub-and-spoke distribution sys-tem, in which warehouses serveall stores within one day’s drivefrom the hub. Wal-Mart managesits supply chain with equal pre-cision, using point of sale (POS)data to detect consumer buyingpatterns and responding to themin real-time from the hub-and-spoke distribution system. Wal-Mart’s information systems,which link its network of storesand warehouses to its suppliers,are the execution engine of Wal-Mart’s business model. In fact,Wal-Mart views itself as aninformation company on thisbasis, and its business model isclearly an information-based

business model. And Wal-Mart’s results speak forthemselves. Wal-Mart out-executes all other retailersin revenue, profit, invento-ry turns, cash flow, andreturn on assets based onits ability to execute itscore business model.

PREPARING FOR TOMORROW

Flexing the business and ITarchitecture are necessary tolaunch all business and technolo-gy initiatives. Some will flex thebusiness architecture more, somewill flex the IT architecturemore, and there is a possibilitythat initiatives can leverage bothwithout requiring significantchanges in either. Survive andcompete initiatives are ongoing,day-to-day activities that sustainthe core business model of a cor-poration. But what does a firmdo when its business model losesits compass, when its businessmodel is not producing theresults that are sought by corpo-rate management? It may betime for a corporate renewaleffort, or replication.

Replication and adaptationare longer-term initiatives that



Flexing the business and IT architec-ture are necessary to launch allbusiness and technology initiatives.

prepare the firm for tomorrow,or its next future. Replication isan intermittent activity that tran-sitions a corporation from onebusiness model, industry or lead-ership paradigm to another.Replication helps a firm cross ageneration of change. Replica-tion transitions a corporationfrom one business model toanother in most cases, and canoften require radical changes tothe corporate strategy, the busi-ness model, and massive flexingof the business and IT architec-tures. Replication re-positions afirm for its next future. Hewlett-Packard is the most interestingcurrent example of this.

Hewlett-Packard hasbeen in the midst of a hugeoverhaul at the hand ofCarly Fiorina. The changesat H-P have been massive.Fiorina’s challenge was toremake H-P into the inno-vation machine it once was,by restructuring the compa-ny from 83 autonomous productdivisions into a front-back struc-ture, with the front being twosales organizations, and the backbeing two product divisions.This is a radical corporaterestructuring. Implementing afront-back structure in a compa-ny of H-P’s size has never beenattempted before, and time willtell if it produces the results Fio-rina is seeking.

Let’s examine H-P’s restruc-turing initiative further. Clearlythis is a case where flexing thebusiness architecture wouldrequire flexing of the IT archi-tecture to support it. H-P’s shiftfrom 83 business units to a cen-tralized, front-back structurerequired massive organizationaland systems changes. In fact, anew financial system was imple-mented to support the more cen-tralized front-back structures.This system allows management

to work off the same set of real-time financials, unlike the for-mer stovepipe financial systemsthat supported the individualproduct organizations. However,one negative wrinkle was thatFiorina rushed the reorganizationinto place before H-P’s informa-tion systems were modified toreflect the changes. In this situa-tion, the business architecturewas flexed out of sync with theIT architecture, which meant thatmanagers had to manually ana-lyze their financials at year-endin order to know whether they’dmet their goals or not. Thisexample shows how interdepen-

dent flexing of the business andIT architectures can be.

There are many examplesfrom H-P to study, but the reor-ganization outlined above will bea business school discussion foryears to come, regardless of theoutcome. H-P does represent acase of replication, where itsbusiness model is transitionedinto a new era, across a genera-tion of change, which in thiscase was the Internet Age.

Adaptation activities areongoing initiatives that pre-position a firm for multiplefutures and multiple businessmodels. H-P’s attempt at a merg-er with Compaq was an exampleof adaptation. This occurs byadding new corporate DNA, thebusiness equivalent of addinggenetic variation to a gene pool.Adaptation is the process ofdeveloping new core capabilitiesand skills before environmental

conditions change to make themnecessary for survival. Adapta-tion is the process of pre-adapting the business model tothe unknown, to the forces ofchange, by adding variation toits business and technology port-folios. This can occur organical-ly, through internal innovationprocesses and R&D, or it canhappen via M&A, as Cisco andTyco International do. The oldH-P Way was an example of aninnovation engine that was ableto launch idea after idea, whichhelped H-P sustain a leadershipposition in multiple businesses.In fact, Fiorina’s revamping ofHP Labs represents her attempt

to regain the innovativegrowth engine of the oldH-P. Fiorina’s restructuringof H-P represents a case ofpre-positioning H-P for thenext technology transition.Her goal is to transition theH-P Way into the InternetAge, where speed and

capability will help H-P excel attechnology, software, and con-sulting services, in effect com-bining the best of IBM’s servicesstrength with Sun Microsystems’product and technology excel-lence. This pre-positions H-P forthe future business environmentby rebuilding the agility andinnovation that once defined theH-P Way.

HOW NOKIA SURVIVES

Nokia is an example of acorporation that represents thefull cycle of business evolution,from its start as a pulp manufac-turer to its evolution into a man-ufacturing conglomerate, andmost recently into a cellularphone pure-play. Nokia hasdemonstrated survive and com-pete initiatives, as well as repli-cation and adaptive initiatives,during its impressive history.

March/April 2003 51


Adaptation activities are ongoinginitiatives that pre-position a firm formultiple futures and multiple businessmodels.

Nokia was founded in 1865as a pulp manufacturer along thebanks of the Nokia River in Fin-land. Pulp manufacturingrequires a business modelfocused on high fixed asset uti-lization and operational efficien-cy. Executing this type of busi-ness model would clearlyinvolve survive and compete ini-tiatives to be successful. ByWorld War II, Nokia had diversi-fied its business portfolio, manu-facturing and selling diverseproducts such as toilet paper,diapers, rubber boots, and evenelectricity. Becoming a manufac-turing conglomerate by addingthese diverse businesses enabledNokia to weather cyclicalbusiness conditions bymanaging a portfolio ofdiverse businesses ratherthan focusing on just one.This was an adaptive strat-egy based on adding port-folio breadth and businessdiversification. Nokia con-tinued to pursue adaptivestrategies in the late 1970s byinvesting profits from its coremanufacturing businesses intoacquisitions of technology andelectronics businesses such ascomputers and televisions. Nokiaclearly anticipated the rise ofelectronics in global markets,and was adapting its businessmodel, through M&A activities,to be competitive in high tech-nology businesses.

Nokia’s path to becoming theworld’s leading mobile-telephonecompany with over 35.3 percentmarket share—which was almostthree times the number twoMotorola’s 13.2 percent marketshare—did not come easily orsmoothly. Nokia needed toundergo a replication episode, ora transition of its business modelfrom one generation of technolo-gy and leadership to a new one.In 1991, Nokia was in trouble.

The Finnish economy was in direstraights due to the collapse ofthe Soviet Union. This seriouslywounded Nokia, and forced it tosell off company assets to raisecash for survival. Meanwhile,although demand for mobilephones was quickly rising, Nokiacould not meet the risingdemand with its mobile-phonebusiness unit. In fact, that busi-ness unit was nearly soldbecause of the capacity issues.Jorma Ollila, Nokia’s chairman,was in charge of the mobile-phone unit at the time and wasable to sort out the productionbottlenecks and bring the newGSM mobile-phone technology

to market. In 1992, Ollilabecame CEO and decided on aradical new strategy: Nokiawould become a mobile phonepure-play and sell off all othernon-mobile phone assets.Nokia’s core business wouldhenceforth be technology, notpaper products, and not evencomputer or television technolo-gies. This decision came asNokia launched its 2100 seriesGSM cell phone, which was anincredible success. The 1994sales goal was 500,000 units.Nokia manufactured and sold 20million. The rest is history.Nokia successfully transitioneditself from a manufacturing con-glomerate, to computers and tel-evisions, and from radio tele-phones to cellular handsets.Nokia’s stunning transformationwas perfectly timed with theright product and the right tech-

nology. Nokia’s business modelhad to be transitioned from astrategy based on managing aportfolio of diverse manufactur-ing businesses to a cell phonepure-play. The business modelrequirements of the high technol-ogy consumer electronics busi-ness are quite different than thebusiness model requirements ofa manufacturing conglomerate.Nokia successfully replicated itsbusiness model by transitioningit into the high technology, fastclock speed pace of cellularcommunications. Nokia trans-formed itself from a manufactur-ing conglomerate into a technol-ogy firm by adding new skills to

existing ones, and focusingitself on a single core mar-ket: digital cellular phones.Nokia, with its fascinatinghistory, clearly demon-strates all phases of busi-ness evolution, and its lead-ership in cell phones showshow well-tuned Nokia’scurrent business model is to

the needs of its core business. This revisits the two ques-

tions posed earlier: How domarket leading corporationsconduct these evolutionaryactivities, and what is the opti-mal blend of survive, compete,replicate, and adapt activitiesfor companies to win today? Forexample, Dell clearly representsan example of a survive andcompete company, but whatdoes Dell do in the replicateand adapt categories? Hewlett-Packard is currently in mid-replication because its corebusiness model performancewas slowly eroding. Once H-Pis through with its massivechanges, will it focus more onsurvive and compete? Nokia, asthe examples above demon-strate, has been through theentire cycle of business evolu-tion, most recently with its 1991



Nokia’s business model had to betransitioned from a strategy based onmanaging a portfolio of diverse man-ufacturing businesses to a cell phonepure-play.

transition into cell phone domi-nance. And what about TycoInternational? Tyco buys com-panies and then implements itsown management system onthem. In a sense, then, TycoInternational is an adaptivecompany based on its M&Aactivities, but after the acquisi-tion, Tyco becomes a surviveand compete company in driv-ing the core business modelperformance of its acquiredbusinesses.

The “optimal blend” of sur-vive, compete, replicate, andadapt activities will depend ona firm’s chosen field of play, orthe industries in which it com-petes, as well as how well it iscompeting. If a firm’s industryis reasonably stable (somethingthat is increasingly fleeting),and the firm is a market leader,focusing on survive and com-pete activities is essential,while remaining adaptive andagile will assure the firm’slong-term viability. In anintensely competitive industry,survive and compete will domi-nate, but there may be heavieremphasis on compete activitiesto wrest market share fromcompetitors. Adaptive strategiesbased on M&A may help a firmcompete better by adding large

increments of market share aswell new products and tech-nologies. If a firm’s businessmodel is failing and it findsitself in dire straits, a firm mayhave to undergo a replication totransition its business modelinto a new industry or a newniche where the firm can besuccessful. Of course, replica-tion events can be difficult andpainful, as H-P is experiencing,and can result in dramatic dis-location of the firm’s survivalability. More data is beingdeveloped to determine theoptimal blend of survive, com-pete, replicate, and adapt basedon industry verticals and indus-try clockspeeds.

ADAPTING TO SURVIVE

Business evolution requiresa new framework, a new operat-ing model, for taking care oftoday’s business needs as well aspreparing for tomorrow’s eventu-alities. Business Darwinism pro-vides such a framework. Busi-ness evolution is a newdiscipline that requires adaptinga firm’s current business modelto its business landscape, as wellas transitioning the firm’s busi-ness model across generations ofchange to face new business

conditions. Information and ITplay an increasingly critical rolein executing today’s complex anddynamic business models. Asbusiness models become moredependent on information and ITsystems for execution, the logi-cal next step is to synchronizebusiness and IT planning activi-ties by making them one and thesame. That is information-basedbusiness modeling, where busi-ness and IT leaders work togeth-er to define new ways of drivingbusiness model execution withinformation. This, combinedwith the business evolutionmodel, will help create flexiblecorporations that can more easilyadapt themselves to their busi-ness environment.

A key point to remember isthat business models must befluid and dynamic in today’svolatile business environment.Fixed business models and staticstrategies are things of the past.Change is the competitor that allcompanies face, and change isthe competitor that is alwayspresent. A framework that incor-porates change, or better, thatanticipates and embraceschange, is critical today. Busi-ness Darwinism is the way, andthe business evolution model isthe roadmap. Happy evolution!

March/April 2003 53


Eric Marks is an independent consultant and business author. Previously he was Vice President of MarketDevelopment for StreamServe, responsible for their Americas marketing, installed base sales/customer care,and channels and alliances. He has held a variety of top management positions at technology companies,including as a Principal Consultant with PricewaterhouseCoopers in its Supply Chain Management/High Tech-nology consulting practice.

business darwinism: why it strategy alone is not enough

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