Recently, I reread the fascinating book Your Inner Fish by Neil Shubin. Neil Shubin is a professor of anatomy at the University of Chicago. He describes in this very readable work how our bodies carry vestiges of the evolutionary past hidden right before our eyes.
Hiccups are a good example. Shubin writes: “If our odd nerve course is a result of our fishy history, then the hiccup is probably a result of our past as amphibians… The pattern generator (the nerve controller) responsible for hiccups appears to be almost identical to that of amphibians, not just any amphibians, but tadpoles that use both their gills and lungs to breathe.
Shubin continues: “Tadpoles breathe using gills and use this pattern generator. They want water to flow into their mouth, throat, and gills but not their lungs. They close the glottis (the flap that covers the breathing tube) to prevent this. …. The gills can be used to breathe, thanks to a form of extended hiccup.
Our hiccups, in short, are remnants of our evolutionary past — when we shared an ancestral ancestor with the tadpole.
The Accidental Mind by David Linden is another great book that describes the evolution and development of the brain. It shows how the brain “is not an optimized general-purpose problem-solving device, but rather, a strange agglomeration ad hoc solutions which have been piled up over millions of years of evolution history.”
What is the connection between this and business?
Business is everything.
Your Company’s Evolutionary Past
You can understand the motivations of a business by looking at their challenges and situations five to ten years ago. Most likely, the majority of what a company does grew from the way they met their past needs. These business practices have been passed down as part of “the way we do things” over the years without being reconstructed.
In my graduate course at MIT, I present a powerful case on this topic. This case presents an extremely complex optimization problem. Students usually work hard to optimize the problem and arrive at class ready to discuss the quantitative approach. I start the class discussion with a question that surprises them: “What problem are we trying to solve?”
It turns out, after a long discussion, that the company did not need the process to be optimized. The process was also causing more harm than good to the company.
The more complicated the optimization is, the less likely students are to consider whether the process at the core was really needed.
The class teaches that most of what a company does is done tacitly. It’s never seen or questioned. This tacit framework is historically determined and allows for a great deal of tuning, but it’s rarely examined.
The real money is in changing the tacit structure, not tuning it up. But very few people operate at this fundamental level.
My MIT course has as its primary objective to make students aware of this huge opportunity for every company and teach them how to recognize the benefits of operating at a high level of understanding. My second objective is to help them manage the fundamental change needed to transform an organization’s way of doing business.
What Margaret Mead said
To illustrate the importance of the unseen, pervasive influence of the past, I share a Margaret Mead tale with the class. In the last year Margaret Mead taught at Columbia University, I took a course in anthropology. The study dealt with how culture is passed down through generations. We looked at a wide range of fascinating situations, including Pacific Islanders and Morris Dancers.
A student raised his hands at the end of the class and asked if Americans have any traditions that are passed down through generations. When Professor Mead asks what we think, she hears responses such as “hot dogs” or “baseball.”
She looked out into the lecture room, where about 500 students were present. She then asked all those who were born in New England and raised there to raise their hands. My parents and grandparents are from Providence and Hartford, and I was raised in Western Massachusetts and Connecticut. I looked around, and New Englanders were lined up around the back and sides of the room in a horseshoe pattern.
Why did it happen? She explained that during the early days of New England town meetings, selectmen would ask for volunteers to help with the town work. In the event that there were not enough volunteers to do the town’s work, those who sat at the front and in the middle of the meeting would be called on.
Over the years, New Englanders began to sit at the back and sides of the room. This implicit behavior was then passed on to the next generation, without anyone realizing the reason, long after town meetings were no longer held. My wife from New York City, who likes to be in the front, finds it both frustrating and funny.
Problems with Zero-Based Budgeting
Managers were very fond of zero-based budgeting a few years ago. On the surface, its logic is sound: all expenditures should evaluated as if they were not already in place. This is the “if only I could wave a magic spell” approach to doing business.
This seemingly obvious approach has the problem that managers find it difficult to look beneath the surface of business procedures and examine the fundamentals. The problem with this seemingly obvious approach is that it’s nearly impossible for managers to penetrate below the surface of business procedures in order to explore and question the more fundamental “way we do business.” They then fall back to tweaking existing practices in order to make small incremental gains.
Breaking the Mold
How can a manager better understand the implicit business practices of their own company so that they can take a zero-based view?
Profit-mapping is the answer. It gives an incredibly clear picture of a company on a granular scale. Profit maps show the total profitability of each product for every customer every time they buy a product or a service. They also identify where to rethink and reset a company’s way of doing business.
Profit mapping is explained in both Islands of Profit in A Sea of Red Ink and my new book, The Digital Giants Are Coming. Managing to win in today’s age of revolutionary change.
Profit mapping is the process of constructing a complete profit and loss statement (that is, for each invoice line) every time a customer purchases a product. (Our SaaS profit acceleration solution company, Profit Isle, can produce this, even for very complex multibillion-dollar companies. We can analyze and isolate where companies are making money and where they are experiencing profit drains.
In the sense that every company is “accidental,” it’s built in a surprising way from old business methods. In my research and my work with my clients, I have found that in every industry, 30-40% is not profitable by any standard, while the remaining 20-30% generates all of the reported profits and subsidizes the losses.