THE BLOG

The New Cambrian Explosion

12/03/2015 15:33 GMT | Updated 12/05/2015 10:59 BST

This work is an extract of our forthcoming article with Olaf Groth and Terence Tse on Thunderbird International Business Review

The future of corporations requires more scrutiny now than it has received in recent memory. In the last fifty years, multinational corporations (MNCs) have had an increasing macro and micro effect and influence on economic and social welfare in countries around the globe. Moreover, in some parts of the world, corporations possess more power and wealth than national governments. As engines of economic growth, innovation and technological progress, corporations have done much for humanity. But, as the financial crisis of 2008 has demonstrated, there are also large-scale dangers behind large corporations: when the innovative global corporation is mismanaged or when activities create negative externalities, it can leave the economic state of entire countries or regions vulnerable to internal and external shocks.

Thus, it is important to ask what role corporations will play in the future as both drivers of innovation and as agents of positive change. The ability of corporations to maximize their own innovation potential and ensure their longevity is partly dependent on how they can address emergent societal problems rather than being the cause of them. But to achieve both innovation and positive change will require a number of changes within corporations themselves--a change of perspective, a change of internal approaches to innovation, and a change of relationships with traditional and non-traditional external stakeholders.

Not surprisingly, these changes are needed for the present as well as the future. Large multinationals are already facing increasing pressure to embrace smaller, emergent clusters of specialist innovators in order to stay relevant. At the same time however, these firms continue to retain a "Great Wall" around their operations. In other words, mergers and acquisitions are currently the dominant means of engaging with smaller outfits. But how long this model can be maintained is debatable. Although advanced technology is currently able to accommodate communication and coordination needs between two companies so that the benefits of acquisition currently outweigh the challenges of organizational complexity, over time, many major global conglomerates--the Great Wall firms--will find themselves continuing to struggle with smaller, specialist challengers. Eventually it will be increasingly hard to justify the cost and complexity of absorbing new ventures. In essence, acquiring smaller startups and specialists as a means to stay competitive is a short-term solution.

As such, Great Wall firms remain at risk of falling behind new innovators who combine the advantages of scale with the speed of distributed networks. In contrast to the Great Wall firm, this type of organization treats communities, markets, and institutions as a "Coral Reef," where the reef consists of diverse pockets of opportunity and each entity is a stakeholder.

Within the Coral Reef, a number of pioneers are already spearheading the growth of platform-driven ecosystems, as seen with cloud technology, indicating the way to a new model of large-scale, cross-boundary innovation. With the possibility of such disruptive new models of corporate innovation and social engagement, executives must ask themselves whether they understand the direction and the forces underlying current shifts. Then they can assess the readiness of their organization to make the necessary changes needed to embrace open innovation and networked approaches to sourcing ideas, in order to capture value from new economic activity.

From Fortress Firms to Cambrian Corporations in a New World

As new social and economic challenges enable new convergence spaces to occur between infrastructure, energy, communication, finance, and human networks, they will spark a myriad of issues for societies that need to be addressed. These needs and issues will in turn facilitate new markets for organizations that are able to innovate in a cooperative setting amidst contextual changes. The benefits range from supply chain savings to local economic inclusiveness. To be such an organization, a "Cambrian Corporation," named for the geological period in which complex, multi-cellular organisms overtook single-celled organisms for the first time, a Great Wall firm must develop the ability to spark, incubate and funnel "Cambrian Explosions" of cross-fertilization, creativity and innovation between converging domains and technologies in the Reef.

The Cambrian enterprise system is set up so as to continuously scan the Coral Reef of relationships and niches spanning many different sectors and categories, in order to achieve increased robustness as sources of growth become more diverse and traded frequently across the organization. In this way, Cambrian Corporations can achieve greater productivity and growth, as well as scatter risk during uncertain economic times.

For a Great Wall firm to become a Cambrian Corporation and reap the benefits of new sources of growth, the firm must become comfortable with change and unfamiliar markets. It will need to develop its foresight and design and synthesis capabilities, and let go of traditional pure play methods and reductive analytical approaches. Because new growth will likely happen through shared infrastructure systems of the Coral Reef with other firms and institutions, the Cambrian model of modularity and decentralization allows firms to go wherever any problems, solutions, and potential profits may arise. In this structure, nodes of project groups are formed, geared towards solving discrete problems, along with the help of external networks and communities of different types different areas of the Coral Reef. The organizational design goals of Cambrian Corporations prioritize agility and capacity for expanding directions to realize fast-moving opportunity. As Cambrian Corporations retain the ability to morph itself when needed, they also increase the ability to avoid distended structures that enable catastrophic failures.

Although we can only describe the broad characteristics of a Cambrian Corporation because the organizational details cannot be predicted, it is evident that the existing bureaucratic structures of MNCs today will no longer be adequate to navigate a more complex and interconnected world. Fortress firms are not designed to accommodate the degree of flexibility needed to achieve scale economies across different parts of the Coral Reef and new convergence spaces. Yet, if the modern global corporation of today is to insulate itself from macroeconomic instability and join society's Coral Reef so as to participate in the benefits of distributed infrastructure, it must be reshaped into a Cambrian Corporation. Along the way, the Cambrian Corporation will have the capacity to assist society's other stakeholders, and provide the means to help troubled stakeholders transition from distressed entities into solution co-innovators. In this way, the role of the corporation will transform from agents of volatility to agents of stability.