While it is rarely explicitly acknowledged evolutionary thinking is central to business theory. People often believe selection pressures change populations competing in markets. (How exactly this happens is often a little vague). What is the connection between evolution and Jack Welch?
Evolutionary Thinking In Economics
Armen Alchian was an early proponent of evolutionary thinking in modern economics. He suggested that if enough managers headed off in random directions then some would follow a course well fitted to the environment. (Think monkeys typing Shakespeare). The idea is that managers who succeed may just be the lucky ones whose strategies happened to fit the environment well at the time. Winners are not necessarily those with the best thought out strategy but the luckiest.
Success is based on results, not motivation.
Alchian 1950
Insight: Intentions Do Not Equal Outcomes
Why is this insight still important more than sixty years on? For at least two reasons I think:
1) Managers don’t need to make optimal decisions for markets to work well. This has profound consequences for decision-making research. Experiments showing people make sub-optimal decisions may prove nothing about markets. Markets have their own evolutionary dynamic which transcends the thinking of the managers involved.
2) If luck plays a major role in market outcomes then interviewing a successful manager may be pointless. He or she won’t necessarily have any wisdom to share.
When I wrote this (2013) Jack Welch was always giving his thoughts on television. Often they seem really badly thought through ideas to me. Welch’s star may have dimmed a little given GE’s struggles — did he leave the company in a good state? (He has since passed away). The point is that a few years back many thought Welch was wise. Listening to him I was never convinced. Doing well in business may be a sign of a good plan. There may also be a good fit with the time. Maybe Welch was very well suited for GE when he was there but would have struggled at other firms and in other times.
Still, it is worth remembering that someone has to do well. If we look for a successful CEO somewhat is going to fit that description at any given time. Still, the monkey typing Shakespeare who by luck creates Hamlet may be no better than the one who by luck types “The Two Gentlemen of Verona”.
Lottery Winners Are Lucky, They Don’t Have A Replicable Strategy
People win the lottery. Still, the winners have no strategy worth the name. Arguing business is only luck is surely too strong. Still, the words of some CEOs suggest they aren’t any cleverer than the rest of us.
Evolution And Jack Welch
The lessons from Alchian: 1) Evolution of markets matters and 2) Jack Welch may not be especially bright.
For more on evolution and strategy see here.
Read: Armen Alchian, Uncertainty, Evolution and Economic Theory, Journal of Political Economy, 58, 3 (June 1950)
