Calorie restriction prevents Dutch Disease

Insufficient resources: "a blessing in disguise" for living organisms and states
George ILIEV

Calorie restriction - a diet usually containing 30% fewer calories but with the nutrients of a standard diet - is associated with increased life span in a range of living organisms, including primates, mice, drosophila flies and yeast. Restrictions in protein intake also lead to improve health as cells recycle waste protein much more efficiently and repair themselves more successfully.

The same principle is visible in a series of macroeconomic failures known as Dutch Disease. Countries with abundant natural resources, such as oil-rich states in Africa and Latin America, end up wasting these resources in a spectacularly profligate way. On the other hand, countries with limited natural resources, e.g. Japan, Singapore and Switzerland, mobilise themselves by minimising waste and building functioning institutions and thus achieve significantly higher productivity than their resource-endowed counterparts.

Photo: Oil pumpjack (Source: Wikipedia)

Why hot water freezes faster and why companies underprice their stocks in IPOs

Counter-intuitive actions/phenomena often achieve better results
George ILIEV

Nature and business sometimes make a step back in order to make a step forward. The Mpemba paradox in physics holds that hot water freezes faster than cold water, which is frustratingly counter-intuitive. Scientists from Nanyang University in Singapore recently found the explanation to this strange phenomenon. The key is the heating-triggered relaxation of the weak covalent bonds between the two hydrogen atoms in one water molecule and the oxygen atom in the adjacent molecule.

Initial public offerings (IPO) provide a similar counter-intuitive example in the business world. Companies naturally should want to sell their shares at the highest possible price. Why, then, did Twitter set its stock selling price at $26 per share in its November 2013 IPO, even though the company and its underwriter Goldman Sachs could have realistically foreseen a trading range around the current level of $41-$45. Risk aversion is probably not the whole story. Many consumer products and media companies prefer to make a splash on the market by leaving money on the table for a bunch of happy investors in a heavily oversubscribed IPO, rather than milking every single investor to the top of their willingness to pay. They see this is the way to long-term success. If you don't believe these companies, pick up John Kay's 2010 book "Obliquity" on how to achieve things indirectly.

Photo: Ice Cubes (Source: Wikipedia)

Bees and Wikipedia: quintessential generators of "invisible GDP"

Crop pollination and Wikipedia knowledge create hidden value that is not captured by conventional statistics
George ILIEV

A 2007 study estimates the value that bees and other pollinators create for farming at 153 billion euro. A more recent study shows that 84% of European crops are partially or entirely dependent on insect pollination. The former number alone equals around 0.3% of global GDP, but these significant statistics are rarely given due coverage in national and international GDP figures.

Economists have been noting in recent years that the IT revolution and the internet are not leading to increased productivity and increased output. "As early as 1987 Robert Solow, a growth theorist, had been asking why 'you can see the computer age everywhere but in the productivity statistics'."  (The Economist. Jan 12, 2013. "Innovation Pessimism: Has the ideas machine broken down?") These macroeconomic studies omit the crucial role of knowledge pollination and cross fertilisation played by Wikipedia and the other volunteer-driven IT and online platforms: the Google search engine, blogs, the Linux operating system, etc. Volunteers contribute to the economy their time and skills in writing and editing Wikipedia articles even if these are not recorded in GDP statistics. Having all the world's information at your fingertips has a visible empirical impact on research, entrepreneurship and innovation, just as bees visibly produce honey.

Photo: Bee "on" the bonnet (Source: Wikipedia)

Ambergris, Pearls & Silk serve roles similar to Lawyers, Consultants & Outsourcing Agents

Luxury products made in living organisms play roles analogous to outsourced professional services in companies
George ILIEV

Living organisms sometimes produce biologically-expensive materials to isolate themselves from harmful factors in their environment. Ambergris, a thick oily substance used in expensive perfumes, is produced in the digestive tract of sperm whales to encapsulate the beaks of squid they swallow and stop them from damaging their intestines, according to Italian research published in the journal Geology.

Similarly, pearls are produced when an oyster tries to seal off an irritant inside its shell by covering it with layers of nacre (mother of pearl). These irritants are often microscopic worms or some other organic material. Contrary to popular belief, grains of sand are rarely the cause of pearl formation.

Silkworms ensconce themselves in cocoons of silk for the same defensive reasons: the vulnerable chrysalis (pupa) needs to isolate itself from the environment during the crucial metamorphosis process of turning from a caterpillar into a butterfly.

In the corporate world there are analogous phenomena: companies use valuable resources to hire external help - lawyers and consultants - to deal with dangerous or potentially harmful situations. When a company like Apple wants to isolates itself from labour disputes and complex legal and cultural issues in its production and supply chain, all it takes is to outsource production to a faraway company like Taiwan's Foxconn. Thus Apple can stay focused on its in-house R&D and marketing - done comfortably inside its California silk cocoon - though at the price of severing valuable feedback loops from the real world.

(Photo: Akoya pearls. Source: Wikipedia)

"Taken by Storm" Applies Equally to Cyclones and Crowdfunding

Crowdfunding thrives thanks to the Internet - just like inland tropical cyclones are energised by global warming.
George ILIEV

In 2007 a tropical storm named Erin took America by surprise. Cyclones usually weaken after making landfall but Erin defied the hurricane convention: it grew stronger over Texas and even formed an eye above Oklahoma. Since Erin, scientists have defined a new category of tropical cyclone: while the usual type derive their energy from the heated surface water of the ocean, this new tropical storm category derives its energy from evaporation of soil moisture (figuratively called "brown ocean"). NASA-funded research at the University of Georgia (USA) shows that rising global temperatures and increased humidity in some areas are making this unorthodox category of hurricanes not only possible but increasingly common.

In a similar way, the spread of the Internet and growing consumer wealth create "the perfect storm" that has made a new social phenomenon possible: crowdfunding. The conventional way of funding a project or business has always been through savings and bank loans or by selling shares on the stock market (analogous to the conventional view that the warm ocean feeds tropical cyclones). Crowdfunding projects are known to have existed in the past - e.g. for raising funding for the pedestal of the Statue of Liberty in the 1880s - but were never the norm. Crowd-sourced fundraising has taken off only after the Internet and consumer wealth became widespread. Microfinance platforms such as Kiva and creative micro-investment platforms such as Kickstarter are now making a significant impact worldwide. However, unlike the hurricanes, their impact is hugely positive.

(Photo: Tropical cyclone, as seen from space. Source: Wikipedia)

Physicists Compare Embryo Development and Cancer. What Connects Google with Enron?

Good and Bad Outcomes: Common in Evolution of Multicellular Organisms and Stock Markets
George ILIEV

Here is a daring double-barrelled hypothesis - among the most daring I have produced:
1. The evolution of multicellular organisms possibly leads to both good and bad outcomes: embryos and cancer, respectively.
2. Stock markets similarly sustain good and bad outcomes: Google and Enron.

A newly founded institution in Arizona called Center for the Convergence of Physical Science and Cancer Biology straddles the border between physics and astrophysics on the one side, and cancer research on the other. Two theoretical physicists and cosmologists are exploring a (yet unproven) hypothesis linking the origin of cancer to the evolution of multicellular organisms and the development of embryos. They assert that "genes that are active in the embryo and normally dormant thereafter are found to be switched back on in cancer. These same genes are the 'ancient' ones, deep in the tree of multicellular life." The researchers expect to find that "the more malignant stages of cancer will re-express genes from the earliest stages of embryogenesis".

A similar parallel is even more evident in the impact that stock market listings have on companies. For many, including leading "goodies" such as Google and Apple, a public listing has the beneficial effect of providing resources for growth and credibility for transacting in the business world. For others, such as Enron and WorldCom, the stock market created perverse incentives for top managers to cheat and lie.

To put it simply, one man's meat is another man's, ...eh, defeat.

(Photo: Enron's logo, Wikipedia)

Quantum Physics Lends Strategies That Beat Classical Game Theory

Quantum Entanglement Is Firmly Entangled with Game Theory 
George ILIEV

Finally someone has produced a paper expressly for my blog. "Link Between Quantum Physics and Game Theory Found", published in Nature Communications, explores novel Nash Equilibria that beat the conventional Nash Equilibrium. Players in a Prisoner's Dilemma type of game who have access to using an entangled pair of quantum particles outperform classical players who are interrogated in full isolation from each other. If only Schrodinger's Cat could rise from the semi-dead and come out of its box to see that.

(Picture: Schrodinger's Cat, Wikipedia)

On investment bankers and bird excrement: Read on, it's not what you think

Birds of a feather: Seed passage through bird digestion yields positive effects similar to stint at investment bank
George ILIEV

It is no secret that many young investment bankers (analysts, associates, even VPs) work 100-hour weeks. Why do they subject themselves to such inhumane treatment? An analogy between investment banks and bird digestive systems may reveal instructive similarities.

Capiscum (chili pepper) seeds eaten by the common South American flycatcher are four times more likely to germinate after passing through the bird's digestive system, a recent paper in Ecology Letters shows. This is based on two unrelated processes: the gut passage kills a pathogenic fungus that grows on the seeds and also scrubs the seeds of an odour that would otherwise attract seed-eating ants once the seed lands on the ground.

Working for an investment bank confers similar advantages: by exposing employees to extreme pressure, it makes them resilient and possibly more likely to succeed in future careers. By doing this, banks are not too much different from the Indonesian palm civet (cat) which increases the value of the coffee beans it devours and excretes, making this coffee one of the most-expensive varieties in the world.

(Photo: Bird diversity, Wikipedia)

Green bananas and university graduates are like two peas in a pod

University graduates ripen like green bananas - on demand;
Vocational training schemes produce ripe peppers that ripen no further.
George ILIEV

It is tempting to compare corporate employees with pumpkins but I will limit the analogy to bananas and peppers. The two crops are hugely different in one respect: bananas are picked green and will then naturally ripen over time, while peppers cannot ripen once detached from the plant. Furthermore, the ripening of harvested green bananas (or green tomatoes by the same token) can be accelerated if they are exposed to ethylene gas, which is a plant hormone. Placing an apple next to a bunch of green bananas can do the trick, as apples emit ethylene. Peppers, grapes and strawberries, on the other hand, lack the ethylene receptors and genes that trigger this ripening process and can only ripen on the stalk.

Back to the analogy with employees: broad university education churns out green bananas. University graduates do not need to be perfectly ripe for the labour market - different companies will use various doses of human ethylene (i.e. training, mentoring, etc.) to make them fit for purpose. The important thing is university graduates are malleable.

On the other hand, vocational training systems (widespread in Germany and  Austria) deliver perfectly ripe employees to the labour market. However, over time these employees are not malleable. According to The Economist (June 1, 2013) "early [vocational] training can turn into a disadvantage by the age of 50. It appears that skills learnt in vocational training become obsolete at a faster rate." Once detached from the vocational training scheme, these employees cannot "ripen" much more.

The old George Bernard Shaw once said: “At my age, I don't even buy green bananas.” However, if a company or an economy can wait for the green bananas to ripen, that might be the optimal long-term choice, despite the swinging of the pendulum towards vocational training these days.

(Photo: Green bananas, Wikipedia)

Low-cost airlines: competitive advantage derived from evolution of turtle shells

Turtle shell and low-cost model both arose internally
George ILIEV

It is often the case that an internal trait can become your biggest external competitive advantage. Here is an analogy between present-day low-cost airlines and the evolution of the turtle shell 260 million years ago. The latest fascinating research by Yale and Smithsonian scientists shows that the upper and lower turtle shells have evolved from, respectively, the fused elongated vertebrae and broadened ribs of the turtle's prehistoric ancestor. Thus, two structures that were meant to provide support inside the animal's body became a signature tool giving it protection from the outside world.

In a similar way, low-cost airlines stumbled upon the low-cost model as an internal operational efficiency tool but are now thriving on it as their most distinctive marketing trait.

(Photo: Turtles from the western Black Sea coast, Aug 2011)

Why venture capitalists do not invest in flying penguins

Functional focus helps animals excel and entrepreneurs succeed
George ILIEV

Seasoned venture capitalists are known to refuse to invest in entrepreneurs who are working on more than one project at a time. Focus is the key feature that a VC looks for in a startup, as focused ventures are less likely to fail.

In the world of birds, the same principle holds true, known as the "tradeoff hypothesis". Birds that are efficient in diving are mediocre at flying, as wings optimised for diving make flying possible only at a very high energy cost. Murres and cormorants are an example of excellent divers but terrible fliers: murres are able to fly but only by burning energy at 31 times their rate at rest, which is the highest known ratio in the ornitological world. Similarly, because of the inefficiency of being able to both fly and dive, penguins gave up and lost their flying skills 70 million years ago.

Flying has evolved independently at least four times in the history of life on Earth (insects, dinosaurs, birds and bats) but the loss of flying in birds has occurred independently at least five times.

Focus appears to be the key to success in both startups and animals.

(Photo: Walking penguin, Boulders penguin colony, Cape Town, Oct 2012. Source: George ILIEV)

Big Bang matter formation resembles education: Neither represents final stage

The Big Bang created a limited number of elements just like education develops a limited set of skills
George ILIEV

Matter was created in the Big Bang in the form of only three chemical elements: hydrogen, helium and lithium.  All other elements lighter than (and including) iron are born in nuclear reactions within stars in a process known as stellar nucleosynthesis. All the elements heavier than iron are created largely in supernova explosions.

This mode of matter formation resembles education and professional development. School and university education can teach a student only so much. The rest they can only learn in their job. The more stellar the company, the more the employees will learn.

(Photo: The supernova that exploded in 1054, Source: Wikipedia)

Bigger brains lead to divergence of species and spinouts of companies

Learning animals and learning organisations evolve faster
George ILIEV

Statistical research on birds proves the old hypothesis that species with bigger brains diversify and evolve into other species faster. An analysis of over 7,000 bird species (or 3/4 of all known avian species) shows that those with the bigger brains relative to body size are also the ones that have diversified most, e.g. parrots, crows, owls and woodpeckers. Bigger brains allow animals to adopt more easily the behavioural changes needed to gain access to new environments or new resources, which in turn puts selection pressure on the species and can lead to its divergence into two or more species. Big brains thus facilitate changes in behaviour that result in adaptive divergence.

In a similar way learning organisations (i.e. companies that facilitate the learning of their members) are in a state of continuous transformation and the top-ranked research-led universities are more likely to launch spinout companies. Big brains seem to lead to hiving off not only in bees.

(Photo: Macaw parrot, Wikipedia)

Birds of a feather: nectar-robbing bumblebees and rent-seeking investment banks

"Nec-tarred" with the same brush: Robbers learn their way to take advantage of nectar and Muppets*
George ILIEV

Bumblebees rob flowering plants of their nectar by cutting holes on the side of the flower, rather than entering  through the pollen-covered opening as the other bees and insects do. As a result, bumblebees do not contribute to the pollination of the plant. This was known to Darwin 150 years ago. A recent discovery, however, shows that this behaviour is not innate: bumblebees learn  from other bumblebees how to rob flowers. This has been proven by the fact that the hole is always cut on the same side (right or left) of all flowers in a given meadow - a sign that the flower-cutting technique is being passed from one bumblebee to another.

In a similar way, investment banks did not invent independently the plethora of rent-seeking financial innovations that led to the 2007-08 financial crisis. They copied each other. Once an instrument, such as the securitisation of subprime mortgages, collateralised debt obligations (CDO), or credit default swaps (CDS) appeared at one bank (usually in America), the others would copy the model so as not to lag behind. Thus by robbing their gullible clients (referred to as "Muppets"*), they damaged the global financial system - just like the bumblebees hinder the pollination of plants and reduce the efficiency of their ecosystem.

*Investment Bank Goldman Sachs came in the news in 2012 with the nickname bankers gave to unsophisticated clients who could be easily taken for a ride: Muppets.

(Photo: Bumblebee cutting its way into a flower, Wikipedia)

Apple’s product-launch pattern resembles memory recall in young people’s brains

Too frequent switching between different areas slows down memory and hampers companies
George ILIEV

As people age, their memory worsens partly because when they try to recall things, their brain flits between different areas and categories more often than necessary/optimal, research by Warwick University shows. If an old person would be asked to name 100 animals, he/she would switch too often between predators, herbivores, pets, marsupials etc. without exhausting each category, while a young person would be more focused and would exhaust the category before moving on to the next.

Apple’s product launch strategy thus resembles the pattern of functioning of a young person’s brain, as Apple does not flit between categories unnecessarily: Six years after the iPod came the iPhone, three years after the iPhone came the iPad. Google, on the other hand, used to move between various product categories a lot more and has only recently started to narrow down its focus to a few core areas.

(Photo: The old Apple logo, Wikipedia)

Short-term hearing loss resembles bursting of asset bubbles: No physical damage in either case

Temporary loss of hearing and reduction in asset value are both psychological mechanisms
George ILIEV

Reversible short-term hearing loss after a concert or a night in the club is not the result of damage to our hearing, groundbreaking research published in the Proceedings of the National Academy of Sciences shows. It is instead a protective psychological mechanism with which the body temporarily reduces hearing sensitivity in order to continue performing normally.

This resembles the bursting of asset bubbles. When a bubble starts to deflate, the underlying assets are not lost - be they houses, IT companies or railway lines. They are simply psychologically re-evaluated in a period of moderation which is needed for the economy to continue functioning normally.

(Photo: Human ear, Wikipedia)

Bacteria form protective biofilm in same way as companies engender loyal workforce

Molecular glue keeps bacteria together just like incentives keep employees cooperating
George ILIEV

When in danger, some bacteria shield themselves by creating a biofilm of slime that protects them from physical threats and from antibiotics, research published in the Journal of Biological Chemistry reveals. Such biofilms cause dental plaque and sinusitis in humans, as well as antibiotic-resistant infections. A protein switch triggers the production of the film-forming molecular glue that keeps the bacteria together and isolates them from the outside world. When the glue-production mechanism is not activated, the bacteria carry on living independently.

In the business world, this molecular glue exists in the form of "incentives". Companies which use incentives to reward cooperation and long-term performance fare better in the dog-eat-dog corporate world. Partnerships are the best in engendering a loyal workforce, according to Colin Mayer, the former dean of Oxford Said Business School, and his book "Firm Commitment". In a partnership structure, the incentives are more likely to ensure alignment between the interests of the employees and the organisation, thus promoting cooperation among the stakeholders. 

Even business schools have cottoned on this idea. Some schools have a policy of non-disclosure of the GPA of MBA students to potential employers in order to enhance cooperation (e.g. Chicago Booth). Other schools do not even calculate a GPA for the graduates, so that the MBAs have an incentive to work together during business school and after graduation (e.g. Emory University).

(Photo: New York Stock Exchange, old trading floor. Source: Wikipedia)

Rate of oxidation defines flesh colour; Cash turnover rate defines corporate culture

Fish muscles burn oxygen; companies and banks churn cash
George ILIEV

The flesh of salmon, mackerel and other fish species is darker in some parts and whiter in others. This depends on the oxidation rate in the muscles. Muscles that contract a lot require a lot of oxygen. Oxygen is stored in the protein myoglobin, which makes the flesh darker. Farmed salmon does not move much so even its most active muscles do not contain as much myoglobin as the corresponding muscles of wild salmon. Overall, the flesh of fish is whiter than the meat of land animals and birds as fish are supported by the water they live in and do not need additional muscular strength to support their weight. In the same way, the breast meat of birds that do not fly much (turkeys and chickens) is white as they do not need to move their wings, while the meat of their legs is dark as these birds primarily move by walking.

Oxidation in the muscles is the fundamental process underlying movement. In the business world, the corresponding fundamental process is the turnover of cash at companies and banks. Cash turnover does not change the colour of an organisation but impacts its corporate culture. The organisations with the highest turnover rates can be expected to have the most aggressive culture and vice versa (See the book "Business at the Speed of Molasses" by Joey Reiman). Cash turnover rates are astronomical (and volatile) in the banking industry as money often changes hands multiple times a day. Therefore, banks do not even use "turnover" as a metric.

Slowing down can make the colour of meat whiter and the culture of companies and banks more agreeable.

(Photo: cooked wild Alaskan salmon, April 2013)

Google's "Don't Be Evil" philosophy is encoded in the evolution of the human fist

Fists compensate for fangs in nature; Algorithms compensate for aggression in business
George ILIEV

Because of the unique proportions of the bones of the human fingers, a clenched human fist is 4 times as rigid as the fist of a chimpanzee, according to research published in the Journal of Experimental Biology. This allows humans to deliver bone-breaking blows with their knuckles and may partly explain how humans evolved (and survived) through an era of large predators while at the same time losing the fangs that served a defensive role in earlier humanoids and in present-day great apes.

Human fingers have evolved to fold neatly into a fist without leaving a gap in the middle. This makes the structure stiff, while chimpanzees fingers curl up in a way that always leaves the centre hollow. The human thumb adds extra support to the structure by buttressing it sideways and turns the fist into a formidable defensive tool.

The evolution of the fist resembles the rise of Google and its "Don't Be Evil" motto. By giving up the fangs of aggressive corporate techniques such as cornering markets, leaning on suppliers and squeezing long hours out of employees (think investment banks), Google has built a "gentle empire" of innovation and creativity. Google's development of superior data crunching algorithms is the virtual fist that punches heavy blows in the online world.

(Photo: Google HQ, Mountain View, California, May 2009)

(Photo: Human fist, March 2013)

Dog domestication resulted from "free market style" diet adaptations, not from "central planning style" capture and taming

Dogs volunteered for domestication by adapting themselves to eat starchy food
George ILIEV

The dominant theory about the domestication of dogs has so far postulated that humans caught wolf pups to use for hunting and gradually tamed them into dogs through selective breeding. However, new DNA research at the University of Uppsala published in Nature shows that it was probably the wolves who volunteered for domestication by developing mutations that allowed them to digest starchy foods - found in the rubbish tips of early agricultural human settlements.

The wolf ancestors of modern dogs must have stumbled upon this unoccupied ecological niche - just like companies find lucrative underexploited niches in a free market and adapt to exploit them accordingly. This possibly disproves the earlier hypothesis that the domestication of dogs came about as a result of the "central planning" of humans, intervening by capturing and taming wolf pups.

A somewhat similar starch-focused digestive mechanism may have been at play in the domestication of the cat. Cats have not developed special mutations to break down starch but instead have longer digestive tracts compared with their wild ancestors. This allows them to better absorb nutrients from starchy leftovers.

(Photo: Patches & Lamb, domestic dogs, Atlanta, 2010)

Brand proliferation and contraction cycle resembles rise and fall of melanin content in human skin

Product portfolios and evolutionary adaptations sometimes go full circle to get back to square one
George ILIEV

(Photo: Chimpanzee, Wikipedia)

Early humans had pink skin covered by black fur, similar to modern chimpanzees. Around 2 million years ago as humans were gradually losing their fur to allow easier sweating and cooling, their skin melanin content started to increase as a protection against ultraviolet radiation. This process was driven by natural selection as dark-skinned homo sapiens had an evolutionary advantage under the tropical sun over pink-skinned furless creatures. However, as humans migrated out of Africa and into northern latitudes, the high melanin content of dark skin became an obstacle for the absorption of UV light and the production of vitamin D in the body. This resulted in less calcium in the bones which made them brittle. Natural selection again stepped in, leading to the loss of pigmentation and the return of pink skin in latitudes higher than 46 degrees north, closing the cycle with the early pink-skinned humans.

A similar cycle can be observed in the evolution and loss of fins in ocean-dwelling animals. The fins of ancient fish were lost and became legs when they moved onto land and became tetrapods. The legs were lost and became fins again when the ancestors of whales and dolphins moved back into the ocean.

Many companies share a similar history of cycles of product/brand proliferation and contraction. Starting with one main product, companies like Unilever, General Motors and Google gradually developed an array of brands. However, as market conditions changed and the managerial complexity increased, brand proliferation peaked and the three companies above started scaling down their brand/product portfolios to focus on fewer core products.

The most famous novel in Chinese literature, "Three Kingdoms", encapsulates this cyclical nature in its opening sentence: "The World under Heaven long divided, must unite; long united, must divide".

Evolution through multiple small mutations in line with Nassim Taleb's innovation by "aggressive tinkering"

Nature's "tinkering" with mouse colour gene through multiple mutations works better than one major mutation
George ILIEV

Deer mice in Nebraska changed their coat colour over an incredibly short period of 8,000 years as a result of nine separate mutations in a single gene, rather than in one single big mutation, a recent discovery by Harvard evolutionary biologists reported in Science reveals. With each mutation, the originally dark-coloured migrant mouse species obtained a lighter and more camouflaged coat, which made easier its survival in the lighter-colour environment of the prairie. This mechanism shows how natural selection produces fine adaptations through series of many small changes, rather than through a handful of big mutations.

This discovery could lend support to Nassim Taleb's "Antifragile" theory of innovation and scientific progress, in which he asserts that "aggressive tinkering" with a product leads to better and more innovative results than directed research. Taleb compares the R&D process with cooking, which "relies entirely on the heuristics of trial and error": adding an ingredient or spice to a dish is usually followed by tasting that verifies if the addition has led to an improvement. Crucially, the cook has the option but not the obligation to retain or discard the resulting mix, just like natural selection retains the positive adaptations and discards the negative.

(Photo: Nassim Taleb, photographed by Sarah Josephine Taleb, Wikipedia)

Specialisation comes with age and because of age

Biological and psychological processes related to ageing lead to job specialisation
George ILIEV

(Photo: Elderly man, Wikipedia)

With age, neurobiological and psychological processes make us less interested in novelty and lead us to stick to what we know. (Scientific American, March 2013). "Old people do not need to remember as much new material as the young do because they are already familiar with so much of what they experience."

Professionally, this natural phenomenon is correlated with, and possibly driving, job specialisation: As we get older, we become more comfortable with our professional field and less comfortable with new fields. Experience builds on this trend and creates "the expert".

Specialisation pays off with higher income though it also entails higher risk of job redundancy. Last but not least comes the comical danger of overspecialisation: "knowing more and more about less and less until you know everything about nothing”.

Disgruntled employees resemble malnourished algae

Algae under threat become poisonous; Employees under threat become litigious
George ILIEV

(Photo: Algae, Wikipedia)

"When Gulf of Mexico algae do not get enough nutrients, they focus their remaining energy on becoming more and more poisonous to ensure their survival." The algae become two to seven times more toxic when experiencing a shortage of phosphorus, a major nutrient. This protects them from their predators - grazers such as zooplankton.

A similar mechanism is at play when employees feel their job is under threat. Such employees often become litigious in order to keep their job or to extract the maximum compensation.

Could human attraction to still water account for frothy IPO prices?

Attraction to shiny surfaces = attraction to shiny stocks
George ILIEV

(Photo: The Bean, Chicago, 2009)

Humans are attracted to shiny surfaces as an evolutionary adaptation that helps them easily locate habitats with clear stagnant water (Margaret Boden, Mind as Machine: A History of Cognitive Science).

Could this evolutionary adaptation explain, at a higher conceptual level, the fact that the stock price of "flashy, funky and cool" companies such as Facebook is often overvalued at initial public offerings (IPO). Or could the "peacock tail" theory of sexual selection have a role in our preference for the colourful and the flashy? In any case, human investors seem to find it hard to resist anything that glitters, even if they consciously know it is not always gold.

Advertising helps humans surmount two evolutionary obstacles in food selection

A product that looks too different is either not noticed or consciously shunned
George ILIEV

(Photo: Fruit Loops, Wikipedia)

If something looks unfamiliar, it does not get eaten. Animals avoid eating unfamiliar berries or insects for two reasons: "dietary wariness" (fear of eating something poisonous) and "apostatic predation" (difficulty to spot prey that looks too different).

Humans in the supermarket do not need to worry about poisonous berries or insects, though high fat or sugar content may be almost equally undesirable characteristics of a food product. On the other hand, apostatic predation is something consumers often fall victim to, e.g. when unsuccessfully hunting for a familiar product whose package has been changed by the manufacturer.

This is where advertising steps in: by creating awareness for a cereal product, a commercial makes it both acceptable (i.e. reassuring that it is not harmful) and easy to spot among the packages of fried crickets and roasted beetles that British supermarkets regularly stock up. Looking too different and unfamiliar would help a package of cornflakes hang on to the supermarket shelf not for the love of marketing but for evolutionary reasons.

Cleaning symbiosis exists in nature but not in corporate HR

"Reverse recruiters" can take care of unwanted employees

George ILIEV

(Oxpeckers eating ticks off the back of an impala, Wikipedia)

Symbiotic relationships are abundant in nature: from lichens (an organism that consists of fungi and algae locked together) to cleaning symbiosis (where a small bird or fish feeds off the parasites living on the skin of larger animals).

Cleaning symbiosis in the corporate world is limited to firms specialising in collecting recyclables or unwanted equipment. However, no recruiting company specialises in taking care of unwanted employees, who may be a hugely undervalued resource.

A "reverse recruiter" can play three important roles: 1) placing unwanted/underperforming employees in a new job where they can generate more value; 2) training these employees for the next job; and 3) keeping such employees away from dabbling with unfair dismissal lawsuits and negative media publicity.

"Reverse recruiting" is not even a matter of reciprocal altruism: it is self-serving and has the potential to be an entirely profit-driven business, as companies would have an incentive to pay the "reverse recruiter" to get the unwanted employees off their payroll. The beauty of it is that the "reverse recruiter" can charge both the previous employer and the next employer. Any different from eating ticks off the back of an impala?

Companies can be worse than plant roots in self/non-self recognition

Competition and miscommunication among company departments harms the organisation: the story of Volvo
George ILIEV

(Mangrove tree, Wikipedia)

As the roots of a plant grow, the root branches of the same organism recognise each other (the underlying mechanism for that is still unclear) and stay out of each other's reach as much as possible: "plants develop fewer and shorter roots in the presence of other roots of the same individual". This is an evolutionary adaptation that minimises direct competition for nutrients between parts of the same organism. On the contrary, the roots can speed up their rate of growth if surrounded by roots of other plants, in order to be successful in competing externally.

Sadly internal cooperation is not always the norm in the corporate world. Company departments can be notoriously bad at synchronising their actions and sometimes even compete against each other. A case in point is the following story at car-maker Volvo in Sweden in the mid-1990s:

Volvo was accumulating a large stock of cars painted green. To reduce the stockpile, the sales department began selling green-coloured cars at a discount. Unfortunately no one told the manufacturing team down on the production line. No sooner had the production managers seen demand for green cars perking up, they immediately ramped up the production of green cars to build up the inventory (a typical supply-chain phenomenon known as the bullwhip effect)

Thus the cooperative plant roots seem to avoid "biting the dust" even if they literally do this all the time.

More than just a name: Car plants and green plants share asymmetric structures

Companies appear to have the asymmetric structure of plants rather than the symmetry of animals
George ILIEV

The physical world is asymmetric on the macro scale: coastlines, river systems and mountain ranges adopt an infinite variety of forms. Animals, on the other hand, usually have either bilateral symmetry (along an axis) or radial symmetry (around a central point), as a result of a predetermined embryonic cell division process. Starfish and sea urchins, uniquely among animals, even have both: bilateral symmetry at the larval stage and  fivefold radial symmetry as adults. The eggs of birds also have bilateral symmetry but one end is sharper than the other in an evolutionary adaptation that makes the egg roll in a circle, preventing a destabilised egg from rolling out of the nest.

(Basic fern symmetry, Sino-Burmese border, Dec 2011)

Plants fall in between the two extremes. Their growth follows a pattern, e.g. the Fibonacci sequence of prime numbers determines the repeating spiral pattern of tree branches and plant leaves. Yet because of the constraints imposed by its fixed environment, a tree may grow in an irregular shape, e.g. to fill a gap in the forest canopy. This would rarely happen in animals, where the outcome is binary: any development of major structural irregularities usually leads to the death of the organism.

How do corporate organisational structures compare with rivers, plants and animals?

Internally, company departments resemble the systems/organs in animals. There is always someone sitting at the top ( = the brain, though Dilbert might disagree); at operational level ( = muscles); a finance department ( = heart and circulation). The organs do not all need to be symmetrical: animals have pairs of some organs but only one heart and liver and the reason for this is not well understood. Yet, the overall symmetry in the animal body is preserved. In contrast, the size of company departments/divisions can vary so widely that the entire shape of the organisation rarely has any symmetry. Think of the Coca Cola Company, which is now not much more than a huge marketing and new product development department. This imbalance makes corporate structures conceptually incompatible with the rigid structure of an animal body and much more closely aligned with the diverse shape of plants.

The question is what causes the lack of symmetry. Plant adjustments in shape are a substitute for movement in animals. Varying their shape is the only way for plants to overcome the physical constraints in their environment and gain access to sunlight, water and nutrients, whereas a grazing animal just needs to move on to greener pastures. Do companies evolve as geographically-rigid, rather than mobile, organisms with little scope to change their location? Can this explain why their internal departments adjust their structure instead? This makes companies similar not only to plants but also to cities. It might also explain the coincidence of having one and the same word for manufacturing plants and photosynthesising plants.

(Basic fern symmetry, Bolivian highlands, July 2009)

Companies and insects resort to self-harming behaviour to defend against "predators"

Wasps and fruit flies often play "Barbarians at the Gate"
George ILIEV

(Wasp photo, Wikipedia)

Insects and companies can be equally good at applying the phrase "cut off your nose to spite your face" when trying to protect themselves against a takeover. In the corporate world a company may take a "poison pill" or "shark repellent" to turn away an unwelcome acquirer. In nature, the fruit fly lays its eggs in alcohol so that its larvae will grow up toxic. This prevents parasitic wasps from laying their eggs inside the fly larvae, a study by Emory University biologists published in Science on February 22, 2013 reveals.

Companies make themselves toxic by taking on unnecessary debt or entering into unfavourable covenants with lenders or customers that take effect when the company is acquired. For instance, a company may introduce a clause that extends its product warranty from 1 year to 10 years in case it is taken over - which is a future cost that will be borne by the acquirer (See Peoplesoft's defensive strategy against Oracle). Similarly, a company may give its employees lavish bonuses in case of a takeover which, again, will make it much less attractive as an acquisition target.

The fruit fly uses the toxic alcohol defense technique when it senses the presence of predator wasps. By laying its eggs on mildly-alcoholic rotting fruit flesh, it protects its larvae from turning into hosts of the parasitic wasp larvae. Even though this is toxic to the fly larva, it would be deadly to the wasp larva if the mother wasp laid its eggs inside such an "intoxicated" carrier (a common parasitic technique used by wasps).

The remarkable discovery in the Emory study is that the fruit fly can sense the threat of the presence of a female wasp, which triggers the alcohol defensive strategy, even if the fly has never before met a wasp in its life. Companies have a much easier ride in this respect as an acquisition attempt rarely comes unexpected.

Who says caterpillars and milkweed cannot do game theory?

"Outgrow to outcompete" strategies succeed in both nature and business
George ILIEV

(Caterpillar feeding on Milkweed, Wikipedia)

My favourite game in Game Theory is the little known "sailboat race": When you are the leading boat in a race and the second strongest competitor is right behind you, all you need to do to maintain your lead is simply to mimic every move the second boat makes. You must have seen this in Formula 1 racing as well.

The biggest threat posed by this strategy is that a third boat that does not play by your rules may overtake both of you while you are locked in the mirroring strategy. Therefore, when other competitors are around, your best bet is not to look back but to focus ahead.

This is what milkweed seems to be doing: First it evolved a range of defensive mechanisms against caterpillars, such as hairs on the leaves and poisonous latex in the plant's tubes. However, in response caterpillars evolved leave-cutting techniques that stop the flow of latex, while the monarch butterfly caterpillar has even developed immunity to the toxicity of the plant. 

At some point this outcompete/co-evolve strategy must have got too complicated and risky for the two sides locked in the game and some plants just took the fast lane. Instead of defending against the caterpillars, many of the 38 species of milkweed focus on repairing and growing faster. The strategy of outgrowing the enemy, rather than defending itself, seems to be working for the milkweed.

In the corporate world, Sony was applying this forward-looking strategy for decades. Rather than fighting over market share with its next biggest rival, it would simply create a fundamentally new category of product and outcompete everyone in this newly created blue ocean: from the radio transistor and the walkman to the Blu-ray DVD and PlayStation. Apple and Google seem to be doing the same though they still dominate most of their historical market niches. In East Asia, this strategy of shedding old technologies and industries and focusing on the new ones has a name derived from nature: The Flying Geese model of economic/technological development.

Тhree reasons why the tail wags the dog in shareholder and predator-prey relationships

Predators and hostile takeover funds use leverage and aggression to take control
George ILIEV

(Shark in the shallows, Whitsunday Islands, Australia, 2012)

It is often the case that smaller size predators come on top of larger prey in the food pyramid, just like minority shareholders often control large corporations. There are at least three types of factors that underlie this phenomenon of "the tail wagging the dog" in nature and in the business world.

1. Pre-programmed aggressive/activist behaviour.
2. Access to leveraging tools.
3. Diffuse reaction of the target of control.

1. Whereas the lion has an instinct to hunt zebras and antelopes, no zebra would feel an urge to chase lions. (Though jays and meerkats are known to attack their predators.) By the same token, shareholders who want to control a corporation are, by and large, aggressive and activist investors who have done this multiple times.

2. Just like the lion has teeth and claws, activist shareholders have access to leveraged finance (bank loans) and privileged information.

3. Prey rarely organise themselves to defend against a predator. In a similar way, the diffuse ownership structure of a corporation may allow a small shareholder to gain effective control of the whole entity. A case in point is Marco Provera, who controlled Telecom Italia in the early 2000s by leveraging his stake 26-fold. Worldwide, 737 top shareholders have the potential to control 80% of all Trans-national corporations around the world, the same TED talk shows.

Exposure to Diverse Environment Makes Birds & Companies More Versatile

Conglomerates in emerging markets diversify because their environment requires it
George ILIEV

(Hong Kong Island, autumn 2009)

Birds of the varying weather...do not exactly flock together. They just stand out with their more versatile songs. Recent research shows male songbirds that live in fluctuating weather conditions are more flexible singers, incorporating a wider range of tones in their tunes. The birds need this variation in their songs because when precipitation varies, the acoustics of the environment and of vegetation change significantly. Variability allows these birds to be heard farther.

The same rule applies in the corporate world. Companies from emerging markets, where market and macroeconomic conditions are more dynamic, are usually the most diverse and the most diversified. Conglomerates in Asia, Latin America and Turkey incorporate a whole spectrum of industries. Just think of the South Korean chaebols (Daewoo, Hyundai, etc.) which run businesses from ships to electronics to fertilisers. 

(Hong Kong Island, 2009)

Imagine what a splash (or a flop) Apple would make if it started selling rubber boots. It doesn't have to resort to such luxuries only because it operates in a stable environment. It is the "companies of the varying weather that diversify together".

3D Environment Is Key for Large Size of Blue Whales and Corporate Giants

3D ocean resembles B2C world in resource availability, allowing structures to reach larger size

George ILIEV

(Giant sting ray and whale shark in the Georgia Aquarium, Atlanta, 2010)

On the one side we have the B2B (business-to-business) and B2C (business-to-consumer) corporate models. On the other we have a bunch of animals that live in 2D habitats (e.g. the savanna) or in a 3D environment (e.g. the ocean). What do these spatial structures of the business and the animal world have in common? It appears that environments with more dimensions are able to produce more resources, which allows their user/eater to grow bigger.

Paradoxically, blue whales grow so big by feeding on the tiniest of creatures: krill. UCLA research published in Nature last May shows that this contradiction can be resolved when taking into account the 3D world in which whales live: in the 3D ocean there is food in any single direction, while in the 2D world of the savanna the food is scattered only in a flat plane, so it is much harder to find. (http://newsroom.ucla.edu/portal/ucla/ucla-life-scientists-view-biodiversity-234522.aspx)

Taking these findings into the business world requires one small step. Could individual consumers be the krill, scattered in a 3D world of multiple levels of income and spending? Could business customers assume the role of the larger animals on the savanna, living in a much flatter world? And if so, could the 3D world inhabited by B2C companies provide the explanation why the Walmarts, the Toyotas and the Apples are the biggest corporations in the world (in revenue or market capitalisation, outside of the oil industry)?

Even the oil giants can roughly fit in this picture as they inhabit a 2.5-dimensional world, which is possibly the best of both worlds: their oil exploration and extraction divisions operate in a fairly flat B2B world, while their downstream refining divisions are immersed in the 3D world of the consumers. I cannot even think of an animal adapted so well to exploit the abundance of nature. Might the oil giants have outpaced evolution or has evolution possibly condemned such rapacious creatures to the geological record?

Giant sting ray, whale shark and beluga whale

The Georgia Aquarium (Atlanta), 2010

Of insects and startups: External threats make them small

Prehistoric birds may have reduced the size of insects just like African governments keep startups from "spreading their wings"
George ILIEV

What could insects and birds have in common with startups and governments? Could the size of one side of the pair be related to the danger that the other side poses?

In nature, it appears there may be a connection:

Reign of the Giant Insects Ended With the Evolution of Birds:

Maximum insect size tracked atmospheric oxygen levels surprisingly well for about 200 million years between 350 million years ago and 150 million years ago, as more oxygen allowed the existence of creatures with a bigger body mass. When oxygen concentration in the atmosphere soared to 30% around 300 million years ago, dragonfly-type insects reached a 70 cm wing span. Then, at the end of the Jurassic period about 150 million years ago this connection seemed to have broken: oxygen levels went up again but insect size paradoxically went down. However, this strikingly coincided with the evolution of birds. "With predatory birds on the wing, the need for maneuverability became a driving force in the evolution of flying insects, favouring smaller body size."

(Dragonfly in the Rodope Mountains, southern Bulgaria, 2010)

In the business world, instead of oxygen concentration, the level of transaction costs in an economy seems to determine the size of companies - though in the reverse way. In emerging markets with weaker institutions and high transaction costs companies need to grow bigger. The size and scope of a diversified conglomerate allows corporate organisations to internalise (and thus minimise) transaction costs by doing deals internally instead of going to the market. 

However, in Sub-Saharan Africa we can hardly find any large-scale companies. Could this be put down to predatory governments assuming the role of the predatory birds in the least developed economies? Bribe-taking officials and rent-seeking institutions preying on companies and startups might be stopping them from growing in size in the same way that pre-historic birds have possibly limited the size of pre-historic insects. The rest is history. Or, more precisely, evolutionary history.