Business Mutualism

Business Mutualism

MUTUALISM, a concept from biology, refers to a relationship between two species or organisms in which both benefit from the association.

Following on from the ideas put forward in a recent talk by Robert Full, we can apply this idea to the world of business by considering the idea of “Business Mutualism”.

We might think of Business Mutualism as an association between two separate enterprises, or fields of activity, where:

  1. each enterprise benefits the other, and
  2. collective discoveries emerge beyond those of any single field.

Examples of Business Mutualism

One example of Business Mutualism would be the interaction between the IT and design industries. Information technology has provided designers with a new creative outlet, encouraged innovation through the use of design software and mass collaboration, and allowed designers to reach wider as well as more niche audiences. On the flip side, designers have improved the value of information technology and the internet by improving the aesthetics and usability of programs and websites. The combined efforts of these two industries have created world changing websites, such as TED.

Here are a number of other examples where collaboration between different fields of activity have produced impressive results:

  1. the formerly non-existent web-search industry and the traditional system of academic citation have combined to create Google;
  2. electronics and automotive industries have combined to make carbon neutral transportation a possibility;
  3. aviation and computing have combined to produce unmanned aircraft; and
  4. biology and robotics have combined to perfect walking robots.

Implications of Business Mutualism

One of the key implications of Business Mutualism is that we should look to other industries and fields of activity for inspiration. If we want to create market leading companies, we need to constantly innovate and search for alternatives. Keeping our eyes open to the possibilities presented by Business Mutualism is likely to help us sustain a competitive advantage over our rivals.

There are many good ideas already in existence. The question is, how can we combine these ideas with our current expertise to create something revolutionary? How can we change the world?

Building flexibility into business planning

ONE of the take away lessons from the CFA curriculum is that the conventional method of valuing an investment is to determine the present value of expected future cashflows.  One way of doing this would be to use the constant growth dividend discount model, which estimates the value of a stock by assuming that dividends grow at a constant rate … forever.  If the present value of expected cash inflows exceeds the cost of the investment, then we should invest.

I hope this model of investment valuation concerns you. It certainly concerns me. It basically tells us that we should make an investment decision based on the most likely expected future.

If we are happy to agree that (1) it is not possible to predict the future and (2) past performance does not guarantee future performance, then this colour by numbers method of investment valuation leaves much to be desired.

The businesses that will prosper in the Global Financial Crisis are the ones that have flexible business plans. These are the businesses that looked into the future and saw uncertainty. These businesses understood that the state of the world in ten or even one years time is not only uncertain, but unknowable, and planned accordingly.

One company that comes to mind is Microsoft, which has a cash stockpile of some US$25 billion.  In the past, Microsoft has received considerable criticism for failing to either invest its vast cash reserves, or distribute them to shareholders.  Microsoft’s “conservative” approach now puts it in a strong position to acquire competitors who “strategically invested” their cash reserves in more prosperous times.

To quote the McKinsey Quarterly:

Corporate leaders might consider [using] robust business models incorporating some slack and flexibility instead of the models most common today, which aim to optimise value in the most likely future scenario and thus leave companies exposed when conditions change dramatically.