The Mendelian executive

Have you ever enjoyed the beautifully perfumed smell of roses in a Venetian Garden? Perhaps the deep-red sort known as Rosso Veneziano? You would then be looking at the most recent expression of an evolved lineage of roses, probably initiated by a famous rosarian. Rose-breeding is a unique mixture of science, skill, and luck requiring patience and dedication. The best rose-breeders not only exploit gains from previous crops, but also, systematically, explore possible improvements of novel variants. As Levinthal’s (2021) Mendelian executive, the rose-breeder is an intentional designer who is enacting an artificial selection environment.

Levinthal (2021) introduces artificial selection to describe how external selection forces are mediated when they “trickle down” the organization’s internal selection environment. Executives breed corporate portfolios, business units, departments, teams, and workgroups. Darwin, in contrast, introduced artificial selection as a brilliant move of persuasion. Darwin’s argument, that the origin of species could be explained by natural selection, was, to say it mildly, controversial at the time he made his conceptual breakthrough. Thus, Darwin is a good example of a “Flatlander” returning with valuable insight from a journey to a new dimension. As Levinthal (2021) argues, without the ability to demonstrate the existence of this new dimension, or offer compelling argument, colleagues would brand the Flatlander—in this case Darwin—as a fool, perhaps even a lunatic. Darwin’s notebooks indicate that his breakthrough came during the autumn 1838. However, beyond a close circle of colleagues, he told no one until prompted by a colleague, Alfred Russel Wallace, who had developed similar ideas. When Origin was published in 1859, Darwin explained that natural selection is like artificial selection, just potentially more powerful over longer timescales. That turned out to be sufficiently compelling argument.

Now, we have Levinthal’s (2021) argument that it is important to consider artificial selection because the organization mediates between external and intra-firm selection processes. Profits are distributed to actors within the organizational hierarchy. The firm’s internal selection environment constitutes a space that allows the Mendelian executive to use experiments to understand how critical attributes of the firm must be adapted to support future functions that market forces reward. The premise is that the organization’s artificial selection environment, which the Mendelian executive is operating, is somewhat decoupled from external selection forces. The looser the coupling, the more room for choosing the organization’s path—and for stochastic drift: a mixed blessing, given the limited foresight, and rationality of human actors. However, using state-of-the-art RCTs and A/B testing, the Mendelian executive can, to some extent, place qualified bets on the future. Just like the best rose-breeders who apply systematic experimentation rather than wafting pollen among randomly selected plants.

Revitalizing research on organizational evolution

Levinthal’s (2021) argument is convincing. It presents an overarching vision comprising well-known elements from the literature on strategy and organizations. It is a strength that these elements—e.g., real options and dynamic capabilities—are placed in a larger conceptual scheme that serves to organize their application and relevance. Both in the context of organizational adaptation (e.g., path-dependence) and the broader scheme of evolutionary theory, Levinthal’s book is not only a helpful resource on the many facets of organizational adaptation, but also a source of inspiration that promises to revitalize research on organizational evolution. Looking forward, I briefly outline three topics where management scholars may usefully take inspiration from Levinthal’s book.

Selection and path-dependence

Some organizations have a better “fit” to their external selection environment than others, some survive longer than others, and some are more successful than others. Why? From an evolutionary perspective, the explanation commonly involves Darwin’s conceptual V–S–R triplet of variation, selection, and retention (Campbell 1960, 1974). Alternative versions of this conceptual framework—e.g., invoking notions of replication instead of retention—have been proposed. However, the trouble with these characterizations is that they are too brief:

“If one wants to understand selection, a sentence or two, no matter how succinct, will not do. Understanding space and time requires more than looking up these terms in a dictionary or in a physics text. Instead one must learn the relevant physics. Similarly, anyone who wants a deep understanding of selection has to study this phenomenon. Just inspection of a brief characterization of the process will not do.” Hull, Langman, Glenn (2001, p. 513).

This quote points to gains from invigorating (empirical) research on organizational selection processes. While the study of variation in organizational forms has attracted much attention, important aspects of selection processes in firms and other social organizations is understudied. I here refer to the study of the “micro” of detailed causal mechanisms that constitute selection processes rather than the “macro” of population dynamics documented by population ecology.

Levinthal’s book offers an appeal to study the “micro” of selection processes while, perhaps wisely, evading commitment to prior ideas that could define such a program. On the evasive maneuver, Levinthal (2021, p. 7) omits consideration of analogues to genes or generations and offers a framework that is fundamentally bipartite: consisting of path-dependence and (artificial) selection. On the side of appealing to study the detailed mechanisms that constitute (artificial) selection processes, Levinthal (2021) offers an elaborate description of the relation between a vector of firm-specific attributes and the set of possible realized states that the attributes map onto. The constraints that limit the set of possible realized states define inherent limits in the firm’s dynamic capabilities. Given a (fitness) function that regulates the (relative) frequencies of the vector of firm-specific attributes conditional on their value in each state of nature, the formal structure of selection theory can be applied without any major conceptual obstacles (Frank 1997; Price 1970; Knudsen 2004). Thus, Levinthal (2021) has specified what constitutes a useful conceptualization of a selection process, which both invites empirical and theoretical research. In this regard, elaboration of the way the (firm-specific) fitness function mediates external selection forces is a promising endeavor.

Levinthal (2021) features what I just described under a general-idea of path-dependence. In different words, what qualifies as a selection process in formal selection theory is featured under the label of path-dependence. Thus, I must agree when Levinthal (2021, p. 23) argues that path-dependence is “sufficient to make an evolutionary argument of interest.” The point I am making is not about labeling. An elaborate notion of path-dependence is central to the discourse in strategic management and organization science. However, there is potential value in understanding how work on selection processes in theoretical biology relates to path-dependent processes of organizational adaptation. Perhaps even a basis for productive cross-pollination.

Another advantage of the conceptual scheme I have just sketched is that it lends itself to application of the Price-equation (see Price 1970). The Price Equation adds considerable insight into many evolutionary problems by partitioning change into meaningful components (Frank, 1997). For example, it is straightforward to recursively expand the Price Equation to account for multiple hierarchical layers of selection. Such an expansion would show that an effect that represents organizational development can be decomposed into two portions at the next lower level: a selection-effect and development-effect (Hodgson and Knudsen 2010). Continuing this expansion indicates that organizational development-processes can be accounted for by underlying processes of artificial selection—yet another invitation to engage in empirical studies of selection processes.

In contrast to the elaborate notion of path-dependence developed in his book, Levinthal (2021) uses a broad notion of selection connoting the act of selecting an item from a “menu”, e.g., a new manager to fill an open position, or the funding of a strategic initiative. This notion of selection, which can be referred to as subset selection, is closely related to the idea of making a choice (Hodgson and Knudsen 2010). Executives make choices according to a set of criteria that reflects beliefs about shaping the organization’s long-term dynamics in desirable ways. Some actions selected from a subset of alternatives are privileged, others rejected. For example, the container shipping giant AP Moller-Maersk sold off its oil business in 2016, and then restructured the company to forcefully expand its logistics business (Financial Times, 2022). Given an extraordinary opportunity afforded by sky-high freight rates, the company explains it will use lessons from past mistakes to inform choices that favorably shape the company’s future (Financial Times 2022). Even so, the selection of actions was necessarily based on an evaluation of the available alternatives. The example neatly illustrates the promise of applying Levinthal’s (2021) analytical apparatus to understand how the relation between backward- and forward-looking perspectives on evaluation inform selection of actions in an organizational context.

Considering the organization’s external selection environment, Levinthal (2021) takes inspiration from evolutionary theory (Nelson and Winter 1982). Thus, selection is portrayed as the reality of how market forces distribute profits and losses and thereby shape the distribution of features in a population of firms. Levinthal’s (2021) treatment of selection in markets and organizations is consistent with commonly accepted views in the literature on strategy and organizations. However, it can be somewhat confusing when contrasted with accounts of selection from other fields. As previously argued, Levinthal’s (2021) elaborate notion of path-dependence may serve as a better basis for crosstalk.

Path-dependence and lineages

The net effect of selection processes is commonly conceived of as the evolution of lineages:

“Lineages are causally connected sequences of spatiotemporally continuous entities [] These lineages are what evolve. Inheritance as it functions in selection processes is more than just a sequence of events; for example, one billiard ball hitting another billiard ball, which hits another, and so. It is intimately tied to lineages.” (Hull et al. 2001, p. 561).

Lineages of roses evolve, and so do lineages of viruses, bacteria, and operating systems. Lineages are what evolve is a powerful idea—a lens that invites careful analysis of “descent with modification through variation and [natural] selection.” (Darwin 1859, p. 320). I bracketed the word “natural” to be replaced with the relevant context of Levinthal’s (2021) analysis, i.e., “artificial” or “market”. In this regard, Levinthal’s (2021) carefully developed analysis of path-dependence lends itself to study the evolution of lineages. It is a perspective that promises to establish a level of analytical rigor that may revive research on “intraorganizational ecological” processes (Burgelman 1991). With a nod to Mendel’s lineages of peas, Levinthal (2021) mentions lineages of technologies, lineages of capabilities, and lineages of business units. Thus, Levinthal’s (2021) suggestive analysis of “lineage development” provides inspiration for empirical research on (artificial) selection processes at different levels of observation within organizations and markets. In this regard, Levinthal’s (2021) suggestion that corporate diversification and technological disruption may be considered instances of speciation—i.e., branching of lineages—(re)frames an exciting research agenda at the intersection of ecology and evolution.

Mendelian executives or fruit flies?

Mendelian executives operate an artificial selection environment. The business press, case-studies, and common observations indicate great diversity among their approaches. Some executives base their choices on gut-feeling, others use lessons from past mistakes—or state-of-the-art RCTs and A/B testing. The executives’ actions have performance consequences. The population of Mendelian executives are therefore subject to external selection pressures. Multiple sources in the business press report low CEO-tenure and high CEO-turnover. For example, a PWC-survey from 2019 reports a median CEO-tenure of five years for the world’s largest 2,500 public companies over the past 19 years (PWC 2019). This study also reports that only 19 percent of all CEOs remain in position for 10 or more years (PWC 2019). This observation indicates that the Mendelian executive’s operation of the organization’s internal selection environment is severely constrained by external selection forces.

Even if I find the idea of Mendelian executives compelling their approach to operating the organization’s internal selection environment may largely be determined by external selection forces. In this regard, Levinthal’s book opens yet another topic for future research. On appropriately calibrated timescales, the selection in a population of CEOs does not appear very different from (natural) selection in a population of fruit flies. Thus, considering executives as a population of fruit flies may, from the perspective of empirical research, be a useful complement to the idea of the Mendelian executive.

Conclusion

Levinthal’s book provides a much-needed evolution of the program of organizational evolution. It is a wonderful little book that, along with the classics (Darwin 1859; March and Simon 1958; Nelson and Winter 1982), should serve as required reading for PhD students and other serious scholars. To be clear, “little book” refers to appealing brevity. As it takes a long while to make a text short (Pascal 1658), this is much appreciated. This book can be read in a day or two, depending on motivation and supply of coffee. Read it.