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Finance & Investment
The Window of Vitality:
How Great Businesses Balance Efficiency, Resilience

Mired in short-termism, many investors and company bonus structures incentivize optimizing for cost and efficiency. The lesson from nature: Successful organizations stay within their own window of vitality by understanding and balancing the tension between efficiency and resilience.

Are you familiar with the “window of vitality”? It refers to the idea that functioning ecosystems exist within a range of what ecologists call “system order.” These ecosystems avoid breaking down over time because they balance efficiency (the optimum use of resources) with resilience (the capacity to adapt to change).

To illustrate the concept, let’s take an example from urban planning — where swamps and creeks are concreted over to support housing and infrastructure development. Most years, this ‘solution’ deals well with light to moderate rainfall by allowing excess water to drain quickly and efficiently. When the deluge comes, though, the impervious surface prevents groundwater recharge — water percolating through microscopic gaps in rock and soil to the aquifer below — overwhelming the stormwater system that functions so well in standard conditions and mass flooding devastates the precinct.

Urban planners now recognize the importance of water-sensitive urban design, which minimises wastewater and preserves waterway health and groundwater recharge. Unfortunately, broader corporate culture has been slower to learn such principles — tending to overinvest in efficiency (draining waterways) at the expense of resilience (preserving waterways).

Mired in the short-termism of the quarterly earnings cycle, many investors and company bonus structures incentivize management teams to optimize for cost and efficiency. More common still is the assumption that the future will be the same as the recent past. This also spurs executives to prioritize efficiency over resilience (which assumes change).

By contrast, the hallmarks of resilience — sustainability, flexibility, diversity and learning — are viewed as optional at best and wasteful at worst.

The lesson from nature is that successful organizations stay within their own window of vitality by understanding and balancing the tension between efficiency and resilience.

A case study in Google

Consider Google, whose founders created one of the world’s most successful businesses by allocating a meaningful portion of firm resources to ‘non-productive’ innovation.

Borrowing the idea from 3M, co-founders Sergey Brin and Larry Page instituted the 20% Project — where employees were encouraged to spend up to a fifth of their time working on personal projects. In a culture that prized individual freedom and celebrated creativity, employees invented cash-gushing creations including AdSense, Gmail and Google News.

Ironically, the 20% Project was discontinued in 2013 after excessive management oversight of new ideas and an overt focus on efficiency stifled its intended innovation.

In the decade since, Google has trended further towards hyper-efficiency at the expense of the blue-sky thinking of its engineers. OpenAI’s ChatGPT, for example, leapfrogged Google Bard in the race to monetize large language models — despite the latter having deeper pockets and more AI talent.

CEO Sundar Pichai and CFO Ruth Porat remain outstanding business leaders. But in my view, they can do more to ensure Google remains within the window of vitality.

Restoring an optimum balance between efficiency and resilience at Google might include the following steps:

  • Restart the 20% Project: Explain to investors that short-term costs are the price of creativity and innovation, and a necessary bulwark against future disruptions.

  • Minimum percentage of investment for ‘other bets’: Defend moonshot ideas such as Waymo (self-driving cars) and Calico (longevity) from the vagaries of the economic cycle.

  • Modularize project teams: Hire and promote people especially good at adapting to change and faster cycles of knowledge acquisition.

  • Invest in resilience: Set aside a resilience fund to respond quickly to unforeseen future disruptions and to support the evolution of the business model over time.

  • Talent redistribution: AI is undermining the value of average engineers. Trim the engineering team and reinvest in other disciplines (e.g. physics, sustainability).

  • Ethical use of AI: Work with major competitors to develop a framework to guide the development and use of AI to ensure AI-generated content is accurate and safe.

  • Invest in trust: Use DeepMind to showcase how AI can help solve humanity’s greatest challenges — burnishing Google’s reputation as a champion for the common good.

3 steps to bolster your company's resilience

Like Google, has your business over invested in efficiency at the expense of resilience? If so, what steps can you take to right the balance? Here are three to consider:

  • We recommend a megatrends analysis as part of the materiality-assessment process, to better understand how changes in the operating environment might affect your business.

  • Science-based climate-scenario analysis is another critical strategy that will help you prepare for an unknown future. Disclosure is now mandatory in many jurisdictions.

  • Finally, consistent reporting on ESG performance can ensure your organization sees the bigger picture — allowing it to learn and adapt over time.

As Nassim Taleb says, “Never cross a river if it is, on average, four feet deep.” To succeed over the long term, always prepare for the flood.

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