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The earliest theorist to embrace evolution was Herbert Spencer, who developed a conception of evolution as ‘the progressive development of the physical world, biological systems, the human mind, and human culture and societies’, thus bringing evolutionary theory to sociology. He coined the phrase “survival of the fittest” in Principles of Biology (Spencer, 1868) after reading Darwin’s Origin of Species. Spencer stated that “all structures in the universe develop from a simple,

undifferentiated, homogeneity to a complex, differentiated, heterogeneity, while being accompanied by a process of greater integration of the differentiated parts.” He

suggested this universal law of the evolution of complexity applied everywhere in the cosmos. The primary mechanism for the transformation of species that he recognized was Lamarckian use-inheritance, i.e. those organs developed by use would result in changes transmitted to the next generation. In contrast to Darwin, he proposed a direction and even a final state of evolution in equilibrium.

Campbell, a social psychologist, (1969) introduced the concept of Blind Variation and Selective Retention (BVSR) in socio-cultural knowledge evolution. He re-awakened Darwinian selectionist theory into social science (McKelvey, 1999b). Nelson and Winter (1982) brought evolutionary theory to economics using it as a dynamic process over time and substituting routines for genes, search for mutation, and

selection via economic competition. Key contributions of evolutionary thinking, populations and the environment were brought to organization science by Aldrich (1979) and McKelvey (1983).

The essential points made in these early papers (McKelvey, 2004a) were that 1. Genes replicate with error

2. Variations are differentially selected which alters gene frequencies in populations

3. Populations have differential survival rates given existing niches 4. Niche emergence and genetic variance coevolve

5. Struggle for existence

At the same time, many organizational scientists developed a dominant theme in theories of organization by emphasizing the relationships between firms and their environments. Hannan and Freeman (1977) introduced us to Population Ecology. These approaches work on the fundamental principle of incremental, micro, slow change creating and renewing observable macro structure. The diversity of organizational forms is generally explained by appealing to the diversity of the environments in which organizations operate (Hannan and Freeman, 1977; Lawrence and Lorsch, 1967). Lawrence and Lorsch (1967) developed structural contingency theory, Meyer and Rowan (1983) introduced institutionalization theory; Pfeffer and Salancik (1978) developed resource dependence theory, and so on. The broad argument of these theorists was that firms tend to become isomorphic with their environments through processes of adaptation and/or selection. Theories were

developed in the study of organization change in relation to exogenous environmental change. Organizational ecology (Hannan and Freeman, 1977) for example focused on the environment as the principle source of competitive advantage, ignoring the effect that firms had in shaping the selection environment

The influence of the firm on the environment and how the environment (defined as other firms and populations) influences these firms was thus largely ignored (DiMaggio and Powell, 1983). Nelson (1996) warns that neglecting how environmental factors interact with the firm, will lead to a lack of progress understanding industrial leadership. But the causal mechanisms that produce

particular behaviours in firms remain constant in evolutionary explanations and not the behaviours themselves (Tilly, 1997). The same causal mechanisms can lead to different behaviours because the environment is never exactly the same.

With the environment in mind, many theorists have used the concept of adaptation to the environment as a core requirement for firms. Ashby (1960) suggests that

adaptability is enhanced among the system’s components if there is a modest degree of interaction among the system’s components. In what Ashby terms, a fully joined system, a perturbation in one variable requires adjustment in all other variables of the system, making adaptation improbable (Glassman, 1973). Perrow (1984) makes a similar argument when analysing the possibility of “normal” accidents in complex, tightly coupled systems. Tightly coupled firms can not engage in exploration without foregoing the benefits of exploitation. In contrast loosely coupled firms (Weick, 1979) can exploit the fruits of past wisdom while exploiting alternative bases of future viability (Levinthal, 1997). With more complex interactions, it is less likely that established firms are able to respond effectively to changes in the environment.

Conventional wisdom that Darwinian selectionist processes drive out less fit firms, facilitating the ‘survival of the fittest’, is challenged by Kauffman (1995a) who suggests that complexity may thwart selectionist effects under some circumstances. Kauffman (2000) further argues that Darwinian Theory is equilibrium bound and is not adequate for explaining most of biological dynamics.

This brings us to the notion of dynamics being not gradual but punctuated with periods of apparent stability in-between (Eldredge and Gould, 1972). There is a shift to the study of how fast-motion dynamic heterogenous agents create order thus a movement away from slow-motion Newtonian classical physics. The process of continual change within firms, including founding, disbanding, growth and change are examined with the environment in mind (Winter, 1990).

Levinthal (1997) noted that it was inadequate to assume that there existed a well- defined mapping between the firm and the environment, noting that in reality there are likely to be a number of local optima with nearly equivalent performance. The fitness

fitness by explaining a variety of phenomena: dominant designs and technology evolution (Kauffman, 1995a; Kauffman and Macready, 1995), organizational

adaptation (Levinthal, 1997), ‘complexity catastrophes’ given the interdependence of firms’ value chains (Hannan and Sorenson, 1997; McKelvey, 1999a) and the fit of archetype and strategy/leadership design in different environments (Maguire, 1999). The fitness landscape framework allows firms to be characterised by a string of variables, however, each variable has a binary on/off setting and so simplifies reality greatly.

The examination of network change in some previous studies has considered the environment. Examples include, the ways in which both exogenous and endogenous forces shape how networks evolve over time (Gulati et al., 2000) and how

environmental issues are now perceived by practitioners as another component for integration into supply chain management rather than as constraints (Lamming et al., 2001). Network studies have analysed structural characteristics (network density, structural holes, structural equivalence, firm location) (Gulati et al., 2000) and profitability of industries and firm, plus network and firm level change (Koka et al., 2006). These studies are beginning to contribute to the understanding of supply chains as dynamic networks of competitiveness. In strategic management and in contrast to earlier work, Porter (1991) works to integrate theories of both

environmental and firm factors into a comprehensive framework.

In his study of the global dye manufacturing industry, Murmann (2003) finds three requirements for the use of evolutionary explanation:

1. to introduce novelty into the economic system, a mechanism must exist to create variants of existing structures

2. selection pressures need to be consistent, so new variants need to be created more frequently than new selection criteria otherwise the evolutionary process would not bring about new trial and error structures that are better adapted 3. a retention mechanism must be present that transmits economic structures

from the present to the future, otherwise new developments could not build on previous adaptive achievements.

This is broader than the Darwinian formulation of biology as the latter is a special case in which variations are random, not guided by previous experience.

The demise of firms from an evolutionary point of view is undesirable unless brought about by other firms which provide better products and services. Schumpeter’s (1942) process of creative destruction in a capitalist regime underlines the

evolutionary view that better economic structures can only be achieved by allowing underperforming entities to be replaced by organizations that can make better use of their resources. Ideally surviving firms should learn from the mistakes that the failed firms made (Metcalfe, 1998). Metcalfe adds that public policy makers have a role in deciding whether to protect economic diversity and mechanisms that generate novelty in the economic system, supporting temporarily underperforming firms or infant industries. Arthur (1994: xx) perceives the economic world as one of constant transformation: “a world where dynamics, not statics, are natural; a world of evolution rather than equilibrium; a world of probability and chance events. Above all, it is a world of process and pattern-change.” Schumpeter describes

transformation arising from within the socio-economic system, driven largely by the adaptive development of firms (Metcalfe et al., 2006).

This ends the sub-section on the application of evolutionary theory to firms and makes the following points:

1. All structures move from simple, undifferentiated, homogeneity to a complex, differentiated, heterogeneity, while being accompanied by a process of greater integration of the differentiated parts.

2. Evolution is dynamic

3. Firms have routines not genes

4. Firms tend to become isomorphic with their environments

5. Interactions between firms and their environments influence the ability of the firm to exploit and explore

6. Selection processes do not always drive out the least ‘fit’ firms 7. Mechanisms must exist to create variants of existing structures

8. Selection in the environment runs at a slower rate than the rate at which new variants are created

This section has introduced some new concepts including that of open systems,

feedback, and transformation driven from within. Evolutionary thinking encompasses not just the simple organism metaphor (Morgan, 1997) but an holistic, dynamic and contextual position better able to explain and describe the fundamental nature of economic systems. The next section introduces coevolutionary theory, looking in more depth at the mechanisms driving change.