January 01, 2014
The Science of Business
by Robert A. Sinnott
What can science possibly teach us about business? I believe that a healthy dose of the scientific method is good for business. The scientific method requires thinking through the challenges or opportunities that are yet unrealized then applying focus, careful planning and execution to push forward the frontiers of knowledge.
According to Peter Drucker—who was considered by many to be the creator of modern management—two of the most important roles of the CEO are to constantly think through the business and set clear objectives and metrics to guide the business forward. This is analogous to designing a good series of science experiments. It requires having a firm grasp of the present situation, making sure that the variables are changed in a controlled manner, and ensuring that the results of each project build on each other in a logical fashion.
There are many scientific concepts such as entropy, specialization, natural selection, synergy, innovation and validation that apply clearly to our direct selling and network marketing business model. For example, many of the principles of money flow in economics are similar to how energy flows in thermodynamics. The person designing a compensation plan must understand that the bulk of energy will eventually find the path of least resistance. It is as inevitable as gravity and quite perilous to ignore. A related thermodynamic principle of entropy clearly applies to our business structures. We know that if energy is not continually put into an organization there will be inevitable decay to nothingness. Entropy applies to individuals as well as departments, business units and whole organizations. Personal development and continual training overcomes the effects of entropy, which is why so many successful direct selling companies have strong personal development cultures. They are effectively inputting energy to promote continual growth and prevent decay of the structure.
Also, it is not coincidental that today’s most efficient business organizations are comprised of highly specialized and compartmentalized functional areas, like the organelles within a cell. Specialized structures allow a cell to do things very efficiently, such as maximize energy output, shorten supply chains and recycle waste. Businesses are always seeking to improve in these areas as well. It’s not by chance that structures from small, simple cells to multinational corporations are composed of scalable units. Recognizing this gives useful insight when diagnosing a problem or designing improvements to capitalize on new opportunities to grow your business.
Some of the same models and formulas that describe behavior in complex ecosystems can be applied to highly networked business organizations, such as our independent distributor organizations. There are complex psychological and environmental factors at play similar to those that govern natural selection in the wild. Understanding these underlying natural laws helps us craft strategies for maximizing growth during good times and ensuring survival when the environment turns rough, which it periodically does. How do we redirect our resources during a periodic economic downturn? How do we get back out of hibernation mode and back to full productivity when the conditions turn favorable again? What are the signs of the changing seasons that we need to be paying attention to? We can learn a lot by observing how nature handles these same challenges.
Another scientific concept that is widely touted in business today is synergy. Synergy occurs when two or more forces join together to provide an effect that is stronger, sometimes much stronger, than simple addition would predict. The scientific concept of synergy underlies the notion that in business there can be win-win situations. Synergy is well proven in the laboratory, notably in physics and chemistry. The concept has also been applied as a way to create additional value for both a business and its customer. In the case of synergy, science teaches us that sustainable win-win-win situations are completely possible where the business, the customers and society as a whole can benefit through properly structured relationships.
A relatively new type of business model called social entrepreneurship restructures corporate philanthropy to be more tightly interwoven with the core business. It replaces charitable handouts with a share of the top-line sales revenue to create a durable win-win-win situation. Mannatech is currently operating our Mission 5 Million (M5M) social entrepreneurship program globally to great satisfaction for our customers and the company. The really cool thing is that according to science, the number of “winners” that can be structured into a relationship is infinite. It is limited only by creativeness of the structure. Wherever there are mutual interests, there is the potential of creating synergy. Direct selling and network marketing business models are particularly rich with potential synergies just waiting to be tapped. Successful companies in our industry often break new ground or power through to the next stage on their growth curve by tapping into new business synergies.
Well-managed science can power innovation, help a company secure market share, and help protect a company from regulatory risks. Two extremely important areas these days for many of us are scientific validation and creation of intellectual property. Mannatech has been a pioneer and innovator in the dietary supplement industry for almost 20 years and counting. To date, we have amassed a global patent portfolio of over 90 issued patents, with many more pending. This decision to invest in a robust intellectual property (IP) portfolio has given us protected space in several key areas of human nutrition. It has protected us from having to claw it out with commodity-priced products that most retailers offer.
Well-managed science can power innovation, help a company secure market share, and help protect a company from regulatory risks.
Particularly in the direct selling and network marketing industry, where companies come and go regularly, the lifespan of a venture can be cut considerably short by a competitor moving in and selling an uncomfortably similar product at Costco or Wal-Mart. This has led to the quick decline and death of several industry ventures. Neither the company nor the independent sales associates benefit from having their business undercut and collapsed this way. Companies that plan on staying around a while need to invest in meaningful IP development at an early stage. At Mannatech we have benefitted from the issued patents on our flagship products and have been able to shut down illegal competitors in court when necessary. The protected area around our flagship products gives us some nice blue ocean space in which to operate and grow. Finally, having well-developed IP also protects us from critics attacking our products as “commodity items,” which has unfortunately become an increasingly common accusation in our industry this past year.
So what makes a scientist a good candidate for leading a business? Ideally, good business leaders and good scientists both possess creativity, intuition, innovation and the ability to analyze data and spot trends. They have “prepared minds” that can spot opportunity for increased efficiency within complex structures. As it turns out, the origins of a company’s CEO can tell a lot about the organization’s underlying structure and priorities. Our company, Mannatech, is engaged in the business of science so it is fitting that a scientist, with requisite experience across functional areas, could follow a path to end up as CEO. Mannatech has done very well working the fertile ground where science and business converge. It has certainly helped that the person at the helm knows the feeling of accomplishment that comes from taking a new product all the way from the laboratory, through prototyping and commercialization, through manufacturing and marketing, to place it in the hands of a new customer.
It is also important that the CEO know that not every opportunity is as sexy as a new product launch. Financial discipline and organizational efficiency aren’t sexy topics, but they are required for sustainable growth. Also, particularly in our industry, sustaining the unique culture of the organization is irreplaceable. At Mannatech we have challenged ourselves to look at our business from a fresh and scientifically objective viewpoint. It has been deliberate and effective.
Robert A. Sinnott, Ph.D., is CEO and Chief Science Officer at Mannatech Inc.