Is Specialization Overrated?

Business Resiliency: The hummingbird vs. the rat strategy

Are you a hummingbird or a rat? “Neither,” you mumble under your breath, mouse hovering over the close-tab button. But stay with me. There are plenty of analogies comparing savanna to business and hues of oceans to markets—but what if we consider a new take on business resiliency?

Moats for enterprises. Micro-niches for small biz. Business theory says organizations win through specialization. What does a hummingbird do that business should emulate? It uses the highest value resource it can find (nectar), works hard to get it (the “humming” part of the bird), and creates a competitive advantage through its unique beak shape and acrobatics. A hummingbird’s specialization makes it very efficient, and efficiency makes it successful.

Efficiency is so deeply ingrained in our business culture it often goes unnoticed. The most innovative fast-growing companies in tech have reached their behemoth scale through efficiency. Salesforce removed the marginal cost from deploying software via the cloud. Netflix pressed a button and launched in 12 countries. And … I could go on. But have we become too efficient? There might be another way: the path of the generalist, i.e., the way of the rat. Because hummingbirds thrive when there are flowers, but what happens when no more flowers grow…

Hummingbird Strategy

Evolution through natural selection says those with traits best suited to an environment will be more successful, passing those traits down to offspring. Those offspring do the same and over time, new species emerge. In stable environments, ecosystems become complex as successive generations get better and better at exploiting or protecting the resources available to them. Hummingbirds proliferate.

Relatively recently, flowering plants started providing nectar. Nectar is a high-energy food that incentives animals to visit flowers and help the plants reproduce. After putting down their tiny copies of Porter’s Five Forces, hummingbirds became hyper efficient at gathering this new resource. As good business strategists, hummingbirds use tremendous amounts of a resource they can gather cheaply (energy) and use it do something no competitor can easily copy—like flying backward and upside down. This way of living is so specialized, hummingbirds eat almost continuously—the first “996” work culture. In business terms, it’s a moat; other birds cannot afford to burn the energy hummingbirds do, so they cannot eat the high-energy food. If hummingbirds were a business, Warren Buffett would buy them.

Rats: Survival of the Fittest

There is a downside to specialization. When disruption hits, it is the specialists who go first. What happens to hummingbirds when there are no more flowers (i.e., Kodak when there are no more film cameras?). In times of rapid change, what was once an advantage can become a liability, and it is a different animal and strategy that survives.

In times of rapid change, what was once an advantage can become a liability, and it is a different animal and strategy that survives.

During the age of exploration, sailors reported an odd phenomenon. Their ships would leave home without vermin but would somehow enter the next port with rats all over the ship. How did they get there? Later observation determined this pattern: a few rats would fall overboard from a ship (maybe in a storm), they would swim or float to tiny uninhabited islands, and then survive on coconut milk, crabs, sea debris, sometimes each other… whatever they could find. Then a ship would pass the island, the rats swam over and boarded the ship!

A hummingbird would not survive on those wind-blown islands, but rats did and in 2022 you can find them everywhere on earth except the poles. Rats are generalists—they're good at many things, but experts of none. Generalist businesses are the frontier farm store, the early 20th-century conglomerate building air conditioners, radio receivers, and power turbines. It is common to find generalists at frontiers.

Physical frontiers like the American West, and disruptive frontiers such as the industrial revolution, or life after a meteor strike. Generalists do well in these environments because they can shift quickly between different opportunities, surviving through unpredictable and rapid environmental shifts. Adaptability and diversification become key. When the environment settles, specialists multiply and prosper, pushing generalists to the margins. Disruption always returns though, and the cycle continues.

So, Should I be a Rat? A Hummingbird? What?

For the past 40 years we’ve been building hummingbird companies. Business orthodoxy—delivered in MBA programs, executive weekends, and bestselling books—preaches efficiency. Remember, even the internet-age startups famous for disruption grew massive through using tech to drive new efficiencies (in B2B, Salesforce via the unit-economics of SAAS previously mentioned; in B2C, Netflix by seamlessly flowing across borders through a streaming platform and customization of content). All these organizations are more specialized than their predecessors (Think way back to The Dutch East India Company, where our story of survivalist rats was recorded.). Stability supports specialization and it has been a very stable 50 years.

Recently though, it’s started to feel like we’re regressing to the mean. In the past 2 years we have seen a global pandemic, a war in Europe, inflation, food and energy insecurity, and supply chain disruption. It might not feel like it to us, but disruption is the rule, not the exception. You must read closely to even notice times like ours in a history book. They’re brief and boring.

Maybe history really did end in 1992. If not, it could be the generalists—the rat organizations—that thrive in the future. Lower margins but more diverse revenue streams and greater focus on team autonomy making use of ephemeral opportunity versus economies of scale and centralized planning for predictability. Fewer moats. More rivers.

We’ve already seen the seeds of change. New semiconductor factories to diversify supply chains, changes in energy grids to lessen dependence on foreign oil, nations redefining social contracts. In our domain, HCM and WFM, we’ve seen an increasing focus on reskilling, staff resiliency, and organizational adaptability. All signs that point to a growing interest in versatility and strategies of resilience. That is not to say organizations don’t need specialized people and their skills. A generalist company still has departments with singular focus. The second caveat is that it is not a binary choice between specialist and generalist.

Hummingbirds, i.e., specialists, have dominated for a generation. It’s worth reevaluating whether diversification and adaptability should be a higher priority in what might be a new (old) era of instability. Rats are not compelling mascots, unless you sell pizza to children, but their power to adapt and endure might be what 21st-century organizations need.