By Geoffrey West*

Forward thinking Executives talk about their company’s ‘DNA’ and roles in ‘business ecosystems,’ but the analogy to living organisms is more than metaphorical. Like the mathematical laws governing how organism’s metabolism, growth, evolution, and mortality depend on size, there are also rules which appear to govern the expansion, performance, and even decline of businesses, cities and other social organisations.

Although we cannot yet predict how specific cities or companies will evolve, we have found general mathematical relationships between population size, innovation and wealth creation which may have important implications for growth strategy in businesses. In biology for example, different species are in many ways scaled versions of one another. Bacteria, mice, elephants, sequoias, and blue whales may look different, but the majority of their fundamental characteristics, including energy and resource use, genome length, and life span, follow simple mathematical rules.

These rules take the form of so-called power-law scaling relationships that determine how such characteristics change with size. Put simply, the scaling law says that if an organism’s mass increases by 10, its metabolic rate will increase by 1.

This represents an enormous economy of scale: the bigger the creature, the less energy per kilo it requires to stay alive. Cities and businesses, like biological organisms, consume energy and resources, depend on networks for the flow of information and materials, and produce artifacts and waste. Therefore, it should not be surprising that they also obey scaling laws governing their growth and evolution.

To discover these scaling laws, Luís Bettencourt at Los Alamos National Laboratory, José Lobo at Arizona State University, Dirk Helbing at TU Dresden and I gathered data across many urban systems in different countries and at different times, addressing a wide range of characteristics including energy consumption, economic activity, demographics and intellectual innovation, among others.

We did indeed find that cities manifest power-law scaling similar to the economy-of-scale relationships observed in biology: a doubling of population requires less than a doubling of certain resources. This means that a city could double its population without doubling its resource consumption. In other words, cities are like elephants, they get more economical with size. This perhaps could be said of organisations. We also found out that cities, while many see them as ecological nightmares, are actually defenders of environmentalism. In contrast to the common belief that rural towns with their greener landscapes are much more environmentally friendly than cities, the truth is people who live in densely populated places lead more environmentally friendly lives than their counterparts. They actually consume fewer resources per person and take up less space. On average, city dwellers use about half as much electricity as people living outside city limits.

In metropolis after metropolis, the indicators of urban “metabolism” – like the per-capita consumption of gasoline or the surface area of roads or the total length of electrical cables – scaled to a 0.8 exponent of the population, which is very similar to the biological measurement equivalent of 0.75 mass. This means the city can double its population without doubling its resource consumption. One of the basic principles of cities is that it is more efficient to bring people together because you need a little bit less of everything per person. It’s the exact same way in biology – as animals get bigger, they require less energy to support each unit of tissue.

This perhaps could lead us to believe that the larger the size of a company office, the less amount of resources per person it requires to run efficiently – so the idea that ‘small is beautiful’ no longer applies.

An environmentally friendly place is, therefore, one with lots and lots of people – directly challenging the conventional wisdom of the day, that rural landscapes and rural open spaces are less harmful than a city. In fact, the bigger the city, the more efficient it becomes, despite the obvious pollution that makes it seem like an ecological nightmares.

However, to our surprise, a new scaling phenomenon appeared when we examined quantities that are essentially social in nature and have no simple analogue in biology—those associated with innovation and wealth creation that are a result of social interaction, such as patent activity, number of super-creative people, wages, and GDP, among others. In layman’s terms; a doubling of population is accompanied by more than a doubling of creative and economic output. We call this phenomenon “super-linear” scaling: by almost any measure, the larger a city’s population, the greater the innovation and wealth creation per person.

If you watch pedestrians, you notice they are scurrying along the sidewalk rushing to be somewhere. The data backs up the cliché: In bigger cities, people literally move faster and are therefore more productive. In biological systems, the opposite trend occurs. As creatures get bigger, their bodies slow down – the pulse rate decelerates and a brake is applied to the heart. That is why elephants live longer than mice: their bodies operate at a more leisurely setting. But imagine an elephant that never stops growing – it simply doesn’t happen. This is what separates a city from an organism: it can continually grow, yielding more and more economies of scale – something that does not happen with a biological system.

Interestingly, however, the equations also predict that cities – and on a much smaller level, organisations – stop growing and even contract in the absence of continual major innovations – leading to either stagnation or ultimate collapse. For biological systems, growth is straightforward, at some point they eventually stop growing. However, when you have super-linear exponents that are derived from the uniqueness of human social interaction, the growth equation is completely changed.

Organisations can go on growing forever. At a certain point, though, they must face the reality that they will run out of resources unless careful, and the only way to avoid this is to change something. You have to reset the clock, reset the initial parameters of growth. We call this an innovation cycle, and they are clearly apparent throughout history; the invention of steam engine or the car or the digital revolution. Simply put, an organisation that is not innovative is on verge of collapse. Business strategy should, therefore, be the driving force of innovation, and for everyone’s benefit senior management must nurture their teams to make innovation possible.

Though our research has focused on cities, the social and structural similarities between cities and businesses suggest that our conclusions extend to all companies and industries. As so, the existence of super-linear scaling that links size and creative output has two important consequences: First, it challenges the conventional wisdom that smaller innovation functions are more inventive, and perhaps explains why few organisations have ever matched the creativity of a giant like Microsoft. Second, it shows that because organizations and industries must apparently innovate at a continually accelerating rate to avoid stagnation, economising by reflexively cutting R&D budgets and creative staffs, may be a dangerous strategy over the long-term.

• Geoffrey West:
  An active scientist, a former Time 100 member and the president of the Santa Fe institute. West will be speaking at Leaders in Dubai, November 2008.