Muller’s Ratchet and the Corporate Death Spiral: How Perfectly Optimized Companies Fail

“If the rate of change on the outside exceeds the rate of change on the inside, the end is near.” - Jack Welch

Muller's Ratchet – The Silent Drift Towards Decline

“How did you go bankrupt?" Two ways. Gradually, then suddenly.” ―Ernest Hemingway, The Sun Also Rises (via Paul Nunes )

In evolution,?decline doesn’t happen all at once—it creeps in, one small mutation at a time.?Muller’s Ratchet?describes how harmful mutations gradually accumulate when there’s no way to remove them, slowly weakening a species until it can no longer adapt. The?ratchet effect?is a concept in?sociology?and?economics?illustrating the difficulty with reversing a course of action once a specific thing has occurred, analogous with the mechanical?ratchet?that allows movement in one direction and seizes or tightens in the opposite. The concept has been applied to multiple fields of study and is related to the phenomena of?scope creep,?mission creep, and?feature creep.

The same thing happens to organisations. What starts as?small, seemingly harmless optimisations—cost-cutting, rigid processes, a focus on efficiency over exploration—gradually erodes adaptability. Innovation is deprioritised, risk-taking is eliminated, and creative thinkers leave or are squeezed (frustrated) out.

By the time change is unavoidable, it’s too late. Like an organism trapped in outdated DNA, the company’s internal structure and mindset become a straitjacket. The deeper this genetic drift toward efficiency sets in, the harder it becomes to change course.

A?company optimized for efficiency?is like an?organism perfectly tuned to its environment—thriving,?but only as long as nothing changes. Gerald Heard, in?The Source of Civilization (1937), put it as follows (and thank you Scott Wolf for the quote):

“A creature which has become perfectly adapted to its environment, an animal whose whole capacity and vital force is concentrated and expended in succeeding here and now, has nothing left over with which to respond to any radical change.”

The more an organization perfects the system, the more rigid it becomes. Even the celebrated innovator Henry Ford discovered this the hard way.

Business Case Study: The Evolution of the Automobile Industry

In his book The Emergent Approach to Strategy (and epic series on The Innovation Show), my friend and forthcoming in-person guest at The Reinvention Summit , Peter Compo highlighted the evolution of the early automobile industry as a striking parallel to both biological evolution and organizational adaptation.

From?1900 to 1920, almost?2,000 car manufacturers?emerged in the U.S., experimenting with?different designs, engines, and configurations. However, by the end of this era,?over 99% of these firms had disappeared, unable to?survive the selection pressures of the market.

Just as?some species flourish while others fade,?inefficient designs were eliminated. The?internal combustion engine ultimately prevailed?due to?cost-effectiveness and range, while?steam-powered cars were deemed too dangerous, and?electric vehicles—despite early success—lacked the battery technology to compete.

Today,?electric vehicles (EVs) are making a dramatic comeback.

New?selection pressures—climate concerns, technological advancements, and consumer demand—are reshaping the industry. The?same car companies that once resisted change?must now?reinvent themselves or risk extinction.

The Efficiency Trap: When Optimisation Becomes a Straitjacket

The?pursuit of efficiency?has deep historical roots. From?Frederick Taylor’s scientific management?to?battlefield logistics?to?Henry Ford’s assembly line, organisations have long optimised for?speed, cost reduction, and specialisation. These innovations transformed industries, but they also introduced?fragility.

Some of you reading this know, work for, or (worked) for these organisations. You may feel compelled to stay, bound by the golden handcuffs that tighten with time.

Many organizations begin with strong, values-driven, entrepreneurial, and adaptive leaders. Such leaders make decisions based on long-term sustainability, innovation, and human judgment—not just short-term financial metrics. Under their leadership, the company’s DNA is rich with creative problem-solving, a willingness to experiment, and a balance between efficiency and reinvention (genetic recombination in an evolutionary sense).

In time, leadership changes—or is pushed out when their values clash with the company’s shifting DNA. A new generation of executives gradually takes over—people who are more focused on (and rewarded for) optimization (exploitation) rather than exploration.

The organization increasingly prioritizes metrics over meaning, efficiency over adaptability, and profit over people. New hires are chosen not for their ability to challenge the status quo, but for their willingness to deliver immediate cost savings and revenue growth—without questioning the long-term consequences.

At first, the changes seem positive—costs are cut, shareholder returns improve. But something critical is lost: the company’s DNA no longer supports curiosity, risk-taking, or reinvention.

As our guest on this week's episode The Innovation Show , Gary Hamel puts it:

“It’s more about reducing the buck for a given bang rather than increasing the bang for a given buck—more about cutting resources than leveraging resources.”

But efficiency, when pursued at all costs, can strip an organisation of its ability to adapt. Some, however, recognise the trade-off, Sally Gore, (co-founder and) former HR leader at 戈尔公司 , likens their management system to democracy—less ‘efficient’ in a strict cost-cutting sense but ultimately fostering a higher quality of work-life, collaboration, and innovation.

Like an organism suffering from Muller’s Ratchet, the organisation loses its ability to reinvent. The world outside evolves. Inside, the organisation is frozen in time.

We are getting close to The Reinvention Summit, we have some great news that Alexander Osterwalder can now attend in person!

For groups and corporate offsites, get in touch, we have some group offers.

The latest in our Gary Hamel series is now live, we are on his book, "Leading the Revolution."