The authors, senior partners at the Boston Consulting Group, review these four types of organizational capabilities, showing what companies at the leading edge are doing to create them.
They also discuss the particular implications of this fundamental strategic shift for large corporations, many of which have built their operations around scale and efficiency-sources of advantage predicated on an essentially stable environment.
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Annals of the University of Petrosani, Economics , 11 4 , Reeves, M. Adaptability: The new competitive advantage. Harvard Business Review , Need a custom Assessment sample written from scratch by professional specifically for you?
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Removal Request. If you are the copyright owner of this paper and no longer wish to have your work published on IvyPanda. Cite This paper. Select a referencing style:. Copy to Clipboard Copied! Reference IvyPanda. Bibliography IvyPanda. With an increasing amount of economic activity occurring beyond corporate boundaries—through outsourcing, offshoring, value nets, value ecosystems, peer production, and the like—we need to think about strategies not only for individual companies but also for dynamic business systems.
Increasingly, industry structure is better characterized as competing webs or ecosystems of codependent companies than as a handful of competitors producing similar goods and services and working on a stable, distant, and transactional basis with their suppliers and customers. In such an environment advantage will flow to those companies that can create effective strategies at the network or system level.
Adaptive companies are therefore learning how to push activities outside the company without benefiting competitors and how to design and evolve strategies for networks without necessarily being able to rely on strong control mechanisms. Typically, adaptive companies manage their ecosystems by using common standards to foster interaction with minimal barriers. If the experience curve and the scale curve were the key indicators of success, Nokia would still be leading the smartphone market.
But it was attacked by an adaptive ecosystem. If the experience curve and the scale curve were the key indicators of success, Nokia would still be leading the smartphone market; it had the advantage of being an early mover and the market share leader with a strong cost position. The ability to bring together the assets and capabilities of so many entities allowed these smartphone entrants to leapfrog the experience curve and become new market leaders in record time.
Adaptation is necessarily local in nature—somebody experiments first at a particular place and time. It is also necessarily global in nature, because if the experiment succeeds, it will be communicated, selected, amplified, and refined. Organizations therefore need to create environments that encourage the knowledge flow, diversity, autonomy, risk taking, sharing, and flexibility on which adaptation thrives.
Contrary to classical strategic thinking, strategy follows organization in adaptive companies. A flexible structure and the dispersal of decision rights are powerful levers for increasing adaptability. Typically, adaptive companies have replaced permanent silos and functions with modular units that freely communicate and recombine according to the situation at hand.
To reinforce this framework, it is helpful to have weak or competing power structures and a culture of constructive conflict and dissent. Cisco is one company that has made this transformation. Early on, it relied on a hierarchical, customer-centric organization to become a leader in the market for network switches and routers.
More recently the CEO, John Chambers, has created a novel management structure of cross-functional councils and boards to facilitate moves into developing countries and 30 adjacent and diverse markets ranging from health care to sports with greater agility than would previously have been possible. As they create more-fluid structures, adaptive companies drive decision making down to the front lines, allowing the people most likely to detect changes in the environment to respond quickly and proactively.
For example, at Whole Foods the basic organizational unit is the team, and each store has about eight teams. Team leaders—not national buyers—decide what to stock.
Teams have veto power over new hires. And they are rewarded for their performance with bonuses based on store profitability over the previous four weeks.
Creating decentralized, fluid, and even competing organizational structures destroys the big advantage of a rigid hierarchy, which is that everyone knows precisely what he or she should be doing. For example, Netflix values nine core behaviors and skills in its employees: judgment, communication, impact, curiosity, innovation, courage, passion, honesty, and selflessness. Becoming an adaptive competitor can be difficult, especially for large, established organizations.
Typically, these companies are oriented toward managing scale and efficiency, and their hierarchical structures and fixed routines lack the diversity and flexibility needed for rapid learning and change. Such management paradigms die hard, especially when they have historically been the basis for success. However, several tactics have proved effective at fostering adaptive advantage even in established companies.
To the managers involved, they may look like nothing more than an extension of business as usual, but in fact they create a context in which adaptive capabilities can thrive. If you are the CEO of a large company that wants to be more adaptive, challenge your managers to:. Fast-changing industries are characterized by the presence of disruptive mavericks—often entirely new players, sometimes from other sectors.
Get your managers to put aside the traditional single-business forecast and instead examine the risks and uncertainties that could significantly affect the company. Most companies have a portfolio of strategic initiatives. It should become the engine that drives your organization into adaptability—and it can, with a couple of simple enhancements.
First, every significant source of uncertainty should be addressed with an initiative. Depending on the nature of the uncertainty, the goal of the initiative may be responding to a neglected business trend, creating options for responding to it down the line, or simply learning more about it. In managing these initiatives, your company should be as disciplined with metrics, time frames, and responsibilities as it would be for the product portfolio or the operating plan.
In a stable environment it is sufficient to improve what already exists or to examine single change proposals. The simple step of requiring that every change proposal be accompanied by several alternatives not only surfaces a more varied and powerful set of moves, but also legitimizes and fosters cognitive diversity and organizational flexibility.
The speed of adaptation is a function of the cycle time of decision making. In a fast-moving environment, companies need to accelerate change by making annual planning processes lighter and more frequent and sometimes by making episodic processes continual.
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