How Adaptable is Your Business?

In a 2011 article in the Harvard Business Review, Martin Reeves and Mike Deimler highlight how “we live in an era of risk and instability. Globalization, new technologies, and greater transparency have combined to upend the business environment and give many CEOs a deep sense of unease. Just look at the numbers. Since 1980 the volatility of business operating margins, largely static since the 1950s, has more than doubled, as has the size of the gap between winners (companies with high operating margins) and losers (those with low ones).

 

Market leadership is even more precarious. The percentage of companies falling out of the top three rankings in their industry increased from 2% in 1960 to 14% in 2008. What’s more, market leadership is proving to be an increasingly dubious prize: The once strong correlation between profitability and industry share is now almost nonexistent in some sectors. According to our calculation, the probability that the market share leader is also the profitability leader declined from 34% in 1950 to just 7% in 2007. And it has become virtually impossible for some executives even to clearly identify in what industry and with which companies they’re competing.”

 

Organisations have to be constantly alert, these days, to changes in their business environment – at least they do if you want to stay competitive in their market place. The problem for some leadership teams is that there can simply be too much information and too much uncertainty to make strategic decisions, with confidence, about the future of their company.

 

It’s in these situations that there seems to be two distinctive types of leaders and/or executive teams – the first type aren’t scared of uncertainty and are prepared to make strategic decisions based on the knowledge that they don’t have all the answers and actually don’t expect all the answers – they make short-term strategic decisions based on ‘most likely’ future scenarios, but also have a very dynamic and adaptive approach to their business environment. They expect a changing environment, and are organised to embrace and adapt to a changing environment.

 

The other type of leader and/or executive team gets frustrated with the uncertainty in their business environment. Rather than seeing this uncertainty as opportunities, they see this uncertainty as a threat, as they feel that constant ‘internal’ change gives an impression that they aren’t in control of their business. These teams and organisations often have a culture, based around their people, that seeks clear direction and consistency - and where they perceive that constant change is translated into meaning ‘that they and their management don’t know what they are doing’ by their staff.

 

This probably appears obvious to the reader – but currently out there on the ground, in the business environment, these two types of leadership teams really do exist.

 

As Reeves and Deimler mention “the goal of most strategies is to build an enduring (and implicitly static) competitive advantage by establishing clever market positioning (dominant scale or an attractive niche) or assembling the right capabilities and competencies for making or delivering an offering (doing what the company does well). Companies undertake periodic strategy reviews and set direction and organizational structure on the basis of an analysis of their industry and some forecast of how it will evolve.

 

But given the new level of uncertainty, many companies are starting to ask:

 

• How can we apply frameworks that are based on scale or position when we can go from market leader one year to follower the next?

 

• When it’s unclear where one industry ends and another begins, how do we even measure position?”

 

Organisations need to embrace the fact that their environments are changing like never before and that this constant change is here to stay. Looking for strategic certainty is going to become a major weakness within any organisations strategic framework.

 

What organisations need are organizational structures that are made up of employees, at all levels, that embrace change as a natural part of their business environment and stakeholders need leaders that create strategic processes that allow them to adapt quickly and smartly to their changing environment.

 

Hence adaptability is potentially the new competitive advantage for the 21 century on its own……

 

References:

 

Reeves, M. and Deimler, M. (2011). Adaptability: The New Competitive Advantage. Harvard Business Review. [On-line: http://hbr.org/2011/07/adaptability-the-new-competitive-advantage/ar/1]