Reflecting on Adaptability
How to assess a company’s ability to thrive in uncertain times
In a previous article, I discussed the importance of listening to the environment in order to understand how to thrive in periods of complexity and near-constant disruption. As well as understanding the environment and where the company finds itself in the process of disruption caused by a paradigm shift, there needs to be an internal assessment, a reflection review, of the company in order to establish how adaptable it is.
There has been a great deal of discussion about how companies can adapt to rapidly changing situations. From experience and research, it is possible to identify three broad characteristics of what can be called adaptable companies. They have:
- a culture of innovation
- a resilient environment
- an ability to make decisions at speed
The reflective review is, therefore an honest, non-judgemental view of how close the business is to these characteristics. While one could argue that companies should always be adaptive, it is moments of the greatest volatility, uncertainty, complexity and ambiguity (VUCA), that the ability to adapt and to do so at speed is key.
A culture of innovation
There is a great deal of buzz around the term innovation. Within the context of the reflection review, a culture of innovation supports adaptability by encouraging creativity and “left field” thinking that makes it easier for the business to respond to a changing environment. It is these different options and approaches that the company can draw from as new situations arise. One well-known example of this is Amazon, who developed their cloud environment to support their shopping platform, and then saw the opportunity in selling the service to other organisations and turned AWS into the unit delivering the largest percentage of the company’s operating profits.
In conducting the reflection review, there are several aspects of the culture of innovation that are particularly important to look at. They cover everything from strategy to resources and financial models. The point of the review is to take a “snapshot” of the current state of these with an eye to pinpoint how they support the business’ ability to be creative and innovate in a broad range of ways.This requires a fair bit of asking questions and probing. The reflection is not just in reading reports and presentations, but in looking at the day-to-day activity of the business. Often companies say — somewhat loftily — that they are innovative, but that does not manifest in business-as-usual. The reflection is simply a mirror that shows what is happening. The question is then, how can what the company says and does align and are both of those appropriate to the current environment.
Strategic vision
This is the starting point for being adaptable. What does the company do? The broader and more “ambiguous” the vision is, the more space is available to adapt, innovate and pivot. For example, Netflix’s focus on addressing the customer need, “I want to be entertained right now!” allowed it to move beyond competing with Blockbuster in 1990s over selling DVDs to streaming content.
The reflection here is to examine the company vision, asking how it opens up the business to change direction in terms of products, customers or markets. For example, if the company’s vision is to be the best travel industry news publisher, can it shift to publishing other kinds of content easily, or not publishing anything at all and become a tech company selling their platform?
Resources
What type of people does the company hire? Are they creative, flexible and entrepreneurial? It is less likely that the company is adaptive if the people are specialised or process oriented. Ellen Kate Donnelly’s two part article on hiring entrepreneurial leaders gets at the type of leaders that adaptive companies need.
This does not mean that everyone in the organisation is an entrepreneur or hacker. It is about the kind of culture that business has. If the right type of people are not spread across the business, then the ability to change direction is stifled. This works both ways. In one company I consulted, there was a great deal of innovation and creativity in the customer-facing teams. They were constantly developing new fixes and hacks to give their customers what they wanted.
The issue was that these never got funded properly and turned into product features because the management team was working to annual budgets and funded projects that were often multi-year. It can also be that the senior management team wants to be innovative and agile, but the organisation itself has a culture of slow, deliberate and risk-adverse activity. In any event, the lack of the right type of people across the business is a problem when it has to respond quickly and frequently to changing circumstances.
Extended network
The right resources extend beyond the employees of the business. It covers the range of partners, stakeholders and other resources that the company can draw from. In uncertain times, this network needs to be diverse and wide. If it is it focused on what the company does now and only contains the active partners helping to deliver the current products and services, the network will struggle if the environment changes and that offering is no longer possible or profitable. Returning to the Nova Blooms example I wrote about recently, if they had not gotten to know the farmers around them, they could not have pivoted to deliver produce when the lockdown started and customers cut back on “non-essential” purchases (like flowers), but increased food orders.
Financial model
The last but critical piece to look at is how the business’ financial model supports experimentation, R&D and “moon shots.” This does not necessarily have to be a separate R&D budget. It can be something as simple as giving employees time to experiment. Early in my career, for example, the Washington DC transit authority gave me time to explore dynamic publishing and integrating the customer website with the back office timetable system so customers could access accurate train and bus times.
Other aspects to look at in the financial model are how compensation, particularly bonuses are awarded. If bonuses are tied exclusively to revenue targets, for example, then there is an incentive to not support the non-revenue generating innovation activity or put time into creating resilience in the business. Another area that can hinder or encourage adaptive behaviours is the narrative around the P&L. If the senior team are focused solely on returning profits to investors, it is difficult to justify “expenses” that do not directly lead to profit. Even if the business knows that things need to change, the cost of, say, diversifying the supply chain, prevents the project from ever getting approved.
A resilient environment
As hinted above, one of the other key characteristics of an adaptive company is having a resilient internal environment. While there is whole literature around resilience, for the purposes of this article, resilience is how much “flex” the business has.A reflection review in this area would focus on identifying:
- where there are single points of failure in key business processes
- what level of disaster preparedness the company has
- how effective are the communication channels across the business and between the business and its customers, suppliers and stakeholders
This can be done through analysis of case studies or through playing out scenarios: “What if…?” exercises. The company’s response to the Covid-19 pandemic could be a valuable lesson in this regard, given how fresh it is in people’s minds. For example, one design firm I spoke with mentioned how they lost weeks trying get their files off on-premise file servers onto the cloud, purchasing, configuring and distributing laptops to staff so they could work on their projects. Another company I know about discovered that a key part of their fulfilment process was done on a spreadsheet on one person’s computer. That person was one of the first people to get ill so she could not even tell anyone what she did.
Studying the response to the pandemic can only show, in part, how resilient the company is. Resilience is not just about the particular situation with a global lockdown. As a result, playing out some scenarios is useful. For example, what happens to the business in a world that is increasingly polarised and the idea of mass markets no longer exists because marketing to one segment would naturally offend another one?
Speed of decisions
The final characteristic the reflection review looks at is how fast and decisively does the company make decisions. The ability to make decisions in an agile way without increasing risk unnecessarily is key to being able to adapt to constantly changing circumstances. If deciding to do anything is so burdensome that “people would rather poke themselves repeatedly with a fork then try to get approval for a new project” (an actual quote from a business I worked with), then there is something that needs looking at. It may be that the process is too focused on risk management so it is slow and bureaucratic. It may be that there is no clear strategy that gives a framework for making decisions. Fear may also discourage people from saying either “yes” or “no”, so nothing happens.
On the other hand, if decision making is quick and transparent, with no punishment for “failure”, then businesses can experiment, respond to new situations and take calculated risks. For example, the CIO of one client I worked with was very clear about the direction he wanted the team to go and was willing to back projects that had a clear link to improving agility in the team, had a fixed cost and the initial proof of concept could be completed in 4 weeks. If the results were good, the next sprint could start immediately. If it didn’t work and there was no clear path to fixing it, the project ended.
Reflection review
One of the findings that may emerge from the review is that there are some structural issues, particularly around culture and the tolerance for risk that will not easily be solved in a series of two week sprints or even in 100-day plans. It may be the case that the leadership team has to accept that this is the way the company is for the moment, work at changing it as quickly as possible, while focusing on other projects that can produce results more quickly.
Another, happy, discovery from this exercise can be that the company is already fairly agile. They had just never focused on that aspect so the culture of innovation, a resilient environment and fast decision making were never highlighted as key advantages.
The reflection review is, at the end, a snapshot of the business taken with a very specific lens: how prepared is the company to respond quickly, effectively and repeatedly to changes and disruptions in its environment. It, along with the listening exercise, provide the project catalog to prioritise and deliver in the harmonise phase.
