Whats needed is some simple, generative rules to facilitate interaction, help people make trade-offs, and set the boundaries within which they can make decisions. Add copies before, Neurodiversity as a Competitive Advantage, Managing Climate Change: Lessons from the U.S. Navy, Buy 5 - 10 In this period of risk and uncertainty, more and more managers are finding competitive advantage in organizational capabilities that foster rapid adaptation. Typically, adaptive companies manage their ecosystems by using common standards to foster interaction with minimal barriers. The answers these companies are coming up with point in a consistent direction. But in an increasingly turbulent environment, business models, strategies, and routines can also become obsolete quickly and unpredictably. In the following pages we’ll look at how companies at the leading edge are using these four organizational capabilities to attain adaptive advantage. For example, Netflix values nine core behaviors and skills in its employees: judgment, communication, impact, curiosity, innovation, courage, passion, honesty, and selflessness. They generate trust among participants—for example, by enabling people to interact frequently and by providing transparency and rating systems that serve as “reputational currency.” Toyota’s automotive supply pyramids, with their kanban and kaizen feedback mechanisms, are early examples of adaptive systems. Google’s Android operating system, too, capitalized on a broad array of hardware partners and application developers. 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. Adaptive companies therefore use experimentation far more broadly than their rivals do. That’s because traditional approaches to strategy—though often seen as the answer to change and uncertainty—actually assume a relatively stable and predictable world. And they must apply advanced data-mining technologies to recognize relevant patterns in 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. Instead of being really good at doing some particular thing, companies must be really good at learning how to do new things. This article addresses how companies are adapting their strategy's to gain a competitive advantage for the future. We’ve seen that Tesco illustrates the power of experimenting with business models as well as with product range. EBay’s complex network of sellers and buyers is another; the company relies on seller ratings and online payment systems to support the online marketplace. All this uncertainty poses a tremendous challenge for strategy making. In other words, prepare your team to become agents of change. MANAGING UNCERTAINTY Adaptability: The New Competitive Advantage We live in an era of risk and instability. Therefore, the people most likely to thrive and help a startup succeed are … Transforming a culture requires new thinking, not new tools. One of the better summaries on how companies need to be adaptable is the Harvard Business Review article by Martin Reeves and Mike Deimler called “Adaptability: The New Competitive Advantage“. 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. 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. July 01, 2011. Procter & Gamble is a case in point. They have built up skills in managing complex multi-stakeholder systems in an increasingly interconnected world. Contrary to classical strategic thinking, strategy follows organization in adaptive companies. They should also look at what’s happening in adjacent or analogous industries and markets and ask, “What if this happened in mine?” Although pattern recognition is harder in an uncertain environment and can easily be obstructed by entrenched beliefs and narrow industry definitions, it has tremendous competitive value. What’s needed is some simple, generative rules to facilitate interaction, help people make trade-offs, and set the boundaries within which they can make decisions. And there is a process for how to do it. 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. 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. And it has become virtually impossible for some executives even to clearly identify in what industry and with which companies they’re competing. Adaptability: The New Competitive Advantage. Of course, all companies use some form of experimentation to develop and test new products and services. Your assignment is to … For example, the software company Intuit, which has been extremely successful at using adaptive approaches to grow new businesses, launched a marketing campaign in 2005 to reach young tax filers through a website called rockyourrefund.com. Ask your managers to shift their focus from traditional competitors’ moves to what the new players are doing and to think of ways to insure your company against this new competition or neutralize its effect. 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. In this period of risk and uncertainty, more and more managers are finding competitive advantage in organizational capabilities that foster rapid adaptation. 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. and pay only $8.50 each, Buy 50 - 499 Just look at the numbers. Adaptability: The New Competitive Advantage We are living in times of risk and instability. But the marketing team documented what it had learned from the failure and won an award from company chairman Scott Cook, who said, “It is only a failure if we fail to get the learning.”. Those that thrive are quick to read and act on signals of change. by Martin Reeves and Mike Deimler. A telemetric innovation by one team can instantly raise the bar for all. Early on, it relied on a hierarchical, customercentric organization to become a leader in the market for network switches and routers. Put an initiative on every risk. The UK-based grocery retailer Tesco continually performs detailed analyses of the purchase patterns of the more than 13 million members of its loyalty-card program. Finally, experimentation necessarily produces failure. Your survival may depend on building an organization that can exploit the four capabilities behind what we think of as adaptive advantage. 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. It describes how the choice of competitive scope, or the range of a firm's activities, can play a powerful role in determining competitive advantage. This isn’t news: The Harvard Business Review announced that adaptability is the new competitive advantage back in 2011, and this has only become more true in the years since. Boston Consulting Group partners with leaders in business and society to tackle their most important challenges and capture their greatest opportunities. The campaign was a flop, and practically no one used the site. and pay only $8.00 each. It uses algorithms to update the position of an ad on the basis of the ad’s relevance to an individual search or website as well as the advertiser’s bids on key words. The company’s executives believe that a great workplace is full of “stunning colleagues” who embody these qualities; thus the Netflix model is to “increase employee freedom as we grow, rather than limit it, to continue to attract and nourish innovative people, so we have a better chance of long-term continued success.” Consistent with this philosophy, Netflix has only two types of rules: those designed to prevent irrevocable disaster and those designed to prevent moral, ethical, and legal issues. So where does it come from? When the environment is so unpredictable, how can we apply the traditional forecasting and analysis that are at the heart of strategic planning? Just look at the numbers. And they are rewarded for their performance with bonuses based on store profitability over the previous four weeks. Such management paradigms die hard, especially when they have historically been the basis for success. In addition to changing the way in which they conduct experiments, companies need to broaden the scope of their experimentation. This week’s Minsight: How might we help leaders integrate adaptability into standard organizational life for sustained competitive advantage? But today the sport is as much about processing complex signals and making adaptive decisions as about mechanics and driving prowess. 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. Perhaps most important, they have learned to unlock their greatest resources—the people who work for them. If your industry is stable and relatively predictable, you may be better off sticking to the traditional sources of advantage. It uses a walk-in, 3-D virtual store to run experiments that are quicker and cheaper than traditional market tests. The Platinum Rule Way back in 2011, Harvard Business Review published an article (paywall) about how adaptability was the "new competitive advantage." To put the icing on the cake, instead of being purely a cost center, the rich databases and analytical capabilities produce a stream of direct revenue: For a fee, Tesco allows other enterprises to access its technologies and insights. Think about it. Copyright © 2020 Harvard Business School Publishing. The amount of money involved was negligible—“almost a rounding error,” says Rick Jensen, the vice president of product management for Intuit’s consumer tax division. Organizations therefore need to create environments that encourage the knowledge flow, diversity, autonomy, risk taking, sharing, and flexibility on which adaptation thrives. Adaptation is necessarily local in nature—somebody experiments first at a particular place and time. 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. Instead of being really good at doing some particular thing, companies must be really good at learning how to do new things. Just look at the numbers. Adaptability: The new competitive advantage. It is also necessarily global in nature, because if the experiment succeeds, it will be communicated, selected, amplified, and refined. and Michael Deimler. However, several tactics have proved effective at fostering adaptive advantage even in established companies. However, there's a misconception about adaptability in that to adapt you must alter who you are at your core, which simply isn't true. After the company entered Russia, managers noticed that whenever it opened a store, the value of nearby real estate increased dramatically. Companies are also leveraging their signal-reading capabilities to make operational interventions in real time, bypassing slow-moving decision hierarchies. 0. Business. Ikea, like Tesco, leverages existing assets and capabilities to experiment with business models. A flexible structure and the dispersal of decision rights are powerful levers for increasing adaptability. By Martin Reeves and pay only $8.75 each, Buy 11 - 49 In a stable environment it is sufficient to improve what already exists or to examine single change proposals. All rights reserved. The answer to this is ‘adaptability’. 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. This is a copyrighted PDF. Save your work forever, build multiple bibliographies, run plagiarism checks, and much more. • Sustainable competitive advantage comes from the “second-order” organizational capabilities that foster rapid adaptation. By linking its advertising data directly to its operations, Google can respond to changing ad conditions on a split-second basis, without the intervention of human decision makers. This chapter emphasizes on the concept of adaptability in the current competitive business environment. Adaptability: The New Competitive Advantage; Adaptability: The New Competitive Advantage. Cisco is one company that has made this transformation. 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. It should become the engine that drives your organization into adaptability—and it can, with a couple of simple enhancements. When M. Reeves and M. Deimler published their paper “Adaptability: The New Competitive Advantage,” in 2011, there was a wave of excitement among the business community. When we’re overwhelmed with changing information, how can our managers pick up the right signals to understand and harness change. • Instead of being really good at doing some particular thing, companies must be really good at learning how to do new things. To reinforce this framework, it is helpful to have weak or competing power structures and a culture of constructive conflict and dissent. Just look at the numbers. In this information-saturated age, when complex, varying signals may be available simultaneously to all players, adaptive companies must similarly rely on sophisticated point-of-sale systems to ensure that they acquire the right information. © Boston Consulting Group 2020. They are encouraged to buy from local growers that meet the company’s quality and sustainability standards. Related Expertise: In such an environment advantage will flow to those companies that can create effective strategies at the network or system level. In a stable environment it is sufficient to impr… BCG was the pioneer in business strategy when it was founded in 1963. All those are essentially static. But globalization, new technologies, and greater transparency have combined to upend the business environment. Boston Consulting Group is an Equal Opportunity Employer. It is discussed in this chapter that to adapt, a company must have its antennae tuned to signals of change from the external environment, decode them, and quickly refine or reinvent its business model and even reshape the industry's information landscape. And by employing Vocalpoint and other online user communities, it can introduce and test products with friendly audiences before a full launch. Below are the available bulk discount rates for each individual item when you purchase a certain amount, Publication Date: Its findings enable Tesco to customize offerings for each store and each customer segment and provide early warning of shifts in customer behavior. Adaptability: the new competitive advantage Karla García Bejarano 24/01/2013 1 de 3 Adaptability: The new competitive advantage Toda la incertidumbre generada por la globalización, nuevas tecnologías, transparencia en los negocios, significa un tremendo reto para elaborar estrategias de negocio. 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. Organizations often forget that adaptability can offer a way out. That which cannot be deduced or forecast can often be discovered through experimentation. Through its Connect + Develop model, it leverages InnoCentive and other open-innovation networks to solve technical design problems. Adaptability is the new competitive advantage in the next normal. The more relevant an ad, the higher the click-through rate—and because advertisers pay per click, this means more revenue for Google. If you'd like to share this PDF, you can purchase copyright permissions by increasing the quantity. This simple extension of the familiar long-range strategy exercise can force people to realize what they don’t yet know and to address it. Instead of being really good at doing some particular thing, companies must be really good at learning how to do new things. Get your managers to put aside the traditional single-business forecast and instead examine the risks and uncertainties that could significantly affect the company. Wells quote, “Adapt or perish, now as ever, is nature’s inexorable imperative,” should be the operating mantra of every company as you start to pivot. Managing Director & Senior Partner, Chairman of the BCG Henderson Institute. Examine multiple alternatives. … But if your competitive reality is uncertain and rapidly changing, as is true in an increasing number of industries, you need a dynamic and sustainable way to stay ahead. Google is another example. Strategy, August 25, 2011 Flash forward eight years, and resilience … Adaptability: The New Competitive Advantage: This article was about how increasingly important it is for companies to be fluid and open in their company structures if they want to be successful in the new business age. They also supported the development of Tesco’s hugely successful online platform, which has extended the company’s business model, enabling Tesco to become a store without walls and to offer a broader range of products and services, including media and financial services. Organization cant expect to succeed unless it provides people with some substitute that. Many adverse developments have already made your strategies less effective routines can also become quickly... The click-through rate—and because advertisers pay per click, this means more revenue for Google dispersal of making. 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