How to Build an Adaptability Advantage
Not long ago, management expert Gary Hamel turned his attention to the ever-difficult concept of adaptability--that razor's edge of decision making and execution upon which organizations modify their business models and strategies.
"Amazon is rather unique in that it has changed its business model in the absence of a performance crisis. Usually, major strategic shifts are driven by a financial meltdown or years of substandard returns," he writes on Management Innovation eXchange's Hackathon website.
"In my view, it shouldn't require a financial crisis, swinging layoffs, a clean sweep of the executive suite, and a crippled share price to realign a company's strategy," he adds. "That's why we need to change the way we change. Change needs to happen a whole lot faster and a whole lot cheaper than it does now."
Few would disagree with Hamel. The question is, How can companies get better at changing quickly, to the point where organizational adaptability becomes an in-house competency?
Hamel drills down on the topic by borrowing military lingo. In his view, the key is for organizations to tighten their OODA loops -- or "the time it takes in a dynamic environment to observe, orient, decide, and act," he writes.
"On the battlefield, the army with the shortest OODA loop usually wins. The same holds true in business. If you can make sense of what's changing more quickly, and redeploy your resources more rapidly, you win."
How can an organization tighten its OODA loop? Let's break it down, step by step.
"The key challenge to effective observation, especially in the era of 'big data,' is knowing which elements of information to monitor and how to apply the right filters to each," writes David K. Williams (@DavidKWilliams) for Forbes.com, citing a presentation from Gartner vice president W. Roy Schulte. "For example, customer renewal rates, length of engagement, return rates, and customer support rates are pieces of information that are critically important to us. We watch what our competitors are doing, as well--but we put a particularly strong focus on the information our customers provide (both directly--in feedback--and indirectly in the size of sales, length of engagement, and the frequency and severity of customer service complaints)."
"Organizations need to actively monitor the environment by calculating key performance indicators, making predictions, preparing real-time business dashboards displays, and issuing alerts to enhance the situation awareness of decision makers," writes Chris Taylor, director of marketing at Tibco Software, for VentureBeat.com. "This takes a combination of software tools and human judgment to put incoming information into context with past experiences and their understanding of how the business works to quickly and better predict what to expect next."
"There's a methodology I've used within companies for making big, hard decisions," says Randy Komisar, a general partner at Kleiner Perkins Caufield & Byers, in McKinsey Quarterly. ". . . It starts with assembling a group that is very diverse. If you look at my partners, you'd see an unruly gang of talented people with very different experiences, very different domain skills, and, consequently, very different opinions.
"Starting with that, the notion is to put together a simple balance sheet where everybody around the table is asked to list points on both sides: 'Tell me what is good about this opportunity; tell me what is bad about it. Do not tell me your judgment yet. I don't want to know.' They start the process without having to justify and thereby freeze their opinions and instead are allowed to give their best insights and consider the ideas of others. Not surprisingly, smart people will uncover many of the same issues. But they may weigh them differently depending on their biases.
"We do not ask for anyone's bottom line until everybody has spoken and the full balance sheet is revealed. I have noticed my own judgment often changes as I see the balance sheet filled out. I might have said, 'We shouldn't do the deal for the following three reasons.' But after creating a balance sheet, I might well look at it and say, 'You know, it's probably worth doing for these two reasons.'"
"The reality is that leaders must, on the spur of the moment, be able to react rapidly and grasp opportunities," says Sir Martin Sorrell, CEO of the advertising group WPP, in McKinsey Quarterly. "Ultimately, therefore, I think that the best process to reduce the risk of bad decisions--whatever series of tests, hurdles, and measuring sticks one applies--should be quick, flexible, and largely informal. It's important to experiment, to be open to intuition, and to listen to flashes of inspiration. This is not to say the process shouldn't be rigorous: run the analyses, suck up all the data, and include some formal processes as well. But don't ask hundreds of people. Carefully sound out the relevant constituencies--clients, suppliers, competitors--and try to find someone you trust who has no agenda about the issue at hand."