BCG Henderson Institute

The Elusive Quest for Adaptability

What is so hard about adaptation? We suggest that 10 false beliefs can get in the way of mental, behavioral and structural changes necessary for adaptation.

Business leaders have often espoused adaptability — the ability to change in concert with changing circumstances. With technology continuing to drive business model disruption, with political and economic uncertainty at elevated levels even before the COVID-19 crisis, and with outperformance regressing to the mean faster, what could be more timely?

And we know a lot about how to adapt. From planned experimentation, through digital A-B testing, mind stretching scenarios and zero-based budgeting, to always-on strategy and new organizational models, many tomes have been written and read on the topic.

Yet companies and institutions seem to have a hard time walking the talk. The late Clay Christensen’s work reminds us that many fail to heed the imperative to self disrupt before being disrupted, in spite of evidence that clearly shows preemption is the best option. And for all the fascination with alternative ways of organizing to better match the current business environment, nearly all companies still organize based on Max Weber’s original principles of bureaucracy, which are predicated on stability rather than change.

What is so hard about adaptation? We suggest that 10 false beliefs can get in the way of mental, behavioral and structural changes necessary for adaptation.

Myths of what adaptation is:

  1. “Adaptation is optimization.” Adaptation is evolution. In a very loose sense, organisms adapt by continuously optimizing for their changing environment by creating new variants, seeing what works and amplifying successes. Business optimization is mostly pursued in the exact opposite fashion, however. Companies reduce costs and increase profitability by reducing variance, which is the lifeblood of evolutionary learning. 100% efficiency means no variance, which means no learning new things. Optimizing is not adapting.
  2. “Adaptation is merely a slogan.” Management ideas turn over often, and companies incorporate them into their vocabularies very rapidly. Recently we have seen an explosion in the use of words like “adaptation,” “agile,” “lean,” and “ecosystem.” There is a tendency for such new ideas to be used in a broad but shallow manner, such that everything seems to be an example of the idea in question, but strict definition becomes elusive. Then the value of the idea is lost. This is also true of adaptation. The tragedy is that adaptation is not only a fashionable piece of jargon, but also the precise idea that evolutionary change needs to be embraced by business organizations.
  3. “Adaptation is not businesslike.” The large organizations with which we are familiar were born in more stable times, which permitted and required planning, strict roles and disciplined implementation. As a result, many large organizations have acquired a culture where clear intentions, constancy of plans, consistency of practice and discipline in execution have become prized virtues. Measured against this, inconsistency, change, trial and error, and serendipity can seem to be somehow unsubstantial and less worthy. Such implicit biases undermine the messy but effective process of adaptation.

Myths of what it requires:

  1. “Failure is bad.” We have all heard that fast, repeated failure is the route to effective learning. But organizations often directly and indirectly reward behavioral models that imply the exact opposite. It’s not that failure is good in itself, but that adaptation involves trying new things, some of which don’t work out. Failure is therefore a necessary byproduct of adaptation. A few years ago in a conversion with former Chairman of the Joint Chiefs of Staff, General Martin Dempsey, he reflected that at the time one of his biggest challenges was that the upper ranks of the military were populated with people who had never failed, whereas combatting problems like the rapid evolution of improvised explosive devices, required tremendous adaptability and therefore experience of failure.
  2. “We can’t just throw spaghetti at the wall.” Actually, we can — and to some extent we must — if we want our organizations to adapt. More precisely, we need to act in unplanned ways and embrace the serendipity of things working unexpectedly well in order to adapt effectively. That is, we need to create variance and embrace emergent strategies. Of course, we don’t have to throw all of the spaghetti at all of the walls — experimentation is likely to be more valuable in fast evolving, emerging businesses. Also, experiments should be granular enough to not risk the whole business with any one trial and can be guided by hypotheses.
  3. “Business needs to be grounded in the here and now.” Certainly, adaptation to changing circumstances should be guided by experimentation and observation. But larger leaps have to first be imagined. The mind has a key role to play in innovation. Indeed, one of our unique human attitudes, which is beyond the reach of current AI, is the ability to think counterfactually. Machine learning, for all its transformative potential, does not replace this need for creativity. We can test hypotheses more efficiently, but the hypotheses must come from somewhere. Imagining possibilities increases our sensitivity to accidents and anomalies that lead in the desired direction. We should remember that stressing “practicality” is as arbitrary as stressing “imagination” — and both are required to sustain a business.
  4. “Without alignment, there would be chaos.” Adaptation alternates between divergence (creating variation) and convergence (selection and amplification). Embracing variance is perfectly consistent with selection and alignment around a continuous stream of better, new approaches. Maximal alignment around yesterday’s successful ideas is not an effective path to learning new ways of doing things.

Myths of what roles are played:

  1. “Executives plan and decide.” In stable times, executives review market analyses, review past competitive positioning and performance and create enduring plans. In today’s digital environment, however, competitors and disruptors are constantly testing new moves. Hierarchies cannot match the clock speed of digital innovation. Counterintuitive as it sounds, action must now sometimes precede analysis.
  2. “Managers and workers execute.” Again in stable times, the plan is created on high in the executive team or strategy function (albeit with inputs from the front line) and the job of the rest of the organization is to execute it in a disciplined fashion. Adaptation, in contrast, comes from the front line trying different approaches in different situations, learning what works and sharing their knowledge, which is then embraced by the rest of the organization through codification and amplification. This requires the empowerment to try new things and a culture of “act first, apologize later.”
  3. “Adaptation is something that organizations do.” Adaptation requires a population of ideas and practices, from which the fittest ones can be selected. An organization adapting to a changing environment is the result of experimentation at the level of the individual. Adaptation is not therefore primarily a cultural attribute or a policy, but rather the individual will and freedom to try new things.

Organizations need to overcome these tendencies and false beliefs in order to achieve adaptation. They must embrace trial and error, which necessarily means some initiatives will fail. Executives must establish the organizational context, not issue the instruction set. The front line must be empowered, individually. There must be a bias to action. The substance of adaptation must be understood an embraced. We must overcome our obsession with efficiency and overly cautious “practicality”. Imagination should be embraced. And we must reconcile the apparent contradiction between divergence and convergence.

None of these imperatives are new. What needs to change to unlock adaptation are the false beliefs underpinning them.

Sources & Notes