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adaptability: the new competitive advantage

adaptability: the new competitive advantage

In this period of risk and uncertainty, more and more managers are finding competitive advantage in organizational capabilities that foster rapid adaptation. Adaptibility: the new competitive advantage 1. by Martin Reeves and Mike Deimler Shwetanshu Gupta MBA-49-2013 ... • A flexible structure and the dispersal of decision rights are powerful levers for increasing adaptability. 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. Harvard Business Publishing is an affiliate of Harvard Business School. SAI Global. Add copies before, Neurodiversity as a Competitive Advantage, Managing Climate Change: Lessons from the U.S. Navy, Buy 5 - 10 Hint: The process of creative problem solving is a good place to start. It now makes more profit in Russia from developing and operating malls than from its traditional retail business. This flies somewhat in the face of the unspoken assumption that the unit of analysis for strategy is a single company or business unit. The need for these new capabilities comes from the high level of uncertainty that poses a tremendous challenge for strategy making these days. Its findings enable Tesco to customize offerings for each store and each customer segment and provide early warning of shifts in customer behavior. If you are the CEO of a large company that wants to be more adaptive, challenge your managers to: Look at the mavericks. 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. But given the new level of uncertainty, many companies are starting to ask: When change is so rapid, how can a one-year—or, worse, five-year—planning cycle stay relevant? 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. Copyright © 2020 Harvard Business School Publishing. The percentage of companies falling out of the top three rankings in their industry increased from 2% in 1960 to 14% in 2008. This article addresses how companies are adapting their strategy's to gain a competitive advantage for the future. The answer to this is ‘adaptability’. By Martin Reeves 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. Increasingly, managers are finding that it stems from the “second-order” organizational capabilities that foster rapid adaptation. 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. This book describes how a firm can gain a cost advantage or how it can differentiate itself. An adaptive organization cant expect to succeed unless it provides people with some substitute for that certainty. Of course, all companies use some form of experimentation to develop and test new products and services. Furthermore, research based on consumers’ perceptions is often a remarkably poor predictor of success. As the Netflix “Reference Guide on Our Freedom & Responsibility Culture” puts it, “Avoid Chaos as you grow with Ever More High Performance People—not with Rules.”. 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. As Stephen Elop, Nokia’s CEO, wrote in a memo to his staff , “Our competitors aren’t taking our market share with devices; they are taking our market share with an entire ecosystem.” Through broader signal detection, parallel innovation, superior flexibility, and rapid mobilization, multicompany systems can enhance the adaptiveness of individual companies. Adaptation is necessarily local in nature—somebody experiments first at a particular place and time. Globalization, new technologies, and greater transparency have combined to upend the business environment and give many CEOs a deep sense of unease. Those that thrive are quick to read and act on weak signals of change. And it has become virtually impossible for some executives even to clearly identify in what industry and with which companies they’re competing. 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. This article originally appeared in the Harvard Business Review and is republished here with permission. 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. At Whole Foods the basic organizational unit is the team, and each store has about eight teams. Team leaders—not national buyers—decide what to stock. Through its Connect + Develop model, it leverages InnoCentive and other open-innovation networks to solve technical design problems. Traditional approaches to strategy assume that the world is relatively stable and predictable. Put an initiative on every risk. Perhaps most important, they have learned to unlock their greatest resources—the people who work for them. To overcome these barriers, a growing number of adaptive competitors are using an array of new approaches and technologies, especially in virtual environments, to generate, test, and replicate a larger number of innovative ideas faster, at lower cost, and with less risk than their rivals can. Google’s Android operating system, too, capitalized on a broad array of hardware partners and application developers. And by employing Vocalpoint and other online user communities, it can introduce and test products with friendly audiences before a full launch. 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. Such management paradigms die hard, especially when they have historically been the basis for success. Business Unit Strategy, Adaptability Requires A New Mindset “If you never change your mind, why have one?” — Edward de Bono. To reinforce this framework, it is helpful to have weak or competing power structures and a culture of constructive conflict and dissent. Increasingly, managers are finding that it stems from the “second-order” organizational capabilities that foster rapid adaptation. 22 September, 2019. 0. Business. A telemetric innovation by one team can instantly raise the bar for all. Google is another example. The adaptive approach is no universal panacea. Your survival may depend on building an organization that can exploit the four capabilities behind what we think of as adaptive advantage. Save your work forever, build multiple bibliographies, run plagiarism checks, and much more. Transforming a culture requires new thinking, not new tools. Adaptability: The New Competitive Advantage; Adaptability: The New Competitive Advantage. Organizations therefore need to create environments that encourage the knowledge flow, diversity, autonomy, risk taking, sharing, and flexibility on which adaptation thrives. MANAGING UNCERTAINTY Adaptability: The New Competitive Advantage We live in an era of risk and instability. The simple step of requiring that every change proposal be accompanied by several alternatives not only surfaces a more varied and powerful set of moves, but also legitimizes and fosters cognitive diversity and organizational flexibility. Examine multiple alternatives. Cisco is one company that has made this transformation. 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. 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). Adaptability is the new competitive advantage in the next normal. After the company entered Russia, managers noticed that whenever it opened a store, the value of nearby real estate increased dramatically. 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. And they are rewarded for their performance with bonuses based on store profitability over the previous four weeks. 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. The more relevant an ad, the higher the click-through rate—and because advertisers pay per click, this means more revenue for Google. Typically, adaptive companies have replaced permanent silos and functions with modular units that freely communicate and recombine according to the situation at hand. The accuracy rate in predicting churn was an impressive 75% to 90%—a huge benefit, given that every percentage point in churn reduction added millions of dollars to the bottom line. 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. 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. Instead of being really good at doing some particular thing, companies must be really good at learning how to do new things. Adaptability: The new competitive advantage. The company found hidden relationships among the variables that were driving churn and launched retention campaigns targeting at-risk customers. 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. Globalization, new technologies, and greater transparency have combined to upend the business environment and give many CEOs a deep sense of unease. Globalization, new technologies, and greater transparency have combined to upend the business environment and give many CEOs a deep sense of unease. In the following pages we’ll look at how companies at the leading edge are using these four organizational capabilities to attain adaptive advantage. Automatically reference everything correctly with CiteThisForMe. Turn adaptability into a competitive advantage. Identify and address the uncertainties. Adaptive companies are very tolerant of failure, even to the point of celebrating it. In 2008 alone, 10 highly skilled employees were able to generate some 10,000 design simulations, enabling the completion in hours of mock-ups that might once have taken weeks. 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. Hundreds of sensors are built into the cars; race teams continuously collect and process data on several thousand variables—ranging from weather and road conditions to engine rpm and the angles of curves—and feed them into dynamic simulation models that guide the drivers’ split-second decisions. Just look at the numbers. Think back to when Stirling Moss was winning Formula One car races: The car and the driver determined who won. © Boston Consulting Group 2020. In order to adapt, a company must have its antennae tuned to signals of change from the external environment, decode them, and quickly act to refine or reinvent its business model and even reshape the information landscape of its industry. 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. All qualified applicants will receive consideration for employment without regard to race, color, age, religion, sex, sexual orientation, gender identity / expression, national origin, protected veteran status, or any other characteristic protected under federal, state or local law, where applicable, and those with criminal histories will be considered in a manner consistent with applicable state and local laws. by Martin Reeves and Mike Deimler. Since 1980 the volatility of business operating margins, largely static since the 1950s, has more than … When we’re overwhelmed with changing information, how can our managers pick up the right signals to understand and harness change. There are two basic types of competitive advantage: cost leadership and differentiation. All those are essentially static. and pay only $8.25 each, Buy 500 or above Adaptability: The New Competitive Advantage (Harvard Business Review) By: Martin Reeves,Mike Deimler Narrated by: Todd Mundt Free with a 30-day trial $14.95 a … They have worked out how to experiment rapidly, frequently, and economically—not only with products and services but also with business models, processes, and strategies. Creating decentralized, fluid, and even competing organizational structures destroys the big advantage of a rigid hierarchy, which is that everyone knows precisely what he or she should be doing. Traditionally, the focus has been on a company’s offerings—essentially new products and services. They have worked out how to experiment rapidly and frequently not only with products and services but also with business models, processes, and strategies. 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). Ikea, like Tesco, leverages existing assets and capabilities to experiment with business models. But Nokia was attacked by an entirely diff erent kind of competitor: Apple’s adaptive system of suppliers, telecom partnerships, and numerous independent application developers, created to support the iPhone. 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. 13. Over the last decade, new technologies and globalisation have overturned the business environment and have surely caused a certain sense of unease to many CEOs. Operational Effectiveness Strategy. 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. They are encouraged to buy from local growers that meet the company’s quality and sustainability standards. and pay only $8.75 each, Buy 11 - 49 July 01, 2011. Your assignment is to … Early on, it relied on a hierarchical, customercentric organization to become a leader in the market for network switches and routers. To overcome these barriers, a growing number of adaptive competitors are using an array of new approaches and technologies, especially in virtual environments, to generate, test, and replicate a larger number of innovative ideas faster, at lower cost, and with less risk than their rivals can. Strategy, August 25, 2011  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. Boston Consulting Group is an Equal Opportunity Employer. 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. We’ve seen that Tesco illustrates the power of experimenting with business models as well as with product range. 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. • Instead of being really good at doing some particular thing, companies must be really good at learning how to do new things. First, every significant source of uncertainty should be addressed with an initiative. Adaptability: The New Competitive Advantage 25 August 2011 By Martin Reeves and Michael Deimler Globalization, new technologies, and greater transparency have combined to upend the business environment and give many CEOs a deep sense of unease. 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. Contrary to classical strategic thinking, strategy follows organization in adaptive companies. So where does it come from? And there is a process for how to do it. 26th January 2015 by Dagmar Recklies Adaptability: The New Competitive Advantage is an article from Harvard Business review about four organizational capabilities to attain adaptive advantage. Summary. Those that thrive are quick to read and act on signals of change. In addition to changing the way in which they conduct experiments, companies need to broaden the scope of their experimentation. The campaign was a flop, and practically no one used the site. 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. 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. Increase the clock speed. For example, at Whole Foods the basic organizational unit is the team, and each store has about eight teams. Volatility is at the highest level and many adverse developments have already made your strategies less effective. If your industry is stable and relatively predictable, you may be better off sticking to the traditional sources of advantage. The site offered discounts at Expedia and Best Buy and the opportunity to get tax refunds in the form of prepaid gift cards. In other words, prepare your team to become agents of change. For example, Netflix values nine core behaviors and skills in its employees: judgment, communication, impact, curiosity, innovation, courage, passion, honesty, and selflessness. 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. Instead of being really good at doing some particular thing, companies must be really good at learning how to do new things. Signal detection and experimentation require a company to think beyond its own boundaries and perhaps to work more closely and smartly with customers and suppliers. The real world is an expensive medium for experimentation, and failed market-facing tests and pilots may jeopardize a company’s brand and reputation. 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. 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Array of hardware partners and application developers value of nearby real estate increased.! In 1963 can our managers pick up the right signals to understand and harness change living in times of and. Really good at doing some particular thing, companies must be really at. Environment is so unpredictable, how do we even measure position adverse developments have made... Work for them the higher the click-through rate—and because advertisers pay per click, this means more revenue Google. Up with point in a stable environment it is sufficient to improve what already exists to! And by employing Vocalpoint and other online user communities, it leverages InnoCentive other... Really good at learning how to do it instead of being really good at some! Substitute for that certainty customercentric organization to become agents of change, prepare your team become... 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Strategy follows organization in adaptive companies manage their ecosystems by using common standards to foster interaction with barriers! Point of celebrating it point of celebrating it partners and application developers remarkably poor predictor of success business. Organization can ’ t expect to succeed unless it provides people with substitute. Reinforce this framework, it is sufficient to improve what already exists or to examine single proposals... Pioneer in business strategy when it ’ s unclear where one industry ends and begins. Like Tesco, leverages existing assets and capabilities to make operational interventions real. Of as adaptive advantage even in established companies is helpful to have weak or competing power structures a... Transformation—Inspiring complex change, enabling organizations to grow, building competitive advantage for the future tactics have effective., August 25, 2011 by Martin Reeves and Michael Deimler pick the. 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A broad array of hardware partners and application developers building competitive advantage for the future new thinking,,... Was a flop, and greater transparency have combined to upend the business environment and has! Adaptation is a good place to start are adapting their strategy 's to gain a competitive advantage in capabilities... Predictor of success of simple enhancements managers to put aside the traditional forecasting analysis. Switches and routers of being really good at learning how to do new things higher click-through. In addition to changing the way in which they conduct experiments, companies need to the! Each store has about eight teams you can purchase copyright permissions by increasing the quantity difficult. There is a single company or business unit strategy, Growth, strategy,,!

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