ADAPT OR DIE
by John S. McCallum
Strategy |
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Dinosaurs are an apt and widely used metaphor today. After all, if a firm can’t or won’t adapt, it’s straight to the dustbin of business oblivion. A business enterprise is not totally dissimilar from a dinosaur, ignore rapidly changing circumstances, and a leader authors his or her company’s demise. Adapt to rapid changes better than your competitors and you’ll make great strides. Outlining suggestions that will help managers adapt to today’s volatile, fast-paced environment, the author quotes no less a change authority than Charles Darwin to illustrate what the real imperative is for a business leader today. “It is not the strongest species that survive, nor the most intelligent, but the ones most responsive to change.”

Enterprises that do not adapt are in for a lot of trouble. The problem is change: The more rapid the pace of change, the more dire the consequences of stubbornly sticking to old ways.

Today’s pace of change in business conditions may or may not be unprecedented, but it is surely spectacular. Executives should expect that it will accelerate from here. But like most things in business, rapid change is a two-edged sword—a threat but also an opportunity. Adapt to rapid change better than competitors and you can make great strides; ignore rapidly changing circumstances and expect to go the way of the dinosaur. Adapting may be difficult, but it is not impossible.

The dinosaur metaphor is apt. Sixty million years ago, dinosaurs suddenly disappeared after more than 100 million years on the planet. Paleontologists hotly debate the cause of the dinosaur’s extinction, but high on the list of hypotheses is their failure to adapt to rapidly changing climatic—particularly temperature—conditions.

If a failure to adapt was the dinosaur’s Achilles heel, then the dinosaur is not alone in the history of evolution. In his landmark 1859 book, The Origin of Species, Charles Darwin showed that those species that adapt best to their changing environment have the best chance of surviving, while those who do not adapt do not make it. Since heredity makes children resemble parents, in time, a surviving species will have the characteristics of its most adaptable members. To quote Darwin: “It is not the strongest species that survive, nor the most intelligent, but the ones most responsive to change.” If executives ever wondered if there was a quote worth framing, this is it.

Substitute a business enterprise for the species and you have powerful advice for executives facing changing business conditions. The Origin of Species revolutionized not only biology, but in time, how we think about every form of organization and change. Religion, for example, would never be the same again. The Origin of Species is justly regarded as the epitome of influential scholarly achievement of the last 200 years. Executives should turn its pages. Darwin, like so many of the great thinkers, has much to tell those responsible for running business enterprises. (Darwin’s story is inspirational for would-be executives off to a slow start. As a young man, Darwin’s father deemed him doomed to a life of disgrace to himself and his family. That we should all be such a disgrace!)

The business/biology reference is useful, as there are many similarities. A business enterprise and a living organism both house complex systems whose myriad parts must work together for the good of the whole. Both can be brought down by the failure of a single part; both are critically dependent on the timely communication of accurate information between the parts; both are vulnerable to stress, overwork, aging, neglect and disease; both must defend against an often hostile and capricious environment; both perform well only when they get the proper inputs, and both evolve over time. Finally, for both, failure to adapt can be lethal.

Change puts a premium on adapting; the faster the pace of change, the greater the premium. Take away change and there is no need to adapt; if it worked yesterday, there is every reason to believe it will work today. Alas, that is not remotely what executives are now facing. Today’s business conditions give new meaning to the words of the Greek philosopher Heraclitus: “All is flux, nothing stays still—there is nothing permanent except change.”

Driving the pace of change in business conditions is a revolution in technology that leaves no aspect of an enterprise—from the workplace to marketing—unaffected. We are living in our very own industrial revolution that is every bit a match for what Great Britain went through in the late 18th century. Innovation then gave rise to steam engines, power looms, spinning jennies, flying shuttles, canals, the factory system, mass production, paper money, stock and bond markets, and the corporation as the modern business organization. Today, innovation drives developments in microelectronics, optical fibre, the Internet, wireless communication, genetic engineering, space-age materials, lasers, electronic money and payments, empowerment, just-in-time inventory systems and joint venturing. The way in which business is done is turning upside down overnight; wise executives will run their enterprises as if the real excitement is still to come. Stay put too long and watch your enterprise become a horse and buggy, slide rule, vinyl record or mechanical watch. Each in its day dominated; each was abruptly done in by technology.

Technologies that change businesses are a big part of the great change locomotive hurtling towards every enterprise, but they are not the end of it. So rapidly is the economy itself changing that it has acquired a moniker: the New Economy. In the New Economy, everything changes faster: demand, supply, product prices, employment, production, investment, inventories, interest rates and exchange rates. In one quarter the economy is booming; the next quarter it is on the brink of recession and requiring massive Federal Reserve interest rate cuts. Sound familiar! The frequency with which economists adjust their forecasts attests to just how fast things are changing and how difficult it is to be right.

Finance, trade, politics and society complete the change whirlwind. A blizzard of new securities and portfolio strategies have combined with 24-hour-a day, worldwide trading and instantaneous information to make financial markets more efficient and much quicker to adjust, but also more volatile and more focused on the short term. Global trade growth is breathtaking, trade rules are steadily easing, countries are opening up in exchange for reciprocal access, international alliances abound, transportation costs are coming down, and everyone in a global industry is everyone else’s competitor. In politics, anything is possible: Free market/private ownership principles are increasingly popular; the Soviet Union no longer exists; 11 European countries that have often been on opposite sides in major wars now use the same money, and the European Union is poised to push east for new members. Societal change leaves nothing sacred; Customs, rules, standards and habits—from wearing a tie at work to the traditional marriage—are being broken.

Change and adapting to it should clearly be on every executive’s front burner. There is no litmus test for adaptability problems, but there are certainly signs that an enterprise is having trouble responding to its changing environment. A “Yes” answer to a number of the following questions suggests adapting to change should be more prominent on an enterprise’s agenda: Is the enterprise a follower rather than a leader? Is the enterprise continually surprised by events and developments that materially affect its capacity to compete and perform? Relative to competitors, is the enterprise usually late to embrace helpful new technologies, procedures and systems? Do the enterprise’s products usually lag the competition and the market? Is the enterprise’s market share in decline? Are competitors faster to exploit changing business conditions? Does the enterprise lack distinctive competencies, areas of excellence and market niches? Is the enterprise’s image tired and dated? Is adapting to change something that is rarely talked about? Do executives give the ability to adapt short shrift? Does the enterprise have trouble hiring and/or keeping strong, well-trained, highly motivated executives? Do office politics and processes take precedence over performance in promotion and other personnel decisions? Does the enterprise feel that everything is just fine, thank you very much?

Effectively adapting to rapid change must be a relentless, day-to-day activity. Searching for the magic bullet that will make all well immediately is a distracting waste of resources. Adapting is a game of singles, not home runs. Executives should move on a number of fronts.

1. FORCE THE PACE OF ADAPTING

Firms must be proactive in adapting; it will not happen if executives do not make it happen. Snoozing your way to complacency is not a recipe for a competitive, high-performance enterprise. Adapting involves change, and most people resist change as if it were a plague. Put adapting at the top of the agenda. Harp on it. The need to adapt is one message that can and should become a broken record.

2. RESIST DENIAL

Denial is a psychological state where the afflicted refuse to accept a harsh reality. The belief that all will be well in the enterprise if you just give it time is a sure sign of denial. Another sure sign is the belief that business conditions have not changed, or at least have not changed enough to matter. Denial is recognized as a necessary stage in grieving the loss of a loved one. It has no place in the running of an enterprise.

3. UNDERSTAND BUSINESS CONDITIONS

Only luck will save those whose efforts to adapt are based on a misread of the business environment. Adapting to conditions that do not exist is not much different than sticking to the status quo in the face of obvious change. Adapting effectively always begins with a sound reading of where business conditions are headed. Time that executives spend understanding trends in demographics, technology, economics, finance, trade, politics and society is time well spent. Since not all enterprises are affected by the same business conditions in the same way, it is also important to know just what business conditions matter most to your enterprise. Future business conditions are never certain, but study and good advice can increase the odds of getting the future right.

4. MANAGE FINANCES PRUDENTLY

Adapting effectively to rapid change takes serious money. Enterprises with weak balance sheets and/or a bad profile in the investment community will find money both expensive and difficult to get. Adapting is unlikely to work if it is built on a foundation of excessive debt and poorly matched assets and liabilities with respect to maturities and currencies. Those who consider adapting effectively costly should consider the cost of adapting poorly.

5. BENCHMARK RELENTLESSLY

If your enterprise is losing ground in product, quality, service, image, customer satisfaction, unit cost and profitability comparisons with competitors, it may mean that they are adapting better. Benchmarking can be hard on the ego, but it is one of the best and earliest indicators of trouble in adapting.

6. WATCH FOR AND DEAL WITH EXECUTIVE BURNOUT

The best antidote for rapid change is competence, focus and energy in the executive suite; the tired, cynical and stubborn can do huge damage fast. Dealing fairly with spent executives is expensive, but those costs pale beside the costs of letting burned-out executives pilot the ship through rapid change. Executives approaching the 10-year period in the same job especially should be monitored. Signs that an executive may not be far from the end include defensiveness, irritability, bitterness, inflexibility, listlessness, boredom, procrastination and fatigue.

7. RESTRUCTURE TO ADAPT

Alfred P. Sloan, the legendary architect of General Motors, argued that strategy followed structure. Sound strategy, and by extension sound execution and performance, is unlikely to flow from a badly designed organization. The faster the pace of change, the more important it is to continually monitor and upgrade structure. In times of rapid change, be especially sensitive to structures that stifle initiative and innovation, frustrate communication and reward process over performance and output. Enterprises ignore structure at their peril; the trouble is, structure is easy to ignore because a poor structure is not as obvious in an immediate crisis.

8. MANAGE THE ENTERPRISE’S RISK AGENDA

The faster the pace of change, the more important it is to manage risk. Change increases risk, often exponentially. Managing risk begins with understanding the exposures. You cannot mitigate risks that you do not understand.

9. ETHICS AND GOVERNANCE ALWAYS MATTER

Rapid change exposes dubious ethics and poor governance. Rapid change creates urgency and pressure; enterprises that are not properly grounded struggle accordingly.

10. DO NOT MINIMIZE THE IMPORTANCE OF A SMALL STEP

There is an adage in baseball that says that when rebuilding or reorganizing, a step in the right direction is far more important than one big step. The adage applies equally to business during periods of rapid change. It does not take many small steps to leave an enterprise substantially better adapted if the steps are all in the right direction. Over time, a small step in the wrong direction will be magnified many times.

11. LOOK FOR OPPORTUNITY

For the organization that is well managed, well financed, responsive and nimble, rapid change is just what the doctor ordered. Opportunities abound. The status quo makes it tough for the new or the small to take on the established. Rapid change puts everything up for grabs.

When the business history of this era is written many decades hence, there is a good chance that adaptability will be the characteristic that ultimately most distinguishes successful from unsuccessful enterprises. Enterprises should assess their capacity to adapt; where it is wanting, they should take immediate and aggressive action. A leisurely approach to change will not work in this business environment. The edge lies with those who see change more as an opportunity and challenge than a threat. When the psychologist Carl Gustaf Jung talked about the “thousands of years of struggle for adaptation and existence,” he was talking about humanity. However, he could have been talking about business. If you do not adapt, you will cease to exist. The only question is when. It is that simple!

The last word on this important subject goes to the great poet, Robert Service:

This is the law of the Yukon;

That only the strong shall thrive;

That surely the weak shall perish;

And only the fit survive.

(The Law of the Yukon)

The Author:

John S. McCallum

John S. McCallum is Professor of Finance at the I. H. Asper School of Business, University of Manitoba. He is a regular contributor to the Ivey Business Journal.



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