CHAPTER 7

The Adaptive Organization

Brower (2020) frames the need to lead change effectively and to embed adaptability into the organization’s DNA:

The adaptive enterprise is defined as one that constantly senses changes in the environment and quickly adapts its strategies, processes, and operational tactics accordingly (Capgemini 2003). In this environment, firms must react to changes in the marketplace in real or near real time. The threats in the business environment have reached unprecedented proportions, particularly given the speed of consumer behavioral change and preferences in the 21st century. As observed by Patel (2015), one of the biggest reasons that 90 percent of startups fail is because of their inability to adapt to changes in the market, speed of growth, and the inability to pivot and recover from market force disruptions. One of the most evident cases of such inability to adapt is captured in the fall of Blockbuster, the video rental chain. A company that at its height had over 9,000 storefronts, most prefer to blame its demise on Netflix and the elimination of late fees. Yet the biggest driver of its failings was its inability to adapt and embrace new technologies, an almost dogmatic reliance on their core product (DVDs) and expansion of its footprint beyond profitability (Murphy 2019). These positions taken by Blockbuster are emblematic of a company that shunned change in favor of the status quo, or rather, their standing business model. Created from the need of the times and demands of customers, what it failed to do is to adapt to customer changes and preferences.

A key to becoming an adaptive enterprise is to reframe the notion of change. Instead of treating change as an unusual organizational response, change is reframed as a natural part of the organization’s fabric. Change is repositioned as an organizational asset, allowing the organization to seamlessly adapt to changing conditions.

Sikora, Beaty, and Forward (2004) argue that change should be repositioned as an active verb instead of a noun. Reeves and Deimler (2011) posit that companies with managers that embed the idea of change in their employees’ minds as natural and commonplace tend to foster rapid adaptation. Rapid experimentation, keeping a hawkish eye on weaknesses of competitors with an eye toward adapting at the slightest missteps have positioned several companies for success in this century. It is important to note that being adaptable flies in the face of how we commonly regard an established business—one that is stable and can churn out profit at a regular, predictable clip. There is a fine line here to consider—stability in internal politics, management, and incremental growth is distinctively different from a company that is adapting to external pressures and factors. A company can be simultaneously profit stable and environmentally adaptable. As Pulakos and Kaiser (2020) noted:

If an organization is to look at change as a verb and not as a noun, then paying attention to moments of change and embracing it is as important as the change itself. During the 2020 pandemic, companies that focused on the change at hand and chose not to press forward with preexisting plans tended to be the ones that survived the economic stall, no better evidenced by the pivoting of Zoom versus its competitors (Nivel 2020). As the likes of Skype for Business and Webex waited for customers to come to them, Zoom adapted in the moment of economic change, providing new developments, upgrades, and situation-based features that embraced the year’s instability. In less than six months, Zoom increased it subscription base from 10 million to 300 million users. Lesser noticed but equally as adaptive was the pivoting displayed by Home Depot. Sensing an increase in home-related repairs and upgrades amid the pandemic lockdown, the home improvement giant embraced technology, secured supply changes, and pushed to become an essential service to keep its doors open (Loten 2020).

Of course, the adaptive enterprise is not immune from a macro-change event (e.g., merger or economic shock). These would have to be addressed directly. The adaptive organization’s frame of reference is geared toward ecosystem integration and its execution focus moves past reacting to change or managing change to seamlessly adapting to change (see Figure 2 from Dool 2006). Figure 7.1 from Cap Gemini/Ernst & Young offers a path for an organization to adopt a more adaptive organizational approach.

Figure 7.1 Adaptive organization frame of reference

Source: Adapted from Cap Gemini/Ernst & Young 2005

The adaptive enterprise would be better suited to reduce the negative impact of the frequent daily stressors, which seem to be a bigger source of employee stress. The point of the reframing of change is to create an environment where change becomes continuous and often takes place unintentionally as employees go about doing their jobs.

The Key to Adaptability: People and Mindset

The human element of a business is most frequently the area that is all at once the most and least capable of adapting. As observed by Uhl-Bien and Arena (2018): Leadership for organizational adaptability addresses how leaders can position organizations and its people within them to be adaptive in the face of complex challenges.

Taken to its core, companies that have flexible viewpoints on human resources give rise to an adaptable culture and environment (Do, Yeh, and Madsen 2016, 663). In fact, it is quite appropriate to identify adaptability as an overall competitive advantage, enabling an entire organization to not just be good at one thing, but rather to be able to pivot and learn how to do a multitude of things (Reeves and Deimler 2011). Such organizations encourage continuous learning, calculated risk taking, and the opportunity to fail. Employees have access to resources across the organization, fighting back siloed behavior, and are encouraged to capitalize on the weakness of competitors.

One of the earliest adopters of this kind of innovation and adaptability was Lockheed Martin and its pioneering Skunk Works team. Responding to market competition, the company encouraged small teams of scientist to work together and take on the development and commercialization of competitive technology in the aircraft space (Gwynne 1997, 19). The backbone of the Skunk Works teams, however, was a corporate culture that provided the employees with the space and risk tolerance necessary to unlock the adaptable mindset. As such, it is important to consider the overall organizational culture and not just the disposition of the leader/ CEO alone. While an adaptable leader is critical and is discussed in another chapter, the pervasive culture of adaptable leadership needs to make its way through as much of the management ranks as possible. One leader alone cannot create a Skunk Works atmosphere; several leaders and managers need to identify the team, release the potential, and provide continuous encouragement to attain an adaptability mindset.

Creating an Adaptable Organization

The literature tends to vary about the best ways to create an organizational culture that demonstrates an ability and readiness to be adaptable to external and internal changes. The recommendations change depending on size of organization, cultural and societal working norms, and the point in time when the research was conducted. However, almost all recommendations seem to be universal on the investment, development, and mindset shift needed of the employees, leadership, and mid-level managers. Drawing a line across the most common recommendations for workers to become adaptable, we are able to come up with some common themes.

Leadership Encourages Experimentation, Innovation, and Cross-Vertical Communication

Static organizations with silos are already well-known characteristics of challenging workplace cultures. One of the few research studies available using a historical measure to identify characteristics of long-term adaptable organizations was conducted by Costanza, Blacksmith, Coats, Severt, and DeCostanza (2016). Using a regression analysis, their analysis of 95 highly successful organizations all pointed toward the conclusion that companies that embrace change internally and respond to change externally are most likely to survive the test of time. A central guiding force for internal change readiness is the existing of a culture of experimentation and innovation. As observed by Heifetz, Linsky, and Grashow (2009),

To some degree, this can be regarded as the different between a carrot or stick approach to failure and learning. Inflexible organizations tend to punish mistakes and make examples of individuals as cautionary tales. The adaptive organization knows when to identify the difference between a mistake made by innovative effort versus a mistake made from negligence. The latter can cause cultural issues if fostered and supported while the former will help build an environment where innovation receives encouragement regardless to success or failure.

Innovation is also fostered when leadership encourages an environment with limited restrictions and rule setting. Stalwart dedication to process and organizational rules are as limiting as setting structure to the work of painters and sculptures—if a blank slate is not available to creators, then the outcomes to a degree are predefined. As observed by the American Management Association (2019),

The association goes on to identify the importance of intellectual safe harbor spaces, where new methods of creation and thinking are welcome and allowed to flourish (2019). Critical to the success of such groups is leadership’s willingness to review and hear of the outcomes of such teams. The absence of leadership in seeing the outputs of these teams displays only a perfunctory interest in the environment that has been created—lip service to the process but no interest in the outcomes. Leadership involvement should ideally be in place from the beginning—creating the space, picking the team, communicating expectations, continuous encouragement, and a willingness to review outcomes and encourage further experimentation.

Another important facet of adaptive teams is their ability to share information across business areas, thus breaking down silo-based thinking and behaviors. Adaptive teams are able to move seamlessly “both horizontally across roles and vertically to connect with the next level of leadership down from them” (Torres and Rimmer 2011). Bucking traditional business models, this allows teams to go to where the need is most. For example, IT teams are able to work seamlessly with HR teams depending on the project. Typical sentiments of “this is my area, do not touch” are no longer part of the dialogue, but rather taken as opportunities to learn from each other. As observed by Hope, Bunce, and Röösli (2011), one of the best ways to achieve this level of communication and transparency is to ensure that all teams keep the end customer in focus throughout the innovation process. With one unified driving force, traditional notions of territorialism around one’s work area will begin to dissipate. These kinds of “…innovative management models represent the only remaining source of sustainable competitive advantage” (Hope, Bunce, and Röösli 2011).

Flexibility in Decision Making

One of the most commonly cited traits of flexible organizations is the idea of distributed leadership and governance. The origins of distributed leadership date back to the early 1950s but did not come into wider adoption until three decades later (Gronn 2002). As observed by Spillane (2012), distributed leadership is both the act of leadership decisions being shared among leaders as well as the continuous act of communicating between leaders on a regular basis. Applied to an adaptive organization, leaders communicate the clear direction of the organization while yielding day-to-day and project-based details to team leaders across the enterprise. Viewed from the opposite angle, rigid organizations tend to be strongly focused on the “heroics” of the leader rather than collective innovation and thinking (Spillane 2012). In his book on the topic, Schneeweiss (2012) used a plethora of examples to show that all types of decisions—marketing, supply chain, quantitative—can be benefited from allowing decision makers to work together both vertically and horizontally based on their project needs and objectives. Such companies tend to “…believe frontline employees have the best understanding of customers, suppliers and production machines. Therefore, frontline employees should make most of the decisions” (Minaar 2020). Mallon (2020) shared the following real-life example of adaptation to distributed decision making:

Mallon goes on to observe that one of the biggest barriers to organizations of embracing this management philosophy is the desire of C-suite leaders to retain control. Since these leaders were entrusted with the future of the organization, it is somewhat natural for them to be reticent to distributed decision making. But as we shall see in the next section, the happy middle ground that embraces adaptability is attain by relying on C-suite leadership on setting the overall goals, objectives, and guiding principles while allowing frontline works to innovate, decide, and embrace flexible. In the previous example, we see this mutually beneficial environment playing out—setting out clear parameters or limits while allowing for significant autonomy within those barriers.

Organizational Common Goals

The value of setting a common shared goal across an organization or across parts of an organization have been widely studied with a variety of benefits and techniques. The importance of common goals within the context of an adaptive organization is critical to maintain a united focus amid distributed leadership, innovation, and flexibility. The need for common goals have become even more important in a pandemic world where workforces for many companies are now physically separated. As observed by Torres and Rimmer (2011), leadership teams with exercise the use of defined goals and the use of metrics to maintain accountability of actions, all predicated on mutual trust. They go on to share:

Common goals centered around mutual success also allows for a commonly shared means of measuring success. Companies that measure results from sales, buyer satisfaction, and outcomes will have the data needed to keep the teams within the organizational adaptable by using real data (Holland 2016). For example, adaptable teams as narrated above will be constantly changing to environmental inputs and competition activity. This kind of adaptability should certainly be encouraged, however, being flexible for the sake of flexibility alone without examining results will quickly result in creating an organization that develops thoughtful products or services that no buyer is interested in.

A recent example of a product with great innovative origins in a distributed organization with common goals is the story of Google Glasses. The product had all the facets of a Google product—smart, innovative, sleek with all the bells and whistles typically associated with a high-tech device. Yet one of the biggest postmortem consensuses on why the product failed is that it was a child of smart developers who did not think through to what the actual use of the product would be, or namely, a failure to take into account that there was limited interest in the marketplace for a such a device (Yoon 2018). Yoon goes on to identify that there was a lack of common understanding by the developers at Google as to how to best use the device. Without this common goal, they proceeded with the assumption that the innovative level of the product alone would help it sell. They also lacked a consensus on what added value it gave to customers. In the absence of measurable expectations of innovative development, products like the Google Glasses have come through the innovation lab but landed flat on the innovation floor. In fact, having a clear definition of what can be judged as innovative needs to be made clear to all development teams within a company. Whirlpool, for example, states that “… for a product or service to be counted as innovative…it must be unique and compelling to the consumer, create a competitive advantage, sit on a migration path that can yield further innovations, and provide consumers with more value than anything else in the market” (Hamel and Tennant 2015).

Equal to definitions and common goals is the need to also measure outcomes from these common goals. Establishing regular known performance indicators (KPIs), regular metrics, and productivity check-ins and measuring outputs and results may sound like a laborious set of expectations reminiscent of strict management principles. However, the importance of such measures is to ensure that everyone stays on the path of their articulated common goals, measures to productivity of innovation, and in the event that such efforts are not productive, be ready to innovate the way you innovate. Hamel and Tennant (2015) provide a useful set of innovation measures that are applicable to many teams:

Efforts such as these help establish a baseline for innovative excellence. With some or all of these guidelines in place, an organization will truly be able to embrace systemic and systematic change without wasting effort on innovative for the same innovation.

Agile, innovative, responsive, nimble, creative, flexible—this is how organizations are described will succeed in the “speed of now” (Kelley 2016). This is the essence of embedding adaptability.

Responsiveness to change = competitive advantage

Kelley (2016) offers six ways to embed adaptability into the fabric of the organization:

Sibbet and Wendling (2018) offered seven challenges of change that also support the notion of embedding adaptability into the organizational culture. They also serve to frame our suggested new Change Leadership Framework (C⁶) that follows.

O’Reilly (Sibbet and Wendling 2018) argues that leaders and organizations need to be “ambidextrous.” Leaders need to have the breadth of insight and flexibility to be effective in the current environment. They become the fuel that drives adaptability.